Prophecy Reports Progress on Chandgana Mine Mouth Power Plant Project in Mongolia
Vancouver, British Columbia March 16, 2015 – Prophecy Development Corp. (“Prophecy”) (TSX:PCY, OTCQX:PRPCF, Frankfurt:1P2) is pleased to announce the following update on its flagship Chandgana Mine Mouth Power Plant Project in central Mongolia.
Project Background:
Prophecy Power Generation LLC (“PPG”), a wholly-owned subsidiary of Prophecy, is developing the Chandgana coal-fired power plant project (“Chandgana Power Plant”) which includes the construction of a 600 MW (4X150 MW) coal-fired mine-mouth power plant in two phases. The proposed power plant will be located next to the Chandgana Tal coal deposit, on which Chandgana Coal LLC (“Chandgana Coal”) (another wholly-owned subsidiary of Prophecy) has mining licenses covering the deposit. The Detailed Environmental Impact Assessment (“DEIA”) for the Chandgana Power Plant was approved in November 2010 and a construction license was granted in November 2011 to PPG. In March 2013, Prophecy secured a land use permit covering 532.4 hectares of land to be used for Prophecy’s proposed Chandgana Power Plant from the Murum soum government.
In June 2013, PPG signed a 25-year Coal Supply Agreement (“CSA”) with Chandgana Coal. Under the CSA, Chandgana Coal will supply 3.6 million tonnes of coal annually to the Chandgana Power Plant at a price of USD$17.70 per tonne for a period of 25 years.
In July 2013, PPG submitted a concession application to the Ministry of Economic Development (“MoED”). The signing of the Concession Agreement (“CA”) for the Chandgana Power Plant is important since the scope of the CA includes government guarantee of the proposed Chandgana Power Plant’s revenue, a key requirement for international project financing.
Project Development from 2014:
In February 2014, the Chandgana Power Plant was approved by the Mongolian Government under amendment to Resolution #317 to be included in the list of concession projects. Prophecy met numerous times with the MoED in 2014 to discuss the Chandgana Power Plant CA, with the issue centered on whether a public tender is required or whether the project can be qualified under the direct negotiation frame work given that PPG is already in possession of several unique non-transferrable essential elements to the project such as construction license and land use rights. In June 2014, the MoED made a public tender of projects from the approved list of concession projects, including the Chandgana Power Plant, on the condition that should another bidder besides PPG win the bid, that the winning bidder will reimburse PPG for its past incurred expenses related to the Chandgana Power Plant development. The Chandgana Power Plant tender concluded in September 2014, with no winning bid because no bidder submitted the required USD$1.6 million dollar bank guarantee. In October 2014, PPG received an official invitation letter (#7/2055) from the MoED to directly negotiate the conditions of the Chandgana Power Plant CA on an exclusive basis under the Mongolian Concession Law Article 15. Upon request by the MoED, PPG submitted a full set of revised agreements (key ones including: a Feasibility Study, Concession Agreement (“Revised CA”), Power Purchase Agreement (“PPA”), Tariff Proposal, Coal Supply Agreement, EPC Proposal, EPC contract, Bank Term Sheet, Equity Investor MOUs, Land Use Permit) totaling well over 1,000 pages for review.
In December 2014, with a new Mongolian Government in place, the Concession department was transferred from the MoED to the Ministry of Industry (“MoI”). In late January 2015, PPG representatives met with the Minister of Industry, who committed to fast-track a list of advanced and qualified concession projects to signing of concession agreements, including one for the Chandgana Power Plant, in the coming Spring session.
In February 2015, PPG was notified that a working group was appointed to work on the power concession projects. PPG looks forward to working closely with the working group to fast-track negotiations and signing of a concession agreement.
Pre-Mobilization, EPC Tender, Bank and Equity Financing:
In 2013, PPG obtained water permits for the use of well water at site for the staff and construction camp facilities, and approval from a local electricity distribution authority to provide a temporary electricity supply required for construction work of the Chandgana Power Plant.
In 2013 and 2014, Prophecy collected tenders for drilling well(s) and water treatment facilities, tenders for design work for the temporary electricity supply, tenders from reputable international engineering consulting firms to oversee the design work of the EPC contractor (equipment, procurement and construction), tenders from multinational engineering firms to oversee the power plant construction work to be carried out by the to-be-selected EPC contractor on behalf of PPG and tenders for fencing the Chandgana Power Plant site. This is pre-mobilization work that will to shorten the time frame to project completion.
Prophecy continued to engage EPC contractors who in 2012, submitted their final and binding turn-key proposals to build the Chandgana Power Plant in response to PPG’s public tender in 2011. The proposals are the result of over one year of investigative and research work to build the Chandgana Power Plant according to PPG’s owner technical specifications and requirements (OTSR) including detailed requirements for such operating variables as the coal quality and supply, operating temperatures, auxiliary heat consumption, environmental limits, and power output and incorporated detailed cost and performance optimization including best components from various major power plant component suppliers, shortest transportation routes by most cost-effective transportation carrier, and offers from insurance providers and local construction material and fuel suppliers. A turn-key binding EPC contract with specific performance requirements and completion guarantees was prepared by an international law firm in 2013 and is ready to be executed subject to concluding project financing, and signing of the key agreements (i.e. the PPA and Revised CA).
