Prophecy advances its Mongolian coal projects

Prophecy Resource (PCY-T, PRPCF-O, 1P2-F) has recently upgraded the inferred resources at its Chandgana Khavtgai coal project, in east central Mongolia, to the measured and indicated category. The project’s resource now weighs in at 1.07 billion tonnes of coal, which translates to 524.3 million measured tonnes and 545.7 million indicated tonnes.

The resource estimate is based on data from two exploration programs, which took place in 2007 and this year. So far this year, the Khavtgai project saw 13 holes and 2,250 metres of infill drilling, eight seismic geophysical lines and 5.1 sq. km of magnetic field mapping.

Khavtgai sits 9 km away from the company’s Chandgana Tal coal project, which is part of the same huge coal deposit. Both projects share the same Nyalga coal basin seam. Tal has a measured resource of 141.3 million tonnes of coal, which puts the combined resource of the Chandgana projects at 1.21 billion measured and indicated tonnes.

The projects sit about 290 km east of Mongolia’s capital, Ulaanbaatar, and are close to infrastructure such as towns, electric transmission lines, a paved highway, and within 160 km of the Central Mongolian railroad, which links the projects to international coal markets.

Khavtgai and Tal are wholly-owned by Prophecy and have desirable thermal coal characteristics including low ash (12.66% and 12.49%), low sulfur (0.72% and 0.68% ) and moderate heating value (4,354 and 4,238 kcal/ kg), respectively.

“Both have extremely low strip ratios, which makes the economics of them fantastic,” says Scott Parsons, the company’s vice-president of corporate communication.
Khavtgai has a strip ratio of 1.9-to-1 and Tal of 0.53-to-1, with respective average coal seam thickness of 37.7 and 45.4 metres.

The projects are close enough to be mined in conjunction, says Parsons. “That’s what we’ll be angling to do, keeping them as one project.”

Before that happens, the next step at Chandgana is to commission a 600-megawatt thermal power plant to satisfy the local power consumption. Then, the company will extend that production to 4,200 megawatts and beyond, which will enable it to connect to the Chinese power grid. “So, an onsite power plant is what we will be looking at for (the Chandgana projects), to run the coal-by-wire, to run it down into China and locally to supply markets,” says Parsons.

Prophecy expects to start a permitting process for the power plant, but says it’s hard to say when the projects will be in production. “It’s hard to gauge right now,” says Parsons, adding it depends in part on who would be brought in as a strategic partner and how quickly the power plant will be erected.

While the company is leisurely moving the Chandgana projects forward, it is pushing hard to get its 208.8-million-tonne Ulaan Ovoo coal project, in northern Mongolia, into production.

“The main focus is the northern coal project (Ulaan Ovoo), getting that into production, which we’re very close on,” says Parsons. “Simultaneously, we’re moving Chandgana along, but not at the same pace.”

Prophecy recently released an update on its Ulaan Ovoo mine preparation, stating Leighton Asia, the subsidiary of the world’s largest contract miner, Australia’s Leighton Group, has set up the “required infrastructure and deployed all necessary equipment and manpower (on schedule) to execute long-term mining operations.”

Leighton has been contracted to produce 250,000 tonnes of coal at Ulaan Ovoo in 2010, starting with an expected 57,500 tonnes in September and ramping up to 100,000 tonnes per month by December. It will also produce 2 million tonnes of coal in 2011 as part of the contract.

Parsons says the company is now waiting for the final government visit, the issuance of the mining permit and an offtake agreement to be put into place for Ulaan Ovoo, which it should soon be able to tick off its checklist.

Ulaan Ovoo, which is wholly owned by Prophecy, features bituminous (5,204 kcal/kg), low ash (12.46%) and low sulphur (0.40%) thermal coal. The deposit has a single large coal seam 45 to 80 metres thick with an average strip ratio of 2-to-1.

Although, the Chandgana projects are less advanced than Ulaan Ovoo, Parsons says the upside is just as attractive. “The value of (Chandgana) is enormous and the value it will bring to the company for cash flow, I mean the mine life of that thing is endless,” says Parsons, adding the company “will be set for a long, long time” once all the pieces fall into place.

Prophecy’s shares recently closed at 49¢. It has a 52-week trading range of 30¢-99¢ and 106.9 million shares outstanding.