Erdene holds a 25% interest in the Donkin Coal Alliance with partner Xstrata Coal Canada (75%). In December 2005, the alliance was granted the rights to acquire a special exploration license for the Donkin coal resource block, which is considered the last remaining undeveloped block of high quality coal off Cape Breton. In June 2006, the special exploration license was granted and property access rights were secured.

The Donkin Coal Project is located on tidewater on Canada’s east coast, ideally situated for the transport of the high quality Donkin coal to the local market and the growing market along the U.S. eastern seaboard and Europe. Current and planned infrastructure will allow transportation via rail to the international coal port within 60 kilometres of the Donkin site.

In April 2007 McElroy Bryan Geological Services completed an independent resource estimate (NI 43-101 compliant) for the Donkin Coal Resource block reporting 227 Mt indicated and 254 Mt inferred of high volatile A bituminous coal with >14,000 BTUs, high sulphur, low ash and low moisture.

A 200 million tonne portion of the Donkin coal resource (Harbour coal seam), considered to have very good thermal and metallurgical qualities, is targeted in the initial development plan.

At Donkin, exploration commenced in the summer of 2006 with an environmental assessment, required before dewatering of the access tunnels could start, and the collection of Harbour Seam coal samples from the Glace Bay Miners Museum for quality analysis. Approximately $100 million was spent on previous work that including the construction of two access tunnels. Dewatering and refurbishing of the access tunnels was completed in August of 2007.

In November 2007, an independent preliminary assessment for production of the Donkin Coal Mine was received by the Donkin Coal Alliance from Norwest Corporation a leading engineering firm based in Calgary Alberta, Canada. Norwest’s independent valuation provided the business case for the production of 3 to 5 Mtpa of high quality Donkin coal for >30 years.

A summary of their findings is provided in the following table:

Coal Price Projected Costs Continuous Mining Startup Longwall Mining Startup Discount Rate NPV Project NPV Erdene US$52/tonne US$23.12/tonne 2009/2010 2015 10% (US$) US$195M (25%) US$49M

The Donkin Coal project is currently in prefeasibility stage with a 10,000 metre in-seam drilling program underway and a bulk sampling program initiated. This drilling program will determine the most appropriate method for gas drainage and related production rates. Completion of a feasibility study is anticipated by the end of 2008 with a production decision mid 2009 with first development coal production by the end of 2009. Longwall production start-up is projected to begin as early as 2012.

**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 information to upgrade the inferred resources to a higher category, there can be no certainty that the preliminary assessment will be realized.