Prophecy Coal's Chandgana plant to be online by 2016

Prophecy Coal Corp. (CVE:PCY) announced Monday that it will bring its 600 MW Chandgana Power Project in central Mongolia online by 2016.

In January, the company issued a statement describing the feasibility study for the proposed mine-mouth power plant, and earlier this month said that the plant had been permitted by the Mongolian government and negotiations on financing, power purchase agreements and construction management were underway.

Prophecy said that it has now entered a co-operation agreement with the Energy Authority (EA) of Mongolia to get the plant up and running in the next four years. The EA is the agency which implements governmental policy in the power and energy sector of Mongolia.

"We are very grateful for the support from various Mongolian government agencies to help bring the Chandgana power plant project online and on schedule," said Prophecy Coal chairman and CEO John Lee.

"This landmark agreement forms the basis of our continued discussion regarding a [power purchase agreement] PPA."

As the Mongolian government's implementation agency, the EA confirmed the need to purchase the net electric output to satisfy the electricity energy demands of the country’s central and eastern regions.

Prophecy said that after "lengthy legal, commercial, and technical consultations with a designated working group of more than 20 government members", it has prepared and submitted the power purchase agreement with full schedules to the Mongolian government for its review and comment.

"The next step will be to reach an agreement on tariff, followed by execution of the PPA," stated the company in a recent release.

Prophecy said that the agreement also covers the basic rights and obligations of itself as the seller and the National Electricity Transmission Grid Company of Mongolia (NETGCO), as the purchaser of energy.

The company said that the plant will supply electricity to the central and eastern energy systems with 100 MW net electric output starting from the first quarter of 2016, up to 200 MW from the third quarter of 2016, 300 MW from the first quarter of 2017, and 400 MW from the third quarter of 2017.

According to the agreement, the Chandgana plant will supply power through a connection with Mongolia’s Baganuur 220 kV sub-station by 220 kV two-circuit overhead transmission lines to the west, and with the country’s Undurkhaan 110 kV sub-station by 220 kV overhead transmission lines to the east.

Prophecy said that the EA will monitor the Chandgana power plant construction process to ensure the power plant is constructed within Mongolian regulations, and approved technical and design specifications.

Prophecy Coal is a Canadian listed company engaged in developing energy projects in Mongolia.

The company’s Ulaan Ovoo mine is in production, and last week it announced that it will sell 22,100 tonnes of thermal coal from its Ulaan Ovoo mine in Mongolia to a local, direct reduced iron (DRI) manufacturing plant.

Prophecy said the undisclosed buyer has indicated that the initial purchase will meet shortfalls from other suppliers, and that it
would eventually like to increase the supply from Prophecy to 300,000 tonnes on an annual basis.

The buyer currently purchases in excess of 850,000 tonnes of coal annually from various local suppliers, said Prophecy.

No other details of the agreement were disclosed.

Prophecy said its "high quality thermal coal" (NAR 5100 kcal/kg) is ideal for DRI, which is also known as sponge iron.

DRI product is one of the chief raw materials in steel-making as it has higher qualities and advantages compared to scrap irons and pig irons, the company said. The products have been quoted in China at over US$300 a tonne.

Looking ahead, the company said it continues to make progress on opening the Zeltura border crossing - 10 kilometres from its Ulaan Ovoo mine - to facilitate coal export to Russia, which would then increase the total demand for Ulaan Ovoo coal past 1 million tonnes a year.

The Ulaan Ovoo deposit hosts a measured resource of 174 million tonnes and has an indicated resource of 34 million tonnes, of
which 20.7 million tonnes are classified as a reserve.

Meanwhile, Prophecy’s Chandgana coal property consists of three licenses: Chandgana Tal, which has a measured resource of 141 million tonnes and includes two licenses, and Khavtgai Uul – which contains one license and is located in the southwestern end of the basin – has a measured resource of 509 million tonnes and a 539 million tonne indicated resource.

In the past, the company said it has grouped its estimated coal resources on many occasions for the two Mongolian properties, contrary to NI 43-101.

These resources are only some 14 kilometres apart, and are close to important infrastructure - such as towns, roads, and electric transmission lines. They are linked by paved highway to Mongolia's capital, Ulaanbaatar, and the Trans-Mongolian Railroad.