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On the cusp of defining a Tier 1 copper asset in
ADU NES
n Mongolia’s underexplored South Gobi Desert
MINING | XANADU MINES
At the start of December 2021, Xanadu Mines announced a significant update to its Kharmagtai copper-gold project in Mongolia. After completing 120 diamond drill holes for 69,479 metres since the last resource upgrade in 2018, the new mineral resource estimate (MRE) exceeded 1 billion tonnes – an aspirational target maintained by the ASX and TSXlisted company since it began exploring the 40km2 porphyry district in the vast South Gobi Desert several years prior. The current 1.1 billion tonnes mineral resource contains 3 million tonnes (Mt) of contained copper and 8 million ounces (Moz) of contained gold, with a notable 100 Mt higher grade core at 0.8% copper equivalent. At the time, CEO Andrew Stewart said the MRE positioned Kharmagtai as one of the largest undeveloped copper and gold resources on the ASX, and one of the biggest globally. Speaking to RGN in the new year, he highlighted the importance of the high-grade core: “When you see these copper systems, they can be big and low grade. But it’s the ones that have that goldrich core that are interesting, and we saw that at Kharmagtai. We knew the system would get past those hurdles of what we see is a Tier 1 asset and we are very pleased to hit that upgrade after all the drilling we’ve done over the last three to four years.”
The key benefit of having a high-grade core in a large, low grade porphyry system like Kharmagtai is derived in project economics, Stewart explains. This type of project is intrinsically high capex, but a strong gold to copper ratio can reduce the payback period and improve the financial model. “If you can get your gold credits into early production, that allows you to bring back that payback period, which is critically important for any copper project around the world and it’s a key differentiator for our Kharmagtai project.”
Developing a Tier 1 project The mention of a ‘Tier 1 asset’ is all too common in the mining sector these days, however the phrasing looks appropriate in the case of Kharmagtai. Going by Mark Bristow’s definition of a Tier 1 asset as having 5 Moz in contained gold or 5 Mt in contained copper, Xanadu’s
MINING | XANADU MINES
flagship project is well on the way to achieving Tier 1 status. While the short-term focus will fall on growing the high-grade core to improve the economics of the initial open pit mine, there exists significant upside potential at depth. The company has identified drilling below 400 metres as an opportunity to link porphyry deposits, building out the underground development which will follow the multi decade open pit at Kharmagtai. Stewart is confident that Xanadu can make further gains to the mineral resource and feels the project is ready to be fleshed out with clearer economics. A scoping study is currently underway with a view to it being gated towards a pre-feasibility study. The scoping study will evaluate key advantages of the project including the high-grade zones, low capital intensity, favourable ESG factors and close proximity to markets.
MINING | XANADU MINES
“We were busily working on optimisations before Christmas and hope to see a big chunk of the 1 billion tonnes resource sitting within the open cut. We’re looking to report on the first phases of that work before the end of Q1 this year,” says Stewart.
Code red for copper The smooth delivery of Xanadu’s Tier 1 project draws added importance from the gaping supply-demand dynamics taking hold in the copper market. Rapidly building demand from the renewable energy and electric vehicle (EV) segments of the global clean energy push has been met by an unprecedented paucity of greenfield copper discoveries over the last decade. Markets have already responded to this escalating global supply crisis, with the copper price breaching US$10,000 per tonne last year. More recently, global copper
inventories dropped to just
lot of demand for copper right
little to worry about when it
over 200,000 ounces - barely
now. I only see that growing
comes to ESG risk. This has
enough to cover three days of
because we’re not effectively
not stopped the company
worldwide consumption.
replacing the copper that’s
from doing what it should
being used today,” Stewart
in terms of broad-based
stresses.
