TORONTO (miningweekly.com) – Canadian project originator Prophecy Development expects to close a binding turnkey engineering, procurement and construction (EPC) contract for its Mongolia-based Chandgana coal/energy project this quarter.

The TSX-listed company advised on Wednesday that the preferred bidder would be ready to start construction in 2016.

The mining project included building a 600 MW coal-fired mine-mouth power plant, consisting of four 150 MW turbines, over two phases.

The favoured strategic partner could start construction as soon as Prophecy Power Generation (PPG) had obtained a satisfactory concession agreement, as well as a power purchase agreement (PPA). PPG was in close communication and "looked forward" to collaborating with the potential partner to conclude the CA and PPA, with the PPG working group.

Subject to negotiations, a concession project might be entitled to stable tax rates, favourable value-added tax and customs duties, as well as other forms of government subsidies, endorsement and support - all of which could enhance bankability and lead to better financing options for the project.

The advanced greenfield project, designed to supply much-needed electricity to a growing domestic Mongolian market, already held a power plant land-use right, construction licence and coal mining licence.

Vancouver-based Prophecy advised that the contract would include specific performance requirements and completion guarantees.

The company was in separate discussions with its preferred EPC contractor regarding an equity investment accord, whereby the preferred EPC bidder would buy a 5% stake in PPG from Prophecy.

The preferred bidder had proposed bank financing of up to 85% of the unknown commercial contract value.

The candidate contractor had extensive international project financing experience in power plant projects in developing countries in the Middle East and Africa. The two parties expected to jointly lead and arrange project financing for the Chandgana power plant.

Prophecy, which had mining and energy projects in Mongolia, Bolivia and Canada, had in November 2012 signed a strategic memorandum of understanding (MoU) with the overseas investment subsidiary of the world's largest coal-fired power generation group to jointly develop the Chandgana plant. The MoU set out the proposed terms of cooperation and the timeline for implementation of an investment transaction between the strategic partner and Prophecy.

Since then, the strategic partner had established an office in Mongolia and remained commercially active in the country. In June, the partner had signed an exclusivity agreement with PPG, agreeing to focus solely on the Chandgana project for the remainder of 2015. PPG also agreed not to sell a majority stake till year-end.

The partner’s president in June wrote to the Mongolian Prime Minister, urging his support for the Chandgana power plant project. The partner had also reaffirmed its interest in the project by staging an August site visit. 

Prophecy’s Chandgana power plant would eliminate the need for more power plants in Ulaanbaatar and reduce dependency on Ulaanbaatar's existing power plants No 3 and No 4, which emitted significant gaseous and particulate pollutants as a result of their age.

COAL MINE ON STANDBY
Prophecy was unable to secure the 300 000 t threshold of coal sales contracts with its domestic and international customers, through Russia, required to restart its Ulaan Ovoo mine. The mine would remain on standby and Prophecy would reassess its production decision in the summer of 2016.

The current Ulaan Ovoo stockpile comprised about 19 000 t of 5 000 kcal/kg gross-calorific-value (GCV) quality and 60 000 t of 3 600 kcal/kg GCV-quality coal. Prophecy expected to start coal shipments from its stockpile to customers starting in September and deplete its remaining stockpile by spring 2016.

Prophecy had written letters to the Ministries of Road and Transportation,  Industry and Energy, and Selenge province's governor's office suggesting they support paving the 136 km road between the Ulaan Ovoo mine and Sukhbaatar railway station, as well as build a 56 km 35 kV power line from nearby Tsagaannuur soum to bring power to the mine.

Both infrastructure initiatives, if implemented, would significantly reduce the operating cost of Ulaan Ovoo and increase the likelihood of sustainable mining operations to serve both the domestic Mongolian market and the international market through Russia.

BOLIVIAN PROGRESS
Prophecy on Thursday reported positive progress at its latest acquisition, the Pulacayo silver project, in Bolivia, where the company had completed the first phase of its systematic, district exploration programme.

However, as a result of a laboratory backlog, Prophecy could only send 30 of the most prospective samples to the ALS Geochemistry Laboratory, in Oruro, for assay. Included with the 30 samples were quality assurance and control samples that would also be assessed to ensure the validity of the assay results.

The company had undertaken detailed geological mapping and close-spaced sampling from surface trenches and underground tunnels at four priority target areas, namely El Abra, Pero, Paca North and Pacamayo.

The detailed geological mapping had provided better information on the possible extent of mineralisation. Prophecy collected 495 samples.

Previous reconnaissance sampling of tailings piles material at Pulacayo had indicated silver grades of up to 1 200 g/t, gold grades of up to 7 g/t and indium grades of up to 154.5 g/t.