(EnergyAsia, June 5 2012, Tuesday) — Canada’s Prophecy Coal Corp said it has secured a sales contract to supply 22,100 tonnes of thermal coal from its Ulaan Ovoo mine in Mongolia to a local direct reduced iron (DRI) manufacturing plant.
 
According to Prophecy, the unidentified buyer has indicated that this is an initial purchase is to meet current shortfalls, with the possibility of an increased order to 300,000 tonnes on an annual basis. The customer currently purchases in excess of 850,000 tonnes of coal annually from various local suppliers.

Describing the pricing as competitive compared to supplies from Russia, Prophecy said the deal sets a benchmark for it to continue offtake discussions with other local industries in Mongolia’s surging economy, which the government expects to grow by 19% in 2013.

Prophecy said its high quality thermal coal (NAR 5100 kcal/kg) is ideal for DRI or sponge iron manufacturing. DRI is produced from direct reduction of iron ore in the form of lumps, pellets or fines by a reducing gas produced from burning coal. The coal must be lumpy and of high calorific value, however temperature does not have to reach blast furnace levels, hence coking coal is not required.

The reducing gas from the coal is a mixture majority of hydrogen (H2) and carbon monoxide (CO) which acts as a reducing agent. This process of directly reducing the iron ore in solid form by reducing gases from coal technology has been developed to overcome some of the high costs and difficulties of conventional blast furnaces.

DRI product is a vital raw material in steel-making as it has higher qualities and advantages compared to scrap irons and pig irons. DRI products are in high demand and have been quoted in China at over US$300 a tonne.

John Lee, the Ulaan Baatar-based chairman and CEO of Prophecy, said:

“As we move past the mine establishment phase at Ulaan Ovoo, we anticipate steadily decreasing operating cost and increasing sales quantity and price. Our goal is to make Ulaan Ovoo operations cash flow positive in the near term without relying on Russian or Chinese export markets.”

The company is making progress on opening the Zeltura border crossing, located 10 km from the Ulaan Ovoo mine, to facilitate coal export to Russia, which would then increase demand for Ulaan Ovoo coal to over one million tonnes a year.