UPDATED TECHNICAL REPORT ON THE COAL RESOURCES OF THE CHANDGANA KHAVTGAI COAL RESOURCE AREA, KHENTII AIMAG, MONGOLIA Prepared for: Prophecy Resource Corporation Vancouver, British Columbia Canada Prepared by: Christopher M. Kravits CPG, LPG Kravits Geological Services, LLC Salina, Utah USA September 28, 2010 Updated Technical Report on the Coal Resources of the Chandgana Khavtgai Coal Resource Area 1 TABLE OF CONTENTS 1 TABLE OF CONTENTS............................................................................................ii 1.1 LIST OF FIGURES............................................................................................................... V 1.2 LIST OF TABLES ................................................................................................................ V 1.3 LIST OF MAPS.................................................................................................................. V 2 SUMMARY...........................................................................................................1 3 INTRODUCTION ...................................................................................................3 3.1 PURPOSE, INFORMATION SOURCES, AND SITE INSPECTION......................................................3 3.2 COMPLETE INFORMATION..................................................................................................4 4 RELIANCE ON OTHER EXPERTS .............................................................................5 5 PROPERTY DESCRIPTION AND LOCATION.............................................................7 5.1 LOCATION AND SIZE..........................................................................................................7 5.2 EXPLORATION LICENSE DESCRIPTION ...................................................................................7 5.3 RESOURCES AND MINING ACTIVITY OUTSIDE THE LICENSE ......................................................9 6 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY .................................................................................................11 6.1 ACCESSIBILITY................................................................................................................11 6.2 CLIMATE AND VEGETATION..............................................................................................11 6.3 LOCAL RESOURCES .........................................................................................................11 6.4 INFRASTRUCTURE AND POPULATION CENTRES.....................................................................11 6.5 PHYSIOGRAPHY..............................................................................................................13 7 HISTORY ............................................................................................................15 8 GEOLOGICAL SETTING........................................................................................16 8.1 REGIONAL GEOLOGY.......................................................................................................16 8.1.1 Surficial Deposits and Sedimentary Rocks ..................................................................16 8.1.2 Igneous and Metamorphic Rocks................................................................................18 8.1.3 Structural Geology ......................................................................................................18 8.2 RESOURCE AREA GEOLOGY ..............................................................................................18 8.2.1 Surficial Deposits and Sedimentary Rocks ..................................................................18 8.2.2 Structural Geology ......................................................................................................19 9 DEPOSIT TYPES ..................................................................................................24 9.1 DETERMINATION............................................................................................................24 9.2 GEOLOGIC MODEL .........................................................................................................24 10 MINERALISATION...............................................................................................28 10.1 DEFINITIONS AND PARAMETERS........................................................................................28 10.2 COAL SEAM CHARACTER AND SURROUNDING ROCKS ...........................................................28 10.3 COAL DESCRIPTION, TYPE, GRADE AND RANK .....................................................................30 Kravits Geological Services, LLC ii Updated Technical Report on the Coal Resources of the Chandgana Khavtgai Coal Resource Area 11 EXPLORATION....................................................................................................46 11.1 PREPARATION PHASE......................................................................................................46 11.2 EXPLORATION PHASE ......................................................................................................47 11.2.1 Literature and Records Search ....................................................................................47 11.2.2 Interpretation of Imagery ...........................................................................................47 11.2.3 Surface Mapping .........................................................................................................47 11.2.4 Trenching.....................................................................................................................47 11.2.5 Drilling .........................................................................................................................48 11.2.6 Seismic Geophysical Methods.....................................................................................49 11.2.7 Resistivity‐IP Methods.................................................................................................49 11.2.8 Magnetometer Methods.............................................................................................51 11.3 DATA REVIEW AND PRESENTATION PHASE..........................................................................52 11.4 SUMMARY ....................................................................................................................53 12 DRILLING............................................................................................................54 12.1 TYPE AND EXTENT ..........................................................................................................54 12.2 SUMMARY AND INTERPRETATION OF RESULTS.....................................................................55 13 SAMPLING METHOD AND APPROACH................................................................56 13.1 SAMPLING APPROACH ....................................................................................................56 13.2 SAMPLING METHOD .......................................................................................................56 13.3 SAMPLE QUALITY ...........................................................................................................59 14 SAMPLE PREPARATION, ASSAYS AND SECURITY ................................................60 14.1 LABORATORIES ..............................................................................................................60 14.2 SAMPLE PREPARATION....................................................................................................60 14.3 SAMPLE ASSAYS.............................................................................................................61 14.4 SAMPLE SECURITY ..........................................................................................................61 15 DATA VERIFICATION ..........................................................................................63 15.1 DATA VERIFICATION .......................................................................................................63 15.2 QUALITY CONTROL .........................................................................................................63 15.3 REMOVAL OF UNUSABLE DATA.........................................................................................64 15.4 RESULTS .......................................................................................................................65 16 ADJACENT PROPERTIES......................................................................................66 17 MINERAL PROCESSING AND METALLURGICAL TESTING .....................................67 18 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES .................................68 18.1 RESOURCE ESTIMATION REQUIREMENTS ............................................................................68 18.2 DETERMINATIONS, PARAMETERS AND METHODS ................................................................68 18.2.1 Determinations ...........................................................................................................68 18.2.2 Parameters..................................................................................................................69 18.2.3 Methods......................................................................................................................70 18.3 COAL SEAM RESOURCES..................................................................................................72 18.4