Erdene Gold Inc.

Erdene Gold Inc.

November 26, 2007 09:13 ET

Erdene Receives Positive Preliminary Assessment for Donkin Coal Project

HALIFAX, NOVA SCOTIA--(Marketwire - Nov. 26, 2007) - Erdene Gold Inc. (TSX:ERD) announced today on behalf of the Donkin Coal Alliance that Norwest Corporation's ("Norwest") independent Preliminary Assessment Study ("PAS") has been completed. The PAS is a study into the business case for a continuous miner development and longwall ("LW") extraction coal mine at the Donkin project in Cape Breton, Nova Scotia. The Donkin Coal Alliance is a joint venture between, Xstrata Coal Donkin Limited (a subsidiary of Xstrata plc) (75%) and Erdene Gold Inc. (25%).

The property is located in the northeast of Cape Breton Island about 20 km east of Sydney, Nova Scotia. The targeted Harbour Seam in the Donkin Coal Resource Block is described as containing an Indicated Resource of 101 million tonnes and an Inferred Resource of 115 million tonnes. The resource averages 4.5% sulphur and 12% ash and is classified as high volatile A bituminous, high sulphur, medium ash coal. The property currently has two slopes (tunnels) that provide access to the Harbour Seam, which is suited to development using the longwall mining method.

The proposed mine plan utilizes a longwall face mining system and three continuous miner sections to develop the longwall panels. The capital budget required to bring the mine to longwall production is estimated to be $313 million and includes a 10% contingency as do supply costs while labour costs have had a 15% contingency applied. The PAS is based on a projected mine life of 30-plus years, over which time approximately 109 million tonnes of run-of-mine ("ROM") coal are produced. The initial target market for this product will be domestic and export thermal coal power generation. Total cash costs for coal production, transportation to the port and loading into the ocean-going vessels, and royalties, are estimated to be $23.13/tonne (2007 CDN dollars). Under base case assumptions, the project provides a net present value ("NPV") of $195 million or a 16% internal rate of return ("IRR") on an after tax basis (Table 1).

Table 1: Base Case Results (10% Discount Rate)
NPV Before Taxes and Royalties ($ Millions) CDN $371
NPV After Taxes and Royalties ($ Millions) CDN $195
IRR Before Taxes and Royalties 20%
IRR After Taxes and Royalties 16%

Under all sensitivity extremes, the after tax NPV remains positive, indicating project potential as being relatively strong under various cost related increases or revenue decreases. Table 2 incorporates coal price and discount rate sensitivity.

Table 2: Coal Price Sensitivity (CDN $ Millions)
Base Case Change in Coal Price
NPV $195 -$5.00 -$2.50 $0.00 $2.50 $5.00
Discount Rate 8% $221 $272 $323 $374 $425
Discount Rate 10% $117 $156 $195 $233 $272

Accelerating the start date of the longwall mining operation has a significant positive affect on the economic model. That start date is dependent on many factors including the determination of the methane liberation rate which is critical to ventilation systems design work and in solidifying the start-up date. This will be determined by in-seam drilling expected to be underway prior to year-end 2007. The receipt of that information will be used to determine whether the longwall mining operation can be accelerated from the base case provided in the Norwest report.

The information made available to Norwest has enabled calculations and estimates to be made to an accuracy of plus or minus 30%. Given the data available at the time this report was prepared, the estimates presented herein are considered reasonable. However, they should be accepted with the understanding that additional data and analysis available subsequent to the date of the estimates may necessitate revision. These revisions may be material.

The Norwest PAS should be considered preliminary in nature based on the inclusion of inferred resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Until there is additional drilling to upgrade the inferred resources to the higher measured and indicated categories, there can be no certainty that the preliminary assessment will be realized. There is no guarantee that all or any part of the estimated coal resources will be recoverable.

Markets and Pricing

In addition to local market opportunities, an independent third party marketing report prepared for the Donkin coal project assumes that power plants equipped with flue gas desulphurization and located along the U.S eastern seaboard would represent the target market. Competing coals would be mid to high-sulphur coal from Northern Appalachia in southwestern Pennsylvania.

The Norwest report notes that the ROM tonnage after year 16 would be above the market specification for ash provided by Xstrata of 14%. In order to better simulate market requirements, the ROM production was adjusted to reduce out-of-seam dilution. The ash level, hence saleable production, was reduced, but still remained above 14%. However, the exploration data that is presently available to define the coal characteristics is quite sparse. It is not designed to provide a great amount of detail of the vertical quality characteristics of the seam. With new exploration, designed for the purpose, it will be possible to characterize the internal seam composition in a way that may allow mining to proceed in a more selective manner. This will allow large quantities of undesirable coal components to be avoided and not included in the product. Norwest assumes that ash levels at or below 14% may be achieved by following such an approach. The saleable production level in the Norwest report may be achievable by following this approach.

The coal price of US$52/tonne used in the evaluation is energy adjusted on a pro-rata basis for the ash content. The base case uses:

- a freight-on-board ("FOB") Donkin loading port price adjusted for heat content based on ash levels as mentioned above and the price forecast of the third party marketing report; and

- long-term exchange rate of $1.15CDN:$1.00US.

The following are some of the key items required to evaluate and advance the project:

- The in-seam drilling will provide information regarding the gas desorption rates that ultimately will determine the most appropriate method for gas drainage and related production rates. This work will directly determine the ramp up time required before longwall coal is first produced.

- The project description has been submitted to the regulators. In addition, a draft environmental assessment has been provided to the regulators for feedback.

- The coal seam samples are currently being analysed to provide direction as to the best mining horizon and coal treatment to meet market requirements. For a ROM thermal product it may be possible to selectively mine a section of the seam to avoid out-of-seam dilution and minimize product coal sulphur content.

- A wash plant option continues to be assessed. In fact this has been identified as risk mitigation strategy given the limited data available on seam thickness, continuity and quality. The wash plant option would address all of these issues. Additionally, and something that has not been included in the Norwest report, is that the washing of the coal will provide an option to produce both metallurgical and thermal products hence potentially increasing project value.

- The issue of ventilation and related production rates has been identified and options to address this are being included in the pre-feasibility study.

Qualified Person

Several employees of Norwest acted as Qualified Persons, as defined by NI 43-101, and contributed to the preparation of the Norwest Report. They include Mr. Kirk Nobis, Mr. Ted Hannah, Mr. Craig Hawe and Mr. Ken Shinya. Mr. Geoff Jordan reviewed the entire report on behalf of Norwest and contributed several of the sections. Each author has reviewed and approved the portions of the technical information contained in this release that are attributable to them.

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. Xstrata Coal is a significant Erdene shareholder with a 4% ownership of the company's common shares and has representation on its board of directors. 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 as operators and developers in the southeast U.S. for its kaolin clay and aggregate projects respectively. Erdene has current cash and equivalent position of approximately $7.7 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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