Prophecy Resource Corp.
TSX VENTURE : PCY
FRANKFURT : 1P2
OTCQX : PRPCF

Prophecy Resource Corp.

December 16, 2010 15:47 ET

Prophecy Files Prefeasibility Study for the Ulaan Ovoo Coal Mine in Mongolia

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 16, 2010) - Prophecy Resource Corp. ("Prophecy" or the "Company") (TSX VENTURE:PCY)(OTCQX:PRPCF)(FRANKFURT:1P2) reports the Company has received an updated prefeasibility study on the Ulaan Ovoo deposit in northern Mongolia. The Report is authored by Brian Saul, P.Eng., and Steve Krajewski, Ed. D., P.G. of Wardrop Engineering Inc., a Tetra Tech Company, both independent Qualified Persons. The focus of this study was for the development of low ash coal reserves in the form of a starter pit. Considerable work has been completed on the starter pit design, identification of market opportunities and transportation costs since the Pre Feasibility Study was issued by Minarco in May 2009. The study is filed and available on SEDAR.

Reserve and Throughput:

The recommendation is for the coal deposit to be mined by open pit methods. A mining contractor is to mine 250,000 tonnes (t) of product coal in 2010, 1.1 million (M) t of product coal in 2011 and 2 million tonnes per year thereafter.

The estimated reserve is shown in the table below:

Estimated Reserve Tonnages

Coal Reserve Statement Description Amount
Low Ash Product Coal (kt) 20,724
Waste (kt) 83,854
Waste (kBCM) 37,268
Total (kt) 105,298
Stripping Ratio (BCM:t) 1.8
Ash Content (%) 11.3
Calorific Value (kcal/kg) 5,040
Moisture (%) 21.7
Mine Life (years) 10.7
Process Rate (kt/annum) 2,000

All coal quality values are stated on an "as received" basis. The total Mineral Reserve Estimate is 20.7 M proven t (Mt) of Product (Low Ash) Coal. 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.

Operating costs

Operating costs per tonne of ore mined are estimated at $US10.23. The break down of the costs is as follows.

Operating Cost Estimate

Area Unit Cost (US $ /t coal)
Coal Mining 9.40
On-Site Coal Handling 0.35
Administration & Overhead 0.48
Total 10.23

The above unit operating cost is the average for Life-of-Mine including contractor and owner-operated mining. Contractor costs include equipment lease costs.

Capital Costs

Initial Capital costs of US$69.7 million (including contingency) are estimated for the project.

Capital; Initial Capital Summary

Area Unit Cost
(US $ M)
Mobile Equipment Fleet 32.3
Site Infrastructure 7.0
Project Indirect 6.4
Owners Cost 0.3
Road Transport 15.5
Reclamation 0.3
Subtotal 61.8
Working capital 4.0
Contingency 3.9
Total 69.7

The sustaining capital of the project is estimated at $18.5 million.

Since July, substantial Road Transport and Site infrastructure development has been completed. This includes a workshop, clinic, housing for 60 staff, and road and bridge upgrade. Prophecy has also been sourcing availability and pricing for Equipment Fleet in Mongolia.

Financial Analysis

A financial evaluation of the Ulaan Ovoo Project was based on a post-tax financial model. For the 10.7 year mine life the following pre-tax financial parameters were calculated:

  • 25.5% Internal Rate of Return (IRR).
  • 4.5 Years payback on US $ 85.9 M capital.
  • US $ 71.0 M Net Present Value (NPV) at 10% discount value.

Sensitivity analyses were carried out to evaluate the project economics with US$40/t base case coal price sold at the Mongolian-Russian border.

The post-tax financial model was established on a 100% equity basis. Discount rates of 10% were applied to all cases identified by coal price scenarios with the results are presented below

Summary of NPV, IRR, and Payback

Coal Price NPV 10
(US$ M)
IRR
(%)
Payback
(Yrs)
Minus 30% -62.28 -4.4 13.1
Minus 20% -17.82 6.1 10.7
Minus 10% 26.58 15.8 7.0
Base Case $40/t Coal 70.98 25.5 4.5
Plus 10% 115.38 35.7 3.6
Plus 20% 159.77 46.8 3.1
Plus 30% 204.17 59.2 2.7

Conclusion and Opportunity

The financial evaluation indicates that the project is economically viable given the coal pricing assumption of US $40 per product tonne sold at the Russia/Mongolia border port of Naushki. The following actions are recommended as part of a feasibility study:

  • Sign coal contracts with end users or agents.
  • Continue with additional coal marketing studies to determine alternate opportunities.
  • Complete detailed engineering to prepare specifications for mobile equipment and site infrastructure
  • Determine if the operation is to be owner operated or contract operated for life-of- mine

The mineral reserve estimate considers only the first phase of the project development of the mineral resources contained in the Ulaan Ovoo project. Opportunity exists for extension of additional low ash reserves to the south with an expanded pit and a higher throughput rate.

A new study is required to expand coal marketing opportunities into the eastern seaboard of Russia due to proximity of the project to the Trans-Siberian railway. This will determine if there is opportunity to increase coal demand, thereby reduce unit mining costs with higher mining throughput rates. The Company intends to commission such feasibility study in fiscal 2011.

Brian Saul, P. Eng., an independent qualified person with Wardrop Engineering Inc. and one of the authors of the Report has reviewed and approved the results presented in this press release.

About Prophecy Resource

Prophecy Resource Corporation is an internationally diversified company engaged in developing energy, nickel and platinum group metals projects. The company controls over 1.4 billion tons of open-pittable thermal coal in Mongolia (839 Mt Measured, 579 Mt Indicated). Prophecy's Ulaan Ovoo coal mine is fully commissioned and in production. In Canada Prophecy owns Wellgreen PGM Project in Yukon, Lynn Lake Nickel Sulphide Project in Manitoba, and a 10% equity stake in Victory Nickel. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

ON BEHALF OF THE BOARD OF DIRECTORS of Prophecy Resource Corp.

John Lee, Chairman

Forward Looking Statements: This news release includes certain statements that may be deemed "forward-looking statements". All statements in this release, other than statements of historical facts, including, without limitation, statements regarding future plans and objectives of the companies are forward-looking statements that involve various risks and uncertainties. Although Prophecy believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Forward-looking statements are based on a number of material factors and assumptions. Factors that could cause actual results to differ materially from those in forward-looking statements include general economic, market or business conditions, and other risks detailed herein and from time to time in the filings made by the companies with securities regulators. Mineral exploration and development of mines is an inherently risky business. Accordingly the actual events may differ materially from those projected in the forward-looking statements. For more information on Prophecy and the risks and challenges of its businesses, investors should review filings that are available at www.sedar.com.

This press release does not constitute an offer to sell or a solicitation to buy any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended ("the U.S. Securities Act") or any state securities law and may not be offered or sold in the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

"Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release."

Contact Information