In a dramatic turn that could reshape the ownership trajectory of one of Mongolia’s biggest copper-gold plays, Xanadu Mines has allowed its exclusivity agreement with Chinese mining heavyweight and joint venture partner Zijin Mining Group to lapse after failing to seal a control transaction deal.
The move ends a tense wait since April when Zijin tabled a non-binding proposal that Xanadu’s board judged superior to exercising its existing 25 per cent put option with Zijin.
After weeks of wrangling, Zijin has been unable to make a decision on such a tight timeline and has been pulled up short of signing on the dotted line.
Notably, Zijin has elected to not withdraw its original offer.
With the clock ticking and no firm commitment from its joint venture partner, Xanadu’s independent board committee has reactivated its backup plan by triggering shareholder approval for a put option.
An extraordinary general meeting has been scheduled for June 4, where investors will vote on whether to sell the remaining 25 per cent stake in its flagship Kharmagtai project to Zijin.
If green-lit, the deal would cement Xanadu’s exit from future cash obligations for the world-class project, turning Kharmagtai into a long-term, zero-capex asset within the company’s portfolio.
If the put option vote fails and a better deal doesn’t show its face, the company will move onto plan B, chasing alternate funding sources to carry it forward as a 50 per cent partner with Zijin until the final investment decision is made.
Xanadu Mines executive chairman and managing director Colin Moorhead said: "While we had expected a more rapid process, given Zijin’s now extensive experience in Mongolia, we will continue to work with our JV partner towards a funding outcome required to progress the Kharmagtai project. We will now also recommence discussions with third parties who have expressed interest in Kharmagtai.”
The Kharmagtai project, held in a 50:50 partnership with Zijin, is a globally significant copper-gold resource.
The project packs some serious punch, with a mammoth 730-million-tonnes locked in as reserves, including 1.6Mt copper and 4M ounces gold. The real kicker is a 100Mt high-grade core grading 0.8 per cent copper equivalent, which could be just the tonic for Xanadu as a juicy early-stage cash generator to catapult the project into global producer status.
A recent feasibility study pegged Kharmagtai’s net present value at a hefty US$930M (A$1.44B) on a US$890M (A$1.3B) capex, generating an eye-watering US$293M (A$455M) annual EBITDA. With output tipped to hit 80,000t copper and 170,000 ounces of gold a year – at a modest cost of 70 cents per pound copper – the mine is set to pay off in four years and pump cash for nearly three decades.
Xanadu’s decision to allow its exclusivity deal with Zijin to elapse has opened the door to third-party suitors, reigniting competition for a stake in one of Asia’s most promising development-stage deposits.
In the meantime, the company says the independent board committee will continue to chat with Zijin about a possible extension of the put option exercise period. However, Xanadu says there is no certainty a deal will emerge.
With the countdown to the June 4 vote underway, Xanadu is back in the driver’s seat, fielding fresh interest, weighing its strategic options and keeping all its cards on the table.
Whether it’s a full exit, joint venture or alternate funding, one thing is clear from Zijin’s ongoing interest: Kharmagtai appears to be a world-class resource and potentially a hotly contested prize, leaving Xanadu primed to play it for maximum value.
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By James Pearson
