On April 19, 2022, Xanadu Mines Ltd announced a strategic partnership to progress its Kharmagtai copper-gold project in Omnogovi Province. Under the agreement, Zijin Mining Group Co. will invest in both Xanadu and the project directly.
At the corporate level, Zijin will invest A$11.3 million into Xanadu in two tranches. An initial placement on April 27 saw Zijin receive 139 million shares at an issue price of A$0.04/share (a 38% premium to the traded price) to gain a 9.9% shareholding. Subject to regulatory and shareholder approval, the second tranche (also at A$0.04/share) will lift Zijin's total shareholding to 19.99%.
At the project level, Zijin will invest US$35 million for an effective interest of 38.25% in Kharmagtai, which is located 120km north of Oyu Tolgoi. To effect this, Zijin will acquire a 50% stake in Xanadu's currently wholly-owned subsidiary Khuiten Metals Ltd, which controls the project. Khuiten owns 85% of Mongol Metals, which in turn owns 90% of Kharmagtai. Including the near 20% stake in Xanadu itself, Zijin will emerge with an effective total interest of 49.5% in the project.
Proceeds of the initial share placement, together with Xanadu's existing cash reserves, will be applied towards working capital prior to the go-ahead for a Pre-Feasibility Study (PFS) at Kharmagtai. Any remaining funds, plus those from the second tranche, will be used to fund corporate operating costs and exploration of the Red Mountain project. Cash invested into the Khuiten joint venture is ring fenced for Kharmagtai; namely expenditure on the PFS (US$20 million) and ongoing exploration (US$15 million).
Quite apart from the financial investment, Xanadu now has access to the technical skills and marketing abilities of a leading copper producer. One of the world's largest copper mining companies, Zijin has a market capitalisation of some US$50 billion. As part of what is a transformation of Xanadu from explorer to developer, the company's Non-Executive Chairman, Colin Moorhead, has become Executive Chairman and Managing Director. The former CEO, Dr Andrew Stewart, has moved to the newly created role of VP Exploration.
These moves, explained Moorhead, best suit the skills of the individuals, and better position the company for expansion now that they have a strategic partner across the border in China. The arrangement with Zijin means that Xanadu retains control of Kharmagtai, and any change in control of Xanadu will require a post-deal offer from Zijin that is subject to XAM shareholder approval. The value of Kharmagtai implied by the project level investment is US$92 million.
Mongolian Assets
Moorhead recently told investors that Xanadu provides them with "exposure to globally significant, large-scale copper-gold discoveries and low-cost inventory growth".
Recent work has focused on the flagship Kharmagtai project, including completion of an updated NI 43-101 mineral resource (1,100Mt containing 3Mt copper and 8Moz gold), and publication of a Scoping Study. The latter demonstrated a long-life, low-cost project producing 30-50,000 t/y copper and 100-115,000 oz/y gold that can be developed in the near term. The financial statistics are impressive, with first quartile all-in sustaining costs, 20% IRR, four-year payback and 30-year life with a NPV (at 8%) of US$630 million.
With the funding from Zijin, a PFS on Kharmagtai is expected to be completed by the end of 2023, leading to a full feasibility study in 2024 and sulphide-ore production by the end of 2027. Moorhead describes these next phases as "exciting", and "we look forward to sharing what we have at Kharmagtai". The project is, he believes, "globally competitive" and is "located in a mining friendly jurisdiction and on the doorstep of the world's largest copper market". "As a mining professional, with a long history in large porphyry projects," Moorhead told Xanadu's shareholders that he is "excited to be taking this project forward".
Meanwhile, exploration will continue on the company's wholly owned Red Mountain project, where potential remains for a large-scale porphyry system at depth. Xanadu is also seeking a third project in the South Gobi, and on ground investigations have been completed to identify potential new projects.
