Erdene Gold Inc.

Erdene Gold Inc.

May 16, 2008 08:00 ET

Erdene Gold Inc.: Donkin Coal Alliance Commits Funding to Advance Donkin Coal Project Toward Feasibility

HALIFAX, NOVA SCOTIA--(Marketwire - May 16, 2008) - Erdene Gold Inc. (TSX:ERD) announced today on behalf of the Donkin Coal Alliance that, having completed an evaluation of further studies on the Donkin coal project, the Donkin Coal Alliance will commit to funding a feasibility study of an Evaluation and Development Program ("Program") at the Donkin project in Nova Scotia, Canada. The Donkin Coal Alliance ("DCA") is a joint venture between Xstrata Coal Donkin Limited (a subsidiary of Xstrata plc) (75%) and Erdene Gold Inc. (25%). The Program, utilising a continuous miner, is an interim step in the development path leading towards establishing a large scale underground longwall mining operation. The DCA has endorsed this interim step in the project management process to obtain further information deemed critical to the assessment of the feasibility of the large scale underground mining options under consideration. In addition, the in-seam drilling is now complete and information collected for gas desorption rates and samples for coal quality evaluation are now being processed.

The DCA confirmed that the results of recently completed further studies met expectations that the proposed Donkin project could generate economic returns consistent with those identified in the project's preliminary assessment report of November 2007. The feasibility study regarding the Program is expected to be complete by the end of 2008. The Program will focus on gaining greater certainty of the geological, geotechnical and mining conditions of the proposed operation. Furthermore, coal extracted from the site during the Program will be marketed domestically and internationally in order to establish a customer base for future levels of forecast production. It is anticipated that during the estimated 18 month duration of the Program the DCA will be able to decide on the progression of the project into a feasibility study of the proposed large scale underground longwall mining operation, thereby maintaining a production decision timeline consistent with the preliminary assessment report.

"We are very pleased with the latest development in the assessment process and view this initiative as an important step in advancing the Donkin project toward feasibility," said Ken MacDonald, VP Business Strategy and CFO of Erdene. "The introduction of the new evaluation and development program will allow the DCA to gain greater confidence for the decision to commit to the large scale longwall mining operation. More importantly, it provides the opportunity to generate earlier cash flow from the sale of coal produced during the Program."

Donkin Coal Project Background

The targeted Harbour seam, containing an indicated resource of 101 million tonnes and an inferred resource of 115 million tonnes in the Donkin coal resource block was accessed in late 2007 following the dewatering and refurbishment of twin 3.5 kilometre long tunnels. The resource is classified as high volatile-A bituminous, high-sulphur, medium-ash coal. A positive preliminary assessment was completed in November, 2007.

About Erdene Gold Inc.

Erdene is a diversified resource development company with exploration properties focused on high-growth commodities and near-production assets. The Company has a strong portfolio of properties in Mongolia focused on base and precious metals and energy (coal). Erdene has a strategic alliance with Xstrata Coal to develop its coal properties in Mongolia. Erdene has near-term cash flow opportunities in its North American assets, which includes agreements with J.M. Huber Corporation (now KaMin LLC) and Ready Mix USA as operators and developers in the southeast U.S. for its kaolin clay and aggregate projects, respectively. Erdene has a cash position of approximately $7.4 million with 70,644,877 common shares issued and outstanding and a fully diluted share position of 80,447,352 common shares.

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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