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Prophecy Coal Secures $10 Mln Loan To Acquire Tugalgatai Coal Licenses

Prophecy Coal Corp. (TSE:PCY)(OTCQX:PRPCF) said late Monday that it has arranged a $10 million secured debt facility with Waterton Global Value, to complete the purchase of the Tugalgatai, Mongolia coal licenses.

"We appreciate Waterton Global's continuing support. The proceeds will fully fund completion of the acquisition of Tugalgatai coal licenses which are expected to significantly increase our coal resources," said Prophecy's CEO, John Lee.

The company announced last month that it entered into an agreement to acquire assets relating to certain Tugalgatai coal exploration licenses from Tethys Mining LLC.

The Tugalgatai licenses are contiguous to the company's Chandgana licenses, which host a measured resource of 650 million tonnes and an indicated resource of 540 million tonnes of thermal coal.

The $10 million loan will be used to complete the purchase of the licenses on which a large coal resource is known to exist. The loan has a one year term, and bears interest at 14 per cent per annum.

A structuring fee of 2.5 per cent plus a bonus of $600,000 is payable through the issuance of 2,735,617 company common shares on closing of the loan. The shares are subject to a four month hold period.

"We look forward to working with Prophecy Coal to finance the company as they continue to expand in the Chandgana Coal Basin," said Waterton's portfolio manager, Cheryl Brandon.

"The Waterton Global facility provides the required capital to complete the recently announced $10 million coal license acquisition and implement the company's production growth strategy in the region."

According to records reviewed by Prophecy, on March 15 of last year, Tethys applied to register a resource estimate of 2.33 billion tonnes of thermal coal for the Tugalgatai licenses with the Minerals Resource Council of Mongolia. The resources registered by Tethys are not NI 43-101 compliant.

Since 2005, Tethys has performed "detailed exploration" on the Tugalgatai licenses including drilling and geophysical methods, Prophecy said, and conducted geotechnical, hydrogeological, environmental and topographic studies.

The terms of the agreement between Prophecy and Tethys include the US$10 million upfront payment and an 8.5 percent royalty on future coal sales from both the Chandgana and Tugalgatai licenses.

The royalty can be extinguished by paying Tethys US$20 million before 2021 or US$25 million from 2021 onwards. Of the purchase price, $2 million will be immediately deposited in escrow.

The total payment will be paid to Tethys upon the transfer of the licenses.

Prophecy Coal is engaged in developing energy projects in Mongolia. Its Ulaan Ovoo mine is in production.

The company's proposed 600 megawatt mine-mouth power plant adjacent to the Chandgana coal deposit has been permitted by the Mongolian government. Negotiations on financing, power purchase agreement and construction management are underway.

Shares of Prophecy Coal traded at 76 cents Tuesday Morning.