The Global Coal Industry, Nova Scotias Energy Plan and the Donkin Coal Project

Erdene Resource Development Corp November 2011

FORWARD-LOOKING STATEMENTS
The information contained herein is derived from public sources including the Donkin Project specific information available at www.sedar.com 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.

The Donkin Project

Capitalizes on our strength in geography and natural resources Helps maintain competitive electricity rates Generates finances to fund the Provinces commitment to cleaner energy Creates long term, skilled, family wage employment in rural and high unemployment regions Increases our GDP Injects substantial funds into the local economy

Limits the outflow of money from Nova Scotia to source foreign fuel supply

Outline
Company

Project
Coal Consumption

Economy
Environment Future Conclusions
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Erdene A Nova Scotia Company

Headquartered in Nova Scotia with projects in Canada, USA, and Mongolia
Employs 32 people full-time, internationally, with 10 based in Halifax Ranked as top performing company on TSX in Atlantic Canada in 2010 Has raised $55M since 2003 with greater than $25M spent in Nova Scotia Has invested $21M in the Donkin project (including acquisition costs) since the project was awarded in 2005 Donkin project has employed 10 to 20 people full-time since 2005
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Erdene: Comitted to Improving the Lives of

Those in the Communities in which we Work
Erdene is the Presenting Sponsor of Catapult, a non-profit camp in NS, focused on enhancing leadership skills in young people before they start high school

Aiding the community through Donkin JointVenture in numerous causes such as the Donkin Veterans Memorial Park, and the renovation of the Donkin Community Center
A leader in Community & Sustainable Development activities in the mining industry of Mongolia, including partnering with the Canadian Government on a farming initiative
www.catapultcamp.com
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THE PROJECT

Cape Breton Coal and The Donkin Coal Project

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Highlights of the Donkin Project

WORLD CLASS LOCATION AND RESOURCE
Large, high quality coking coal deposit on deep ocean globally Well located relative to growing US coal-generated power Strong domestic demand, forecast to exceed 1.5 Mt through 2030 Exclusive Port Access: congestion a major issue in Australia and BC

SIGNIFICANT

INFRASTRUCTURE IN PLACE

Greater than $100M invested in site infrastructure Near industrial region, centered by the Port of Sydney

HIGH QUALITY COAL

Coking coal blend for steel manufacturing, sold internationally Very high energy thermal coal for power generation

LOW OPERATING COST

Lowest transportation cost to port of any coal producer in Canada

EXPERIENCED WORKFORCE
Over 300 years of coal mining with >300 Mt mined Coal industry directly employed 1,650 people in 2000
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Recent History of Donkin Project

2005: Donkin consortium awarded tender based on a plan to develop the Donkin project 2007: Parliament passed the Donkin Coal Block Development Opportunity Act in Dec 2007 2008: Permit for mining of 2,000 tonnes per day (ROM) granted in Dec 2008 to facilitate underground exploration 2011: Prefeasibility completed in June 2011; confirms robust viability of the Donkin project with a $1.06 billion NPV (8% discount) Federal Environmental Assessment process initiated in August 2011 Donkin Joint-Venture has spent directly CAD $34 million to date (44% Erdene)
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Donkin Project Development

$34M Direct Investment To Date

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Ideally Located on Atlantic Ocean

No. 26 Colliery

12

Strategically Located
Lowest Transport Costs in Canada (Rail Option)
Distance to Port
1,400 1,200 1,000

Operating & Transport Cost

$120 $100

OPERATING COST / TONNE TRANSPORT/PORT / TONNE

$80

600
400 200 0 CLINE GRANDE CACHE WALTER (Canada) ERDENE

US$

KM

800

$60 $40 $20 $0 GRANDE CACHE WALTER (Canada) CLINE ERDENE

USA

Average Global Cash Cost Comparison (FOB US$/t) Major Exporting Countries

Russia South Africa Australia Colombia Indonesia

$0
Source: ERD research, Thompson-Reuters

$20

$40

$60

$80
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DONKIN

Major Global Coal Trade Routes in 2010

Low Freight Rates & Increased Coastal Demand

Donkins Advantage - Accessing Global Markets

Major Coal Exporter

Source: Hatch, Macquarie, World Coal Markets, IEA

2010 Trade Route

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Site Development Plan

Transport Options - Rail vs. Marine

Rail Option: 31km total to International Pier (24km new line)

