Can you explain the latest developments at Kharmagtai?

Following the Kharmagtai PEA publication in 2022, we created a joint venture with Zijin Mining Group, comprising a US$35 million direct project investment to fund the pre-feasibility study (PFS), as well as growth-focused discovery exploration. The PFS features both a drilling campaign (which has improved confidence in the resource) and metallurgical test work for detailed process engineering to determine optimum ore throughput and end-product specifications. Beyond that, we will need to understand our people and infrastructure requirements, how we efficiently manage waste and tailings, as well as permitting. Our current project stage is where we can maximize value creation so it is key to get the PFS right. 

The recently upgraded Mineral Resource Estimate (MRE) is 1.3 billion tons (t), containing 3.4 million t of copper and 8.5 million ounces (Moz) of gold. Our 66.5 square km mining lease hosts a big system, comprising multiple porphyry events and accented by higher-grade components. It works on scale, good gold credits, and low stripping ratio, so mining costs are relatively low and all-in-sustaining costs (AISC) are globally competitive too. Our current base case concept is 50,000 t/y copper and 110,000 oz/y gold production for 30 years of open-pit mining. PFS production will be at least maintained, with project cashflows most likely enhanced in the early years for 25% growth in the higher grade core to 125Mt @ 0.75% CuEq (copper equivalent). 

Furthermore, the system remains open in all directions; as such, the full system extent is expected to evolve over time. Given encouraging deeper exploration drilling results, there is also ample potential for future underground operation. We are completing shallow exploration, not only to add further higher-grade ore feed, but also to define the best decisions on waste, tailings, and other infrastructure locations, from the very beginning.  

What is the timeline to complete the PFS, and how are working conditions in South Gobi?

We are over halfway through 18-month PFS. Now that we have updated the MRE, we are working with specialist consultants (Mining Plus for mining, DRA for processing, and Knight Piésold for tailings), to define an economic project, aiming towards PFS publication in September 2024, to be shortly followed by an investment decision. 

The government has put significant effort into advancing South Gobi infrastructure; there is power, water, road, and rail access. It is relatively easy versus other countries I have worked in. That means we are looking at a straightforward development, with low engineering complexity given the flat topography and scarce population. Regardless, we will still adhere to high international mine standards. 

What is Xanadu’s three-horizon strategy?

Our initial strategy was to explore and define a solid MRE to create a base case PEA and attract a funding partner. We ticked all these boxes. Horizon 1 is to deliver a high-quality PFS for Kharmagtai, leading to a conversation with Zijin regarding the next steps. Horizon 2 is to continue exploring, primarily at Kharmagtai, but also our 100% owned Red Mountain project, located to the east, near the town of Sainshand. Comparatively, Red Mountain is at an earlier stage, but is a very attractive porphyry copper-gold system; we intend to recommence drilling soon. Horizon 3 is to build our portfolio in Mongolia, a largely unexplored country with significant geological potential. In this regard, we recently secured the earn-in right for up to 80% in Sant Tolgoi, a highly prospective magmatic copper and nickel sulfide project in Western Mongolia. Exploration at Sant Tolgoi is planned to start in March 2024. In summary, our 3 Horizon strategy aims to maximize share price performance during 2024 and beyond.

How do you read current copper and gold fundamentals?

As the world decarbonizes, copper demand will increase to address insufficient copper in the pipeline to meet demand. Currently, we are going through a slow period in the global economy, largely driven by geopolitical events. Despite this, market expectations for copper concentrate supply tightness are lifting, as witnessed by the recent first price drop since 2021 for annual copper smelter fee negotiations.  

Gold and copper tend to act as a natural hedge. Therefore, big copper deposits with elevated gold are very attractive. Kharmagtai will produce a very clean copper concentrate, with few impurities, but its strong gold content is attractive for smelters, which are currently competing for limited supply. 

What areas of improvement do you see in Mongolia to attract more mining investment?

Our experience operating in Mongolia has been very good. What I would say to the government is that without juniors to advance projects, they will struggle to attract majors to invest billions. The government recognizes the issues that make it difficult for junior companies to invest and is working towards addressing these. This includes more certainty around the fiscal regime. The government is a young democracy, but I believe they recognize that to be globally competitive, changes are necessary. 

What is the investment case for Xanadu Mines and Kharmagtai? 

We are a great investment proposition; we have a large copper mine that we are shaping into the best it can be. Unlike other juniors, our project funding has been secured. Our strategic partnership with Zijin provides funding certainty through to commercial production. Also, the project has no fatal flaws or ESG barriers. It can deliver production rather quickly; first concentrate production is expected by Q4 2027. Kharmagtai is strongly positioned to become Mongolia’s next large-scale copper mine, amongst a handful of new global mines delivering copper within the next 4 years