Erdene Gold Inc.

Erdene Gold Inc.

February 21, 2006 07:30 ET

Erdene Announces Planned Acquisition of Kaoclay

Includes 20% Interest in Nova Scotia's Donkin Coal Project

Conference Call at 9:30 am ET Today

HALIFAX, NOVA SCOTIA--(CCNMatthews - Feb. 21, 2006) - Erdene Gold Inc. (TSX:ERD)
today announced it has reached an agreement with Kaoclay Resources Inc.
("Kaoclay") whereby Erdene will acquire all of the outstanding shares of Kaoclay
in exchange for shares and warrants of Erdene. Kaoclay is a Nova Scotia-based
private company involved in energy and industrial mineral projects in North
America with three advanced-stage projects. These projects include a 20 percent
interest in the exploration and development of the Donkin coal project in Nova
Scotia with Xstrata Coal Canada Limited ("Xstrata"), a wholly owned subsidiary
of Xstrata Coal plc., control of primary kaolin resources being commercially
produced by J.M. Huber Corporation in Georgia and a royalty interest in a major
aggregate development in Georgia to supply the southeast U.S. market. All figures
are in Canadian dollars unless otherwise specified.

"This acquisition is an ideal combination of strengths, adding Kaoclay's
strong potential for near-term cash flow opportunities in North America to
Erdene's high potential mineral and energy properties in Mongolia," said Peter
Akerley, President and CEO of Erdene Gold Inc. "The Kaoclay assets have
significant upside potential and are well managed by internationally
recognized partners who are leaders in their respective fields. We believe
adding assets of this magnitude to our portfolio creates a much stronger
company and will create significant long-term value for our shareholders."

"The board of Kaoclay sees this transaction as a strong positive for our
shareholders," said Philip Webster, Chairman of Kaoclay Resources Inc. "We are
very familiar with the strength of Erdene's management team, which has
accomplished a great deal in the last year. We believe they have the
experience and ability to realize the value of the Kaoclay assets and our
board was unanimous in recommending this transaction to our shareholders. This
gives our shareholders ownership in a Nova Scotia-based, TSX-listed company
with strong international relationships and an exciting portfolio of
exploration properties."

Erdene will continue to focus on its mineral opportunities in Mongolia,
where it has 68 exploration licences on four million acres. Erdene's
properties concentrate on the high growth commodities of molybdenum, copper,
gold, coal and uranium, and are well positioned next door to the vast Chinese

Highlights of the Transaction

- Creates a larger, stronger, TSX-listed company with the ability to
capitalize on diversified high-growth commodities in the short term
and exposure to Chinese demand and the developing Mongolian mineral
sector in the longer term
- Provides Erdene shareholders with near-term cash flow opportunities
from three advanced-stage projects
- Provides Kaoclay shareholders with access to Erdene's high potential
base metal, precious metal and energy exploration properties in
- Kaoclay's projects are all operated by joint venture or lease partners
who are leaders in their respective fields, which means Erdene's
operational resources will not be significantly impacted
- Adds greater liquidity and strengthens the Erdene shareholder base
- Builds on the partnership with Xstrata Coal, which owns 9.8 per cent
of Erdene and 66 per cent of the Donkin Alliance

About Kaoclay

Based in Halifax, Nova Scotia, Kaoclay has three advanced-stage projects
including coal assets in Nova Scotia and aggregate and kaolin clay assets in
Georgia and South Carolina, U.S. With a kaolin project already in early
commercial production, Kaoclay had annual revenue of $1 million and cash flow
from operations of $483,000 in the fiscal year ended June 30, 2005. Cash flow
is expected to increase significantly as other assets come into production
over the next five years, culminating with the anticipated production from the
Donkin coal exploration and development project.

Donkin Coal: High quality tidewater coal resource projected to produce
5 million tonnes annually by 2011

- Kaoclay is a 20 per cent partner in the Donkin Coal Alliance with
Xstrata, which owns 66 per cent, and Atlantic Green Energy Development
(USA), which owns 14 per cent. Pre-feasibility studies are scheduled
to commence in the spring of 2006 to evaluate the feasibility of
mining an estimated 200 million tonnes of thermal and metallurgical
coal located in the Sydney coal field. As much as 700 million tonnes
of coal may be accessed at Donkin, which is considered the last
remaining undeveloped block of high quality coal off Cape Breton.
Assuming positive results from the pre-feasibility study, Xstrata
expects to begin production in late 2009 with a projected annual
production of 5 million tonnes of coal by 2011.

