(EnergyAsia, February 3 2012, Friday) --- Canada’s Prophecy Coal Corp said it has received a positive feasibility study for its proposed US$744 million 600 MW Chandgana Mine-Mouth Power Project in central Mongolia.

The report was prepared by Ralf Thomsen, a project manager at Steag, a German firm specialising in the planning, financing, construction and operation of highly efficient, thermal power plants for fossil fuels.

Prophecy said the study covered the technical specifications, deployment and financial analysis for the development of a 4 x 150 MW thermal power plant adjacent to the Chandgana Tal coal deposit, which contains 140 million tonnes of measured coal. 

Prophecy said the Mongolian government issued licences last year for the construction of the power plant and mining of the coal deposit.

The company expects to select an engineering, procurement and construction management (EPCM) contractor this year while proceeding with discussion on project financing.

It expects to begin construction in April 2013, and to commission the first 150 MW unit in October 2015 with subsequent units to roll out in April and October 2016, and April 2017. With proper maintenance, the project will have 30 years of commercial operation.

The project’s average capital cost of US $1,240 per kW will include the power plant, overhead transmission lines and administrative costs, but not mine development. A mine costing study was separately conducted and completed by Australia’s Leighton Asia.

Prophecy said the target capital structure comprises 30% equity and 70% debt with a 10% annual interest rate and 10-year pay back. Its wholly-owned East Energy Development, which holds the construction licence, is expected to undertake the financingCoal price and electricity tariff

Prophecy said the Chandgana Tal deposit will supply 2.7 million tonnes of coal per year, equivalent to 675,000 tonnes/year per 150 MW unit, with an as-received heat-value of 3,350 kcal/kg or 14,100 kjoule/kg.

The delivered coal price is set at $15.50 a tonne with a 2% semi-annual price increase while Prophecy expects to charge an electricity tariff rate of US $0.06/kWh, with a 2% increase every six months.

With the plant’s power production cost including coal feedstock set at US $0.023/kWh, the company said its cost of capital recovery, including loan principal and interest payments, is estimated to be US $0.025/kWh.
 
Based on a 70%-30% debt to equity, the project is expected to generate 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 per US$1. 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.

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.
 
Prophecy said it enjoys first-mover advantage with this new fully-licensed power plant project to supply electricity to Mongolia much needed electricity. The country now depends on antiquated plants with a total capacity of 700 MW for its power.

The coal resource is located next to a two-lane highway and 150 km from the existing power grid.  Once power and the mine are brought online, the company there is potential to introduce additional plant units at lower capital costs.

With one of world’s fastest growing economies, Mongolia could receive a 30% boost with the 2013 start-up of the enormous Oyu Tolgoi copper and gold project.

Helped by further warming of ties between Mongolia and its key export market, China, Prophecy is in a strong position to leverage Chinese capital and expertise to generate electricity from Mongolia’s vast coal resource.

John Lee, CEO of Prophecy, said:

“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.”