Overview

Chandgana summary

Project Summary

Prophecy Power Generation LLC (PPG), wholly owned subsidiary of Prophecy Coal (the Company), is developing the Chandgana Coal-Fired Power Plant Project (Chandgana Power Plant) which includes the building of a 600 MW (4X150 MW) coal fired mine-mouth power plant in two phases. Phase one is proposed to be 300 MW (2 x 150MW) and phase two is proposed to be 300 MW (2 x 150MW). The proposed power plant will be located next to the Chandgana Tal coal deposit in Murun Soum, Khentii Province in Central Mongolia. The power plant construction license was received in November 2011 and is currently held by PPG. The land use agreement was received in March 2013.

Milestones

License / Approval	Date	Status
Power Plant Detailed Environmental Impact Assessment	Nov 2010	v Received
Chandgana Coal Mining License	Jan 2011	v Received
Power Transmission Line EIA Approval	Aug 2011	v Received
600 MW Chandgana Power Plant Construction License	Nov 2011	v Received
Chandgana Coal EIA Approval	Nov 2011	v Received
Power Purchase Agreement	Sep 2012	Submitted
Firm EPC Bids	Sep 2012	v Received
Chandgana Coal Preliminary Economic Assessment	Nov 2012	v Received
Project Finance Debt Term Sheet	Jan 2013	v Received
Geotechnical Study	Feb 2013	v Received
Chandgana Power Plant Land Use Approval	Mar 2013	v Received
Water & Power Supplies to Site During Construction permits	Mar 2013	v Received
Preliminary Mobilization Work	Apr 2013	v Started
Electricity Tariff Proposal*	May 2013	v Received
Coal Supply Agreement	June 2013	v Received
Project Qualified under Concession	Feb 2014	v Approved
Invitation from Ministry of Economic Development to Negotiate on Concession Agreement #7/2055	Oct 2014	v Received

*-Electricity tariff proposal from the working group designated by the Mongolian Ministry of Energy.

Coal supply for the proposed power plant will be from the adjacent Chandgana Tal deposit (100% owned by Prophecy Coal through its subsidiary Chandgana Coal LLC), which contains 124 million tonnes of measured coal resource* and is sufficient for approximately 30-40 years of the proposed power plant operation.

*The Chandgana Tal resource estimate is based on the November 2012 NI 43-101Updated Technical Report and PEA on Chandgana Tal by John T. Boyd Co. (USA)

In June, 2013 PPG signed a 25-years Coal Supply Agreement (CSA) with Chandgana Coal LLC (Chandgana Coal). As per the CSA, Chandgana Coal will supply 3.6 million tonnes of coal annually, at a price of USD17.70 per tonne for a period of 25 years. The CSA coal price is competitive to Mongolian domestic thermal coal prices. PPG has committed to purchase a minimum of 2 million tonnes on a “take or pay” basis, with customary breakup fees payable by PPG.

In May 2013, Prophecy received official correspondence from the Head of the Chandgana Power Plant project Working Group designated by the Mongolian Ministry of Energy. The correspondence outlined the terms of a tariff agreement reached between the Working Group and PPG for the Chandgana Power Plant project. The environmental impact assessment was approved in 2010 and other key environmental studies approved in 2012 and 2013. Feasibility, geotechnical, seismic, surface water and other required studies have been completed.

The Company is currently working with the National Electricity Transmission Grid Company (NETGCo) and the Chandgana Power Plant project Working Group designated by the Mongolian Ministry of Energy on finalizing the PPA.

Project Location

The project will be located in Murun Soum, Khentii Province, in Central Mongolia. The location is 300 km east of the capital city Ulaanbaatar and 55 km west of Undurkhaan city at an average elevation of 1,250 m. The available infrastructure is good with paved highway bordering the site, a rail terminal 155 km west, and communications.

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Once operational the project will largely be self sufficient. The coal resource with the mine will be located about 1 km south of the power plant such that the coal can be transported by conveyor belt rather than rail or truck. Living quarters for key personnel will be on site. Water will be supplied, treated and reused on site. Electrical power for the mine will be supplied by the power plant. All activities (mining, power production, supply to electrical grid) will occur on ground controlled by Prophecy.

Project Status

Prophecy Coal initiated obtaining the required licenses and permits for the power plant in early 2010. During November 2010, the Company received the approval of its Detailed Environmental Impact Assessment (DEIA).

Prophecy submitted a feasibility study in early 2011 and during November 2011 Prophecy Coal received the first 600 MW power plant construction license in Mongolian history. The mine-mouth power plant will be supplied with coal from Chandgana Tal coal deposit, for which the Company secured a mining license in January 2011.

During late 2011 and early 2012 Prophecy received requests for consideration to construct the power plant from Asian Engineering, Procurement and Construction (EPC) firms. Prophecy Coal shortlisted the field during June 2012 to three Chinese EPC firms. The Company then issued technical specification requirements in July 2012 and received three final tenders in September 2012. Evaluation of the final tenders indicates that the Chandgana Power Plant project construction costs are within the estimated capital budget of the project.