Following the news release dated February 6, 2013, on August 11, 2014, one of the qualified EPC contractors that offered to invest in the project (“Investor”), renewed its non-binding letter of intent to invest up to 20% in the Chandgana Power Plant, subject to a project revenue guarantee from the Mongolian Government, a signed EPC contract with the Investor, satisfactory execution of the PPA, completion of the remaining 80% of the project financing, and receipt of all necessary project clearances and approvals.
Similar to the bank term sheet received in January 2013 that was announced on February 6, 2013 (which has subsequently expired), in July 2014, Prophecy obtained a non-binding term sheet issued by another major international bank, (“Potential Lender”), for a proposed loan (“Loan”) for the purpose of funding the development and construction of the Chandgana Power Plant.
It is proposed that the proceeds of the Loan are to be used to finance up to 85% of the total value of the commercial contract which is to be signed between the appointed EPC contractor and Prophecy. The Loan would be repaid in 24 consecutive semi-annual installments for a repayment period of up to 12 years at a fixed premium to the London Interbank Offered Rate (LIBOR).
In the news release dated November 14, 2012, Prophecy announced the signing of a Memorandum of Understanding (“MOU”) with the overseas investment subsidiary of the world’s largest coal-fired power generation group (“Strategic Partner”) to jointly develop the Chandgana Power 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.
The Strategic Partner has, since signing the MOU, set up an office in Mongolia and stayed commercially active in the country. The President and Vice-President of the Strategic Partner visited Mongolia in 2013 and 2014, toured the Chandgana site and discussed the project with the Mongolian Minister and Vice-Ministers of both Energy and Economic Development. Prophecy received a letter from the Strategic Partner in July 2014, reaffirming its strong interest in investing and co-developing the Chandgana Power Plant with Prophecy. PPG is in close communication and looks forward to collaborating with the Strategic Partner during the concession agreement discussions with the working group.
Consolidation with Cosmo Coal LLC:
Following the news release dated August 18, 2014, the consolidation between Chandgana Coal and Cosmo Coal LLC (“Cosmo”) has been delayed due to internal restructuring of Cosmo. Both parties continue their dialog on the consolidation. The binding consolidation agreement has a deadline of August 18, 2015.
Benefits of Chandgana Mine Mouth Power Plant Project:
Contribution to air pollution reduction: Various studies have linked Ulaanbaatar’s air pollution to respiratory death and miscarriages in women. The Chandgana Power Plant will eliminate the need for additional power plants in Ulaanbaatar and reduce dependence on Ulaanbaatar’s existing Power Plants #3 and #4, which emit significant gaseous and particulate pollutants due to their age.
Elimination of coal transportation: The Chandgana Power Plant is proposed to be built next to the Chandgana coal mine, 300 km east of Ulaanbaatar. This would avoid having to transport 2 to 4 million tonnes of coal (more than 100 wagons per day) into the congested city, had the new power plant be built in the capital city. Eliminating such coal transportation also means reduced power plant operating cost, since coal is a major component (upwards of 30%) of operation expenses.
Conservation of water: Water would be extracted from the mine, which avoids diverting precious water resources (up to 6 million tonnes per year/16,000 tonnes per day) from the city of Ulaanbaatar. A water scarcity problem is projected to emerge in 2015 in Ulaanbaatar, and intensify from 2020 onwards. Power Plants #3 and #4 today, consume 20% to 25% of the city’s clean water. A new power plant would take water away from about an additional 800,000 residents annually.
Energy independence: The Chandgana Power Plant project would reduce expensive power imports from Russia and China, and achieve Mongolian energy independence. Mongolia is importing approximately over 200 MW (20% of its consumption) from Russia and China and that number could increase substantially over time if new domestic power plant construction does not start.
Save money from importation of power: The electricity tariff proposed by PPG, with exemption from income tax, dividend tax, VAT, and customs duty, would be less than the tariff on imported power.
Relief on power supply shortage: The Chandgana Power Plant is expected to begin supplying power to the Mongolian power system in 2019, if construction begins in 2016. The Mongolian GDP has roughly doubled every five years since 2000. The current installed capacity is about 800MW and demand is expected to double by 2020.
Stabilization of transmission grid: Prophecy would finance a transmission line from Baganuur to Chandgana in Phase 1, and Chandgana to Choir in Phase 2. The new lines would increase the network stability and security of the electricity supply in the Mongolian power grid.
