Xanadu Mines has handed over the reins of its flagship Kharmagtai copper-gold project in Mongolia, following the successful transition of operatorship to its joint venture partner, Chinese mining giant Zijin Mining.
Zijin will now progress the world-class Kharmagtai project towards final development, following a promising prefeasibility study (PFS) delivered by Xanadu late last year.
Xanadu says Kharmagtai’s PFS reinforced its credentials as a globally significant copper-gold operation, with the study outlining a 29-year, large-scale, low cost and low-complexity mining operation set to produce an average of 165,000 tonnes of copper and 75,000 ounces of gold annually.
The project has an estimated post-tax net present value of US$930 million (A$1.49 billion), at very conservative gold and copper prices, and is already progressing towards a final investment decision by Zijin.
This decision is expected following the completion of a bankable feasibility study based on the PFS. The bankable feasibility study will most likely use a figure much closer to today’s US$2725 per ounce gold price than the US$2100 per ounce used in the PFS.
Both companies are scheduled to meet in Xiamen, China, in early February to discuss the project’s budget, scope and delivery schedule.
Xanadu Mines executive chairman Colin Moorhead said: “Encouraged by an improving regulatory environment, it is reasonable to expect Kharmagtai will be the next large-scale copper mine built in Mongolia. Through the 50:50 joint venture Xanadu shares control with Zijin, each partner currently holds a 38.25 per cent beneficial interest in a project with an estimated post-tax NPV at 8pc discount rate calculated at US$930m.”
As the project gears up for its next stage, Xanadu is carefully reviewing its strategic options to secure funding while maintaining maximum shareholder value.
The company has three options on the table. It may retain a 50 per cent interest in the joint venture while funding its share of project costs until the final investment decision is made. It could partially sell down 25 per cent of its interest to Zijin for US$25m (A$40m), with a loan-carry arrangement on the remaining stake, or it could sell its entire 50 per cent interest to Zijin for US$50m (A$80m).
Management has indicated a preference for the partial sell-down option, which would provide immediate liquidity while preserving a significant 25 per cent stake in the project.
Encouragingly for Xanadu, the Mongolian government has signalled a more pragmatic and future-facing approach to mining investments in recent years, evidenced by the number of global majors now operating there and the approval of an investment with French uranium company Orano just this week.
With a bankable feasibility study on the horizon, water exploration programs underway and ongoing efforts to secure government approvals, Kharmagtai is poised to advance to its next major milestone. As the world’s appetite for copper intensifies, Xanadu’s flagship project is well-positioned to become the next globally significant producer with a pivotal role in the global electrification transition.
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By Andrew Todd
