Prophecy Development executes lease agreement for Ulaan Ovoo

Vancouver-based Prophecy Development announced that it had reached a lease agreement deal with an arms-length private Mongolian company to perform mining operations at Prophecy’s Ulaan Ovoo coal mine. The lessee, which has not been named by Prophecy, will pay two USD for every ton of coal shipped from the Ulaan Ovoo site premises.

“This lease signifies the potential restart of the Ulaan Ovoo mine to supply quality thermal coal for much needed regional consumption,” said Bekzod Kasimov, Prophecy’s vice president of business development.

With name plate production capacity of two million tons a year, Ulaan Ovoo is a large coal field featuring a single, massive coal seam of 40 to 80 meter thickness with outcrops and low strip ratio carrying minimal technical risk.

Prophecy said that Ulaan Ovoo’s production royalty is expected to provide the company with a passive income stream while Prophecy continues to advance the Gibellini vanadium project in Nevada, USA as the company’s top priority. The Gibellini project is reportedly the only largescale, open-pit, heap-leach vanadium project of its kind in North America.

The Mongolian lessee is an established company actively mining at Mongolia’s largest coking coal deposit, Tavan Tolgoi. The lessee has paid Prophecy 100,000 USD in cash, as a non-refundable advance royalty payment and is preparing, at its own and sole expense, to restart and operate the Ulaan Ovoo mine with its own equipment, supplies, housing and crew. The Mongolian operator will pay all government taxes and royalties related to its proposed mining operation.

The period of the lease is for three years with an annual advance royalty payment of 100,000 for the first year. On the first anniversary of the lease, 150,000 USD is owed to Prophecy while 200,000 USD will be given to Prophecy on the second anniversary of the lease.

The annual royalty payment can be credited towards the two USD per ton production royalty payments to be made to Prophecy as the lessee starts to sell Ulaan Ovoo coal. Many parties have reportedly expressed buyer interest in Ulaan Ovoo’s coal. The three-year lease can be extended upon mutual agreement.

Ulaan Ovoo is located in Selenge Province, 17 km from the Zeltura border to Russia by dirt road, and 120 km by road from Mongolia’s Sukhbaatar railway station, which connects to the Trans-Siberian railway network.

Ulaan Ovoo produced over 500,000 tons of coal from 2012 to 2014, which was sold to 28 separate Russian and Mongolian customers such as Erdenet Copper Mining Corporation, UB Railway, and Khutul Cement before it was put on standby in 2014.

The benchmark Newcastle thermal coal price has rebounded from a 2014 low of 61 USD per ton to a current price of 114 USD per ton, which are levels not seen since 2011.