On Site Prophecy Coal, Ulaan Ovoo, Mongolia

POSTED ON February 25, 2014 BY Thom Calandra
CATEGORY Prophecy Coal,

Prophecy Coal CEO John Lee and Thom Calandra in Mongolia, 2014

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KHUTUL, Mongolia -- This is where Mongolia's newest cement plant is operating.

Or will operate when it warms in a month or so and the plant can test fully its new configurations for burning coal to power its output.

USD $61.3 million went to Khutul Cement and Chalk LLC for an expansion: new coal warehouse, technology, conveyers (image). We stopped by on our six-hour return drive to the capital city of Ulan Bator from the Russia border.

The Khutul operation, backed in part by Mongolia Development Bank, is committed to purchasing 15,000 metric tons of thermal coal monthly. The coal must be in the range of 5,000 KCAL per kilogram -- low sulphur and ash, high energy output.

Prophecy Coal is the supplier. Prophecy's siding camp is some 150 km to the north of this small town, or soum. That is where Prophecy stores and classifies the coal from its Ulaan Ovoo thermal coal mine, another 150 km north and about 8 km from the Russia border, where we dropped in.

TCR audience, I have many questions I must get answered regarding Prophecy Coal, which has a checkered history since spending more than $55 million to upgrade and operate the former Red Hill deposit at Ulaan Ovoo.

For example, can Prophecy Coal (PCY in Canada) reach a goal of 1.1 million tons of high-grade thermal coal in 2014 -- part of that amount sold into neighboring Russia and the rest into points north of Ulan Bator and south of Ulaan Ovoo?

John Lee's Prophecy Coal has some regulatory issues attached to its CV -- dealt by the B.C. Securities Commission, and regarding what looks like concerns about technical filings for the extent of the coal deposit (200 million tons of measured and indicated.

Shareholders and former shareholders complain that Mr. Lee has manufactured bold promises not just for Prophecy Coal, but for the former Prophecy Platinum, which is not Wellgreen Platinum.

Thus far the Rice University-educated Mr. Lee, born in ROC China (Taiwan) and 39 years old, has seen little success in accomplishing goals. That could be a great opportunity for those willing to purchase a 9-cent stock and hope the next quarterly statement shows a dramatic leap in cash flow and actual profit from the producing coal mine.

Coal is something I know little about. Complex business tied to transportation costs, quality control and keeping various buyers (metallurgical, cement, power plants, boilers) satisfied they are getting the correct amounts and KCAL-levels of thermal coal they purchase.

What I do know is that Mongolia continues to boom, as it did when I was here a few times in 2003 with the original Ivanhoe Mines, now Turquoise Hill.

Still, these days, there are more political challenges that miners face, prominently Turquoise Hill's negotiations on underground gold and copper mining at Oyu Tolgoi with a liberal government bent on keeping protesters satisfied and Oyu Tolgoi LLC executives mystified.

More to come on Prophecy. I can say this: the coal deposit is operating at a level that most coal industry aficionados grant is its most efficient in years, if not ever. This is not an endorsement of Prophecy or its battered shares. I still have checking to complete.

Chris Kravits, Prophecy's operations manager and a 61-year-old geologist specializing in coal, is with me. He is from Utah and we are just a 10-minute rough drive to the Mongolia-Russia border, the gateway that Mr. Lee and his team of 125 or so employees envision as the multiplier of high-grade coal sales into southern Russia.

As for Turquoise Hill, informed sources tell me the company (TRQ in USA and Canada) could be negotiating with this government until the next national elections in 2016. I have to believe there is a solution that can relieve TRQ shareholders of their fears sooner than that. Still, it is not a stock I consider decipherable under the current conditions here.

That is all for now. I have another two days here with Prophecy Coial, whose shares I do not own. The weather has turned snowy and cold in UB here, and 12 hours in a Land Cruiser will stripe anyone's hide, hips and backs. So will a government that thinks it can exact measures on corporations that will be in this fast-growing nation of 3 million people a lot longer than they will be in power.

Notes: Gran Colombia Gold has a market pricing for its equity financing. ... The East Africa Minerals proposal regarding Tigray Resources strikes me, and others, as rife with conflicts of interest. Once again, this is all the legacy of the former Canaco and geologist and CEO Andrew Smith. The question he must answer: Why is he apparently forgiving a $2 million loan to Tigray, an Ethiopia developer that he also runs along with EAM? There are some who believe the loan should at the least translate into shares of Tigray (TIG in Canada) for EAM shareholders. Not the generous merger now on the table and requiring two-thirds approval. Love Tanzania and Ethiopia but sorry UI ever got involved with Canaco. ... Finally, I continue to see gold trading higher each morning here in Asia. Favorites right now for value and looming news (my speculation based on TCR coverage) are Angkor Gold (ANK in Canada) and NuLegacy Gold (NUG in Canada), the Nevada prospector. Both could see their shares double on discovery news, property transactions or bargain hunting. They both are members of the TCR 8. Also: Xtra-Gold Resources -- Ghana. ... Oh yes, I see BioCryst Pharma (BCRX in USA) finally got its new drug application accepted by an FDA panel -- intravenous Peramivir for influenza. The shares are miraculous. I think the influenza treatment will be, too.

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Thom Calandra

NEVER MISS AN EDITION OF THE CALANDRA REPORT - SUBSCRIBE BY PAYPAL... Thom Calandra is the editor of The Calandra Report, an investment newsletter. He previously co-founded and was founding editor of CBS Marketwatch, one of the world's largest financial Web sites. He also co-founded Ticker Trax for Stockhouse. Thom has a wife and two children, and is based in Tiburon, California. TCR, the newsletter, is a paid report: The Calandra Report for Paypal information. More →

Twitter: @http://twitter.com/thomcalandra

thom.calandra@gmail.com

Thom Calandra

Twitter: @http://twitter.com/thomcalandra

thom.calandra@gmail.com

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