Review & Update Letter From Prophecy Coal CEO and Chairman

Dear all,

I would like to first extend to you my best wishes for a happy and prosperous new year. Before sharing with you my outlook for 2013, I’d like to reflect on the development milestones of the proposed 600MW Chandgana Power Plant Project achieved in 2012:

• Signed Cooperation Covenant with the Mongolian Energy Authority to supply electricity by 2016
• Received final quotation from Equipment Procurement Construction (EPC) bidders
• Prepared and submitted Power Purchase Agreement (PPA)
• Submitted Electricity Generation Tariff Application (Tariff Application)
• Published Preliminary Economic Assessment (PEA) study for the Chandgana Tal deposit
• Signed Memorandum of Understanding with strategic partner to jointly develop the project
• Strengthened team with new director, advisors and management

The project has experienced delays, understandably, as we are working towards a potentially very large power purchase contract (proposed annual revenue anticipated to be in excess of $100 million), entering
into an EPC contract anticipated to exceed $500 million, securing project financing, and developing the project with a proposed joint venture partner. Discussions with the Mongolian government, interrupted briefly due to the Mongolian summer election, have been positive. I have been in Mongolia since November working towards achieving the above-noted milestones.

Prophecy’s goals for 2013 include the following:

• Reach consensus on tariff and finalize PPA
• Award EPC Contract
• Finalize strategic joint venture partner agreement
• Commence construction of power plant
• Complete project financing

Mongolia has not slowed down, as is clearly evidenced by the traffic and pollution. We are grateful that The Ministry of Energy has devoted resources to assist the Chandgana project to potentially start construction in 2013. With approved construction licenses for the power plant and the mine, we are working to become an advanced power development company. A great deal of professional man hours and capital resource has been invested. A very tangible and positive momentum has been building over the past months. I would like to thank our team, the Ministry and its various working group members, as well as our shareholders as Prophecy moves into this important new year.

With Best Regards,
John Lee, Chairman

Picture from office window 7pm Sunday night looking at Parliament house

Disclaimer: The letter contains a number of forward looking statements. The project requires significant capital and resources to develop and there are no assurances that the project construction will begin in 2013. For a full description of “Risk factors” of the company, please refer to the company’s Annual information form dated March 30, 2012 and filed on SEDAR at www.sedar.com.