Good location: The proposed location of the Chandgana Power Plant is 300 km away from Ulaanbaatar, 150 km from Choir (further to South Gobi) and 120 km from Choibalsan. Therefore, it can potentially provide power to Ulaanbaatar, and southern and eastern Mongolia.
Project readiness: The Chandgana Power Plant project has been under development for four years and is ready for construction with a construction license, detailed environmental impact assessment, land use rights and mining licenses in place. Over ten EPC contractors have expressed interest since 2012, and several binding EPC proposals have been received with competitive prices and short construction time frames (36 months). Construction can start after signing of the Revised CA, PPA, Tariff Agreement and completion of financing.
Extension to coal-to-gas and coal-to-liquid project: Chandgana is located next to a highway, has plenty of land, and over 1 billion tonnes* of coal resource in the basin. If the Chandgana Power Plant becomes operational, it would be a natural progression to develop coal-to-gas and coal-to-liquid projects.
Private sector investment and boost to employment: The development of the project would be funded by the private sector to boost foreign direct investment in Mongolia and Khentii province. Once in operation, the Chandgana Power Plant and Chandgana mine would be expected to employ over 600 full-time skilled local staff, cause the start of many new support businesses, become the largest revenue and skilled employee generator in Khentii province and double Khentii province’s GDP.
Prophecy has noticed a more open political environment to conduct business in Mongolia and is very encouraged by the current Government’s positive sentiment towards foreign investment and will issue additional news updates in due course.
*2010 – NI 43-101 Technical Report by Kravits Geological Services, 2007 – NI 43-101 Technical Report by Behre Dolbear.
About Prophecy
Prophecy Development Corp. is a Canadian public company listed on the Toronto Stock Exchange that is engaged in developing mining and energy projects in Mongolia Bolivia and Canada. Further information on Prophecy can be found at www.prophecydev.com.
PROPHECY COAL CORP.
ON BEHALF OF THE BOARD
“JOHN LEE”
Executive Chairman
For more information about Prophecy, please contact Investor Relations:
Bekzod Kasimov
+1.604.563.0699
+1.888.513.6286
investorrelations@prophecydev.com
www.prophecydev.com
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Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this news release, including statements which may contain words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or similar expressions, and statements related to matters which are not historical facts, are forward-looking information within the meaning of applicable securities laws. Such forward-looking statements, which reflect management’s expectations regarding Prophecy’s future growth, results of operations, performance, business prospects and opportunities, are based on certain factors and assumptions and involve known and unknown risks and uncertainties which may cause the actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. These estimates and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies, many of which, with respect to future events, are subject to change and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by Prophecy. In making forward-looking statements as may be included in this news release, Prophecy has made several assumptions that it believes are appropriate, including, but not limited to assumptions that: there being no significant disruptions affecting operations, such as due to labour disruptions; currency exchange rates being approximately consistent with current levels; certain price assumptions for coal, prices for and availability of fuel, parts and equipment and other key supplies remain consistent with current levels; production forecasts meeting expectations; the accuracy of Prophecy’s current mineral resource estimates; labour and materials costs increasing on a basis consistent with Prophecy’s current expectations; and that any additional required financing will be available on reasonable terms. Prophecy cannot assure you that any of these assumptions will prove to be correct.
Numerous factors could cause Prophecy’s actual results to differ materially from those expressed or implied in the forward-looking statements, including the following risks and uncertainties, which are discussed in greater detail under the heading “Risk Factors” in Prophecy’s most recent Management Discussion and Analysis and Annual Information Form as filed on SEDAR and posted on Prophecy’s website: Prophecy’s history of net losses and lack of foreseeable cash flow; exploration, development and production risks, including risks related to the development of Prophecy’s mineral properties; Prophecy not having a history of profitable mineral production; the uncertainty of mineral resource and mineral reserve estimates; the capital and operating costs required to bring Prophecy’s projects into production and the resulting economic returns from its projects; foreign operations and political conditions, including the legal and political risks of operating in Mongolia, which is a developing jurisdiction; amendments to local Mongolian laws which may have an adverse impact on the Company’s operations; title to Prophecy’s mineral properties; environmental risks; the competitive nature of the mining business; lack of infrastructure; Prophecy’s reliance on key personnel; uninsured risks; commodity price fluctuations; reliance on contractors; Prophecy’s need for substantial additional funding and the risk of not securing such funding on reasonable terms or at all; foreign exchange risks; anti-corruption legislation; recent global financial conditions; the payment of dividends; and conflicts of interest.
These factors should be considered carefully, and readers should not place undue reliance on Prophecy’s forward-looking statements. Prophecy believes that the expectations reflected in the forward-looking statements contained in this news release and the documents incorporated by reference herein are reasonable, but no assurance can be given that these expectations will prove to be correct. In addition, although Prophecy has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Prophecy undertakes no obligation to release publicly any future revisions to forward-looking statements to reflect events or circumstances after the date of this news or to reflect the occurrence of unanticipated events, except as expressly required by law.
