66 slides from Erdene Resource Development's investor presentation, September 2011
Slide 1: Discover Mongolia 2011
DISCOVER MONGOLIA 2011 Peter Akerley, CEO
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS 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, guidan
Slide 3: Market Facts
Market Facts (Aug 30th, 2011) Capital Structure Share Performance Trading Info TSX: ERD 4,000,000.0 $2.0 $1.8 Shares Outstanding 90.3 M 3,500,000.0 $1.6 Volume (millions) 3,000,000.0 Shares Fully Diluted 97.8 M $1.4 Price (CAD) 2,500,000.0 Working Capital CDN ~$4.2 M (1) $1.2 2,000,000.0 $1.0 52 Wee
Slide 4: Investment Highlights
Investment Highlights DONKIN COKING COAL PROJECT (25% ERD / 75% Xstrata) Pre-feasibility June 2011; NPV (8%) = $265M for Erdene’s 25% Strategically located near a deep water port in eastern Canada Among the lowest transport & operating costs in the industry ZUUN MOD MOLYBDENUM-COPPER PROJECT 43-101
Slide 5: Tsenkher Nomin Gold & Base Metal Discovery
Tsenkher Nomin Gold & Base Metal Discovery Southwest Mongolia N Shinejinst coal deposit Nomin Discovery Khuvyn Khar Voyager’s Cu-Au Cughur Cu-Ag Discovery Discovery ERD License 25 km Zuun Mod Deposit 5
Slide 6: Tsenkher Nomin Gold & Base Metal Discovery
Tsenkher Nomin Gold & Base Metal Discovery Soil Sample Survey (400 metre spacing) GOLD July 2011 - Drill Results 0.5m of 13.3g/t gold & 26g/t Ag Sept.2011 - Soil Results 1,430 ppb (1.4g/t gold) 467 ppb (0.47g/t gold) 2 km 6
Slide 7: Tsenkher Nomin Gold & Base Metal Discovery
Tsenkher Nomin Gold & Base Metal Discovery Altan Nar Prospect Gold-in-soil anomaly (0.47g/t & 1.4g/t gold) Altan Nar 3 Altan Nar 1 Areas of intense veining and high gold content Altan Nar 2 (up to 41g/t Au) Altan Nar 4 Epithermal veins 500 m 7
Slide 8: Tsenkher Nomin Gold & Base Metal Discovery
Tsenkher Nomin Gold & Base Metal Discovery Altan Nar 1 Prospect Sample No: 20 rock chip Average grade: 3.4 g/t Au Max grade: 19.2 g/t Au Area: 160m x 75m Geology: Epithermal vein/stockwork Altan Nar 3 Altan Nar 1 Altan Nar 2 Altan Nar 4 Epithermal veins 500 m 8
Slide 9: Key factors for an exploration/mining project in Mongolia
Key factors for an exploration/mining project in Mongolia
Slide 10: Presentation Outline
PRESENTATION OUTLINE Overview Geology Licensing process Transportation - Infrastructure Manpower Investment environment Summary Community Development (Jon Lyons) 10
Slide 11: Erdene - Mongolia
ERDENE - MONGOLIA Principals working in Mongolia since 1996 Executive have >30 years of combined experience in Country Erdene formed in 2002 to focus on Mongolia Acquired Gallant Minerals (Zuun Mod) in 2005 Partnered with Xstrata on coal in 2006 Employ 14 full time and up to 100 seasonal personnel i
Slide 12: Foreign Involvement
Foreign Involvement Mongolian Mining Industry 1990 to 2006 1994: First Foreign Investors in Mining 1995-96: Magma (BHP) Discovers Oyu Tolgoi 1996-98: 1st Exploration Wave and Mineral Law 1999-01: Exploration Industry Near Dormant 2001: Ivanhoe Deep Discovery Hole at Oyu Tolgoi 2002-06: 2nd Explorati
Slide 13: Foreign Involvement
Foreign Involvement Mongolian Mining Industry 2006 to present 2006: Parliament Passes Windfall Tax (follows with Strategic Deposit Designation); Exploration Reduces Significantly – Many Exit 2007-08: Areva buys East Asia Uranium, and Kerry Holdings and MCS buy QGX 2008: Mineral Authority freezes new
Slide 14: Over a Decade in Mongolia
Over a Decade in Mongolia risks rewards challenges 14
Slide 15: Political, Geopolitical, Language
Political Geopolitical Language Experienced Workforce Community and Culture Bureaucracy World Class Deposits Hospitable people Exposure-Geology Limited Exploration 15
