Erdene Gold Inc.
TSX : ERD

Erdene Gold Inc.

February 01, 2007 08:00 ET

Erdene Gold Announces Agreement with Xstrata Copper to Explore Former Falconbridge Projects in Mongolia

Projects Provide Multiple Drill-Ready Porphyry Gold-Copper Targets

HALIFAX, NOVA SCOTIA--(CCNMatthews - Feb. 1, 2007) - Erdene Gold Inc. (TSX:ERD) today announced it has entered into an agreement with Xstrata Copper ("Xstrata") to acquire the rights to two Mongolian copper-gold properties, subject to certain vendor back-in rights. These projects were acquired through Xstrata plc's acquisition of Falconbridge Limited("Falconbridge"), in August 2006. The two properties, referred to as Mogoit and Tsagaan Ovoo, host copper-gold porphyry style targets located in central Mongolia.

"The Mogoit and Tsagaan Ovoo porphyry copper-gold properties were classified as high priority projects by Falconbridge, a recognized world leader in exploration, and provide exciting drill-ready targets," said Peter Akerley, President and CEO. "We are very pleased that Xstrata has again chosen Erdene as its exploration partner in Mongolia. This clearly demonstrates the confidence they have in our ability to lead the exploration work on this exciting early-stage porphyry copper-gold project."

The two optioned properties lie 30 kilometres apart in south central Mongolia, 460 kilometres southwest of the capital city of Ulaanbaatar. In 2006, Falconbridge completed mapping, soil and rock sampling, and geophysical surveys to test for a porphyry-style copper-gold system beneath the mineralized surface showings on both properties. This work identified target areas characterized by coincident geophysical (IP and magnetic) and geochemical (rock and soil) anomalies in areas of historic shallow pits and trenching. Rock samples from these areas have returned significant copper (up to 14%) and gold (up to 4 g/t) values. Falconbridge identified six high priority drill targets on the two properties.

Erdene Sampling and Planned 2007 Drilling

Recent due diligence sampling by Erdene has confirmed the high copper and gold mineralization on both properties. Of 18 rock samples taken, 13 samples returned greater than 100 ppm copper and averaged 0.6% copper. Three samples returned greater than 1% copper with a high value of 2.9% copper. Nine of the 18 samples returned anomalous gold values (greater than 20 ppb) with one sample of strongly silicified quartz breccia from the northwest target area at Tsagaan Ovoo returning 11 g/t gold. Drill targets have been confirmed in both the Mogoit and Tsagaan Ovoo areas. A minimum of 1,500 metres of diamond drilling is planned for the second quarter of 2007.

Mogoit and Tsagaan Ovoo Properties

Geologically, the target areas are characterized by circular features with clay alteration related Aster remote sensing anomalies. The host rocks (metamorphosed Paleozoic mafic volcanics and tuffs) have been intruded by quartz stockworks and are also intruded and overlain by cherty, silica-rich units that are variably hematized, limonitized and brecciated. Widespread copper oxide and gold mineralization is associated with the cherty formations and altered host rocks. Each of main target areas on the two properties is described in more detail below.

Mogoit

At Mogoit, a dipole-dipole survey delineated a 1,200 metre by 500 metre high- chargeability anomaly beneath and to the southwest of historic trenches and pits. Rock samples from the area of the trenches returned up to 14% copper and 0.8 g/t gold in silicified and hematized chert. This high chargeability anomaly strengthens as it extends from surface and to a depth of 300 metres and is coincident with a resistivity high, a moderate magnetic high and anomalous copper-gold soil values. Falconbridge identified two priority drill targets in this area. Additional anomalies with coincident high chargeability, high resistivity, and anomalous copper and gold in soil values have been partially defined to the east and southeast of the main showing. Additional work is planned to define these anomalies more fully.

Tsagaan Ovoo

At Tsagaan Ovoo, two target areas were outlined by Falconbridge in 2006. The northwest target area consists of an area of historic trenches and pits where numerous rock samples returned anomalous copper values with one sample of quartz breccia returning 9% copper and 4 g/t gold. Just southwest of the trench area, a strong 700 metre by 300 metre, chargeability anomaly has been outlined associated with anomalous copper-gold mineralization in rock samples. This area was identified as a priority drill target by Falconbridge.

