Prophecy Coal clinches coal off-take deals, to restart Russia exports

August 16 08:06 2013 Print This Article   August 13, 2013

Mongolia-focused coal miner Prophecy Coal has inked two binding sale-and-export contracts for 30 000 t of coal its Ulaan Ovoo mine to a buyer in Russia.

The Vancouver-based company said on Monday that the buyer was a substantial coal trader with a yearly volume turnover of more than two-million tonnes in Russia’s Buryatia region. The Buryatia region, which consumes about six-million tonnes of thermal coal a year, was facing a coal shortage owing to declining coal production as a result of aging local mines.

Prophecy said an uninterrupted supply of Ulaan Ovoo coal was critical to meet growing regional demand for premium thermal coal.

Under the off-take agreements, 5 000 t/m of coal would be exported through Northern Mongolia’s Sukhbaatar rail station, a significant Mongolian gateway to Russia, connected to the Russian trans-Siberian railway.

The fresh-coal deliveries were expected to start in November, when mining resume after the completion of pit-dewatering activities at the Ulaan Ovoo mine.

Further, the Russian buyer had also inked a nonbinding memorandum of understanding (MoU) contemplating the potential increase in monthly coal sales volume to 30 000 t at Sukhbaatar, subject to wagon availability and market conditions.

The company has a coal stockyard and rail siding at Sukhbaatar, with loading capacity to support up to 80 000 t/m of coal.

Prophecy previously exported coal to Russia in 2011 and 2012.

The company said the new contracts were an important step in its drive to restart Ulaan Ovoo on a meaningful mining scale with sales prices that could potentially generate an investment return.

“The sales price is robust, and management believes the off-take agreements and potential additional coal sales contemplated by the MoU will help establish the long-term viability and stability of the mining and logistical operations at Ulaan Ovoo,” the company said.

Meanwhile, Prophecy continued to engage Mongolian and Russian officials to work towards the reopening the Zeltura border crossing between the two countries.

The Zeltura crossing is less than 20 km from Ulaan Ovoo, and the reopening of the border could further increase export sales volume, reduce transportation costs, and achieve greater economy of scale. A customs warehouse was currently being built on the Russian side of the Zeltura border.

In July last year, Prophecy temporarily suspended Ulaan Ovoo coal mining operations owing to the coal stockpile of coal 187 000 t at the time, being sufficient to meet contractual supply obligations through the balance of the year.

Prophecy cautioned that fulfilling the Russian off-take agreements was contingent on a mine restart, which required time and capital expenditures, and the company was taking steps to bring the mine back into production by November.

The Ulaan Ovoo project contains 174-million tonnes of measured and 34-million tonnes of indicated coal compliant resources.

Prophecy in June also announced that two of its Mongolian subsidiaries – Chandgana Coal, which is developing a coal mine, and Prophecy Power Generation (PPG), which is developing the 600 MW mine-mouth Chandgana power plant project – had signed a coal supply agreement (CSA).

Under the CSA, Chandgana Coal would supply PPG 3.6-million tonnes of coal a year at a price of $17.7/t for a period of 25 years.

For Chandgana Coal, the CSA secured a long-term, next-door customer on attractive and extended terms that would provide stable cash flow returns throughout the first 25 years of the mine.

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Saranchimeg Enkhee
Saranchimeg Enkhee

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