The Global Coal Industry, Nova Scotia s 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. 2
The Donkin Project Capitalizes on our strength in geography and natural resources Helps maintain competitive electricity rates Generates finances to fund the Province s 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 3
Outline Company Project Coal Consumption Economy Environment Future Conclusions 4
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 5
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 Joint- Venture in numerous causes such as the Donkin Veteran s 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 6
THE PROJECT 7
Cape Breton Coal and The Donkin Coal Project 8 8
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 9
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) 10
Donkin Project Development $34M Direct Investment To Date 11
Ideally Located on Atlantic Ocean No. 26 Colliery 12
KM US$ Strategically Located Lowest Transport Costs in Canada (Rail Option) Distance to Port Operating & Transport Cost 1,400 1,200 1,000 800 600 400 200 $120 $100 $80 $60 $40 $20 OPERATING COST / TONNE TRANSPORT/PORT / TONNE 0 CLINE GRANDE CACHE WALTER (Canada) ERDENE $0 GRANDE CACHE WALTER (Canada) CLINE ERDENE Average Global Cash Cost Comparison (FOB US$/t) Major Exporting Countries USA Russia South Africa Australia Colombia Indonesia $0 $20 $40 $60 $80 DONKIN Source: ERD research, Thompson-Reuters 13
Major Global Coal Trade Routes in 2010 Low Freight Rates & Increased Coastal Demand Donkin s Advantage - Accessing Global Markets Major Coal Exporter 2010 Trade Route Source: Hatch, Macquarie, World Coal Markets, IEA 14
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 15
Thermal Coal Quality Comparison Xstrata- BHP, Anglo, Erdene Xstrata Consol Mine Donkin Cerrejón Bailey Location Nova Scotia Columbia PA, USA Company ENERGY BTU/lb 14,500 11,150 12,950 VOLATILES % 37 33 37 ASH % 3.5 8.4 7.0 MOISTURE % 1.9 13 1.0 SULPHUR % 2-3 0.7 1.6 PHOSPHOROUS % 0.13 0.02 0.52 MERCURY ppm 0.15 e 0.04 0.07-0.15 CHLORINE % 0.16 e 0.03 na Source: ERD research 16
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 17
THE COAL INDUSTRY 18
Million Tonnes 8000 7000 6000 Global Coal Production Coal Use Has Increased by 2 Billion Tonnes or 27% Over The Past Eight Years China USA Global 5000 4000 3000 2000 1000 0 2003 2004 2005 2006 2007 2008 2009 2010 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 19
Global Energy Projections (EIA, Aug 11) 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 Canada s and the World s energy future 20
80% 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 60% 40% 20% 0% 2008 2009 2010 2020 2032 Coal/Petcoke Nat Gas Renewables Demand Side Mgmt Source: NS Department of Energy 2010), NSPI (2009) 21
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) Total Cost per kwh $0.25 Base Load Renewable $0.220 C o s t p e r ( $ U S D ) $0.20 $0.15 $0.10 $0.104 $0.083 k W h $0.05 $0.039 $0.044 $0.028 $- Nuclear Coal Natural Gas Wind Solar Hydro Source: http://nuclearfissionary.com/2010/04/02/comparing-energy-costs-of-nuclear-coal-gas-wind-and-solar/ 22
Nova Scotia s Power Generation Key Findings >60% of Nova Scotia s 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 23
THE ECONOMY 24
Donkin s Economic Impact $7.6 Billion Over 30 Years Indicators ($CAD million) Rail Option (3.4 Mt ROM) 30-Yr Annual Average 30-Yr Total Capital Expenditure $28.3 $848.5 Operational Expenditure $144.4 $4,332 Provincial Taxes $41.6 $1,245.7 Federal Taxes $38.3 $1,150.9 Total Taxes $79.9 $2,396.6 TOTAL $252.6 $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 25
Donkin s Benefit to Cape Breton $42M Annual GDP and >500 Jobs for 30 Years Indicators (all Nova Scotia) Rail Option 30-Yr Annual Average 30-Yr Total Employment - Direct 382 11,458 Employment - Indirect 428 12,828 Employment - Total 801 24,286 GDP (CAD$ million) $66.4 $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 26
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) 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 $25 $750 $42 $1,260 $38.9 $1,167 $2.7 $81 $38.3 $1,149 TOTAL / YEAR $109 MM $38.3 MM $147 MM TOTAL / 30 YEARS $3.3 billion $1.1 billion $4.4 billion 27
THE ENVIRONMENT 28
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 Scotia s coal consumption has averaged 2.8 Mt per year (range 2.0 to 3.35 Mt) The Province s 2020 emission targets are achievable with further investment in clean coal technology The cost of a wet scrubber at Lingan is approximately $210M and it s 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 NO x 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 29
Nova Scotia: CO 2 Capture & Sequestration Carbon Footprint (GHG s) Carbon content determines the amount of CO 2 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 Scotia s case means having to replace >40% of it s power supply in < 20 years or employ carbon capture and sequestration NSPI s 2009 IRP document estimates the cost of installing two CO 2 capture units at Lingan to be $433M with a $11.9M/yr operating cost Capable of reducing CO 2 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 ~$2 Billion in savings from using Donkin Coal over 30 years Source: http://web.mit.edu/mitei/docs/reports/specker-retrofits.pdf / http://www.airwaterland.ca/article.asp?id=2476 30
Nova Scotia Emission Control Lingan Generating Station (2 x 160 MW units) Control Technology ($CAD) Capital Cost O&M / yr O&M / 30 yr Capital Cost + 30yr O&M Cost to retrofit Lingan to meet 2020 sulphur, NOx, and Mercury regulations 2.5% S Wet Scrubbers (SO 2 ) $210 $6.6 $198 $408 Activated Carbon Capture (Hg) $6 $4.8 $144 $150 Baghouse with ACI (Hg) $60 $3.3 $99 $159 Selective Catalytic Reduction (NO x ) $48 $1.1 $33 $81 TOTAL $324 $16 $474 $798 Cost to Meet Federal proposal on CO 2 emissions at Lingan CO 2 Capture $433 $12 $360 $793 Sources: NSPI 2009, ERD Research 31
THE FUTURE 32
Donkin Peninsula and the Sydney Coal Basin Giant Resource and 300+ Year Mining History The Southern Edge of the Giant 36,000 km 2 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 33
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 34
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 $100 s of million in construction projects 35
THE CONCLUSIONS 36
CONCLUSIONS Nova Scotia will continue to secure >40% of it s electricity from coal over the long term Nova Scotia rate payer s could spend $4 Billion over the next 20 years purchasing imported coal Nova Scotia hosts a world class coal deposit that could satisfy Nova Scotia s energy needs Utilizing the Donkin resource can help fund Nova Scotia s green energy future 37
IMPACT OF THE DONKIN PROJECT Creates one of eastern Canada s largest construction projects $7.6 Billion injected into Nova Scotia s 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 38
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