Three kilometres to the east-southeast of the first showing lies the southeast target area. This showing is characterized by a series of quartz-pyrite-sericite altered rhyolite dikes associated with altered granodiorite cut by a strong quartz stockwork. Geochemical analysis of these intrusive rocks returned significantly anomalous copper, gold and molybdenum values. The southeast target area also has a 3 kilometre by 500 metre linear, east-west trending, high chargeability anomaly that strengthens at depth. In addition, an associated large circular magnetic anomaly measuring 1 kilometre by 500 metres has been identified with coincident altered and mineralized outcrop. Multiple copper-molybdenum-gold soil anomalies have been outlined throughout this area associated with both the chargeability and magnetic anomalies. Three drill targets were identified by Falconbridge in this target area.

Agreement Summary

Erdene and Xstrata Copper have entered into an Assignment and Option Agreement whereby Erdene can acquire 100% of Falconbridge's rights and interest in an Option Agreement with a Mongolian company ("Mongolian Agreement") covering the two copper-gold exploration license applications located in south central Mongolia. Erdene agrees to assume responsibility for all of Falconbridge's remaining obligations to the license owners as defined in the Mongolian Agreement. In addition, Xstrata Copper has agreed to assign 100% of its interest in four exploration licenses that are contiguous to the optioned properties.

The remaining obligations under the Mongolian Agreement include incurring US$450,000 in exploration expenditure by January 2009 and by making US$90,000 in cash payments by January 2008. After fulfilling these remaining obligations, Erdene will have earned an 80% interest in the two properties with the Mongolian company retaining the remaining 20%. Erdene can earn a 100% interest in the properties, subject to a 2.5% net smelter royalty, by making a US$2 million advance royalty payment over a five year period. Erdene also has the option to reduce the net smelter royalty to 0.5% by making cash payments of US$1 million for each 0.5% reduction in the net smelter royalty over an eight year period.

In exchange for granting Erdene the rights and interest described above, Xstrata Copper has the right to acquire 75% of Erdene's interest in the optioned properties and the four Falconbridge licenses. Xstrata Copper must exercise its option within 60 days of receipt of a full feasibility study. They must also make a payment to Erdene equal to 200% of the funds expended on the properties by Erdene.

Qualified Person

This press release has been prepared under the supervision of J. C. (Chris) Cowan, P.Eng., who serves as the qualified person under National Instrument 43-101. All samples are assayed at SGS Laboratory in Ulaanbaatar. In addition to internal checks by SGS Laboratory, the Company incorporates a QA/QC sample protocol utilizing prepared standards, sample splits and duplicates.

About Erdene Gold Inc.

Erdene is a diversified mineral company with exploration properties focused on high-growth commodities and near-production assets. The company has a strong portfolio of exploration properties in Mongolia focused on base metals (copper and molybdenum), precious metals (gold and palladium) and energy (coal and uranium). Erdene has strategic alliances with Xstrata Coal Canada Limited and International Uranium Corporation to develop its coal and uranium properties in Mongolia. In addition, Erdene has near-term cash flow opportunities in its recently acquired North American assets, which includes its 25% interest in the Donkin Coal Alliance in Nova Scotia with Xstrata Coal Canada Limited and agreements with J.M. Huber Corporation and Rinker Materials as operators and developers in the southeast U.S. for its kaolin clay and aggregate projects respectively. Erdene has a cash position as of December 31, 2006 of approximately CDN$7.6 million with 53,051,127 common shares issued and outstanding and a fully diluted share position of 62,775,852.

Forward-Looking Statements

Certain information regarding Erdene 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 Erdene 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. Erdene cautions that actual performance will be affected by a number of factors, most of which are beyond its control, and that future events and results may vary substantially from what Erdene 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 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.

Contact Information

  • Erdene Gold Inc.
    Peter C. Akerley
    President and CEO
    902-423-6419
    or
    Erdene Gold Inc.
    Ken W. MacDonald
    Vice-President North America and CFO
    902-423-6419
    info@erdene.com
    www.erdene.com