Location and Ownership

Prophecy’s 100% owned Ulaan Ovoo coal mine was commissioned to production in December 2010 and since that time the Company has spent over $55 million on the project, including road and bridge building, mining fleet, mining camp, pre-stripping, and other infrastructure and community improvement.

The Ulaan Ovoo property sits approximately 430 km by paved highway from the capital city of Mongolia, Ulaanbataar. It is also strategically located just 17 km from the Russian border and 120 km from both Mongolian and Russian rail links. The project contains 209 million tonnes of measured and indicated coal resources (NI 43-101; 174 Mt of measured and 34 Mt of Indicated*). A prefeasibility study of the initial mining area found the coal to be a high-quality, high-volatility sub bituminous rank (ASTM) thermal coal that is economically mineable with a 1.8:1 strip ratio. The average coal assay for the mining area is gross calorific value 5,040 kcal/kg with low ash at 11.3% and very low sulfur of 0.40% (all on the as-received basis). Characteristics of the deposit, including a coal thickness of at least 53 meters, a low strip ratio and no coal washing required for the first 8 years of operations, make for a low cost mining operation.

*-Ulaan Ovoo resource estimate is from the NI 43-101 Behre Dolbear report prepared in 2007. Coal reserves estimate from the NI 43-101 report prepared by Wardrop Engineering in 2010.

Production

In November 2013, Prophecy resumed mining operations at its Ulaan Ovoo (100% interest) coal mine in Mongolia. The mine restart plan has been on time and on budget.

The coal is trucked 120km to to the Sukhbaatar rail siding, which is then is transported by rail to Russian and Mongolian customers. The company expects to mine and transport approximately 30,000 to 50,000 tonnes of coal per month with 300,000 to 500,000 tonne target in 2014.

Since 2010, the Company has invested over $55 million at Ulaan Ovoo. This includes road and bridge construction, mining vehicles, mining camp, pre-stripping, and other infrastructure and community improvement. The Ulaan Ovoo thermal coal mine is strategically located 17 km from the Russian border and 120 km from both Mongolian and Russian rail links. Wardrop Engineering (Tetra Tech) estimated 174 Mt of measured and 34 Mt of indicated coal resources in an NI 43-101 report in 2010. The coal is bituminous (5,040 kcal/kg), low ash (11.3%), low sulphur (0.40%), and suitable for export. The mine features a single massive coal seam that is 45-80 m thick with an average strip ratio of 1.8:1. The first 8 years of mining requires no coal washing.

Exploration Work

To date, the exploration work on Ulaan Ovoo includes detailed mapping, over 110 drill holes, more than 1,200 coal and rock analyses, and rock mechanics tests and hydrological, rock mechanics,coal resource and advanced mining, engineering and scoping studies. The project area is underlain by two major coal seams—with total net coal thickness up to 70 m—and five minor seams. Detailed exploration drilling work was performed on the deposit during the late 1970′s by the Mongolian Ministry of Geology and Energy and again from 1993-1997 by Erdenet, a Mongolian-Russian joint venture mining and processing company. The results indicated a large coal deposit of over 78 million tonnes in the northern part of the deposit area. Exploration at the southern part of the deposit area was incomplete, but the resoure was speculated to be comparable in size to that of the north.

During 2006, Red Hill (predecessor to Prophecy),commissioned Behre Dolbear Inc. (USA) to supervise an 11-hole, 2,400 m diamond core drilling program at Ulaan Ovoo. Of these, six holes were drilled in the northern portion of the reserve to confirm previous results and five holes were drilled in the southern part of the area to increase the reliability of the model in this area. Over 362 core samples were taken, containing over 470 m of coal. The final results from the 2006 drilling program increased the resource estimate by an additional 130.8 million tonnes (168%), to 174.5 million tonnes in the Measured category, 34.3 million tonnes in the indicated category, and 35.9 million tonnes in the inferred category.

Environmental Approval Granted by Mongolian Government

Prophecy received approval of a Detailed Environmental Impact Statement (DEIA) on the Ulaan Ovoo project from the Mongolian Ministry of Nature and the Environment during 2008. Under Mongolia’s 2006 Minerals Law and 1995 Environmental Protection Law, approval of a DEIA is required before a project may be developed.

The DEIA was prepared by Ecos LLC, an independent Mongolian environmental consulting company, and considers social and labour issues, climate and environmental circumstances of the project area, potential environmental impacts of a full mining operation, as well as other important factors. The study concluded that there are no major impediments to mining at Ulaan Ovoo and provided recommendations on best practices for conservation of the environment and community. The DEIA also assessed the local public opinion of the project, finding that a large majority of the local residents and soum (township) government support the project because of its potential to bring new, high-paying employment opportunities and expansion of the local economy. During 2010, Prophecy received an Annual Environmental Protection Plan by the Mongolian Ministry of Environmental Protection.

In 2010, Prophecy received an Annual Environmental Protection Plan by the Mongolian Ministry of Environmental Protection.