Monday, 18 June 2012

Prophecy Coal consolidates Chandgana Coal basin through Tugalgatai license deal

Prophecy Coal Corp. (TSE:PCY)(OTCQX:PRPCF) Monday entered into an agreement to acquire assets relating to certain
Tugalgatai coal exploration licenses from Tethys Mining LLC.

The Tugalgatai licenses are contiguous to the company's Chandgana licenses which host a measured resource of 650 million tonnes and an indicated resource of 540 million tonnes of thermal coal.

"By consolidating the Chandgana coal basin of approximately 300 square kilometers, Prophecy is looking for greater
economies of scale to potentially produce low-cost electricity at the Chandgana mine mouth power plant, and further develop coal to chemicals and coal gasification projects," Prophecy Coal chairman and CEO John Lee said.

"It's also possible to further increase the resource through exploration in this highly prospective basin."

According to records reviewed by Prophecy, on March 15 2011 Tethys applied to register a resource estimate of 2.33 billion tonnes of thermal coal for the Tugalgatai licenses with the Minerals Resource Council of Mongolia. The resources registered by Tethys are not NI 43-101 compliant.

Prophecy expects to conduct work in due course with a view of preparing its own NI 43-101 estimate of the contained resource at Tugalgatai.

Since 2005, Tethys performed detailed exploration on the Tugalgatai licenses including drilling and geophysical methods, and conducted geotechnical, hydrogeological, environmental and topographic studies.

Exploration results indicate a large and geologically simple coal occurrence within the Tugalgatai licenses that is similar to Prophecy's Chandgana licenses.

The coal seam is continuous across the Nyalga Basin and outcrops to the northwest, with the main coal seam measuring up to 30 metres in thickness.

The terms of the agreement include a US$10 million upfront payment and an 8.5 percent royalty on future coal sales from both the Chandgana and Tugalgatai licenses.

The royalty can be extinguished by paying Tethys US$20 million before 2021 or US$25 million from 2021 onwards. Of the purchase price, $2 million will be immediately deposited in escrow.

The total payment will be paid to Tethys upon the transfer of the licenses.

Prophecy Coal is engaged in developing energy projects in Mongolia. Prophecy's Ulaan Ovoo mine is in production.

The company's proposed 600 megawatt mine-mouth power plant adjacent to the Chandgana coal deposit has been permitted by the Mongolian government. Negotiations on financing, power purchase agreement and construction management are underway.

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