Prophecy Receives A Positive Feasibility Study for the Chandgana Mine-Mouth Power Plant Project in Central Mongolia (Diagrams Included)
Jan 17, 2012
OTC Disclosure News Service
Vancouver, BC, Canada –
Vancouver, British Columbia, Jan 17, 2012: Prophecy Coal Corp. (“Prophecy” or the “Company”) (TSX: PCY, OTCQX: PRPCF, Frankfurt: 1P2) has received a positive feasibility study for the Company’s 600 MW Chandgana Mine-Mouth Power Project in Central Mongolia. The Report was independently prepared by Ralf Thomsen, Project Manager at Steag, a German firm specializing in the planning, financing, construction and operation of highly efficient, thermal power plants for fossil fuels.
The scope of the feasibility study covers technical specification, deployment, and financial analysis of a 4 x 150 MW thermal power plant to be built adjacent to Prophecy’s Chandgana Tal coal deposit, which contains 140 million tonnes of measured coal*. The Power Plant and the coal deposit have respectively already received a construction license and a mining license in 2011.
Engineering, Procurement Construction Management (EPCM) selection and Project Financing Discussion are underway and expected to be concluded in 2012.
Construction and Timeline
Construction is planned to start in April 2013, with the first 150 MW unit being commissioned in Oct 2015, and subsequent units to roll out in April 2016, October 2016, and April 2017. With proper maintenance, the project will have 30 years of commercial operation.
Capital Cost and Structure
Capital cost is projected to be US $744 million for the 150 MW x 4 project, or US $1,240 per kW. This includes the power plant, overhead transmission lines, and administrative costs. It does not include mine development cost. A mine costing study was conducted and completed by Leighton Asia.
The target capital structure is 30% equity, and 70% debt with a 10% annual interest rate and 10-year pay back. It is envisioned that financing will take place at the project level (i.e. via Prophecy’s wholly-owned East Energy Development, which holds the construction license)
Coal Price and Electricity Tariff
Coal will be supplied by the Chandgana Tal deposit at a steady rate of 2.7 million tonne per year (0.675 mtpa per 150 MW unit) with an as-received heat-value of 3,350 kcal/kg (14,100 kjoule/kg). The delivered coal price is set at $15.50/t with a 2% semi-annual price increase.
Electricity Tariff is targeted at US $0.06/kWh, with a 2% semi-annual increase.
The plant’s power production cost is US $0.023/kWh (including coal). Capital recovery, including loan principal and interest payments, is estimated to be US $0.025/kWh.
Financial analysis based on a 70%-30% debt to equity, generates a post-tax internal rate of return (IRR) of 21.9%, and NPV of US $364.7 million. The base case assumes a discount rate of 12%, debt interest rate of 10%, and exchange rate of MNT 1,250/US dollar. The project economics are sensitive to electricity tariffs and coal prices. For example, a $0.005 kWh (8.3%) tariff hike from base case would increase project IRR to 24.8% and NPV to $473.4 million. Tables from the economic sensitivity study are attached.
The Chandgana project will adhere to international and Mongolian emission standards, particularly regarding emissions of Particle Matters (PM), NOx, and SO2. The Chandgana power plant expects to emit 50-80% less PM, NOx, and SO2 than current operating power plants in Mongolia.
Conclusion and Opportunity
This fully-licensed power plant project has first-mover advantage to supplying Mongolia much needed electricity, which currently comes from antiquated plants totaling approximately 700 MW. The coal resource is next to a two-lane highway and 150 km from the existing power grid. Once power and the mine are brought online, there is good potential to introduce additional plant units at lower capital costs.
Mongolia is one of fastest growing countries in the past decade. The enormous Oyu Tolgoi copper/gold project, coming on stream in 2013, alone could boost Mongolia’s GDP by up to 30%. With the growth and new wealth, Mongolia has the urgency to invest in cleaner, more efficient, and long-term stable domestic power infrastructure.
Mongolia-China relations have warmed in 2011 and we are optimistic that this trend will continue. Prophecy’s asset, structure, and networking represent an opportunity to leverage Chinese capital and expertise to generate electricity from Mongolia’s vast coal resource. This electricity is to be created and consumed in Mongolia by its citizens.
