PROPHECY Development Corp has signed two coal sales and purchase agreements to sell 16,000 tonnes of coal from its Ulaan Ovoo Coal Project in northeast Mongolia. The purchasers are Erdenet Mining Corporation for 10,000 tonnes and Selenge Energo Heat Plant for 6000 tonnes.
Coal deliveries sourced from existing Ulaan Ovoo coal stockpiles began in December 2016 and delivery of the 16,000 tonnes is expected to be completed by February 2017. Prophecy expects to generate positive cash flow from the two agreements.
Erdenet has been a major Prophecy customer and has purchased 77,334 tonnes of coal since 2013, excluding the current 10,000 tonnes. During 2016, the benchmark thermal coal price nearly doubled to more than US$100/tonne from US$53/tonne in January.
In recent months, Prophecy has received multiple, unsolicited written expressions of interest from parties in Russia, China, and India, relating to possible transactions involving sales from, or joint venture of Ulaan Ovoo.
While Prophecy considers Ulaan Ovoo to be one of its core assets, the company is responding to those expressions of interest and intends to evaluate any potential proposals received with a view to maximising shareholder value.
Owing to the improved coal market Prophecy is also surveying existing and prospective customers with a view to possibly restarting Ulaan Ovoo operations in 2017.
Ulaan Ovoo is 17km from the Zelter border to Russia by dirt road and 120km by road from Mongolia’s Sukhbaatar railway station, which connects to the Trans-Siberian railway network. The mine has been on standby since 2014 with coal sales made from stockpiles.
During 2012 to 2015, Prophecy delivered approximately 500,000 tonnes of Ulaan Ovoo coal to 28 Mongolian and Russian customers, with a track record of timely delivery and meeting or exceeding the required coal quality specifications.
Prophecy received a mining permit for Ulaan Ovoo in 2011, and has invested approximately $60 million into the project. This includes road and bridge construction, mining vehicles, mining camp, pre-stripping, and other infrastructure and community improvement.
The coal is marketed specifically to power plants, heat/boiler plants, cement factories, metallurgical plants, direct reduced iron plants, and railway companies. Being 5000 kcal/kg GCV, less than 1% sulphur, less than 8% ash and less than 3% rock, Ulaan Ovoo coal is well-suited for all of these customers’ applications.