Coal miner Prophecy Coal (TSE:PCY) Tuesday announced its Ulaan Ovoo mine has become the largest independent supplier of coal to Mongolian power plants in just over a year.
In an update on its open pit coal operation, Prophecy said that since
2010, it has invested over $30 million at Ulaan Ovoo, including road
and bridge building, mining fleet, mining camp, pre-stripping, and other
infrastructure and community improvements.
Prophecy said that since September 2011, it has sold and delivered
some 188,915 tonnes of thermal coal, including 8,055 tonnes to Russia,
23,543 tonnes to private Mongolian companies, and 157,317 tonnes to
Mongolian government-owned power plants.
The company said it has contracts to deliver an additional 228,388
tonnes in 2012, the majority of which is to be delivered to the Darhan
and Erdenet power plants in Mongolia.
Prophecy reported that there are currently around 130,000 tonnes of coal stockpiled at Ulaan Ovoo.
The company’s total sales target for 2012 is 300,000 tonnes of coal,
and for the rest of the year, it expects a stabilized production cost
and minimal capital expenditures at Ulaan Ovoo.
"Ulaan Ovoo produces highly desirable thermal coal of NAR 5,100
kcal/kg quality to fulfill the regional demand of the thermal coal
market," said chairman and CEO John Lee.
"The coal inventory levels at Mongolian power plants this past winter
were down to only a few days, which created a national emergency."
In the past months, Prophecy said it has experienced a steady increase in both the demand and realized sale price for its coal.
In 2012, it said it received commitment and interest for a
substantial quantity of Ulaan Ovoo coal from Russian buyers. But the
company noted it is postponing sales to Russia pending the opening of
the Zeltura border crossing and a revised export royalty scheme from the
General Department of Taxation of Mongolia.
Prophecy is currently paying export royalties based on a
government-set benchmark coal price, which is nearly three times higher
than the actual sale price. The company said it is optimistic that
progress will be made on both royalty and border opening fronts to
improve the margin on sales.
"We are committed to delivering our quota to Mongolian power plants
in 2012, while continuing to work with the Mongolian government on the
600 MW Chandgana Power Purchase Agreement to address the long-term
energy needs of this rapidly developing country and at the same time,
provide a stable return to our shareholders," concluded Lee.
In November 2011, the Vancouver-based company received a license from
the Mongolian government to build a 600 megawatt power plant at its
Chandgana Tal thermal coal deposit.
The company has over 1.4 billion tonnes of near surface thermal coal
resources on two coal properties in Mongolia. Prophecy’s Chandgana 600
MW power plant has been permitted and its Ulaan Ovoo coal mine is
currently in production.
In March, the company announced that it closed a $10.06 million
non-brokered private placement financing, selling 22.36 million shares
priced at 45 cents each, up from the initial 20 million shares Prophecy
originally planned to sell.
Prophecy said at the time that it would use funds for technical work
to bring its Chandgana thermal coal power plant project toward
development. The proceeds would also be used for general working