TORONTO (miningweekly.com) – Mongolia-focused energy project developer Prophecy Coal on Wednesday said two of its Mongolian subsidiaries – Chandgana Coal, which is developing a coal mine, and Prophecy Power Generation (PPG), which is developing the 600 MW mine-mouth Chandgana power plant project – have signed a coal supply agreement (CSA).

Under the CSA, Chandgana Coal would supply PPG 3.6-million tonnes of coal a year at a price of $17.7/t for a period of 25 years.

For Chandgana Coal, the CSA secured a long-term, next-door customer on attractive and extended terms that would provide stable cash flow returns throughout the first 25 years of the mine.

The CSA’s coal price was competitive to Mongolian domestic thermal coal prices and would be subject to yearly indexing, based on the US consumer price index, the Mongolian wage index and the Mongolian diesel price index. PPG had also committed to buy a minimum of two-million tonnes of coal on a take-or-pay basis, with customary breakup fees payable by PPG.

The agreement provided for first coal to be delivered in the second half of 2016, subject to PPG signing a power purchase agreement (PPA), obtaining all necessary governmental approvals and securing project financing.

Prophecy Coal said signing the CSA marked another critical project milestone in developing the synergetic operations. Besides a bankable PPA, a stable and guaranteed fuel supply for its proposed coal-fired power station was required to obtain project financing from equity partners and banks.

The CSA had been approved by Prophecy's independent directors, who, after studying various coal supply options to the proposed Chandgana power plant, concluded that the coal supply from Chandgana Coal, with existing licences to mine the coal from the Chandgana Tal project next to the proposed power plant site, represented a practical and cost-effective way of commissioning a power plant by 2016.

The Chandgana Tal mining licences contained an estimated 124-million tonnes of coal resources, all in the measured category. The average in-place gross calorific value is 3 306 kcal/kg of coal. The mine would be an openpit mine and would be located about 2 km from the proposed power plant site. The average waste to ore strip ratio was estimated to be 0.70:1 over the life of the mine.