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The Global Coal Industry,
Nova Scotia’s Energy Plan and
the Donkin Coal Project
Erdene Resource Development Corp
November 2011
2
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.
FORWARD-LOOKING STATEMENTS
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
4
Outline
Company
Project
Coal Consumption
Economy
Environment
Future
Conclusions
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
www.catapultcamp.com 6
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
Erdene: Comitted to Improving the Lives of
Those in the Communities in which we Work
THE PROJECT
7
8
Cape Breton Coal and
The Donkin Coal Project
8
9
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
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
11
Donkin Project Development $34M Direct Investment To Date
12
No. 26 Colliery
Ideally Located on Atlantic Ocean
Source: ERD research, Thompson-Reuters 13
Distance to Port Operating & Transport Cost
Average Global Cash Cost
Comparison (FOB US$/t)
Major Exporting Countries
USA
Russia
South Africa
Australia
Colombia
Indonesia
Strategically Located Lowest Transport Costs in Canada (Rail Option)
$0 $20 $40 $60 $80
DONKIN
0
200
400
600
800
1,000
1,200
1,400
CLINE GRANDE CACHE
WALTER (Canada)
ERDENE
KM
$0
$20
$40
$60
$80
$100
$120
GRANDE CACHE
WALTER (Canada)
CLINE ERDENE
US$
OPERATING COST / TONNE
TRANSPORT/PORT / TONNE
Source: Hatch, Macquarie, World Coal Markets, IEA
Major Global Coal Trade Routes in 2010 Low Freight Rates & Increased Coastal Demand
Major Coal Exporter 2010 Trade Route
Donkin’s Advantage - Accessing Global Markets
14
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Rail Option: 31km total to
International Pier (24km new line)
Site Development Plan Transport Options - Rail vs. Marine
Marine Option: 3,000 tonne barges loading off
the Donkin peninsula to vessels up to Cape Size
Source: ERD research
Thermal Coal Quality Comparison
16
Company Xstrata-
Erdene
BHP, Anglo,
Xstrata Consol
Mine Donkin Cerrejón Bailey
Location Nova Scotia Columbia PA, USA
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 0.15e 0.04 0.07-0.15
CHLORINE % 0.16e 0.03 na
Donkin Development Plan
17
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
THE COAL INDUSTRY
18
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
0
1000
2000
3000
4000
5000
6000
7000
8000
2003 2004 2005 2006 2007 2008 2009 2010
Millio
n T
on
nes
Global Coal Production
China
USA
Global
Coal Use Has Increased by 2 Billion Tonnes
or 27% Over The Past Eight Years
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
21
0%
20%
40%
60%
80%
2008 2009 2010 2020 2032
Coal/Petcoke Nat Gas Renewables Demand Side Mgmt
Nova Scotia Energy Consumption Past, Present, Future
Actual
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
Source: NS Department of Energy 2010), NSPI (2009)
NS Dept of
Energy 2010 NSPI IRP
2009
Source: http://nuclearfissionary.com/2010/04/02/comparing-energy-costs-of-nuclear-coal-gas-wind-and-solar/
$-
$0.05
$0.10
$0.15
$0.20
$0.25
Nuclear Coal Natural Gas Wind Solar Hydro
C
o
s
t
p
e
r
k
W
h
(
$
U
S
D)
22
Construction Cost
per kWh + Production Cost
per kWh + Decommissioning
Cost per kWh
(Nuclear only) =
Total Cost
per kWh
$0.039 $0.044
$0.104
$0.083
$0.220
$0.028
Base Load Renewable
Comparing Energy Costs Cost per kWh to the consumer (USA, 2010)
Source: Nova Scotia Integrated Resource Plan, 2007 & 2009
Nova Scotia’s Power Generation Key Findings
>60% of Nova Scotia’s electricity is generated by coal-
fired 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
23
THE ECONOMY
24
Sources: Marston 2011 Technical Report, and Gardner Pinfold Consultants – Donkin Socio-Economic Impact Study October 2011 25
Donkin’s Economic Impact $7.6 Billion Over 30 Years
Indicators ($CAD million) 30-Yr Annual
Average 30-Yr Total
Rail Option (3.4 Mt ROM)
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 26
“Cape Breton is expected to capture 63% of the
employment (505 jobs) & annual GDP ($42M) from Donkin” Gardner Pinfold Donkin Socio-Economic Impact Analyses (Oct 2011)
Indicators (all Nova Scotia) 30-Yr Annual
Average 30-Yr Total
Rail Option
Employment - Direct 382 11,458
Employment - Indirect 428 12,828
Employment - Total 801 24,286
GDP (CAD$ million) $66.4 $1,993
Donkin’s Benefit to Cape Breton $42M Annual GDP and >500 Jobs for 30 Years
Donkin to provide long term industrial development and
high-tech skills training
27
Annual Average Income to Government and NSPI Through use of Donkin Coal Over 30 Years
($CAD million) Provincial Federal 30 yr Total
Transportation Assume $25/t less for Donkin vs. Imported SA (1 Mtpy)
$25 $750
Energy Savings Donkin is ~30% higher BTU than Imported SA (1 Mtpy)
$42 $1,260
Provincial Taxes Corporate, Excise, Payroll, etc
$38.9 $1,167
Provincial Royalty $1.22/t
$2.7 $81
Federal Taxes Corporate, Excise, Payroll, etc
$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
Donkin Coal Project Potential for $4.4 Billion in Taxes and Savings – 30 Yrs
THE ENVIRONMENT
28
Source: Nova Scotia Power
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 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
29
Source: http://web.mit.edu/mitei/docs/reports/specker-retrofits.pdf / http://www.airwaterland.ca/article.asp?id=2476
Nova Scotia: CO2 Capture & Sequestration
Carbon Footprint (GHG’s)
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 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 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 ~$2
Billion in savings from using Donkin Coal over 30 years
30
Sources: NSPI 2009, ERD Research
Nova Scotia Emission Control Lingan Generating Station (2 x 160 MW units)
Control Technology
($CAD)
Capital
Cost
O&M /
yr
O&M /
30 yr
Capital Cost +
30yr O&M
Cost to Meet
Federal proposal
on CO2 emissions
at Lingan
CO2 Capture $433 $12 $360 $793
Cost to retrofit
Lingan to meet
2020 sulphur,
NOx, and
Mercury
regulations
2.5% S Wet Scrubbers (SO2) $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 (NOx) $48 $1.1 $33 $81
TOTAL $324 $16 $474 $798
31
THE FUTURE
32
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
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
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
38
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
39
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