He wears a track suit to work, is careful about what he eats, and is chief executive officer of Prophecy Resource Corp. (TSX: V.PCY, Stock Forum), a junior company with mining assets in Mongolia and Canada.
But that doesn’t mean John Lee wants to be compared with Robert Friedland, the mine financier who also got his start in Vancouver and is leading the international race to develop huge coal and copper-gold projects in Mongolia.
In an interview, Lee said it’s just “pure coincidence” that Prophecy’s key assets include two Mongolian coal projects and a nickel-rich polymetallic property in the Canadian Yukon that once belonged to former Friedland company Galactic Resources.
“It isn’t so much that Robert Friedland was there and I’m following in his footsteps’’ said Lee.
Rather, he wants to deliver on a strategy that aims to offer financial leverage to rising commodity prices through the acquisition of overlooked coal, platinum group metal and nickel assets.
Entrepreneurial itch
Lee is the 36-year-old son of a Taiwanese diplomat who went to boarding school in England and has developed a view of the world that is based on the experience of having lived in Asia, Europe and North America.
His involvement in Mongolia stems from the April merger of Red Hill Energy Inc. and Prophecy, a shell company that Lee had dusted off in order to relieve an entrepreneurial itch that couldn’t be scratched when he was running MAU Capital Management of Point Roberts, Wash.
Trading at 76 cents on Friday in a 52-week range of 99 cents and 30 cents, Prophecy has a market value of $96 million, based on the 126 million shares outstanding (160 million fully diluted).
Lee was an early investor in Red Hill which had two coal properties in Mongolia, including:
- The Ulaan Ovoo, which hosts 209 million tonnes of thermal coal and is located about 10 kilometres from the border with Russia.
- The much larger Chandgana project, which hosts about 1.2 billion tonnes of coal, but is located “in the middle of nowhere” in eastern Mongolia, according to Lee.
Ulaan Ovoo is the more advanced of the two. Having recently received permission to start production, the company is already sending coal from Ulaan Ovoo to local power plants in the Mongolian cities of Darkhan and Erdenet.
The larger goal is to ship coal through Russia and the eastern seaboard, where it will eventually be sold to buyers in Japan and Korea.
In keeping with that strategy, Prophecy is currently negotiating off take agreements with a number of Russian companies, and is waiting for final mining permits to be issued.
“We are very optimistic about obtaining an off take agreement by the end of this year,’’ Lee said.
Other projects
With a production target of between 1.2 million tonnes and 1.4 million tonnes in 2011, Lee is hoping that his company can generate about $10 million of cash flow in 2011. (That estimate is based on the off take agreement talks).
That money will be used to finance other projects in Prophecy’s portfolio, including Chandgana, where the remote location appears to be the main challenge.
“The problem with coal sitting in the middle of nowhere is that the transportation costs negate the margins that we can command when we try to get to the eastern seaboard,’’ said Lee.
Prophecy hopes to overcome this problem by applying for a licence to build a 600 megawatt power plant at the site. It also hopes to have its environmental impact assessment approved by the end of this year.
Once the coal operations are churning cash, Prophecy can turn its attention to the Canadian projects.
Justify Development
That includes exploration at the Wellgreen property in the Yukon which Prophecy acquired via a merger in September with Northern Platinum Ltd., a company whose involvement dates back to 1993, when Galactic Resources filed for bankruptcy.
While Prophecy needs to outline a large enough deposit to justify development, Lee saw the Wellgreen project as a cheap entry into the nickel and PGM sector, one that would balance any perceived political risks associated with Mongolia.
In financial documents, Prophecy said there can be no assurance that its assets will not be subject to nationalization, requisition, or confiscation by any body or authority.
It also said it can offer no assurances that provisions under Mongolian law for compensation and reimbursement of losses to investors under such circumstances would be effective in restoring the value of the company’s original investment.
Meanwhile, Prophecy has yet to structure an agreement that would give Mongolia an active stake in its coal operations. Such an agreement could have a lifespan of 20 years.
When Stockhouse visited Lee’s Vancouver office recently, he had just returned from Mongolia and was scrambling to hire the personnel that will be required to steer his company through its next stage of growth.
With the official opening ceremony at Ulaan Ovoo just weeks away, Lee is actively looking for a chief operating officer, a vice-president of exploration and vice-president, marketing.
“We have a lot of shoes to fill,’’ he said.
Aside from hiring, a key priority will be to gain a listing on the Mongolian stock exchange, a move that should allow native Mongolians to invest in his company.
“It’s our number one priority,’’ he said.
John Lee BIO
Since 2001, John Lee has been a mining analyst and accredited investor in the resource sector. In 2004 he founded Mau Capital Management and has researched hundreds of mining companies and personally met with dozens of management teams. He became President of Prophecy in 2009.