Prophecy Development Corp has been advised by the Mongolian Government that the Chandgana Mine Mouth Power Plant Project of its subsidiary Prophecy Power Generation LLC (PPG) in central Mongolia has been included on a list of advanced and qualified concession projects to be fast-tracked.

In late January 2015, PPG representatives met with the Minister of Industry, who committed to fast-track the list to signing of concession agreements, including one for the Chandgana Power Plant, in the coming spring session of parliament.

In February, PPG was notified that a working group was appointed to work on the power concession projects. PPG looks forward to working closely with the working group to fast-track negotiations and signing of a concession agreement.

PPG is developing the Chandgana coal-fired power plant project which includes the construction of a 600MW (4 x 150MW) coal-fired mine-mouth power plant in two phases. The proposed power plant will be next to the Chandgana Tal coal deposit, on which Chandgana Coal LLC, another wholly-owned subsidiary of Prophecy, has mining licences covering the deposit.

Benefits of the Chandgana Power Plant:

• Contribution to air pollution reduction - Various studies have linked Ulaanbaatar’s air pollution to respiratory death and miscarriages in women. The Chandgana Power Plant will eliminate the need for additional power plants in Ulaanbaatar and reduce dependence on Ulaanbaatar’s existing Power Plants 3 and 4, which emit significant gaseous and particulate pollutants due to their age.

• Elimination of coal transportation - The Chandgana Power Plant is proposed to be built next to the Chandgana coal mine, 300km east of Ulaanbaatar. This would avoid having to transport 2 to 4 million tonnes of coal (more than 100 wagons per day) into the congested city, had the new power plant be built in the capital city. Eliminating such transportation also means reduced power plant operating cost, since coal is a major component (upwards of 30%) of operation expenses.

• Conservation of water - Water would be extracted from the mine, which avoids diverting precious water resources (up to 6 million tonnes per year/16,000 tonnes per day) from Ulaanbaatar. A water scarcity problem is projected to emerge in 2015 in Ulaanbaatar, and intensify from 2020 onwards. Power Plants 3 and 4 today, consume 20% to 25% of the city’s clean water. A new power plant would take water away from about an additional 800,000 residents annually.

• Energy independence - The Chandgana Power Plant would reduce expensive power imports from Russia and China, and achieve Mongolian energy independence. Mongolia is importing approximately over 200MW (20% of its consumption) from Russia and China and that number could increase substantially over time if new domestic power plant construction does not start.

• Save money from importation of power - The electricity tariff proposed by PPG, with exemption from income tax, dividend tax, VAT, and customs duty, would be less than the tariff on imported power.

• Relief on power supply shortage - The Chandgana Power Plant is expected to begin supplying power to the Mongolian power system in 2019, if construction begins in 2016. The Mongolian GDP has roughly doubled every five years since 2000. The current installed capacity is about 800MW and demand is expected to double by 2020.

• Stabilization of transmission grid - Prophecy would finance a transmission line from Baganuur to Chandgana in Phase 1, and Chandgana to Choir in Phase 2. The new lines would increase the network stability and security of the electricity supply in the Mongolian power grid.

• Good location - The proposed location of the Chandgana Power Plant is 300km away from Ulaanbaatar, 150km from Choir (further to South Gobi) and 120km from Choibalsan. Therefore, it can potentially provide power to Ulaanbaatar, and southern and eastern Mongolia.

• Project readiness - The Chandgana Power Plant project has been under development for four years and is ready for construction with a construction licence, detailed environmental impact assessment, land use rights and mining licences in place. Over ten EPC contractors have expressed interest since 2012, and several binding EPC proposals have been received with competitive prices and short construction time frames (36 months). Construction can start after signing of the Revised CA, PPA, Tariff Agreement and completion of financing.

• Extension to coal-to-gas and coal-to-liquid project - Chandgana is next to a highway, has plenty of land, and over 1 billion tonnes of coal resource in the basin. If the Chandgana plant becomes operational, it would be a natural progression to develop coal-to-gas and coal-to-liquid projects.

• Private sector investment and boost to employment - The development of the project would be funded by the private sector to boost foreign direct investment in Mongolia and Khentii province. Once in operation, the Chandgana Power Plant and Chandgana mine would be expected to employ over 600 full-time skilled local staff, cause the start of many new support businesses, become the largest revenue and skilled employee generator in Khentii province and double Khentii province’s GDP.

Prophecy has noticed a more open political environment to conduct business in Mongolia and is very encouraged by the current Government’s positive sentiment towards foreign investment.

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