Vancouver-based Prophecy took a $US10 million loan with Waterton in July to complete the purchase of the Tugalgatai coal licenses in Mongolia. But the expiry of the original purchase and sales agreement with Tethys has constituted a default under the credit agreement.

The one-year loan bears interest at 14% and required a 2.5% structuring fee from Prophecy as well as issuance of 2.8 million of the miner’s common shares.

Toronto’s Waterton has agreed to waive the default subject to Prophecy issuing Waterton a further 2 million common shares, agreeing to pledge additional security and setting aside $3.5 million in escrow for purchase of the licenses and repayment of the loan.

The acquisition of the Tugalgatai licenses will represent an expansion of Prophecy’s Chandgana project, which hosts a thermal coal resource of 650 million tonnes (measured) and 540Mt (indicated).

By consolidating the 300sq.km Chandgana basin, Prophecy hopes to employ greater economies of scale at the Chandgana mine mouth power plant and further develop coal to chemicals and coal gasification projects.

Prophecy Coal has more than 1.4Bt of surface-mineable thermal coal resources on two properties in Mongolia.