Sparta Kaolin: High purity kaolin clay project, commercialized in 2005,
supplying the billion-dollar Georgia clay industry

- Kaoclay controls a number of primary kaolin deposits across central
Georgia through its wholly-owned U.S. subsidiary, Sparta Kaolin
Corporation ("Sparta"). These deposits offer high brightness and
particle shape attributes which make it valuable to the paper
industry. Finished products can sell in the range of US$100 to
$150 per ton. Through the prepayment for a limited quantity of its
resource, one of the world's largest producers of kaolin, J.M. Huber
Corporation, commercialized the clay in 2005. Huber is currently
supplying light weight coater products to the coated freesheet and
coated board paper markets under the brand HuberPrime™. Under a
sublease agreement Huber has pre-paid royalties totalling US$2,875,000
and has committed to pay a further US$600,000 by June 30, 2006. These
payments entitle them to mine 1,500,000 tons of crude kaolin.

Maddox Aggregate: Strategically located granite aggregate quarry being
developed to supply the Florida market

- Kaoclay owns an aggregate quarry in central Georgia ("Maddox Quarry")
under lease to Rinker Materials Corporation, a major global company
and one of the largest suppliers of construction aggregates in the
southeast U.S. The quarry, which is adjacent to rail, is expected to
begin production in early 2007. Initial annual output is expected to
be 1 million tons of granite aggregate with the potential to reach
4 million tons. The resource has the potential to provide aggregate
for a minimum of 20 years based on the current production projections.
Under the lease, Kaoclay is entitled to a royalty of the greater of
US$0.40 per ton mined or 7.5 per cent of selling price at the mine

Real Estate and Laboratory

- Kaoclay also owns significant real estate holdings in Georgia
including a high quality industrial minerals laboratory in Eatonton,
Georgia. Total revenue from the laboratory for Kaoclay's fiscal year
ended June 30, 2005 was $472,942.

Details of the Transaction

Erdene is listed on the Toronto Stock Exchange (TSX) under the symbol
ERD, and has 30,599,933 million shares outstanding. Kaoclay is a private
company with 8,979,950 shares outstanding. Each Kaoclay share will be
exchanged for 1.65 Erdene shares and a half warrant with each full warrant
entitling the holder to purchase an Erdene share at $1.60 for a period of
three years from closing. All of the directors of Kaoclay who own or control
shares have agreed to vote their shares in support of the transaction. Kaoclay
will be entitled to name two nominees to the Board of Directors of Erdene,
subject to approval by the Erdene Board.

The transaction must be approved by the shareholders of Kaoclay and is
subject to the receipt of all required regulatory and court approvals. If all
required approvals are received, it is expected that closing will take place
in May. Based on yesterday's closing price of Erdene shares, this puts an
approximate value of $15.6 million on the transaction.

Conference Call and Webcast

Management of Erdene will hold a conference call at 9:30 a.m. ET today to
discuss the agreement and answer questions. Participants can access the call
by dialing 1-800-814-4857 or 416-644-3414. The call will also be webcast live

A replay of the call will be available until midnight on March 6, 2006 by
dialing 1-877-289-8525 or 416-640-1917 and entering passcode 21177984 followed
by the number sign.

About Erdene Gold Inc.

Erdene Gold Inc. is a diversified mineral exploration company focused on
Mongolia with over 20 mineral exploration projects that include 68 licenses
and cover approximately four million acres. Significant projects include the
Zuun Mod molybdenum-copper project, the Central Basin Uranium Projects
(International Uranium Corporation Joint Venture), the Ikh Tal-Erdenet Mine
copper exploration program where high priority targets have been identified
adjacent to Mongolia's largest mining complex, the Tsenkher Gol Gold project
targeting a granite hosted disseminated gold target, the Galshar coal program,
where programs are underway to determine coal quality and thickness. Erdene
has a current working capital position of approximately $7 million. Erdene has
30,599,933 common shares issued and outstanding (before the issuance to
Kaoclay Shareholders) and a fully diluted share position of 35,188,910 common

Forward-Looking Statements

Certain information regarding Erdene ("the Company") contained herein may
constitute forward-looking statements within the meaning of applicable
securities laws. Forward-looking statements may include estimates, plans,
expectations, opinions, forecasts, projections, guidance or other statements
that are not statements of fact. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
The Company cautions that actual performance will be affected by a number of
factors, many of which are beyond the Company's control, and that future
events and results may vary substantially from what the Company currently
foresees. Factors that could cause actual results to differ materially from
those in forward-looking statements include market prices, exploitation and
exploration results, continued availability of capital and financing and
general economic, market or business conditions. The Company's forward-looking
statements are expressly qualified in their entirety by this cautionary
statement. The information contained herein is stated as of the current date
and subject to change after that date.

For additional information visit Erdene's website at or
contact the company via email at


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