They say if you want to go elephant hunting you must go to elephant country and by any measure, when talking mineral endowment, Mongolia is elephant country. It boasts one of the largest coal deposits on the planet and the ridiculous scale of Rio Tinto’s part-owned Oyu Tolgoi mine is another truly biblical example. ASX-listed Xanadu Mines is also turning heads in Mongolia with its Kharmagtai project, now thought to be one of the largest undeveloped copper-gold resources controlled by a junior explorer.
Xanadu’s recent deal with global copper miner Zijin Mining Group, who plans to plough millions into Xanadu, further underlines the potential scale of Kharmagtai as Zijin is not exactly known for chasing small fry projects.
Chinese-based Zijin is a top 10 copper producer around the world.
Xanadu says it is positioning Kharmagtai as the “Cadia Hill of Mongolia”, a reference to the giant Newcrest Mining-owned copper-gold mine in NSW. It says Kharmagtai stacks up well against Cadia Hill on strip ratio, scale and copper grade, to name just a few metrics.
In the last four years, Xanadu has stacked on an additional 4 million ounces of gold and another million tonnes of contained copper at Kharmagtai, taking the resource up to a staggering 1.1b tonnes for 3 million tonnes of contained copper and 8 million ounces of gold.
Based on the company’s scoping study predictions for the first five years of production, Kharmagtai shows a diminutive strip ratio of just 0.9, an averaged milled copper grade of 0.29 per cent and the company expects to produce an average of 37,000 tonnes of copper per year.
By comparison, Newcrest’s Cadia Valley operations technical report from 2012 shows a strip ratio of 2.8, an averaged milled copper grade of just 0.19 per cent and an average of 24,000 tonnes of copper produced per year.
Kharmagtai is also expected to produce a greater gold recovery at 78 per cent, compared with 74 per cent at Cadia, albeit Kharmagtai’s grade is lower at 0.3 g/t gold compared to 0.77 at Cadia.
As it happens Xanadu Executive Chairman and Managing Director, Colin Moorhead is no stranger to Newcrest’s operations, having previously risen through the ranks to Executive Manager level and been responsible for global exploration and resource development with the company from 2008 to 2015.
Xanadu says there are three styles of mineralisation at Kharmagtai: porphyry style stock work copper-gold mineralisation, tourmaline breccia style copper-gold mineralisation and epithermal gold associated with carbonate base metal veins.
Previously discovered porphyry deposits at the project include White Hill, Stockwork Hill and Copper Hill.
Stockwork Hill comprises two high-grade outcropping stockwork zones, the northern and southern stockwork zones with a larger body of high-grade tourmaline breccia at depth.
White Hill has a much larger, moderate-grade zone of stockwork mineralisation 800m south of Stockwork Hill.
Copper Hill is a smaller, high-grade zone of stockwork mineralisation, offset at depth by a low angle fault. Work is underway to determine the direction of the offset mineralisation as the company believes the grades at Copper Hill make the site an attractive target.
Porphyry deposits are important and attractive global sources of ore, typified by their huge tonnages and relatively low grades. Interestingly, the size of porphyry systems can be so large, they can support an operator for decades through multiple market cycles.
The US Geological survey pegs porphyry deposits as the world’s largest source of copper — about 60 per cent — and a major source of molybdenum, gold and silver.
Xanadu is well on its way at Kharmagtai with a decision to mine expected next year in addition to the tabling of a maiden ore reserve.
A pre-feasibility study will be finalised before the end of this year, with seven rigs parked up and drilling teams ready to get started.
The company has flagged about 30,000m of infill drilling targeted during pre-feasibility studies.
Remarkably, Xanadu says the Kharmagtai mineralisation is still open in all directions despite 3m tonnes of copper and 8m ounces of gold already accounted for and follow-up drilling will focus on several near-surface targets across the tenement.
Deeper drilling at Stockwork Hill has also confirmed that higher grade bornite mineralisation continues at depth below the current pit.
The recently completed scoping study reveals a mine life of 30 years, producing 1.5 million tonnes of copper and 3.3 million ounces of gold.
The explorer has identified a base total EBITDA for the project of US$6.77 billion and potentially as high as US$7.66 billion against an all-in sustaining cost of US$1.87 per pound.