Slide 16: Mongolia Geology-Mineral Deposits
Mongolia Geology-Mineral Deposits 16
Slide 17: Erdene – Major Mongolian Deposits
ERDENE – Major Mongolian Deposits RUSSIA Chita Irutsk Saddle Hills/ Asgat Dornod Tumurtei Erdenet Ulaan Boroo Tsav Golden Hills Zaamar Baganuur MONGOLIA Shivee Tumurtiin Ovoo Ovoo Legend Haraat Gold Zuun Mod Copper/Moly Silver Tavan Tolgoi Lead/Zinc Tsagaan Suvarga Iron-ore Ovoot Tolgoi/ Coal Nariin
Slide 18: Coal Deposits – Active & Potential
Coal Deposits – Active & Potential RUSSIA Chita Irutsk Ulaan Ovoo Khotgor Ovoot Sharyn Gol Chandgana Tal Baganuur Khushuut Aduun Chuluun Tugrug MONGOLIA Khuren Gol Galshar Tevshiin Govi Zeegt Shivee ESG Shinejinst Ovoo Unst Khudag Tavan Tolgoi Legend Ovoot Tolgoi/ Active Producer Nariin Sukhait Baru
Slide 19: Tectonic Terrane Map
Tectonic Terrane Map RUSSIA Chita Irutsk MONGOLIA Ceke BEIJING CHINA Baotou 125 250 500 Jiayuguan KILOMETERS 19
Slide 20: Mid-Paleozoic Activity Related to Kazakh-Mongol Arc
Mid-Paleozoic Activity Related to Kazakh-Mongol Arc RUSSIA Chita Irutsk MONGOLIA K-M Arc Ceke BEIJING CHINA Baotou 125 250 500 Jiayuguan KILOMETERS 20
Slide 21: Mongolia Project Regional Targeting - Major Structures
Mongolia Project Regional Targeting - Major Structures RUSSIA MONGOLIA BEIJING CHINA 125 250 500 KILOMETERS 21
Slide 22: Erdene – Historical Metal Exploration
ERDENE – HISTORICAL METAL EXPLORATION RUSSIA Chita Irutsk EPITHERMAL GOLD PORPHYRY EXPLORATION EXPLORATION 1996-1999& 2007-08 2003 - 2008 Ingetyn Gol Bayan Kharat Yargait Mogod Erdenet Turquoise Ikh Tal MONGOLIA Wild Mountain PORPHYRY COPPER & ERD Properties EPITHERMAL GOLD EXPLORATION Copper/Gold 2
Slide 23: Erdene Coal Overview
Erdene Coal Overview Extent of Exploration RUSSIA Chita Irutsk Drill Tested 2006 2007 2008/09 201011 MONGOLIA Due-Diligence 2006 2007 2008/09 2010/11 Field Visit Ceke 2006-08 BEIJING CHINA Baotou 125 250 500 Jiayuguan KILOMETERS 23
Slide 24: Erdene Coal Overview
Erdene Coal Overview Current Focus RUSSIA Chita Irutsk Extent of ERD 2009-10 Regional Mapping Program MONGOLIA South Gobi Coal Basin Tenement & Tender Evaluation Project Zarman Basin 400,800 hectares Follow-up exploration Ceke BEIJING CHINA Baotou 125 250 500 Jiayuguan KILOMETERS 24
Slide 25: Mining Infrastructure & Transportation
Mining Infrastructure & Transportation 25
Slide 26: Mongolia – Coal Production (top 10)
Mongolia – Coal Production (top 10) 26
Slide 27: Coal Deposits and Rail Developments
Coal Deposits and Rail Developments RUSSIA Chita Irutsk Ulaan Ovoo Khotgor Ovoot Sharyn Gol Chandgana Tal Baganuur Khushuut Aduun Chuluun Tugrug MONGOLIA Khuren Gol Galshar Tevshiin Govi Zeegt Shivee ESG Shinejinst Ovoo Unst Khudag Tavan Tolgoi Legend Ovoot Tolgoi/ Active Producer Nariin Sukhait Bar
Slide 28: New Roads
New Roads South Gobi Region UHG Nariin Sukhait BN W/E Tsankhi Ovoot Tolgoi OT Ceke Gashuni Sukhait Baotou Existing & Proposed Paved Roads Minerals & Public Transportation (439 km) Ukhaa Khudag (MMC) to Gashuun Sukhait (~300 km). In use Oyu Tolgoi to Gashuun Sukhait (105 km). Q3-12 Ovoot Tolgoi & Nar
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Slide 31: Understanding the licensing process for mining and exploration projects
Understanding the licensing process for mining and exploration projects 31
Slide 32: Mining Law - Issues
Mining Law - Issues Exploration license term (9 years): OT from discovery to IA - 14 years Extended rights of local administrative bodies Province imposing rules arbitrarily Exploration license granting First come first serve and tender Partial government ownership if deposit discovere
