Cathay Forest Acquires 51% Ownership of a 270,000-Hectare Concession of Russian Forests

Toronto, Ontario, Canada, 14 August 2007 – Cathay Forest Products Corp. today announced a joint venture agreement whereby Cathay has purchased a 51% interest in DalEvroLes Co. Ltd, a Russian company, which owns a 270,000-hectare concession of standing timber in Khabarovsk, Russia.

Cathay is purchasing the 51% interest in DalEvroLes through a combination of USD 2.7 million cash, 800,000 common shares of Cathay Forest, and a loan to the joint venture. The loan amount and schedule will be determined after Indufor, a third-party forest industry consulting firm, has completed a capital expenditure analysis.

The remaining 49% of DalEvroLes interest is controlled by Finmasheri Co. Ltd., which has been Cathay’s joint venture partner harvesting roundwood in the Khabarovsk region for nine years and has supplied one of Cathay’s subsidiaries with roundwood for seven years. The joint venture partner is currently constructing a 150,000 m³ per year sawmill, which requires 300,000 m³ of roundwood. Permission has been granted to increase the production scale of
this saw mill to 300,000 m³, requiring 600,000 m³ of round wood.

“This agreement is a major milestone that vaults Cathay into a new peer group of leading, international forestry companies," said Anthony Ng, president and CEO of Cathay Forest. "Russia contains vast tracts of dense forests which the government is motivated to commercialize with large-scale sustainable operators. Further elevating our status in the forestry industry is the fact that the joint venture partner has been named to a list of Russian-based forestry companies that qualify for a tariff-exempt policy. As a result of our joint venture partner’s history of responsible forestry and their strong relationship with the Ministry of Forestry in the region, Cathay will benefit from the tariff exemption,” Ng said. “Cathay is quickly becoming a world-class forestry company and we will continue developing sustainable, regenerative forest assets in China and Russia to supply the enormous demand for forest-related products in this region.”

The joint venture partner’s sawmill project is approved by the Russian government’s Priority Investment Program and as such, the group is entitled to continue to export 600,000 m³ of roundwood without incurring a new export tariff on roundwood exports as announced by the Russian government earlier this year. Under this Priority Investment Program, 300,000 m³ of roundwood harvested by DalEvroLes would be exported via the sawmill project.

The concession is granted an annual allowable cut of 300,000 m³ of wood from the Russian Ministry of Forestry. The current lease period is 25 years; however the new Russian Forest Code will result in the lease being extended to 49 years.

Cathay and Finmasheri have been conducting commercial timber trading between Russia and China for approximately two years. The joint venture partner will continue harvest operations while Cathay will oversee the operations in Khabarovsk. The wood harvested through the joint venture is expected to be sold to customers in China and Japan. Cathay’s subsidiary, Raohe Cathay, is responsible for marketing the wood in Japan and China.

About Cathay Forest Products

Cathay Forest is a forest products company currently managing approximately 18,000 hectares of standing timber properties and fast-growth, high-yield poplar plantations in China. Cathay Forest is building a world-class forest products company through a customer base that includes the domestic Chinese pulp and paper industry as well as a variety of other wood products industries.