China relies on coal for 77% of its electrical generation, has become a net importer of coal and accounts for one third of the world’s coal use. Mongolia is on the verge of becoming a major exporter of coal with very large, high-quality resources conducive to open pit mining located near current and planned railway links to China.

Erdene, through an alliance with Xstrata Coal Canada Limited (“Xstrata”), is evaluating numerous prospective metallurgical and high quality thermal coal deposits in Mongolia. An extensive database on coal deposits, occurrences and prospective sedimentary basins allowing for a prioritization of targets has been compiled. All of Erdene’s coal exploration in Mongolia is being fully funded through to a production decision by Xstrata giving Xstrata the right to earn a 75% interest.

One of the priority targets identified to date is the Galshar coal property. Galshar lies 63 kilometres from the nearest rail link and 250 kilometres from the Mongolia-China border. Erdene has successfully traced a coal seam at Galshar for 3.6kilometres with a thickness ranging from 4 metres to 47 metres. Results include 21.8 metres of greater than 10,000 BTU/lb coal with low ash (6%) and low sulfur (0.4%).

During 2007 the Company completed a first stage resource delineation drilling program at Galshar. A total of six diamond and 15 poly-crystalline diamond (PCD) holes, totaling 2,287 metres were completed over the Galshar deposit area with a drill spacing of 500 metres to 1 kilometre. The 2007 drill program was successful in expanding the coal resource to the west and constraining the deposit structure and continuity to the east, north and northeast. A total of five diamond drill holes and three PCD holes, extending over a 1.8km2 area, intersected a 12.8 to 15.3m thick, homogenous coal seam. The average thickness and depth of the coal seam within this 1.8km2 area is 15 metres and 90 metres, respectively.

Future plans for Galshar include additional detailed resource drilling to further define the parameters of the coal resource and provide additional data towards a resource estimate.

In addition to the Galshar project, Erdene continues to evaluate other coal opportunities in central, southern and southeastern Mongolia recognizing the opportunity to supply China’s growing demand for coal during record level pricing.