Marine Option: 3,000 tonne barges loading off the Donkin peninsula to vessels up to Cape Size
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Thermal Coal Quality Comparison

Company Mine Location

XstrataErdene Donkin Nova Scotia

14,500 37

BHP, Anglo, Xstrata Cerrejn Columbia

11,150 33

Consol Bailey PA, USA

12,950 37

ENERGY BTU/lb VOLATILES %

ASH %
MOISTURE % SULPHUR % PHOSPHOROUS % MERCURY ppm CHLORINE %
Source: ERD research

3.5
1.9 2-3 0.13 0.15e 0.16e

8.4
13 0.7 0.02 0.04 0.03

7.0
1.0 1.6 0.52 0.07-0.15 na
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Donkin Development Plan

Phase I: Requires Commitment from NSPI and Xstrata
Exploration/Feasibility Phase Required Before Ramp up to Full Production ~$100M and >100 jobs Single Continuous Miner Program Permit in Place for ~600,000 Tonne/Year Production Quality Meets or Exceeds Current NSPI Domestic Criteria Construction Could Begin Immediately with Initial Production in late 2012 Potential to Replace Diminishing Domestic Supply Quality will Improve as Coal Processing Added

Phase II: Requires Regulatory and Corporate Approval

Export Coal 4 Continuous Miners ~3 Mt Production Potential to Employ Upwards of 800 & Create Inflows of ~$80M Annually to Nova Scotia & Federal Governments Environmental Assessment Process Underway; ~18 Months Before Approval Granted 75% Coking Export and 25% Thermal
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THE COAL INDUSTRY

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Global Coal Production

Coal Use Has Increased by 2 Billion Tonnes or 27% Over The Past Eight Years
8000 7000

Million Tonnes

6000
5000 4000 3000 2000 1000 0

China USA Global

2003

2004

2005

2006

2007

2008

2009

2010
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Source: BP Statistical review of world energy 2011 - http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_ publications /statistical_ energy_review_2011/STAGING/local_assets/spreadsheets/statistical_review_of_world_energy_full_report_2011.xls. Retrieved 2011-06-10

Global Energy Projections (EIA, Aug11)

Demand: 5 New Donkin Projects/Month until 2032
Assuming all renewable targets are met, global coal consumption will still grow by 50% by 2032
Requiring, on average, 15M new tonnes / month, the equivalent of 5 new Donkin coal mines/month (currently 9)

Canada is moving towards the closure of coal-fired plants that have not installed Carbon Capture and Sequestration
What Canada will remove over the next 20 years (35M tonnes) will be replaced every 2 to 3 months globally

Clean coal technology & development has to play an important role in Canadas and the Worlds energy future
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Nova Scotia Energy Consumption

Past, Present, Future
The NS Dept of Energy (2010) and NSPI (2009) forecast for coal consumption (includes ~15% petcoke) suggests 1.95 Mt in 2020 and 1.89 Mt in 2032, respectively This equates to > $200M per year to purchase imported coal or >$4B by 2032
Actual NS Dept of Energy 2010 NSPI IRP 2009

80%
60% 40% 20% 0%

2008

2009
Nat Gas

2010
Renewables

2020
Demand Side Mgmt

2032
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Coal/Petcoke
Source: NS Department of Energy 2010), NSPI (2009)

Comparing Energy Costs

Cost per kWh to the consumer (USA, 2010)
Construction Cost per kWh

Production Cost per kWh

Decommissioning Cost per kWh (Nuclear only)