ESG compliance (its annual
Investment bank Goldman Sachs was even compelled to
sustainability report was first
warn of an ‘extreme scarcity
“We remain reliant on a couple
published in 2020), in spite
episode’ by the end of the year,
of very old, very deep mines
of the ESG-friendly project
while reiterating its bullish
in Chile, and we know it takes
fundamentals.
forecast for copper to average
a long time and a lot of capital
$11,875 a tonne in 2022, rising
to build these projects. So, we
“We are looking at a project
steadily to $15,000 during 2025.
see that copper price being
where we have built a
stronger for longer until these
strong relationship with
“We’re seeing a market that is
new projects like Kharmagtai
the community we work
incredibly strong and there’s a
come online.”
around. We have a shallow,
XAN A DU M IN ES AT A G L A N C E
Low ESG risk
conventional mine with conventional metallurgy and
The global copper supply
no arsenic. We have very well
pipeline has also been
developed water resources and
impacted in recent years by
power nearby.”
new projects being slowed
STOCK TICKER: ASX:XAM, TSX:XAM MARKET CAPITALISATION: US$23.7 MILLION (as of February 16, 2022) aj
down – or even halted
Stewart also highlights the
entirely – by local and
speed of project development
federal complaints, typically
in Mongolia, referencing
with regards to social and
the nearby Oyu Tolgoi
environmental issues.
mine discovered by Robert Friedland in the early
However, in a sparsely
2000s. By 2013, Rio Tinto
populated country like
– in partnership with the
Mongolia, and with a
Mongolian government - had
simple open pit project like
advanced the mega-project
Kharmagtai, Xanadu has
into production.
MINING | XANADU MINES
“I don’t know too many other projects in the world that have advanced that rapidly,” he says. After the recent resolution of an economic dispute with the government, Rio is moving forward with the $6.93 billion underground expansion project at Oyu Tolgoi. “In the next few years, we’ll see one of the largest copper projects in the world developed, and that’s happened in relatively quick time. It’s great to see.” Xanadu’s own fully permitted mining licence with 30 years tenure provides a strong basis for the company to begin rapidly advancing Kharmagtai through the feasibility stages.
God’s gift to explorers Xanadu recently took part in the Future Minerals Forum in Saudi Arabia, a new industry event that aims to shine a light on the opportunities available in ‘frontier’ mining DR ANDREW STEWART, XANADU MINES MANAGING DIRECTOR AND CEO
jurisdictions stretching from Africa to the Middle East and
central Asia. In a corporate
And after the huge success of
being operated by listed
pitch at the event, Stewart
the Oyu Tolgoi development,
mining and exploration
described Mongolia as ‘god’s
the Mongolian government
companies seeking the next
gift to explorers’ – a nod to the
has realised the economic
big discovery.
opportunity for discoveries in
potential that lays dormant
the underexplored terrain of
in its substantial mineral
“We can only draw attention
the Gobi Desert.
reserves, and is actively
to what’s happening in this
supporting explorers and mine
part of the world, and there’s
Put simply, the chances of
developers who can deliver
certainly a lot happening
similar greenfield discoveries
substantial local employment
in terms of infrastructure
in mature exploration settings
opportunities.
projects. It’s an exciting place
like Australia or South America
to be, a good place to have
are significantly smaller, and
A favourable 25% corporate
discoveries and it goes back to
miners there are typically
income tax regime has
that ESG footprint.
compelled to dig deeper
encouraged foreign direct
into existing deposits at ever
investment into the country,
“We’re in the most sparsely
increasing costs.
with 27 projects currently
populated country in the
MINING | XANADU MINES
world. There’s very little
“We have the ability to move
to get the globally significant
vegetation in the South Gobi,
quickly, drill holes and
copper-gold project off the
good water resources and
there’s no bureaucracy in the
ground.
you’re on the doorstep of the
exploration process. I think
world’s biggest consumer in
it’s a real advantage for a small
“In my experience when you
China.”
company. We have a very large
have this type of discovery,
copper-gold project and our
it creates interest and people
drilling costs are a fraction
line up to see them and
of what you get around the
certainly fund them,” Stewart
world.”
confidently concludes.
The next step in the journey Looking back over the last decade during which Xanadu has operated in Mongolia,
And after the latest upgrade to
Stewart reflects on the ups and the mineral resource, Stewart downs that are to be expected
believes that the Kharmagtai
in any frontier environment
project possesses all the
before expressing an overall
ingredients coveted by a larger
contentment with the
player that could provide the
company’s position in one
funding assistance required
of the world’s most exciting geological districts.
Published by Anderson Murray Media Ltd
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