The company identified the buyer only as a direct reduced iron manufacturing plant, which will take 22,100 tonnes of thermal coal from Prophecy’s Ulaan Ovoo mine to meet the shortfalls of its current suppliers.
Officials said the buyer would like to increase its supply at some point to 300,000 tonnes per annum; the plant currently purchases more than 850,000tpa from various entities in the local area.
Prophecy said the deal’s pricing was competitive to offers it had received from Russia.
“[It] sets a benchmark…to continue offtake discussions with other local industries in a surging Mongolian economy, for which the Mongolian government forecasts 19% GDP growth for 2013,” the company said.
The high quality coal from Olaan Ovoo is ideal for DRI, or sponge iron.
“DRI product is one of the chief raw materials in steelmaking, as it has higher qualities and advantages compared to scrap irons and pig irons,” Prophecy said, noting that the high-demand DRI products have been quoted at more than $US300/t in China.
Chairman and chief executive John Lee confirmed that, as Ulaan Ovoo moves past the establishment phase, operating costs are expected to drop and volumes and prices will increase.
“Our goal is to make Ulaan Ovoo operations cash flow positive in the near term without relying on Russian or Chinese export markets,” he said.
Prophecy is still working towards opening the Zeltura border crossing near the mine to aid in Russian exporting. At that time, it will increase the complex’s total demand over 1Mtpa.