=
$0.220

Total Cost per kWh

$0.25

Base Load

Renewable

C o s t

$0.20

$0.15

$ p U e S $0.10 r D ) k W h

Source: http://nuclearfissionary.com/2010/04/02/comparing-energy-costs-of-nuclear-coal-gas-wind-and-solar/

$0.104 $0.083 $0.039 $0.044

$0.05

$0.028

$Nuclear Coal Natural Gas Wind Solar Hydro

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Nova Scotias Power Generation

Key Findings
>60% of Nova Scotias electricity is generated by coalfired utilities

The majority of coal consumed in Nova Scotia is from foreign sources

greater unpredictability in supply and pricing major outflow of rate payer $s (~$4B over 20 years)

Electricity generation from power plants is low cost compared to many alternatives, even with added investment for emission control

Source: Nova Scotia Integrated Resource Plan, 2007 & 2009

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THE ECONOMY

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Donkins Economic Impact

$7.6 Billion Over 30 Years
Indicators ($CAD million) Rail Option (3.4 Mt ROM)
Capital Expenditure Operational Expenditure

30-Yr Annual Average

$28.3 $144.4 $41.6 $38.3 $79.9 $252.6

30-Yr Total
$848.5 $4,332

Provincial Taxes
Federal Taxes Total Taxes TOTAL

$1,245.7
$1,150.9 $2,396.6 $7,577.1

There are very few single prospects in Nova Scotia with the potential to provide economic impacts of this scale over a thirty year period
Gardner Pinfold Donkin Socio-Economic Impact Analyses (Oct 2011)
Sources: Marston 2011 Technical Report, and Gardner Pinfold Consultants Donkin Socio-Economic Impact Study October 2011

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Donkins Benefit to Cape Breton

$42M Annual GDP and >500 Jobs for 30 Years
Indicators (all Nova Scotia) Rail Option
Employment - Direct Employment - Indirect

30-Yr Annual Average

382 428

30-Yr Total
11,458 12,828

Employment - Total
GDP (CAD$ million)

801 $66.4

24,286
$1,993

Cape Breton is expected to capture 63% of the employment (505 jobs) & annual GDP ($42M) from Donkin
Gardner Pinfold Donkin Socio-Economic Impact Analyses (Oct 2011)

Donkin to provide long term industrial development and high-tech skills training
Sources: Marston 2011 Technical Report, and Gardner Pinfold Consultants Donkin Socio-Economic Impact Study October 2011
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Donkin Coal Project

Potential for $4.4 Billion in Taxes and Savings 30 Yrs

Annual Average Income to Government and NSPI Through use of Donkin Coal Over 30 Years
($CAD million)

Provincial

Federal

30 yr Total

Transportation
Assume $25/t less for Donkin vs. Imported SA (1 Mtpy)

$25
$42 $38.9 $2.7 $38.3 $109 MM $3.3 billion $38.3 MM $1.1 billion

$750 $1,260 $1,167 $81 $1,149 $147 MM $4.4 billion

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Energy Savings
Donkin is ~30% higher BTU than Imported SA (1 Mtpy)

Provincial Taxes
Corporate, Excise, Payroll, etc

Provincial Royalty
$1.22/t

Federal Taxes
Corporate, Excise, Payroll, etc

TOTAL / YEAR TOTAL / 30 YEARS

THE ENVIRONMENT

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Nova Scotia Emission Control

From 1998 to 2010, emissions of major pollutants in Nova Scotia have dropped by 31% to 74% During that same period Nova Scotias coal consumption has averaged 2.8 Mt per year (range 2.0 to 3.35 Mt) The Provinces 2020 emission targets are achievable with further investment in clean coal technology
The cost of a wet scrubber at Lingan is approximately $210M and its estimated it will cost $6.6M per year to operate and maintain totalling $408M over a 30 year period. The cost of installing Activated Carbon Injection technology with Baghouse at Lingan is roughly $66M with $8.1M per year to operate, totalling $309M over a 30 year period