During May 2012, a Cooperation Covenant with the Mongolian Energy Authority (EA) was executed and during August 2012 the draft Power Purchase Agreement was submitted to NETGCo, the only authorized power purchasing company in Mongolia. Later, under the auspices of the Mongolian Ministry of Energy, Prophecy Coal submitted a separate Power Generation Tariff Application during September 2012 to the Mongolian Energy Regulatory Commission.

In May 2013, Prophecy received official correspondence from the Head of the Chandgana Power Plant project working group designated by the Mongolian Ministry of Energy. The correspondence outlined the terms of a tariff agreement reached between the Working Group and PPG for the Chandgana Power Plant project. The major terms of the tariff agreement include:

• An initial tariff for the first year of Power Plant operation; and
• A weighted average tariff for the remaining 24 years of power plant operation.

The tariffs are in-line with PPG’s final proposal submitted to the Working Group in February 2013. The Company is currently working with the NETGCo and the Chandgana Power Plant project working group designated by the Mongolian Ministry of Energy on finalizing the PPA.

The proposed Power Purchase Agreement (PPA) details the terms under which PPG would supply power to the NETGCo. The tariff proposed in the PPA is less than the cost of imported electricity from Russia and China and Mongolia’s wind farm tariff. The PPA incorporates capacity and energy charges to cover fixed and variable costs with foreign currency exchange protection and indexation to mitigate increases in the cost of supplies, labor, and fuel.

The development of the coal mine which will supply coal to the power plant are progressing in parallel with the Chandgana Power Plant project development so that coal is available for commissioning of Unit 1.

During March 2013, the Company secured a land use permit to 532.4 hectares of land to be used for Prophecy’s proposed Chandgana Power Plant from the Murum soum government.

The Environmental Impact Assessment for the project has been approved by the Mongolian Ministry of Nature and Environment and supported by the Mongolian Scientific and Technical Council. The power plant will be designed following Mongolian environmental standards and World Bank Standards applicable to new power plant projects.

Project Financing

The Company is in active discussions with international investment banks currently involved in Mongolian projects, large-scale organizations currently engaged in international energy production projects and private equity firms. Prophecy entered into non-binding Memorandum Of Understanding with one the largest power generation groups (Strategic Investor) in the world to jointly develop the 600MW Chandgana Power Plant Project. The Strategic Investor is currently finalizing due diligence of the project.

In December 2012, the Company received an indicative terms and conditions issued by a major international bank for a proposed loan in favour of Prophecy Coal Corp. for the purpose of funding the development and construction of the Chandgana Power Plant Project. The proceeds of the loan will be used to finance up to 85% of the total value of the EPC contract which is to be signed between the appointed engineering, procurement and construction contractor and the borrower.

Prophecy Coal has also received a non-binding letter of intent respecting an equity investment of up to 20% in the Chandgana Power Plant Project. The letter of intent was received from a qualified EPC contractor who is on the Company’s final list of EPC bidders.

Fuel Supply

Approximately 3.6 million tonnes per year will be required to meet the proposed Chandgana 600 MW power plant demand. Prophecy’s Chandgana coal resource consists of two properties-Chandgana Tal and Chandgana Khavtgai. The Company’s existing Chandgana licenses host a measured resource of 650 million tonnes and an indicated resource of 540 million tonnes of thermal coal**. The main fuel supply for the power plant will be the coal from the adjacent Chandgana Tal deposit, which contains 124 million tonnes of measured coal resource and is sufficient for approximately 30-40 years of power plant operation.

**-Chandgana consists of two properties-Chandgana Tal and Khavtgai Uul. Chandgana Tal consists of 124.4 mt of measured resource. Khavtgai Uul consists of 509 mt measured and 539 mt indicated resource. Khavtga Uul’s resource estimates are based on the September 2010 NI 43-101 Khavtgai Uul Technical Report by Kravits Geological Services, LLC. The report is authored by Christopher M. Kravits CPG, LPG of Kravits Geological Services, LLC., who was an independent Qualified Person under NI 43-101 at the time of the report. The Chandgana Tal resource estimate is based on the November 2012 NI 43-101Updated Technical Report and PEA on Chandgana Tal by John T. Boyd Co. (USA).

In June, 2013 PPG signed a 25-years Coal Supply Agreement (CSA) with Chandgana Coal LLC (Chandgana Coal). As per the CSA, Chandgana Coal will supply 3.6 million tonnes of coal annually, at a price of USD17.70 per tonne for a period of 25 years. The CSA coal price is competitive to Mongolian domestic thermal coal prices. PPG has committed to purchase a minimum of 2 million tonnes on a “take or pay” basis, with customary breakup fees payable by PPG.

The raw water supply will come from ground water. The water will come from dewatering the mine pit and wells which are the preferred sources. Current indications are that sufficient water is available from ground water at the site but a study will be conducted to prove this. Water from the Murun and Kherlen Rivers are considered back up sources. A study was performed to assess these rivers as sources and found the deliverability and quality of these waters acceptable.

