Amid upbeat assessments on consumer demands and price trends, Prophecy Coal is seeking to resume production at the Ulaan Ovoo mine later this year. Production was suspended in July 2012 and since then management has been reviewing all project aspects – from mining and transportation to marketing and sales, including lower production costs and increased sales.
Prophecy is actively discussing several potential coal sale and purchase agreements with the goal of resuming operations in the current quarter and the ramping up of production throughout 2014.
Ulaan Ovoo coal is marketed specifically to power plants, heat/boiler plants, cement factories, metallurgical plants, direct reduced iron plants and railway companies. Its characteristics include 5000 kcal/kg GCV, less than 1% sulphur, less than 10% ash and less than 3% rocks.
Prophecy forecasts strong Russian sales with the nearby Zeltura and Sukhbaatar border crossings expected to account for more than 50% of sales. Conditions for potential sales to Russia have improved due to lowered benchmark pricing by the Mongolian government to calculate export royalties while average coal prices in Russia’s Buryatia region have risen, and the proposed re-opening of the Zultura crossing, 20km from Ulaan Ovoo, would reduce transportation costs and potentially increase sales margins.
Regional coal prices have been largely shielded from global economic slowdowns. Current benchmark premium GAR 5000 kcal/kg thermal coal pricing is exceeding $40 per tonne in Mongolia and $50 per tonne at several delivery points in the Russian Republic of Buryatia, representing a material increase year-on-year.
Prophecy has successfully delivered more than 300,000 tonnes of Ulaan Ovoo coal to 28 customers. In the first half of 2013 it has sold 45,000 tonnes from stockpile with 106,000 tonnes remaining in stockpile. Last year, Ulaan Ovoo produced 165,000 tonnes and sold 131,000 tonnes, including 2400 tonnes to Russia). In 2011, it produced 205,000 tonnes and sold 127,000 tonnes including 6000 tonnes to Russia.
Since 2010, Prophecy has invested more than $55 million at Ulaan Ovoo, including road and bridge construction, mining vehicles, mining camp, pre-stripping and other infrastructure and community improvement.