Prophecy Coal consolidates Mongolian coal resource

Toronto-listed Prophecy Coal on Monday said it would expand its coal resources in Mongolia by acquiring certain assets next to its Chandgana licences from privately held Tethys Mining.

CEO John Lee said consolidating the coal basin of about 300 km2 offered greater economies of scale to potentially produce low-cost electricity at the proposed 600 MW Chandgana mine-mouth power plant, and further develop coal-to-chemicals and coal gasification projects.

“It’s also possible to further increase the resource through exploration in this highly prospective basin,” he said in a statement.

Under the agreement, Prophecy would pay $10-million upfront and an 8.5% royalty on future coal sales from the Chandgana and Tugalgatai licences.

Paying Tethys $20-million could extinguish the royalty at any time before 2021 or $25-million would do the same from after that date.

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 licences, subject to approval from the Mineral Resources Authority of Mongolia.

According to records reviewed by Prophecy on March 15, 2011, Tethys applied to register a resource estimate of 2.33-billion tons of thermal coal for the Tugalgatai licences, however, the resources registered by Tethys are not Canadian National Instrument 43-101-compliant.

Prophecy said it would undertake exploration work with a view of preparing its own NI 43-101 estimate of the contained resource at Tugalgatai. Since 2005, Tethys had performed detailed exploration on the Tugalgatai licences, using drilling and geophysical methods, to produce geotechnical, hydro-geological, environmental and topographic studies.

Exploration results indicated a large and geologically simple coal occurrence within the Tugalgatai licences that is similar to Prophecy’s Chandgana licences. The coal seam is continuous across the Nyalga basin and outcrops to the north-west, with the main coal seam measuring up to 30 m in thickness.

Prophecy’s existing Tugalgatai licences are contiguous to its Chandgana licences, which host a measured resource of 650-million tons and an indicated resource of 540-million tons of thermal coal.

The transaction is expected to close in the third quarter of this year, subject to regulatory approval from the Mineral Resources Authority of Mongolia.

Prophecy is a Canadian company developing energy projects in Mongolia. Prophecy’s Ulaan Ovoo mine is in production, supplying thermal coal to power plants, and the government has permitted a planned mine-mouth power plant adjacent to the Chandgana coal deposit.

Negotiations on financing, a power purchase agreement and construction management are under way.

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