Total: $798M (30 years) for Lingan Emission Control Technology (including $81M NOx reduction) to reduce emissions to 2020 target levels funded by ~$1 Billion savings from lower transport costs and higher energy from using Donkin Coal over 15 years
Source: Nova Scotia Power
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Nova Scotia: CO2 Capture & Sequestration

Carbon Footprint (GHGs)
Carbon content determines the amount of CO2 production and therefore coals are largely similar in their greenhouse gas impact relative to energy produced

International Energy Agency predicts a need for >3,000 CCS systems worldwide by 2050 if temperatures are not to rise by more than 2 degrees

The federal government is currently putting in place regulations which will limit the life of coal fired power plants to their commercial life which in Nova Scotias case means having to replace >40% of its power supply in < 20 years or employ carbon capture and sequestration

NSPIs 2009 IRP document estimates the cost of installing two CO2 capture units at Lingan to be $433M with a $11.9M/yr operating cost
Capable of reducing CO2 emissions by up to 90%

Total: $793M over 30 years for CCS Added to Lingan to reduce emissions to 2020 targeted levels potentially funded by ~$2 Billion in savings from using Donkin Coal over 30 years
Source: http://web.mit.edu/mitei/docs/reports/specker-retrofits.pdf / http://www.airwaterland.ca/article.asp?id=2476
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Nova Scotia Emission Control

Lingan Generating Station (2 x 160 MW units)
Control Technology ($CAD) Capital O&M / O&M / Capital Cost + Cost yr 30 yr 30yr O&M

2.5% S Wet Scrubbers (SO2) Cost to retrofit Lingan to meet 2020 sulphur, NOx, and Mercury regulations Activated Carbon Capture (Hg) Baghouse with ACI (Hg) Selective Catalytic Reduction (NOx) TOTAL Cost to Meet Federal proposal CO2 Capture on CO2 emissions at Lingan

$210 $6 $60 $48 $324

$6.6 $4.8 $3.3 $1.1 $16

$198 $144 $99 $33 $474

$408 $150 $159 $81 $798

$433

$12

$360

$793

Sources: NSPI 2009, ERD Research

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THE FUTURE

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Donkin Peninsula and the Sydney Coal Basin Giant Resource and 300+ Year Mining History

The Southern Edge of the Giant 36,000 km2 Sydney Coal Basin Reported to Contain More Energy Than the Alberta Oil Sands

Source: The Sydney coalfield of Nova Scotia, Canada Original Research Article, International Journal of Coal Geology, Volume 23, Issues 1-4, September 1993, Pages 29-42, Peter A. Hacquebard

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Sydney Coal Basin

Future Development Potential

Conventional Coal Mining New Technology

Advances in conventional coal mining techniques over the next several decades could provide access to currently unavailable resources

Coal-bed Methane (CBM)

Donkin alone could produce 30MW with a rapid payback; potential to combine CCS with CBM

Underground Coal Gassification (UCG)

Converts coal to gas while still in the coal seam in locations otherwise inaccessible by conventional means

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Sydney Region
Related Future Development Potential
Coal Blending and Trans-shipment Facility
Tailoring export with Donkin coal for steel and thermal plants on Atlantic

Construction of Scrubber and Other Clean Coal Technological additions Carbon Capture and Storage (CCS)
Developing a research and implementation project around CCS in Cape Breton is a long term project with significant spin-off potential (CBU) and $100s of million in construction projects

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THE CONCLUSIONS

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CONCLUSIONS
Nova Scotia will continue to secure >40% of its electricity from coal over the long term

Nova Scotia rate payers could spend $4 Billion over the next 20 years purchasing imported coal Nova Scotia hosts a world class coal deposit that could satisfy Nova Scotias energy needs Utilizing the Donkin resource can help fund Nova Scotias green energy future

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IMPACT OF THE DONKIN PROJECT

Creates one of eastern Canadas largest construction projects $7.6 Billion injected into Nova Scotias economy over a 30 year period

Generates annual Federal & Provincial tax revenues of $80 Million

Creates >800 direct and in-direct jobs Brings industry and jobs back to industrial Cape Breton

Spurs research and investment in the energy sector

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