Erdene Gold Inc.

Erdene Gold Inc.

October 31, 2007 12:57 ET

Erdene Materials and Deepstep Kaolin Enter Agreement for Development of Ceramics Business

HALIFAX, NOVA SCOTIA--(Marketwire - Oct. 31, 2007) - Erdene Materials Corporation (formerly Sparta Kaolin Corporation, a wholly owned subsidiary of Erdene Gold Inc. ("Erdene") (TSX:ERD)) announced today that the company has entered into an Option Agreement with Deepstep Kaolin Company LLC ("DKC"), of Georgia, USA. The purpose of the agreement is to jointly develop a new product line for Erdene's primary kaolin resources. Erdene owns, or controls under long term lease, extensive primary kaolin resources ("Sparta Kaolin") and owns an industrial minerals laboratory and pilot plant testing facility located in Eatonton, Georgia, USA.

"We look forward to operating and expanding on Erdene's kaolin resources and business in middle Georgia," commented David Avant, C.E.O. of Deepstep Kaolin Company. "We believe these resources have a very bright future as we assist Erdene in penetrating new markets while providing extensive expertise in production and marketing in this sector."

The kaolin industry of middle Georgia has gross sales in excess of US$800 million per annum and directly employs approximately 4500 people in the region. The greatest demand for kaolin-based pigments comes from the paper industry but it is also used in paints, plastic, rubber and ceramics where it provides brightness, colour and particle shape properties. Through exploration and acquisition in the late 1990s, Erdene Materials controls extensive high brightness primary kaolin resources in Georgia. Erdene Materials (previously Sparta Kaolin) has incurred approximately US$10 million in expenditures on exploration and evaluation of its primary kaolin properties including more than 4,100 Sparta drill holes totaling 56,000 metres. Erdene currently has control over a measured and indicated resource of 32.1 million tons of in-ground premium quality primary kaolin.

The ceramic clay market provides an emerging opportunity in North America as clays typically supplying this market from Europe are being depleted. High quality kaolin from Europe has been used extensively in North America for the production of high quality porcelain ceramics and more recently in the industrial grade dinnerware, sanitary ware, tile and glazing clay applications. Clays used in these applications have been priced in the range of US$100 to US$300 per ton following processing. Erdene and DKC have been working with manufacturers over the past 24 months testing various raw material sources in different ceramic and glazing clay applications. The relationship with DKC will now proceed with a trial production period during which Erdene will contribute the raw material and the product manufacturing facility and DKC will cover the necessary capital and operating costs plus provide the management and expertise required to manufacture the products and operate Erdene's facility in Eatonton, Georgia. Following the Phase I development program, estimated to take 8 months, if DKC decides to take the project to production Erdene will have the option of directly participating in the ownership of the production company and will be paid a royalty for any Erdene kaolin mined for the development of these products.

Erdene has a number of kaolin related projects underway in Georgia including the DKC, Huber, and Bluenose projects. The Huber project includes commercial mining operations managed by Huber Engineered Materials at the Lucky Main deposit. Through pre-payment of US$3.8M, Huber is drawing down a specific quantity of high brightness primary crude kaolin which, since January 2005, has been used to produce HuberPrime®, a product used in lightweight coated ("LWC") papers that imparts superior coverage, excellent gloss, optics and printability to coated paper. The Bluenose project located in eastern Georgia includes approximately 11.9M tons of measured and indicated resources of crude in-situ high brightness primary kaolin with a low stripping ratio. Erdene re-invested a significant portion of the Huber prepayment in the Bluenose project and now owns 409 acres including several residences in the Bluenose area with an appraised surface value of US$1.7M and is considering multiple options on maximizing the value of the project.

Option Agreement

Under the terms of the Option Agreement, and beginning November 1, 2007, Deepstep Kaolin Company ("DKC") shall have the use of Erdene's Eatonton laboratory and test production facility ("Eatonton Facility") in order to conduct pilot scale activities for the production of primary kaolin based ceramic products. These activities will provide DKC with the information required to make its business decision as to whether to proceed to phase II development of a commercial production facility. At the conclusion of phase I (8-12 months), Erdene Materials will have the option of participating in the ownership of the production company, with DKC being the majority owner and operator of the business. In addition DKC has the option to purchase Erdene's Eatonton Facility. Erdene has maintained the right to continue using the Eatonton Facility for the purpose of testing and marketing its primary kaolin resources.

DKC will install the required pilot equipment at the Eatonton Facility and test Erdene's kaolin resources for use in the ceramic kaolin market. The objective is to successfully produce pilot size samples up to 2 tons for testing with potential customers to provide information required to enter into long term supply agreements. Assuming successful testing and approval from these customers, DKC intends to proceed with the construction of a production facility on or near Erdene's kaolin resource properties located in Georgia to supply the North American ceramic kaolin market. DKC would be provided access to a portion of the Erdene resources, on a royalty basis, capable of supplying customers for the long term.

About Deepstep Kaolin Company LLC

Deepstep Kaolin Company LLC, of Georgia, USA is controlled by David Avant. Mr. Avant began his career with Georgia Kaolin Company where he was responsible for some of the initial research into the use of primary kaolin. He has been involved in the exploration and development of industrial minerals worldwide for 27 years. He was involved in the development of a high quality mica operation in middle Georgia which was the first ever to utilize mica from sedimentary deposits. Mr. Avant has a number of patents applying to various industrial mineral applications and is considered one of the leading innovators in the production and separation of kaolin, sands and micas in the Georgia region.

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). Erdene has strategic alliances with Xstrata Coal to develop its coal properties in Mongolia. In addition, Erdene has near-term cash flow opportunities in its North American assets, which includes its 25% interest in the Donkin Coal Alliance in Nova Scotia with Xstrata Coal Donkin Limited and agreements with J.M. Huber Corporation and Cemex (formerly Rinker Materials) as operators and developers in the southeast U.S. for its kaolin clay and aggregate projects, respectively. Erdene has a working capital position of approximately $8.4 million with 65,809,439 common shares issued and outstanding and a fully diluted share position of 75,480,852.

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.

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