Xanadu Mines’ (ASX:XAM) experienced team is emerging from the downturn with control of two-district-scale copper-gold projects in resource-rich Mongolia as interest in quality projects is heating up.

"What we have seen over the last six months is a general increase in the  small cap mining stocks, however it's clear that there is real shortage of quality deposits/projects and management teams to deliver discoveries, therefore demand is exceeding supply and we are seeing a clear increase MA activity globally," says Xanadu managing director CEO Dr Andrew Stewart.

The company has already established a 1,533 million pound copper and 2.18 million ounce gold maiden resource at its flagship Kharmagtai project in the South Gobi, but Stewart describes those figures as “already in the rear-view mirror”.

The company has launched into a fully-funded exploration programme, among the largest to be undertaken by a junior ASX-listed exploration company this year, targeting additional porphyry copper-gold and high-grade epithermal gold mineralisation at Kharmagtai and Oyut Ulaan, as it continues its aim of being Mongolia’s premier copper and gold exploration company.

Stewart, who was involved in the early days of the huge copper-gold Oyu Tolgoi discovery in Mongolia, describes Kharmagtai as “being in the shadows of Oyu Tolgoi”.

“At night, you can see the lights,” he said of the massive operation 120km away, which is now extending underground and operated by Rio Tinto (LSE:RIO).

Xanadu has put together an experienced team with a track record in discovery and is already well on its way to building on its exploration success.

“Continued exploration success at Kharmagtai shows it is one of the most promising copper-gold projects globally,” Stewart said.

The first diamond hole into a target undercover earlier this quarter at the Altan Burged prospect at Kharmagtai struck immediate success, identifying a new gold-rich porphyry under shallow cover, intersecting 220m grading 0.64g/t gold and 0.15% copper, including 26m at 2.27g/t gold from 42m.

While Kharmagtai is the company’s flagship project, with its massive resource and mineralisation spanning over 25km², Stewart is equally excited about the early stage Oyut Ulaan project where mineralisation spans about 40km².

Over at Oyut Ulaan, 260km to the east, a new regional geochemical survey has identified 47 copper-gold and gold targets for exploration, and trenching confirmed 11 new porphyry targets and nine new epithermal gold targets, with intersections including 3m at 13.28g/t gold and 30m @ 1.74g/t Au at different targets.

“It has significant mineral potential,” he said of the project, which means Copper Hill.

Xanadu has conducted a comprehensive geochemical mapping programme at Oyut Ulaan, which “really opened our eyes to its potential,” Stewart said.

Stewart described the trenching programme as a huge effort, with excavator operators doing double shifts during Mongolia’s harsh winter, and said exploration activity would pick up now the snow was melting.

“We’re seeing high-grade gold veins at surface and large copper anomalies associated with porphyry mineralisation,” he said.

The recent surface geochemistry has been combined with a new gravity survey and geological mapping, creating a compelling picture of a large-scale porphyry system.

The company has reported high-grade intersections from surface at the early-stage Oyut Ulaan project, including an intersection last June of 6m grading 21.57g/t gold, which helped a successful A$12.2 million (US$9.4 million) capital raising at 20c a share later that month.

Xanadu has deliberately chosen a path to find significant copper and gold discoveries that major mining companies would be interested in acquiring.

“We are getting interest from majors but there’s no pressure to do any deals at this point because we’re in a good position and fully funded,” he said.

“Very few people are advancing projects that the big companies want to buy and that’s what we’re doing – and we capitalised on the downturn.

“To be successful in the exploration business you’ve got to be counter-cyclical and you can’t buy copper projects for love nor money at the moment.”

Stewart has long had faith in Mongolia, saying the country had no impediments to exploration and was working hard to return to investor favour.

Mongolia’s Ministry of Mining and Heavy Industry presented at the annual Prospectors and Developers Association of Canada conference in Toronto this month, outlining its commitments to a favourable tax and royalty regime, accelerated permitting procedures and simplified provincial regulations.

Mining contributes 20% of Mongolia’s GDP and the government is keen to see the resource-rich country become the main supplier to its neighbours including Russia, China, Korea and Japan.

“It’s very much an orange light country turning green,” Stewart said.

He pointed out Rio’s success at Oyu Tolgoi proved Mongolia was a place where you could get a mining operation underway and maintain tenure.

“It’s the most sparsely populated country in the world, it’s very under-explored, with some of the lowest drilling costs in the market,” he said.

“You get real bang for your buck when you invest in Xanadu.”

Stewart, who took on the additional role of Xanadu’s managing director six months ago, said the market was getting excited about SolGold’s (LN:SOLG) Cascabel copper-gold project in Ecuador but pointed out most of its mineralisation occurred below 500m.

“We’re getting our results from surface and we haven’t gone below 500m yet,” he said.

“We’re going to drill a series of deeper holes in a few months at our Kharmagtai project.

“We’re in a very privileged position in that our mineralisation outcrops at surface, and coalesces at depth.”

“It’s nice to have a portfolio and a pipeline of projects in the very early stage,” Stewart said.

“Porphyry systems often occur in clusters, Oyu Tolgoi is a cluster, and we want to make sure we’ve got all of them, we’re looking for a project that has both scale and grade.

“We have two district-scale projects, that’s what we were able to build at the bottom of the market.

“Now we’re adding value and starting to get some interest.”

Xanadu’s interest in Kharmagtai equates to about 71% through its joint venture with Mongol Metals LLC and it has a 90% stake in Oyut Ulaan.

The company’s share price has risen more than 50% over 12 months and Stewart said it was due to a combination of the copper and gold price rising, the projects’ potential and sophisticated investor interest.

“And we’ve got a lot of news flow to come,” he said.

At Kharmagtai, the company will continue testing shallow targets and the deeper tourmaline breccia mineralisation below Altan Tolgoi.

The company will also accelerate testing shallow porphyry copper-gold targets at Oyut Ulaan and the high-grade gold mineralisation at surface, “to see whether that has some legs”.

“Our vision as a company is to be Mongolia’s premier copper and gold exploration company, but our mission is to create to value through discovery in globally-significant copper and gold deposits in Mongolia,” Stewart said.

“It’s really going to be an exciting next six months.”