Prophecy Receives Non-Binding Project Financing Indicative Term Sheet and Letter of Intent on a Project Equity Investment

Vancouver, British Columbia, February 6, 2013: Prophecy Coal Corp. (“Prophecy” or the “Company”) (TSX: PCY, OTCQX: PRPCF, Frankfurt: 1P2)  is pleased to announce that it has received indicative terms and conditions issued by a major international bank, (the “Potential Lender”), for a proposed loan (the “Loan”) in favour of Prophecy Coal Corp. (“Borrower”) for the purpose of funding the development and construction of the Chandgana Tal 4X150MW Power Plant Project in Khentii Province, Mongolia (the “Project”).

It is proposed that the proceeds of the Loan will be used to finance up to 85% of the total value of the commercial contract which to be signed between the appointed engineering, procurement and construction (“EPC”) contractor and the Borrower. The Loan would be repaid in 24 consecutive instalments for a repayment period of up to 12 years at a fixed premium to LIBOR.

Conditions precedent to the proposed Loan include, but are not limited to the following:

• receipt of all authorizations from all relevant authorities in Mongolia and China;
• approval from an export credit agency and by the credit committee of the Potential Lender;
• completion of due diligence and preparation of required documentation each to the satisfaction of the Potential Lender; and
• the execution of all relevant project and loan documentation.

Separately, Prophecy has received a non-binding letter of intent respecting an equity investment (the “Investment”) of up to 20% in the Project. The letter of intent was received from a qualified EPC contractor (the “Potential Investor”) who is on Prophecy’s final list of EPC bidders and is the same EPC contractor referred to in the indicative terms and conditions issued by the Prospective Lender. It is proposed that the Investment would be subject to the receipt of a guarantee on the Project by the Mongolian Government, a signed EPC contract with the Investor, satisfactory execution of a power purchase agreement (the “PPA”), completion of the remaining 80% of the Project financing, and receipt of all necessary project clearances and approvals.

Further to the press release dated November 14, the Ministry of Energy of Mongolia has issued the letter of support to Prophecy’s proposed JV partner (“JV Partner”), one of world’s largest thermal power generation groups. Prophecy and JV Partner are advancing the due diligence towards a definitive investment agreement.

Prophecy, led by Chairman John Lee, continues to engage closely with all relevant Mongolian government agencies and Ministries to complete the PPA timely. The Company likes to take the opportunity to thank all Mongolian government officials and working group members for their time and effort dedicated to the Project. The proposed construction starting date is 2nd quarter of 2013 with a signed PPA.

The Company cautions that Project Financing can have a very long lead time and there is no assurance that the Company and the Project can pass all the due diligence requirements to secure the necessary funding.

About Prophecy Coal

Further information on the Company can be found at www.prophecycoal.com.

ON BEHALF OF THE BOARD OF PROPHECY COAL CORP.

“JOHN LEE”
John Lee
CEO/Chairman

For more information about Prophecy, please contact:

Forward Looking Statements: This news release includes certain “forward-looking statements” and “forward looking information” as defined under applicable securities regulatory authorities in Canada (collectively, the “forward-looking statements”). All statements in this release, other than statements of historical fact, including, without limitation, statements of potential mineralization, the estimation of mineral resources, the realization of mineral resource estimates, interpretation of prior exploration and potential exploration results, the timing and success of exploration activities generally, the timing and results of future resource estimates, permitting time lines, metal prices and currency exchange rates, availability of capital, government regulation of exploration operations, environmental risks, reclamation, title, and future plans and objectives of the Company are forward-looking statements that involve various risks and uncertainties. Although Prophecy Coal 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 unsuccessful exploration results, changes in project parameters as plans continue to be refined, results of future resource estimates, future metal prices, availability of capital and financing on acceptable terms, general economic, market or business conditions, risks associated with operating in foreign jurisdictions, uninsured risks, regulatory changes, defects in title, availability of personnel, materials and equipment on a timely basis, accidents or equipment breakdowns, delays in receiving government approvals, unanticipated environmental impacts on operations and costs to remedy same, and other exploration or other risks detailed herein and from time to time in the filings made by the Company with securities regulators. Assumptions underlying the Company’s expectations regarding forward-looking statements contained in this news release include, among others, that all required third party contractual, regulatory and governmental approvals will ultimately be obtained for the development, construction and production of the Company’s properties, there being no significant disruptions affecting operations, including labour disruptions, currency exchange rates being approximately consistent with current levels, certain price assumptions for coal, prices for and availability of fuel, parts and equipment and other key supplies remaining consistent with current levels, production forecasts meeting expectations, the accuracy of the Company’s current mineral resource and reserve estimates, labour and material costs increasing on a basis consistent with the Company’s current expectations and that any additional required financing will be available on reasonable terms. Readers are cautioned that mineral resources that are not mineral reserves do not have demonstrated economic viability. 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.  The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect changes in assumptions or the occurrence of anticipated or unanticipated events, except as required by law. For more information on Prophecy Coal and its wholly-owned subsidiaries and the risks and challenges of their businesses, investors should review their annual filings that are available at www.sedar.com.