The company is bullish about the interest Zijin Mining Group has shown in it and says Zijin brings the capability and balance sheet to build a large-scale copper-gold mine at Kharmagtai, with the planned investment from the deal to be delivered across three phases.
The first phase has been completed, with Zijin investing $5.6m for a total of 139 million fully paid ordinary shares, giving it a 9.9 per cent minority stake in Xanadu.
At phase two, Zijin will invest another $5.7 million to increase its stake to 19.99 per cent.
Through the third phase, Zijin will create a 50-50 joint venture with Khuiten Metals, currently wholly owned by Xanadu.
Khuiten owns a 76.5 per cent stake in the Kharmagtai mine.
The investment includes US$20 million to fully fund a prefeasibility study and an additional US$15 million to fund continued exploration at Kharmagtai.
In addition to the cash invested in Xanadu and Kharmagtai, Zijin also brings a wealth of mining, smelting and refining assets and knowledge.
In 2021, Zijin produced 584,000 tonnes of copper, 1.68 million ounces of gold and 396,000 tonnes of zinc, with operating assets across 14 countries and five continents.
Global production of copper in 2021 was 23 million tonnes. Judging from past performance, it appears China routinely consumes more than half of the total world’s production each year, gobbling up 13.3 million tonnes in 2021.
Given there is more copper in an electric vehicle than any other mineral – including lithium- the world is insatiable for advanced copper projects with near-term production potential.
Independent research group Rystad Energy has forecast a potential shortfall of about 6 million tonnes of copper in 2030 resulting from lacklustre investments in the copper industry, combined with the impending wave of electrification.
Xanadu hopes to deliver into the forecast supply gap and contribute to the global decarbonisation effort.
The company hit the ASX boards in 2010 with the intention of discovering and developing large-scale coal deposits in Mongolia, to feed the rapidly industrialising market of China to the south but in Kharmagtai it found a new path.
Believing Mongolia is one of the last great copper frontiers, in 2014 it doubled down on the region with the acquisition of a 90 per cent stake in the Kharmagtai copper-gold project from Turquoise Hill Resources for US$14 million.
When it comes to copper potential, Turquoise Hill put the landlocked nation on the map in the early 2000s with its Oyu Tolgoi discovery, not far from Kharmagtai.
Mongolia is a hot spot for copper porphyries, with Oyu Tolgoi representing one of the highest-grade porphyry deposits in the world.
Kharmagtai is within 300kms of the behemoth store of copper.
To give some perspective, the world’s largest producing copper mine, Escondida, is a porphyry deposit, capable of churning out about a million tonnes of copper per year.
The mine is so large, it accounts for several percentage points of Chile’s gross domestic product.
In addition to the sizeable copper and gold deposits Xanadu has access to at Kharmagtai, Mongolia is an established and growing economy that is in an ideal location for mining.
The company says a combination of large expanses of flat ground with a relatively sparse population and established roads, rail, power and water infrastructure has the potential to minimise operating and development costs.
Xanadu says mining accounted for 23 per cent of Mongolia’s gross domestic product and 70 per cent of export revenues in 2020.
Xanadu also has a 100 per cent share in its Red Mountain project in southern Mongolia, where early exploration has defined broad zones of strong quartz stockwork veining and associated high-grade gold mineralisation of about 0.5 to more than 5 grams per tonne gold and 0.3 to 1.5 per cent copper.
In 2021, the company completed a 3000m diamond drilling program focused on near-surface high-grade bornite mineralisation.
Highlights included a 4m intersection going 7.34 per cent copper and 29.3 grams per tonne gold from 60m including 1m reading 28.9 per cent copper and 114g/t gold.
The explorer says the results confirm the presence of sub-vertical mineralised structures up to 24m wide that potentially extend beyond one kilometre.
The company is also seeking a third project in the South Gobi area of the country as it continues its all in Mongolian strategy.
The two great difficulties in building a big scale copper-gold mine are firstly, finding a generational sized deposit and secondly, being able to fund it. Kharmagtai has the first box ticked and Zijin ticks the second – not a bad start for the $32m market capped Xanadu.
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