The Tugalgatai licenses are adjacent to the company’s Chandgana licenses which have confirmed a measured resource of 650 million tons and 540 million tons of thermal coal indicated resources.
Prophecy Coal chairman and CEO John Lee said, "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."
Under the agreement, Prophecy will pay $10m upfront and an 8.5% royalty on future coal sales from both the Chandgana and Tugalgatai licenses.
An earlier exploration work on the Tugalgatai licenses indicated a large coal occurrence within the Tugalgatai licenses that is similar to Prophecy’s Chandgana licenses.
The coal seam moved northwest and was continuous across the Nyalga Basin with the main coal seam measuring 30m thick.
On March 15 2011, the company applied to register a resource estimate of 2.33 billion tons of thermal coal for the Tugalgatai licenses with the Minerals Resource Council of Mongolia, but they are not NI 43-101 compliant.
Prophecy plans to undertake work to prepare its own NI 43-101 estimate of the contained resource at Tugalgatai going ahead.
Prophecy also noted plans to further increase the coal resource in the basin through future exploration programs.
The transaction is expected to close in the third quarter of 2012 following the approval from the Minerals Resource Authority of Mongolia.
