Prophecy Coal halts Ulaan Ovoo operations due to oversupply

Prophecy Coal Corp. (CVE:PCY) temporarily halted coal mining operations in Mongolia at its Ulaan Ovoo mine, in a move that will see 80 workers laid off.

The Vancouver-based company, which announced the news on Thursday, said its coal stockpile which is at 187,000 tonnes is sufficient to meet contractual supply obligations for fiscal 2012.

About 80 mining staff has been laid off, while Prophecy has paid out a total of $100,000 in severance costs. 

Prophecy said 15 workers will remain on-site for equipment, maintenance, shipping and security during the shutdown.  

The company expects the local labour force to remain available for "prompt rehire" when needed, due to little local employment competition.

The shutdown is expected to last six months but could cease sooner, if Prophecy snags new coal sale contracts.

Prophecy Coal said it is using the downtime to work with Mongolian officials to seek road and bridge improvements, and to open the Zeltura border to facilitate Russia export sales.

The overall effect of the suspended operations will be modestly cash flow positive as Ulaan Ovoo operations had not yet achieved break-even levels.

Prophecy Coal is engaged in developing energy projects in Mongolia.

The company’s proposed 600 megawatt power plant next to the Chandgana coal deposit has been permitted by the Mongolian government.

The project will be implemented in two phases. Phase 1 will see two 150 megawatt and transmission lines built next year and completed by 2016. Phase 2 construction will see two 150 megawatts being built in 2014 and finished by 2017.

Since obtaining the license, the company has been in on-going talks with the Mongolian government to finalize power purchase agreements to secure the country’s long-term energy supply.