Slide 33: Presidential Ban on the Processing of Exploration and Mining Licences
Presidential Ban on the Processing of Exploration and Mining Licences In 2008 MRAM suspended licence issuances although it functioned periodically In 2010 the President suspended the issuance and processing of exploration licences; Extends to new or disputed licences Converting from an Exploration l
Slide 34: New Tender Process
New Tender Process Previously first come first serve New procedure for designating property as eligible for Tender; Land explored by state funds (Mineral Corridors) Forfeited exploration rights Tender only to firms technically qualified to conduct minerals work Technical merit of proposal will deter
Slide 35: The 2009 Law on the Prohibition of Minerals Exploration in Water Basins and Forested Areas
The 2009 Law on the Prohibition of Minerals Exploration in Water Basins and Forested Areas Objective to limit environmental damage caused primarily by placer gold mining Revokes or modifies licences located no less than 200 metres from a water or forest resource Requires government to compensate lic
Slide 36: Mining Law – Mining License
Mining Law – Mining License Requires resource registration following detailed review of mineral council Period of validity of mining license shall be 70 years; 30 + 20 + 20 Pre-mine development operation option for 3 years under agreement with government and registration of resource and feasibility
Slide 37: Strategic Deposits
Strategic Deposits GOM can designate deposits of strategic importance and determine the government share if: Production revenue +5% of the GDP; or has a potential impact on national security, economic and social development of the country For strategic deposits the GOM may claim up to 50% if the dep
Slide 38: Taxes Applicable to Mining
Taxes Applicable to Mining Corporate Tax Maximum 25% Royalty 2.5% Coal; 5% for others plus graduated royalty VAT 10% (exception for highly processed mining products, ex. smelting) Import/Customs Tax Tax Code Provisions: 8-year loss-carry-forwards(pre OT 2 years), five-year accelerated depreciation,
Slide 39: Parliament Amended Mineral Royalty Rates - late 2010
Parliament Amended Mineral Royalty Rates - late 2010 Sliding scale over base royalty rate of 5% for metals and 2.5% for coal Depends on: World market price of the commodity Amount of processing-value added completed in Mongolia 39
Slide 40: Graduated Royalty Rates
Graduated Royalty Rates Surtax Royalty Rates Based Type of Unit of Future Market Reference Product on Degree of Processing Mineral Measure Price (US$) Ore Concentrate Product Copper Tonne Copper (pure metal) 0-5000 0.00 0.00 0.00 5000-6000 22.0 11.0 1.00 6000-7000 24.0 12.0 2.00 7000-8000 26.0 13.0
Slide 41: Investment Agreement
Investment Agreement The original intent of investment agreement was to provide tax benefits/incentives An investment agreement can be concluded for an investment of more than $50M USD if made within the first 5 years of production; $50- $100 million USD 10 years $100 - $300 million USD 15 years $30
Slide 42: Mongolia Land Status
Mongolia Land Status 42
Slide 43: State Protected Area
State Protected Area STATIC PROMMCT AINEA
Slide 44: Provincial Special Needs
Provincial Special Needs SROING WESC" DAV RCORMENT CORP
Slide 45: Mining and Exploration Licenses
Mining and Exploration Licenses
Slide 46: Tender Area
Tender Area
Slide 47: Mineral Potential Area
Mineral Potential Area eve msame| SE ORGOILTA MONERAL pment | sorReTTAL soxte 10,500,000 | AREA © @0 420 In e=———!
