The transaction involves a transfer of shares between the two companies and a cash payment of $US1.95 million to a newly formed company established through APM and Erdene subsidiary ERI which will manage Donkin.

"We strongly believe that the separation of Erdene's major projects, Donkin coal and Mongolian minerals exploration, into separate public companies will provide excellent value to the company's shareholders," Erdene president and chief executive officer Peter Akerley said.

"The split will provide investors with a clearer framework to assess the investment opportunity and provide management with greater flexibility in the advancement of specific projects."

Erdene’s decision to focus on its Mongolian assets follows an announcement last April from Xstrata that it intended to sell its interest in Donkin.

Xstrata said it would focus instead on larger volume mining complexes and would seek out a new operating company to assume its interest in the Canadian project.

The deal also follows a recent announcement from APM that it would sell its kaolin production assets and associated mining operation in Dearing, Georgia.

Located on tidewater in the province’s Cape Breton area, Donkin holds a 227 million tonne indicated resource of metallurgical coal and is described by Erdene as a “world-class asset”.

A National Instrument 43-101 compliant technical report prepared for Donkin in early 2010 suggested the project had a $1 billion net present value based on project development capital of approximately $500 million and was economically viable for proceeding to feasibility stage.

Though the report currently recommends a room and pillar continuous miner operation, Erdene says a longwall operation producing 4-5 million tonnes per annum is possible at the site.