A water treatment plant will be constructed at the beginning of the construction period to supply potable water for the power plant construction site and for the coal mine. This will later become the long term potable water supply for the power plant and the mine. This with the use of a closed-circuit air-cooled cooling system also help meet the goal of being a zero discharge facility.

Transmission Lines

The Chandgana Power Plant is proposed to be located between the Central Electricity System (CES) connection at Baganuur and the East Electricity System (EES) connection at Undurkhaan. Transmission lines and support facilities will be constructed to bring electrical power to the CES connection and EES connection and so connect both systems. The transmission lines and support facilities is proposed to be built by the Mongolian Government.

The CES is the biggest power generation and transmission system in Mongolia. It has a basic transmission grid of 220kV and 110 kV Over Head Transmission Lines (OHTL). A 220kV ring system connects the principal generation and load centers of Ulaanbaatar, Darkhan and Erdenet and additional 220kV connections with load centers at Baganuur and Choir. During peak load periods, electricity is imported from the Russian Federation in order to meet and regulate electricity demand of the system. The Chandgana Power Plant will be connected by a 220kV 2 circuit OHTL to the CES system 150km away at Baganuur.

The Baganuur sub-station is linked with Power Plant #4 in Ulaanbaatar by a 220 kV two circuit OHTL approximately 130 km long. The line transmitter is AC 300 and the transmitter’s heat maximum current of one circuit is 710 A or 255 MW, of two-circuits is 1420 A or 510 MW. The economically efficient maximum capacity of one circuit is 130 MW and of two circuits is 260 MW.

From Baganuur sub-station the power could go to Choir to supply industrial users in the South Gobi area such as Oyu Tolgoi (OT), Tavan Tolgoi (TT), and others. The Baganuur sub-station is linked with the Choir sub-station by a 220 kV one circuit 180 km long line. The line transmitter is AC 240 and the transmitter’s peat maximum current of one circuit is 605 A or 217 MW. The economically efficient maximum capacity is 96 MW.

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained on this page, including statements which may contain words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or similar expressions, and statements related to matters which are not historical facts, are forward-looking information within the meaning of applicable securities laws. Such forward-looking statements, which reflect management’s expectations regarding Prophecy’s future growth, results of operations, performance, business prospects and opportunities, are based on certain factors and assumptions and involve known and unknown risks and uncertainties which may cause the actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. These estimates and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies, many of which, with respect to future events, are subject to change and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by Prophecy.

In making forward-looking statements as may be included on this page, Prophecy has made several assumptions that it believes are appropriate, including, but not limited to assumptions that:; there being no significant disruptions affecting operations, such as due to labour disruptions; currency exchange rates being approximately consistent with current levels; certain price assumptions for coal, prices for and availability of fuel, parts and equipment and other key supplies remain consistent with current levels; production forecasts meeting expectations; the accuracy of Prophecy’s current mineral resource estimates; labour and materials costs increasing on a basis consistent with Prophecy’s current expectations; and that any additional required financing will be available on reasonable terms. Prophecy cannot assure you that any of these assumptions will prove to be correct.

Numerous factors could cause Prophecy’s actual results to differ materially from those expressed or implied in the forward looking statements, including the following risks and uncertainties, which are discussed in greater detail under the heading “Risk Factors” in Prophecy’s most recent Management Discussion and Analysis and Annual Information Form as filed on SEDAR and posted on Prophecy’s website: Prophecy’s history of net losses and lack of foreseeable cash flow; exploration, development and production risks, including risks related to the development of Prophecy’s Ulaan Ovoo coal property; Prophecy not having a history of profitable mineral production; the uncertainty of mineral resource and mineral reserve estimates; the capital and operating costs required to bring Prophecy’s projects into production and the resulting economic returns from its projects; foreign operations and political conditions, including the legal and political risks of operating in Mongolia, which is a developing jurisdiction; title to Prophecy’s mineral properties; environmental risks; the competitive nature of the mining business; lack of infrastructure; Prophecy’s reliance on key personnel; uninsured risks; commodity price fluctuations; reliance on contractors; Prophecy’s minority interest in Prophecy Platinum Ltd.; Prophecy’s need for substantial additional funding and the risk of not securing such funding on reasonable terms or at all; foreign exchange risks; anti-corruption legislation; recent global financial conditions; the payment of dividends; and conflicts of interest.

These factors should be considered carefully, and readers should not place undue reliance on the Prophecy’s forward-looking statements. Prophecy believes that the expectations reflected in the forward-
looking statements contained on this page and the documents incorporated by reference herein are reasonable, but no assurance can be given that these expectations will prove to be correct. In addition, although Prophecy has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Prophecy undertakes no obligation to release publicly any future revisions to forward-looking statements to reflect events or circumstances after the date when information on this page is published or to reflect the occurrence of unanticipated events, except as expressly required by law.