In the long run (10 years), the volume of coal resource along with the project’s proximity to China (approximately 400 km from Chinese border and 1,000 km from Beijing) offers the potential to scale up capacity and export electricity to China.
John Lee, CEO of Prophecy states, “The Feasibility Study has outlined the robust financial return for the Chandgana power plant based on conservative parameters. Our low-cost coal supply enables future delivery of affordable and stable electricity to both Central and Eastern Mongolia. The opportunity represents a potential long term revenue stream from power plant operation, as well as from coal operation, without coal transportation issues.”
This news release has been reviewed and approved by Christopher M. Kravits, PGeo who is a Qualified Person as defined in NI 43-101.
*Chandgana Tal resource estimate is based on the September 2007 NI 43-101 Chandgana Tal Technical Report authored by Mr. Gardar G. Dahl, Jr., CPG of Behre Dolbear Company (USA), Inc., who is an independent Qualified Person under NI 43-101.
NPV (in $USD million) Equity IRR (%) vs Change in Power Plant Load Factor
NPV (in $USD million) Equity IRR (%) vs Change in Coal Price ($USD/t)
NPV (in $USD million) Equity IRR (%) vs Change in Total Tariff ($USD/kWh)
NPV (in $USD million) Equity IRR (%) vs Change in Interest Rate (%)
NPV (in $USD million) Equity IRR (%) vs Change in Total Investment Cost ($USD/kWh)
Recently spun off Evonik Industries, Steag is Germany’s fifth largest power producer in Germany and operates nine coal-fired power plants. Outside Germany, Steag is contributing to the public power supply in the Philippines, Colombia and Turkey with three coal-fired power plants. The range of services of Steag covers the entire value chain of energy production from fuel to residue. Its core competencies include the planning, financing, construction and operation of highly efficient power plants for fossil fuels. For more information, visit www.steag.com.
About Prophecy Coal
Prophecy Coal Corp. is a Canadian listed company engaged in developing energy projects in Mongolia. The company has over 1.4 billion tonnes of surface minable thermal coal resources on two coal properties in Mongolia. Prophecy Coal’s Ulaan Ovoo coal mine is in production and its Chandgana mine mouth power plant has been permitted. Prophecy Coal is the controlling shareholder of Prophecy Platinum Corp (TSX-V: NKL). Mineral resources that are not mineral reserves do not have demonstrated economic viability. Further information on Prophecy Coal can be found at www.prophecycoal.com
ON BEHALF OF THE BOARD OF DIRECTORS Prophecy Coal Corp.
For more information about Prophecy, please contact
Manager, Investor Relations
Mineral resources that are not mineral reserves do not have demonstrated economic viability. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward Looking Statements: This news release includes certain statements that may be deemed “forward-looking statements”. All statements in this release, other than statements of historical facts, including, without limitation, statements potential mineralization, the estimation of mineral resources, the realization of mineral resource estimates, interpretation of prior exploration and potential exploration results, the timing and success of exploration activities generally, the timing and results of future resource estimates, permitting time lines, metal prices and currency exchange rates, availability of capital, government regulation of exploration operations, environmental risks, reclamation, title, and future plans and objectives of the company are forward-looking statements that involve various risks and uncertainties. . Although Prophecy believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Forward-looking statements are based on a number of material factors and assumptions. Factors that could cause actual results to differ materially from those in forward-looking statements include failure to obtain necessary approvals in respect of the Transaction, unsuccessful exploration results, changes in project parameters as plans continue to be refined, results of future resource estimates, future metal prices, availability of capital and financing on acceptable terms, general economic, market or business conditions, risks associated with operating in foreign jurisdictions, uninsured risks, regulatory changes, defects in title, availability of personnel, materials and equipment on a timely basis, accidents or equipment breakdowns, delays in receiving government approvals, unanticipated environmental impacts on operations and costs to remedy same, and other exploration or other risks detailed herein and from time to time in the filings made by the companies with securities regulators. Readers are cautioned that mineral resources that are not mineral reserves do not have demonstrated economic viability. Mineral exploration and development of mines is an inherently risky business. Accordingly the actual events may differ materially from those projected in the forward-looking statements. For more information on Prophecy and the risks and challenges of their businesses, investors should review their annual filings that are available at www.sedar.com.
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