Mongolia borders the largest coal consuming nation in the world with estimates suggesting that over the next 25 years, China will need to secure approximately 6 Mt per month in new coal production to meet demand. As a recent indicator of this projected growth, China's 2010 net coal imports totalled 147 Mt, a 41% increase over 2009's previous record level. The Erdene-Xstrata Coal Alliance is positioning itself to become a major participant in the coal industry of Mongolia. In 2010, our exploration efforts focused on eight newly acquired exploration licenses covering over 400,000 hectares in south west Mongolia, targeting metallurgical grade coal. These licenses continue to be the focus of Erdene’s greenfield exploration efforts, in conjunction with regular company and project based due-diligence. Our coal exploration program in Mongolia is designed to identify and secure large tonnage thermal and metallurgical coal deposits.
In cooperation with Xstrata, Erdene is involved in a comprehensive coal generative and acquisition program that evaluates numerous prospective metallurgical and high quality thermal coal deposits throughout Mongolia. In February, 2006 Erdene and Xstrata Coal entered into an agreement ("Alliance Agreement") whereby Erdene granted Xstrata Coal certain rights, including a first option to enter into a joint venture and earn a 75% interest in any coal opportunity in Mongolia identified by Erdene by funding all work through completion of a feasibility study and by maintaining a minimum 5% equity position in Erdene. All of Erdene's coal exploration in Mongolia is being fully funded by Xstrata and is being carried out in consultation with Xstrata.
Since 2006, Erdene has visited hundreds of coal sites throughout Mongolia and in the process has compiled an extensive database on coal deposits, occurrences, prospective stratigraphy, regional tectonics and sedimentary basins allowing for a prioritization of targets. In 2008 and 2009, Erdene’s property evaluation and acquisition program was designed to identify and secure access to additional exploration licenses in Mongolia with the potential to host large tonnage thermal and metallurgical coal resources. In 2008, three properties were drill tested with 13 drill holes totalling 1,586 metres. In 2009, Erdene acquired eight new exploration licenses totalling over 407,000 hectares with potential to host significant coal and metal deposits. In 2010, Erdene conducted an extensive exploration program over one of these licenses, including ground-based geophysics, and 9 drill holes totalling 2,339 metres. Results of this program are still being evaluated. The remaining licenses in this region will be the focus of 2011 exploration work together with our continuing program of project evaluation and acquisition.
