The miner will sell 20 million shares at 45c each for the private placement.
Prophecy Coal said company insiders and existing shareholders had subscribed for a majority of the financing.
The placement will close before March 7, 2012.
Prophecy plans to apply the funds to technical work required to bring the Chandgana thermal coal power project into development.
On top of this, the funding will be injected into general working capital.
Prophecy Coal has more than 1.4 billion tons of surface mineable thermal coal resources on two coal properties in Mongolia.
Ulaan Ovoo is in production while the Chandgana mine-mouth power plant has been permitted.