During a challenging five-year spell up to 2018, global mining markets can be consigned under the classification ‘bearish’, according to Xanadu Mines managing director and CEO Andrew Stewart. At the start of this period, prices for minerals and metals plunged across the board and since then miners have had to slash budgets and focus on repaying debt, which has ravaged the exploration space. While metal spot prices have generally recovered over the last 18 months, the downturn in the sector has created a market starved of new discoveries, particularly in the copper-gold industry. However, Xanadu is responding to this need for development stage projects after establishing a strong presence in Mongolia – the home of several vast, underexplored copper-belts that are rife for exploration.
“The objective was to go to Mongolia because we could have the ability to get on the ground, says Stewart. “We could have the potential for tier one discoveries and our strategy was get in at the bottom of the market.”
Stewart is an exploration geologist with a considerable background in the copper-gold space, working in central Asia and Eastern Europe over a 15-year span. Therefore, this combination of mineral-specific expertise and geographic experience means he possesses all the necessary credentials to lead Xanadu’s venture into Mongolia.
The ASX-listed company’s primary aim is to unearth a string of major copper-gold discoveries across the highly-mineralised and underexplored South Gobi Porphyry belt, within the vast Gobi Desert that straddles Mongolia to the North and China to the South.
As a junior explorer, getting in at the bottom of the market has been crucial to Xanadu’s fortunes. With prices dropping to a new nadir over the last five years, major competition also withered away which allowed Xanadu to establish a large-scale land package in the South Gobi region at an attractive price.
“It was really interesting that people were very talkative of how bad the market has been in recent times, but this is the opportunity we’ve been waiting for a long time.
“After all you often see that major discoveries happen when there are seismic shifts in the market and we’ve seen that in the last 10 years, so there is an opportunity for junior companies to get in and pick up projects.”
Mongolia – A new mining frontier?
Mongolia is one of the most accessible and mineral rich countries in the world with enormous reserves of coal (10% of the world’s known reserves) and several major copper-gold districts, but until recently these valuable industries were taped off to international investors.
However, in 2017 the Mongolian government moved to open up a fifth of the country for exploration, annulled a preventative banking law that dictated companies to funnel all revenues from projects through Mongolian banks and agreed to work with the IMF to review tax settings for the mining sector.
It is hoped that these enabling measures will herald the dawn of a new boom era in the nation’s mining history and given that mining accounts for around a quarter of GDP and more than 80% of exports in Mongolia, mining has the potential to significantly improve its economic prospects.
Xanadu has three district scale projects in all of Mongolia’s major copper belts but will focus its efforts on two projects in the South Gobi in the short and mid-term. The Oyut Ulaan (Red Mountain) project and its flagship Kharmagtai project are located in the same belt as the Oyu Tolgoi copper-gold mine, one of the biggest mining projects in Mongolia’s history.
One of the reasons why Xanadu is particularly fond of Mongolia is because its copper porphyry belts have more of a gold flavour and that has been reflected in the company’s progress so far at the two projects, according to Stewart.
“Kharmagtai has a demonstrable scale in terms of it having about 30-40km² of mineralisation, it was outcropping and what separates it from a lot of copper systems globally is that the copper is associated with gold, which is an important component when you go into a development stage.
“When your by-product is gold it certainly makes the economics a lot more attractive,” he adds.
Now, with an increasingly mining-friendly jurisdiction lending support to outside companies, exploration opportunities should proliferate across Mongolia’s untapped copper-gold mineralised zones.
“Mongolia is god’s gift to explorers. It’s the most sparsely populated country in the world and it has the potential for non-stop exploring across these mineralised zones,” Stewart declares.
Rio Tinto has had a home in Mongolia’s mining industry for close to a decade since taking on Oyu Tolgoi and recently announced it would be opening an exploration office in the country, which is another encouraging sign for the nation’s mineral resources sector.
Working against the backdrop of Oyu Tolgoi is also working in Xanadu’s favour, with lots of important infrastructure already developed as a result of the large-scale development which is located just 120km North of Kharmagtai.
“That’s the beauty of having a major project already built nearby and as a junior company we are benefitting from the work done by others. That makes life easier for us, because the infrastructure comes with world-class developments like Oyu Tolgoi.”
Kharmagtai is close to sealed roads within 70km of the project and is within eyesight of an existing powerline, meanwhile a power plant is being planned for a nearby coal mine along with rail lines heading in the direction of the Chinese border.
The results of recent drill programmes have confirmed high grade extensions at the Kharmagtai project within three deposits; White Hill (850m @ 0.32% Cu and 0.2g/t (0.45% eCu) from surface, (including 282m @ 0.44% Cu and 0.17g/t Au from 560m), Stockwork Hill (252.2m @ 0.34% Cu and 0.49g/t Au from 632.2m) and Copper Hill (329.5m @ 0.42% Cu and 0.46g/t Au from 2.5m).
“We had a very successful programme through the winter months and I think we need to carefully have a look at what we have found. We have almost doubled and in some cases tripled some of the resources we put out in March 2015.
“Now we will probably look at getting the blueprints for a starter project looking at how much mineralisation we have in the shallow and really working towards some of the studies on a shallow open pit starter project.”
Elsewhere, the company has formed a plan for the Red Mountain project that will focus on some of the shallow high grade gold mineralisation there, along with some of the high grade copper occurring at the project.
Global copper markets
The slowly enveloping EV story is becoming a major factor in the development of the global mining sector, with energy metals such as lithium and cobalt taking centre stage in key supply and demand discussions within this disruptive industry.
However, copper is also going to play a key role in the development of the EV industry, not just as copper is needed in great quantities during the manufacturing process (each EV reportedly requires 160kg of copper), but also due to all the related power infrastructure, such as charging stations, that needs to be built to support the electrification of automobiles.
Therefore, demand for copper is growing in tandem with the EV story, but the lack of new discoveries in recent years is a cause for concern, particularly as grades coming out of Chile are getting lower as major deposits become depleted in the world’s largest copper producing nation.
“I think if you believe in the battery story then the demand for copper is certainly there and we see it on the ground. But, we are not seeing any of these large-scale copper projects come along and they are often quite expensive to build and take a bit of time too.
“What we haven’t found today won’t be ready in ten years,” warns Stewart. This is why Mongolia is becoming one of the globe’s most significant underexplored copper regions, and Xanadu is set to become one of the first international companies to bring copper from South Gobi to the global market.
“We have a lot of majors knocking on our door but for us it would be nice to initiate that starter economic project and produce something that will support a mine life of 20 years with good grades, good capex, good NPV and a good IRR,” concludes Stewart.
The pathway to production in South Gobi is long and challenges may lie ahead but Xanadu has the high-quality management team and regional expertise required to unlock Mongolia’s copper-gold belts.