Prophecy consolidates the Chandgana coal basin
Prophecy now controls one of the largest coal basins in all of Mongolia with the addition of the Tugalgatai licenses.
In a news release, Prophecy Coal Corp. announced that it has entered into a binding Sale and Purchase Agreement to acquire assets relating to Tugalgatai coal exploration licenses from Tethys Mining LLC, and subject to approval from the Minerals Resource Authority of Mongolia, to have such exploration licenses transferred to it. The Tugalgatai licenses are contiguous to the Company's Chandgana licenses which host a measured resource of 650 million tonnes and an indicated resource of 540 million tonnes of thermal coal.
According to records reviewed by Prophecy, on March 15, 2011, Tethys applied to register a resource estimate of 2.33 billion tonnes of thermal coal for the Tugalgatai licenses with the Minerals Resource Council of Mongolia. The resources registered by Tethys are not NI 43-101 compliant. Prophecy expects to conduct work in due course with a view of preparing its own NI 43-101 estimate of the contained resource at Tugalgatai.
Since 2005, Tethys performed detailed exploration on the Tugalgatai licenses including drilling and geophysical methods, and conducted geotechnical, hydrogeological, environmental and topographic studies. Exploration results indicate a large and geologically simple coal occurrence within the Tugalgatai licenses that is similar to Prophecy’s Chandgana licenses. The coal seam is continuous across the Nyalga Basin and outcrops to the northwest, with the main coal seam measuring up to 30m in thickness.
The terms of the Agreement include a US$10 million upfront payment and an 8.5% royalty on future coal sales from both the Chandgana and Tugalgatai licenses. The royalty can be extinguished by paying Tethys US$20 million before 2021 or US$25 million from 2021 onwards. Of the purchase price, $2 million will be immediately deposited in escrow. The total payment will be paid to Tethys upon the transfer of the licenses.
John Lee, Chairman and CEO of Prophecy states: “By consolidating the Chandgana coal basin of approximately 300 squared kilometers, Prophecy is looking for greater economies of scale to potentially produce low-cost electricity at the Chandgana mine mouth power plant, and further develop coal to chemicals and coal gasification projects. It’s also possible to further increase the resource through exploration in this highly prospective basin.”
The transaction is expected to close in Q3, 2012, subject to regulatory approval from the Minerals Resource Authority of Mongolia. 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.