ULAAN OVOO OVERVIEW

Location and Ownership

The 100% owned Ulaan-Ovoo coal deposit is strategically located 10 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 economically recoverable high quality, high volatile bituminous thermal coal with a 1.8:1 strip ratio. The caloric output is at 5,204 kcal/kg with low ash at 12.46% and very low sulfur of 0.40%. Coal thickness of 53 meters and first 8 years requires no washing with an estimated production cost of $10-$15/ton. The total Mineral Reserve Estimate is 20.7 M proven t (Mt) of Product (Low Ash) Coal in a Prefeasibility Study by Wardrop Engineering released on December 16, 2010. Mineral Reserve estimate considers only the first phase of the project development of the Mineral resources contained in the Ulaan Ovoo project. Opportunity may exist for extension of additional low ash reserves to the south with an expanded pit and a higher throughput rate. All coal quality values are stated on an "as received" basis.

The company on November 9 received the mine permit from the Mongolian Ministry of Mineral Resources and Energy. Leighton Engineering is contracted in July and has fully commissioned Ulaan Ovoo to production. Currently there are over 50 staff working at Ulaan Ovoo fully time and there are 20 staff working at Prophecy's Ulaan Baatar office. Ulaan Ovoo currently supplies coal to local Mongolian powerplants and the company is actively negotiating off take agreements with Russian power plants as well as prospective Asian customers at the Russian east seaports.


Location Map
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The northern part of the deposit area covers an area of approximately 790 hectares. Prophecy holds the Ulaan Ovoo Mine area under two mining licenses: 1231A with an area of 213 hectares and license 14657A with an area of 355 hectares. The mining licenses are issued for a term of 30 years with a 40-year extension option.

Surrounding the Ulaan Ovoo deposit are two prospective coal-bearing basins similar in size to Ulaan Ovoo. These basins have never been drilled but have the potential to contain additional resources. The area 100% owned by Prophecy covered a totals over 33,000 hectares. The company plans to drill these areas in 2011.

Exploration Work

The exploration work on Ulaan Ovoo includes a total of over 110 drill holes, more than 1,200 analyzed coal laboratory samples, hydrological and rock mechanics surveys, detailed mapping and several advanced mining, engineering and scoping studies. The project area is underlain by two main coal seams—with total net coal thickness up to 70 m—and five minor seams. Detailed exploration drilling work was performed on the deposit in the late 1970's by the Mongolian Ministry of Geology and Energy and from 1993-1997 by Erdenet, a Mongolian-Russian joint venture mining and processing company. The exploration results indicated a large coal deposit in the northern part of the deposit of over 78 million tonnes. The southern part of the deposit was incompletely explored but speculated to have an exploration target comparable in size to that of the north.


Looking South-West over the Ulaan Ovoo project area.
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Previous exploration work focused on a 3-square km area north of the fault, whereas the coal-bearing strata south of the fault remained poorly explored. The coal quality analyses performed during this program (including over 900 drill core samples) suggested that Ulaan Ovoo contained over 78 million tonnes of predominantly low-sulphur, high-volatile bituminous C coal.


Existing Ulaan Ovoo pit development
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In 2006, Red Hill (previous owner) commissioned Behre Dolbear Inc. (U.S.A.) 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. During the course of the program, 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%) over the original estimate, to a total coal resource of 208.8 million tonnes.

Environmental Approval Granted by Mongolian Government

The Ulaan Ovoo Project is fully compliant with all necessary environmental legislation. Prophecy received approval of a Detailed Environmental Impact Statement (DEIA) on Ulaan Ovoo from the Mongolian Ministry of Nature and the Environment. Under Mongolia's 2006 Minerals Law and 1995 Environmental Protection Law, approval of the DEIA is required before the project can be developed.

Prepared by Ecos LLC, an independent Mongolian environmental consulting company, the DEIA considers social and labour issues, climate and environmental circumstances of the project area, and potential environmental impacts of a full mining operation, among other things. The study concluded that there are no major impediments to mining 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. It found that a large majority of the local residents and soum (township) government support the project. Opening of the Ulaan Ovoo Mine is highly anticipated because of its potential to bring new families, jobs and industries to the local economy.


Coal Seam

Coal Core

Mongolian Technical and Economic Study

TAMC Consulting & Services, a Mongolian mineral consulting services company, has recently completed a full Mongolian Technical and Economic Study for the Ulaan Ovoo Mine. The study calls for mine production to commence with 175,000 tonnes in 2010. It will then increase gradually to 2 million tonnes per year over the period 2010-2012 as a new railway and additional coal handling facilities are constructed. Following completion of the railway in 2013, production will reach 6 million tonnes per year.


Existing Ulaan Ovoo road
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The Study focuses on an initial reserve of 78.9 million tonnes, which is the amount registered with the Minerals Resource Authority of Mongolia (MRAM). The NI 43-101 Pre-feasibility Study identified an additional 30 million tonnes of economically mineable coal in the new southern resource block. This additional reserve has been excluded pending registration of the additional resource with MRAM. Inclusion of the extra reserve will add 5 years to the projected mine life and could significantly improve the project financial outcomes.