Prophecy Coal Hands In Power Purchase Proposal To Mongolian Government, Expects Decision In 90 Days

Sep. 06, 2012 12:54 PM ET
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Prophecy Coal Corp. (TSE:PCY)(OTCQX:PRPCF) Thursday said it has formally submitted its power purchase agreement proposal for its thermal power plant project to the Mongolian government and expects to receive a reply within three months.

"Both Prophecy and the Mongolian government working group have been working hard for several months to reach this point," said company chairman and CEO, John Lee.

"All of us have high expectations for the Chandgana project. Everyone here at Prophecy and our government counterparts is quite excited."

The power purchase agreement will be key to attracting and finalizing joint venture interest from power plant developers and to solidifying financing for the project.

The proposed power purchase agreement details the terms under which Prophecy would be prepared to supply power to Mongolia's National Transmission Grid Co.

Prophecy Coal owns a 600 megawatt mine-mouth, thermal power plant project in central Mongolia, with a construction license awarded by the Mongolian government in late 2011.

The Chandgana project, being developed by Prophecy Coal's wholly-owned Mongolian subsidiary, would be the first thermal coal power plant in the country in over 20 years.

Since fuel supply typically accounts for 60 per cent of a power plant's operating cost, Prophecy noted it has the comparative cost advantage by sourcing coal from its adjacent Chandgana coal deposit.

The Chandgana coal project includes three coal licenses with a measured and indicated coal resource of 1.2 billion tonnes. In the initial phase, the coal for the power plant will be sourced from two mining licenses containing a measured and indicated resource of 131 million tonnes with a strip ratio of 0.5:1 and a starter pit.

An NI 43-101 compliant study to assess the economics of the coal project on a preliminary basis, is underway.

Under the terms proposed for the power purchase agreement with the local government, the designated concrete-pour date would be April 2013, with the first phase expected to be operational in the first quarter of 2016.

The deal would also include a long-term power off-take contract, to ensure 24/7, "uninterrupted" dispatch power supply to the Mongolian grid, Prophecy Coal said.

At the start-up date in 2016, the plant will be able to meet about two thirds of the country's deficit, the company recently told Proactive Investors.

The thermal power would also be supplied at a "competitive tariff" that is lower than Mongolia's wind farm tariff, Prophecy added.

The tariff would include capacity and energy charge components to cover fixed and variable costs, and the levelized tariff will be designed to meet anticipated project debt service.

The price would also be based on US CPI, Mongolia wage index and an oil price index, ensuring a pricing structure that is responsive to changed inputs and that will provide "long-term project viability," the company noted.

Prophecy also said Thursday that it expects to provide an update regarding construction management, joint venture discussions and project financing in due course.

The large power plant, which will be equipped with "the latest technology" in terms of clean coal energy, is expected to be highly-efficient and contribute to a significant improvement in Mongolia's air quality.

The company plans on increasing output from its Chandgana plant from 2017 to 2020 by adding 3,600 MW of capacity, selling excess power to Chinese markets and to industrial users, who typically pay a higher rate than governments. The initial life of the plant is estimated to be around 30 years.

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