Yesterday I attended a fascinating “accredited investor” presentation given by Prophecy Coal Corp. (TSX: PCY) in San Francisco, CA.
Prophecy is a Canadian listed company (it trades on the Toronto Stock Exchange, the “TSX”, on the pink sheets “OTCQX”, and on the Frankfurt stock exchange). It owns two coal mines in Mongolia and is in the process of developing “mine mouth” power plants to produce much-needed energy for China.
The company has over 1.4 billion tonnes of “surface minable thermal coal resources” (no “coking” coal, just “thermal” coal), and is also the controlling share holder of Prophecy Platinum Corp (TSX-V:NKL), which comprises the vast majority of the company’s investment portfolio, some $70 million Canadian (CAD) (or closer to CAD $50 million at today’s prices).
You can view the exact same slides that my friend and I saw right here:
Our spiel was delivered by none other than Mr. Greg Hall himself—he is a Director of the company and was formerly on the board of Silvercorp since 2005 (according to Patrick Langlois, VP of Corporate Development, he helped Silvercorp grow from something like $25M to $250M). He is obviously a “finance guy” and not a “mining guy”, but as this was an investor presentation that is probably to be expected.
My key takeaways:
- Mongolia is a country that is growing tremendously. Even though it’s very small, the Mongolian stock exchange was up 125% in 2010 and 37% in 2011. It’s run by a pro-business democratic government, and has a literacy rate of over 95%. However, it also has high inflation—the inflation rate is currently 16% so it matters whether contracts are executed in the local currency or not!
- China needs energy—the projected demand deficit by 2015 is 744 MW (as projected by Energy International Analysts)
- Un-coincidentally, Prophecy Coal Corp expects its “Phase 1” power plants to produce 600 MW to help fill this demand deficit in Mongolia, and its “Phase 2” power plants to produce 3600 MW to serve China, too.
- Mongolia currently imports its power from Russia at a cost of $.08 per k W/h
- Burn rate is $500,000 / month (and you thought you spent a lot of money…) 🙂
- Company has secured all of its power plant construction permits
- Their coal is supposedly very “low ash” and “low sulfur”, though exact levels weren’t given
- Feasibility study to be completed by next week
- Sprott got in back in November at $0.70, and it’s currently trading for $0.42…so that tells you that at least Sprott thinks it has potential
To sum up, I’m interested, but will definitely wait for the feasibility study to come out next week and do much more research (because again, I know next-to-nothing about coal although this was tremendously interesting). One potential downside (actually, there are many, but this one comes to mind immediately) is the economy…
Generally coal and energy are in high demand when the economy is growing, but if the economy in fact slows instead of grows, and/or we see some repeat of 2008 this year, coal could take a major hit and take this company right along down with it. In fact, coal did take quite a hit last year in 2011…
It began the year at $47.24 (closing on 12/12/10) and closed out 2011 at $32.25, as measured by KOL, the Market Vectors Coal ETF. This was presumed to be due to the European financial crisis and the worry of a slowdown in emerging market economies, usually a key driver for coal.
So, definitely something to keep in mind, along with the inflation rate in Mongolia, government permits and beaurocracies, etc.
But it could be fun to dip my toe in…I’ll see how the feasibility study comes out next week.
And I would love to hear what YOU think…please let me know on the blog! (In fact, I will go catch up on all of the comments now…)
Thanks so much for reading and being a member of our Kung Fu Finance community!
To your financial success,
—Kung Fu Girl