Prophecy Coal rallies on Chandgana 600MW power plant feasibility study
Prophecy Coal Corp. (TSE:PCY) (OTCQX:PRPCF) unveiled Tuesday a positive feasibility study for its 600 megawatt (MW) Chandgana Mine-Mouth power plant project in central Mongolia, to be built next to the company's Chandgana Tal coal deposit.
Construction of the power plant project is planned to start in April 2013, with the first 150 MW unit being commissioned in October 2015. The remainder of the units are to be rolled out in April 2016, October 2016, and April 2017.
With proper maintenance, the project is estimated to have 30 years of commercial operation, the company said.
“The Feasibility Study has outlined the robust financial return for the Chandgana power plant based on conservative parameters." said CEO John Lee.
"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."
The study projected an after tax internal rate of return (IRR) of 21.9 percent from the project, and a net present value of US $364.7 million, assuming a discount rate of 12 percent, and a debt interest rate of 10 percent.
Investors praised the news, with shares of the company rising 8.33% to trade at 45 cents as of 2:34pm ET Tuesday.
Prophecy said that should electricity tariffs and coal prices change, so will project economics. For example, a $0.005 kWh, or 8.3 percent tariff hike from base case would increase the project's IRR to 24.8 percent and the net present value to $473.4 million.
Under the feasibility study, coal will be supplied by the Chandgana Tal deposit, which contains 140 million tonnes of measured coal, at a steady rate of 2.7 million tonne per year, with the delivered coal price set at $15.50/t with a 2 percent semi-annual price increase. The electricity tariff is targeted at US $0.06/kWh, with a 2 percent semi-annual increase.
The plant's power production cost is currently estimated at US $0.023/kWh, including coal. Capital recovery, including loan principal and interest payments, is estimated to be US $0.025/kWh.
Capital cost is projected to be US $744 million for the 600MW project, or US $1,240 per kW. This includes the power plant, overhead transmission lines, and administrative costs, the company said, but excludes mine development costs.
The target capital structure is 30 percent equity, and 70 percent debt, with a 10 percent annual interest rate and 10-year pay back period, the study said.
The power plant and the coal deposit both already received a construction and a mining license in 2011. The feasibility study was prepared by Ralf Thomsen, project manager at Steag, a German firm specializing in the planning, financing, construction and operation of thermal power plants for fossil fuels.
Prophecy Coal said that discussions for engineering, procurement, and construction management, as well as project financing, are expected to be concluded this year.
The company's coal resource is next to a two-lane highway and 150 kilometres 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, it added.
"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," Prophecy Coal concluded.
Prophecy Coal is a Canadian company that has over 1.4 billion tonnes of surface minable thermal coal resources on two coal properties in Mongolia. Its Ulaan Ovoo coal mine is in production and its Chandgana mine mouth power plant has been permitted.
Construction of the power plant project is planned to start in April 2013, with the first 150 MW unit being commissioned in October 2015. The remainder of the units are to be rolled out in April 2016, October 2016, and April 2017.
With proper maintenance, the project is estimated to have 30 years of commercial operation, the company said.
“The Feasibility Study has outlined the robust financial return for the Chandgana power plant based on conservative parameters." said CEO John Lee.
"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."
The study projected an after tax internal rate of return (IRR) of 21.9 percent from the project, and a net present value of US $364.7 million, assuming a discount rate of 12 percent, and a debt interest rate of 10 percent.
Investors praised the news, with shares of the company rising 8.33% to trade at 45 cents as of 2:34pm ET Tuesday.
Prophecy said that should electricity tariffs and coal prices change, so will project economics. For example, a $0.005 kWh, or 8.3 percent tariff hike from base case would increase the project's IRR to 24.8 percent and the net present value to $473.4 million.
Under the feasibility study, coal will be supplied by the Chandgana Tal deposit, which contains 140 million tonnes of measured coal, at a steady rate of 2.7 million tonne per year, with the delivered coal price set at $15.50/t with a 2 percent semi-annual price increase. The electricity tariff is targeted at US $0.06/kWh, with a 2 percent semi-annual increase.
The plant's power production cost is currently estimated at US $0.023/kWh, including coal. Capital recovery, including loan principal and interest payments, is estimated to be US $0.025/kWh.
Capital cost is projected to be US $744 million for the 600MW project, or US $1,240 per kW. This includes the power plant, overhead transmission lines, and administrative costs, the company said, but excludes mine development costs.
The target capital structure is 30 percent equity, and 70 percent debt, with a 10 percent annual interest rate and 10-year pay back period, the study said.
The power plant and the coal deposit both already received a construction and a mining license in 2011. The feasibility study was prepared by Ralf Thomsen, project manager at Steag, a German firm specializing in the planning, financing, construction and operation of thermal power plants for fossil fuels.
Prophecy Coal said that discussions for engineering, procurement, and construction management, as well as project financing, are expected to be concluded this year.
The company's coal resource is next to a two-lane highway and 150 kilometres 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, it added.
"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," Prophecy Coal concluded.
Prophecy Coal is a Canadian company that has over 1.4 billion tonnes of surface minable thermal coal resources on two coal properties in Mongolia. Its Ulaan Ovoo coal mine is in production and its Chandgana mine mouth power plant has been permitted.
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