Prophecy Coal has announced the signing of a coal supply agreement between its subsidiaries Chandgana Coal LLC and Prophecy Power Generation LLC (PPG), which is developing the 600MW mine mouth Chandgana power plant project.
Under the deal, Chandgana will supply 3.6 million coal tonnes annually, at US$17.70 per tonne, over 25 years. The price is competitive to Mongolian domestic thermal coal prices and subject to the yearly USA CPI, Mongolian wage and Mongolian diesel price indexes.
PPG has also committed to a 2 million tonne ‘take or pay’ basis purchase, with break-up fees unit-payable. The coal delivery date is forecast for the second half of 2016.
For Chandgana Coal the delivery secures a long-term, next-door customer on attractive, extended terms to provide stable cash flow returns throughout the mine’s first 25 years.
The Chandgana Tal licences contain an estimated 124 million tonnes of coal and the average in-place gross calorific value is 3306 kcal/kg. The open pit project will be about 2km from the proposed power plant. The average waste-to-ore strip ratio is estimated at 0.70:1 over the mine’s life.
In November 2012, Prophecy received a Preliminary Economic Assessment (PEA) on its Chandgana Tal coal mining licences which concluded the project will produce a 36% IRR, a four-year payback period on US$31 million initial capital invested with US$70.5 million Net Present Value (NPV) at 10% pre-tax discount rate. The total per tonne production cost is estimated at US$12.63.
As well as the two Chandgana Tal licences, Chandgana Coal LLC controls the Khavtgai Uul licence containing resources of 509 million tonnes measured and 539 million tonnes indicated with a 2.2:1 strip ratio.