Prophecy Receives Chandgana Preliminary Economic Assessment

Marketwired

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov 2, 2012) - Prophecy Coal Corp. ("Prophecy" or the "Company") (PCY.TO)(PRPCF)(1P2.F) is pleased to announce that it has received the NI 43-101 compliant Preliminary Economic Assessment (PEA) on its Chandgana Tal coal mining licenses in central Mongolia. The PEA examines the economics of coal production from the mining licenses and excludes the Chandgana Khavtgai exploration license. Prophecy''s wholly-owned subsidiary Chandgana Coal LLC intends to mine the coal and supply it to the proposed 600MW (150MW x 4) Chandgana mine-mouth power plant, which is planned to be operated by Prophecy''s wholly-owned Prophecy Power Generation, LLC. The PEA was prepared by John T Boyd Co. (Boyd), one of the world''s largest independent consulting firms exclusively serving the coal, mineral, financial, utility, and power-related industries. Highlights of the PEA are as follows:

Coal Resources and Mining

The two Chandgana Tal mining licenses contain an estimated 124 million tonnes of coal resources all in the measured category. The average in-place coal gross calorific value is 3,306 kcal/kg. After a short ramp-up period, mine production will be 3.5 million tonnes per year throughout the 30 year life of the mine, in order to meet the demands of the power plant. The mine will be a surface (open pit) mine and is located 2km from the proposed power plant site. The aggregate coal seam thickness is as great as 50m and the overburden is relatively thin, making for a low average strip ratio of 0.70:1 over the life of the mine.

The estimated total Run-of-Mine (ROM) coal product tonnage recovered over the life-of-mine plan and other study results are shown in the table below:

STUDY RESULTS
Description Amount
ROM Coal Product (kt) 103,946
Waste (kBCM) 73,122
Stripping Ratio (BCM:t) 0.70
Annual Estimated Production (kt) 3,500
Mine Life (years) 30

Operating Costs

The life of mine average total cash cost of sales is estimated at USD 12.63 per tonne, including the fees for a contract miner with owner equipment. The breakdown of the cost is as follows: 

UNIT CASH COST OF SALES
Direct Costs Unit Cost (USD / t)
Labor 0.78
Materials and Supplies 6.56
Subtotal Direct Costs 7.34
Contingency  
Cash Cost Contingency @ 10% 0.73
Indirect Costs  
General & Administration - Off Site 0.75
Royalties, Emissions Tax, License Fees 1.24
Contractor Management, Margin, Overhead 2.57
Subtotal Indirect Costs 4.56
Total Unit Cash Costs of Sales 12.63

Capital Costs

The initial pre-production capital costs are estimated at USD 31.0 Million, including 10% contingency, and are summarized below: 

ESTIMATED INITIAL PRE-PRODUCTION CAPITAL EXPENDITURES
Area Cost (USD mn)
Surface Equipment Capital 14.2
Site Infrastructure Capital 9.6
Subtotal 23.9
Total Capital Contingency @ 10% 2.4
Pre-production Cash Cost 4.7
Total Capital Expenditures 31.0

The life of mine estimated capital costs total USD 160.2 million. 

The independent PEA study reports that the Chandgana Coal project will produce the following pre-tax financial results:

  • 36% Internal Rate of Return (IRR).
  • 4 Years payback on USD 31.0 million capital.
  • USD 70.5 million Net Present Value (NPV) at 10% discount rate.

A pre-tax financial model was prepared using a conservative initial mine gate price of USD 17.70 per tonne, 30 year mine life and 100% equity financing. The coal price is fully indexed and adjusted annually to account for variable costs such as fuel, parts, and wages.

The results of a sensitivity analysis, carried out to evaluate project economics with respect to coal price, NPV, and IRR, are described in the following table.

NET PRESENT VALUE (USD mn)
Discount
Rate %
  Base
 Case
  Coal Price   Operating Cost   Capital Expenditure
+10%
 (Better)
  -10%
 (Worse)
  -10%
 (Better)
  +10%
 (Worse)
  -10%
 (Better)
  +10%
(Worse)
8   94.6   139.8   49.4   133.4   55.8   100.8   88.4
10   70.5   106.2   34.8   101.2   39.7   75.7   65.3
12   53.1   82.0   24.3   78.0   28.2   57.6   48.6
15   35.2   56.8   13.5   54.0   16.4   39.0   31.4
                             
IRR (%)   36   48   23   47   25   40   32

Conclusion and Opportunity:

The financial evaluation indicates that the project is potentially economically viable given the coal pricing assumption of US $17.70 per tonne sold at mine gate to the power plant. The coal price is fully indexed and will rise according to rising input costs such as fuel, labor, and parts. The coal project is hence expected to provide stable return throughout the life of mine. The mineral resource estimate covers only Chandgana Tal mining licenses. There exists potential to scale up the Chandgana power plant project and source additional coal supply from Chandgana Coal''s nearby Khavtgai Uul coal deposit. An independent study sponsored by Asian Development Bank suggested a Mongolia power supply deficit of 600MW by 2016 and 900MW by 2019. This deficit could be satisfied by a scaled up Chandgana power plant.

The Technical Report (PEA) report will be filed on SEDAR within 45 days. 

The Company cautions the PEA is preliminary in nature and has a 35% margin of error.

The Company also announces it is postponing the purchase of coal assets from Tethys Mining LLC announced on June 18, 2012 until the Mineral Resources Authority of Mongolia accepts the transfer application.

The technical contents of this news release have been reviewed and approved by Christopher M. Kravits, P.Geo who is a Qualified Person as defined in NI 43-101. Mr. Kravits has 34 years of US and international relevant coal geology experience. He has been active in Mongolia since 2007.

The financial contents of this news release have been reviewed and approved by John T Boyd Company and Thaddeus J. Sobek, lead Qualified Person on the PEA. Mr. Sobek is a Qualified Person as defined in NI 43-101. Mr. Sobek has 37 years of relevant mine engineering, planning and feasibility study experience and has performed work on properties in North America, Asia, Europe, and South America.

About Prophecy Coal

Prophecy Coal Corp. is a Canadian listed company engaged in developing energy projects in Mongolia. The Company''s wholly-owned subsidiary, Prophecy Power Generation LLC, is advancing plans for a proposed 600 MW mine-mouth power plant. The project, which has been permitted by the Mongolian government, is adjacent to the Company''s Chandgana coal deposit. Chandgana Coal LLC, another Prophecy wholly-owned Mongolian subsidiary, is expected to supply 3.5 million tonnes of coal per year to Prophecy Power for 30 years. Substantially all of the Company''s resources are not mineral reserves, hence they do not have demonstrated economic viability. The Company cautions the Chandgana project is in Mongolia and requires substantial capital to develop.

Further information on Prophecy Coal can be found at www.prophecycoal.com.

ON BEHALF OF THE BOARD OF PROPHECY COAL CORP.

JOHN LEE, CEO/Chairman

*Mineral resources that are not mineral reserves do not have demonstrated economic viability.

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 of 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.

This press release does not constitute an offer to sell or a solicitation to buy any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended ("the U.S. Securities Act") or any state securities law and may not be offered or sold in the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Contact:
Prophecy Coal Corp.
Chris Ackerman
Manager, Investor Relations
1-800-459-5583
cackerman@prophecycoal.com
www.prophecycoal.com

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