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CHANDGANA OVERVIEW

Location and Ownership

The 100% owned Chandgana coal project is strategically located in the northeast part of the Nyalga coal basin in southeast central Mongolia. The Chandgana project consists of two major coal deposits, the Chandgana Tal with a measured and indicated resource of 141 million tonnes and Chandgana Khavtgai with a measured and indicated resource of 1,000 million tonnes. The projects are located 9 km apart, approximately 290 km east of Mongolia's capital, Ulaanbaatar. Both projects are reasonably close to good infrastructure – towns, roads, and electric transmission lines. The Nyalga Coal Basin is linked by paved highway to both Mongolia's capital Ulaanbaatar (300 km to the east) and the Trans-Mongolian Railroad (160 km to the east), giving direct rail access to China to the south and Russia to the north.

With over 1 billion tonnes of coal Prohecy's Chandgana projects are ideally suited for future 4,200MW to 10,000 MW installed base power plant; And on November 15,2010, the compnay received the approval of our Detailed Environmental Impact Assessment (DEIA) pertaining to the construction of a pit-mouth 600MW coal fired power plant.

Chandgana is approximately 1,000 km from Beijing and 350km from the Chinese border. Mongolia's Choibalsan City, where Mongolian East Energy System ends, is merely 70km from the Chinese border giving the potential to supply Chandgana electricity to China via dedicated 800kv DC lines.

The initial 2x300 MW power plants will be built on Prophecy owned land and serviced by 2.4 million tonnes of coal annually from Prophecy's 150-million-tonne Chandgana Tal coal project (the coal mine can be fully commissioned within 90 days) with a strip ratio of 0.5 to 1. and a renewable 40-year mining license. Future plant expansions will be serviced by Prophecy's 1.05 billion tonnes Chandgana Khavtgai coal project. Prophecy is currently evaluating proposals and offers on power off take, design and constructions of plant and transmission lines, and investment.

The Chandgana Tal coal project consists of two mineral licenses: a 32-hectare mining license and an adjacent 300-hectare exploration license. About 9.3 million tonnes are contained on the mining license, and the remaining 132.0 million tonnes are contained on the exploration license. At Chandgana Khavtgai, the entire resource is contained on a single 37,271-hectare exploration license.

Exploration Work

Chandgana Tal coal was first discovered by Russian geological reconnaissance surveying in 1941 and subsequently explored in detail in 1962-1963. Exploration during this period consisted of digging 116 outcrop trenches and drilling and coring 24 exploration boreholes. In 1967, a small mine was opened to supply heating coal for local consumption and the mine has operated almost continuously since, producing up to 20,000 tonnes of coal per year. The 1962-1963 Russian detailed exploration campaign defined coal resources, registered with the Mongolian States Reserve Council, using resource categories different from those currently accepted under Canadian National Instrument 43-101 (NI 43-101), but incorporating resource parameters—minimum coal thicknesses and maximum included parting thicknesses—generally consistent with those used today. Using the Russian resource terminology, the area covered by Red Hill's two licenses was estimated to contain a coal resource of 31.0 million tonnes classified as categories A and B (roughly equivalent to Measured), 59.6 million tonnes classified as category C1 (Indicated) and 42.7 million tonnes classified as category C2 (Inferred).

A diamond core drilling program was completed at Chandgana Tal in May 2007. Eight core holes were completed for total of 730 total metres of core, over 300 metres of which consisted of coal. Drilling was spaced closely enough to completely categorize the resource as Measured, following NI 43-101 and JORC reporting standards. Two holes were drilled as twins to historical drill holes and confirm the seam thicknesses reported previously. One twinned hole more than doubled the reported coal thickness because the historical drill hole was terminated before the full interval was penetrated. Over 200 core samples were taken from all drill holes and were analyzed at SGS's internationally certified laboratory in Tianjin, China. Results from this program increased the total Measured resource by 50.7 million tonnes (56%) to 141.3 million tonnes.

A 7-hole diamond core drilling program (1,237 metres) at Chandgana Khavtgai was conducted in August and September 2007. The drilling recovered 160 total metres of coal from 5 holes and defined the resource extent. Over 80 core and surface trench samples were taken and analyzed by SGS Laboratories. The new drilling confirmed 657 million tonnes of Measured and Indicated resource at Chandgana Khavtgai, with an Inferred resource of 409 million tonnes awaiting additional exploration.

In September 2008, 7 lines (15,400 m) of Induced Polarization (IP) resistivity & magnetic surveys were performed for Red Hill by Geosan LLC at Chandgana Khavtgai. The purpose of the survey was to locate the basin-bounding normal fault. Preliminary evaluations of the IP resistivity profiles suggest that the resource area may be significantly larger than originally modeled.

A Massive Thermal Coal Resource

Combined, the Chandgana projects contain almost 1,211 million tonnes of Measured and Indicated (NI 43-101) coal. Detailed NI 43-101 technical resource reports have been prepared for both projects and can be reviewed here for the Chandgana Khavtgai and here for the Chandgana Tal.

The Chandgana projects form two parts of the same massive coal deposit. As a result, the coal quality and characteristics are very similar. Most of the coal resource at both projects is carried by a single shallow thick seam. This seam is from 37.7 to 45.4 m thick, is essentially flat-lying, and is very shallow—favourable conditions for a potential future large-scale open-pit operation having a very low stripping ratio. At Chandgana Tal, the entire 141.3 million tonne resource has an average in-place strip ratio (bcm/tonne) of only 0.53:1. In addition, the 1.2 billion tonnes of coal at Chandgana Khavtgai have an average strip ratio of 1.9:1, well within the economic margins of most operating surface coal mines.

Chandgana Coal Seam

The Chandgana projects contain a low-ash, low-sulphur subbituminous C thermal coal with an average air-dried calorific value of 4,300 kcal/kg (7,700 Btu/lb). Coal of similar quality is used throughout the region primarily for electricity generation in mine mouth coal-fired power plants.

Railway Map

Power Line Plan for Chandgana