Xanadu Mines has wrapped up the next two phases of its strategic partnership with Chinese copper giant Zijin Mining, giving it access to funding for exploration and the further evaluation of its Kharmagtai copper-gold project all the way up to a decision to mine.
The deal will see Zijin invest US$35 million that will also be used to complete the Kharmagtai pre-feasibility study (PFS) which has now kicked off.
To close the deal, Xanadu transferred $7.16 million worth of its shares at four cents per share, a 33 per cent premium on the latest closing price and a figure which boosted Zijin’s shareholding in the company to 19.42 per cent.
With the ink now dry, a 50-50 joint venture has been created between the two partners at a project level, with Xanadu the operator on the ground.
The partnership has allocated 18 months to knock over its PFS. An earlier scoping study identified a number of upside opportunities which could materially upgrade the economics of the project.
Areas highlighted by the scoping study include evaluating the use of glycine-cyanide leach technology to convert the top 20 to 30 metres of partially-oxidised mineralisation into cash-generating ore. It will use electrified haulage and in-pit crush-and-convey technology to reduce mining costs and emissions. The company will also look to evaluate coarse ore flotation and beneficiation technologies and undertake a range of exploration drilling, all of which is aimed at increasing the size of the resource.
Once the PFS is complete, Xanadu expects to have options which include the opportunity to independently fund its share of the construction of Kharmagtai. It can either sell its share of the joint venture to Zijin for US$50 million or sell half its share for US$25 million plus a zero-cash loan carry for the remaining 25 per cent to commercial production.
A final part of the agreement has seen Mr Shaoyang Shen join the board of Xanadu after being nominated by Zijin.
Xanadu Mines Executive Chairman and Managing Director, Colin Moorhead said: “We are pleased to have money in the bank and PFS activities underway. We have already started working successfully with our partners at Zijin and with Mr Shen our new Director, who are fully aligned with our goal for Kharmagtai to realise its potential as globally significant copper-gold project. We expect to provide regular updates and news-flow through the next 18-month PFS period.”
Kharmagtai has an existing mineral resource estimate identified at a massive 1.1 billion tonnes for three million tonnes of contained copper and eight million ounces of gold. Based on Xanadu’s scoping study predictions for the first five years of production, Kharmagtai shows a diminutive strip ratio of just 0.9 to 1, an average milled copper grade of 0.29 per cent and the company expects to produce an average of 37,000 tonnes of copper per year.
In a note to clients last Friday, global investment bank UBS argued there was an “increasingly compelling” medium-term outlook for copper due to the lack of funds flowing through to support new mines and the robust demand outlook.
On the bank’s numbers, an extra $100 billion worth of copper projects would need to be approved and completed before the end of the decade to match the exploding growth in demand for the bellwether metal.
The demand is linked to copper’s critical role in the shift to renewable technologies due to its use in solar panels, wind turbines and electric vehicles and related infrastructure.
In an ominous warning, the bank says despite the easing of COVID restrictions and generally healthy returns for copper projects, the limited pick-up in new mine approvals was increasing the probability of a sharp slowdown in mine supply growth in 2025-26.
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