Slide 48: Land Status
Land Status
Slide 49: Mongolian Land Status
Mongolian Land Status Tender 21% MRAM 3% SNA 22% Open 16% SPA 14% Exploration license 22% Application 2% Mining license 0.2% + Mineral Concentration 19.6% 49
Slide 50: Manpower Challenges and Solutions
Manpower Challenges and Solutions 50
Slide 51: Manpower
Manpower Unskilled labour sufficiently available Mongolian labour pool Temporary foreign workforce in construction phase Skilled Labour Educated Young Adaptable Shortages in advanced degrees/training Vocational and professional Lack of facilities Solutions In-country training Company specific - rais
Slide 52: Manpower - Oyu Tolgoi
Manpower - Oyu Tolgoi >6000 workers employed by OT LLC Agreement promises that at least 90 % of the project's employees will be Mongolian citizens. Within 5 years, at least 50 % of engineers will be Mongolian citizens, increasing to at least 70 % within 10 years. A comprehensive, 5 year Oyu Tolgoi T
Slide 53: Investment Environment
Investment Environment Oyu Tolgoi advancing, abolishment of windfall tax and successful Mongolian IPOs and price performance has created favourable investment climate Although Oyu Tolgoi is the most prominent there are multiple mines in operation with foreign involvement and investment Government co
Slide 54: Summary
Summary 54
Slide 55: Summary
Summary Geology-Exploration World Class Metal and Coal Deposits Limited Exploration Excellent Exposure Licensing process Worked relatively well for most for 14 years Requires clarification on tender process and water and forestry act Transportation – Infrastructure Road network being constructed Rai
Slide 56: Mongolia Mining Export Revenues Growth – Top Ten Developments
Mongolia Mining Export Revenues Growth – Top Ten Developments $9,000,000,000 $8,000,000,000 $7,000,000,000 $6,000,000,000 $5,000,000,000 $4,000,000,000 $3,000,000,000 $2,000,000,000 $1,000,000,000 $0 2010 2011 2012 2013 2014 2015 Centerra Gold Placer Gold & Other Oyu Tolgoi Gold Oyu Tolgoi Copper Er
Slide 57: Health, Safety, Environment, Community
Health, Safety, Environment, Community A way of doing business, not just costs! Part of risk management strategy...
Slide 58: Erdene's HSEC Strategy
Erdene’s HSEC Strategy Cultivate constructive relationships with wide range of stakeholders Position as best partner in the development of mineral resources Mitigate all risks associated with HSEC issues Preference for in-kind, non-cash, scaled assistance 58 Public outreach Mongolian specialists Com
Slide 59: Community Investment Trends in Mongolia
Community Investment Trends in Mongolia Increased since 2006 (reactionary) Mostly infrastructure, hand-outs & PR Led by foreign companies / JVs Fodder donation Common benchmark = 1% pre-tax profit / 5- 10% minex expenditure Perceived by government as alternative revenue stream Mine life cycle activi
Slide 60: Public education
Public education Outreach Key stakeholders: Community leaders Students/Teachers Entrepreneurs Linked to core business Natural sciences Engineering Socio-economics Support Sciences / English Capacity building Erdene hosts teenagers and teachers at exploration site Material / equipment
Slide 61: HSEC Compliance
HSEC Compliance Employees All duty stations Part of job duties Contractors Drilling, technical Linked to tasks Tools: Inspections Training Incentives / discipline Employee - contractor cooperation
Slide 62: Environmental management
Environmental management Potential impacts Recognize and mitigate even limited impacts during exploration Monitor early, proactively Community involvement Basic impact analysis Stewardship Vegetation trials Erdene protects sensitive sites, such as water springs
Slide 63: Community Investments
Community Investments Approach Donations paper trail Services / cooperation Target areas Community input Health, education, livelihoods, environment Examples Community gardening Medical service enhancement Livelihood diversification through community gardening 63
Slide 64: Lessons Learned for HSEC
Lessons Learned for HSEC Integration of CR company-wide, across operations / projects Time-intensive, people-oriented, appropriately-scaled Erdene-furnished kindergarten Balance between cost-saving & HSEC compliance / investments Systems approach, practical / user- friendly documentation 64 Erdene s
Slide 65: Committed to Mongolia for the long term, building value for all stakeholders
Committed to Mongolia for the long term, building value for all stakeholders
Slide 66: Erdene Resource Development Corp contact
Erdene Mongol XXK Mongolia Office Ulaanbaatar at 976 11 319 758 Erdene Resource Development Corp Corporate Office 99 Wyse Road, Suite 1480 Dartmouth, Nova Scotia Canada B3A 4S5 Tel 902-423-6419 Fax 902-423-6432 NA Toll Free 800-261-1422 Email info@erdene.com www.erdene.com