Plot thickens as Xanadu axes Mongolian copper-gold | Australian Markets

When veteran geologist Colin Moorhead took up the invitation to chair Xanadu Mines in late 2019, the veteran geologist was below no illusions.

The company, which owns a controlling curiosity within the large Kharmagtai project in Mongolia – internet hosting 4.7 million tonnes of copper and 11 million ounces of gold – needed a main reset if it was ever going to generate a strong return for shareholders.

After Xanadu acquired 76.5 per cent of Kharmagtai in 2014, the market was buzzing on the prospect of a minnow getting its palms on a discovery credited to Canadian-listed Ivanhoe Mines, led by legendary mining entrepreneur Robert Friedland.

For a few years Xanadu was flying high. The share price jumped 10-fold to 30 cents by 2018 earlier than the sheer measurement of funding required to develop the project on the back of the junior mining company’s modest bank steadiness finally proved an excessive amount of.

The message was crystal clear. Shareholders had been demanding a contemporary set of eyes, pushing the seasoned rock kicker to change the narrative.

Rather than developing up a small oxide deposit to start out with – a strategy flawed by low grades, poor recoveries and high strip ratios – Xanadu would need to focus its consideration as a substitute on growing the useful resource by means of systematic drilling applications.

Within six months, the company’s senior ranks had been bolstered with the addition of Spencer Cole – one other ex-Newcrest govt – as chief financial officer.

By the top of 2020, a new plan had been hatched.

If Xanadu might unlock enough worth in Kharmagtai’s copper potential to attract the curiosity of some main mining homes, there was an even money likelihood management might set off a liquidity occasion.

Backed to the tune of $12 million in contemporary capital from new establishments and cornerstone buyers, Xanadu instantly set about peppering the deposit with 20 kilometres of drill testing.

The deposit steadily grew and on the back of a optimistic scoping research in early 2022, Xanadu satisfied the $100 billion Chinese mining giant, Zijin Mining Group, to step up to the plate and back the project with a funding deal.

The two-pronged settlement concerned Zijin sinking $12.8M into Xanadu in exchange for 19.99 per cent of the company. But the true muscle got here within the type of a US$35M (A$55M) money injection into a newly minted three way partnership (JV).

The JV construction elevated Zijin’s funding of Kharmagtai to project stage, permitting it to finish a pivotal prefeasibility research.

Xanadu and Zijin own an even break up within the JV by means of Khuiten Metals, which controls 76.5 per cent of the project, successfully offering Xanadu with a 38.25 per cent curiosity within the mammoth copper-gold project.

After sealing the landmark deal, the three way partnership revealed Kharmagtai’s jaw-dropping world useful resource.

A whopping 730Mt of that bounty now sits within the reserve class, packing in 1.6Mt of copper and 4M ounces of gold at grades of 0.21 per cent and 0.17 grams per tonne (g/t), respectively.

But the intense sizzle lies in high-grade core – punching nicely above its weight with 100Mt at a copper equal grade of 0.8 per cent. This wealthy centrepiece might drive early returns and fast-track Kharmagtai’s transformation into a globally vital producer.

Late final 12 months the long-awaited feasibility research was additionally handed down on Kharmagtai revealing a web current worth of US$930M (A$1.45B) utilizing an 8 per cent low cost price in opposition to a capital value of US$890M (A$1.4B) to provide an annual EBITDA of US$293M (A$458M).

With a forecast manufacturing of up to 80,000t each year of copper and 170,000 ounces of gold at a value of 70c per pound copper, the project is forecast to wash its face within 4 years. It has a staggering 29-year mine life.

The release of the prefeasibility research did more than simply define the economics – it additionally opened a pathway for the ultimate stage of the unique funding settlement with Zijin.

Xanadu finds itself sitting within the box seat, armed with not one, however three strategic levers that might unlock severe worth for shareholders.

The company’s first option is to easily roll up the sleeves and co-fund its 50 per cent share of project construction alongside Zijin, which might contain sourcing north of A$700M in contemporary funding.

Option two offers Xanadu the proper – however not the duty – to money in half of its remaining stake within the JV for a cool US$25M. Zijin would additionally foot all of Xanadu’s construction invoice by way of an interest-bearing loan to be repaid out of future project revenues.

The third – and boldest – option on the desk is to promote the lot. If Xanadu chooses to dump its full remaining 50 per cent stake, it could stroll away with a struggle chest of US$50M in cold, arduous money.

Faced with these varied options, Xanadu’s board picked option two, which nonetheless lets the company journey the upside with out having to raise a dime upfront. The board was then on account of maintain an extraordinary assembly on April 11 to gain shareholder approval.

However, in a dramatic twist worthy of a company thriller, Xanadu Mines hit the pause button on the important thing shareholder assembly – simply as the ultimate stage of its game-changing deal with Zijin Mining was set to be rubber-stamped.

Instead, the company has inked a Deed of Variation with Zijin, pushing back the expiry of a profitable 25 per cent put option by no less than 30 days after their present exclusivity period lapses.

The transfer, cloaked in secrecy, has been made to permit each events more time to thrash out a vary of potential company manoeuvres, hinting that one thing far greater might be brewing behind the scenes.

Under the phrases of the extension, Zijin retains exclusivity by means of a traditional ‘no shop, no talk, no due diligence’ clause, stopping Xanadu from entertaining any rival suitors – for now.

But the delay has sparked hypothesis that the unique deal phrases with Zijin is likely to be on the negotiating desk, with room for a sweeter end result. By maintaining its playing cards close to its chest, Xanadu could have additionally simply re-lit the spark for different gamers who as soon as thought of the deal executed and dusted.

Whether it’s about extracting a higher price, negotiating new phrases, or attracting contemporary bids, one factor is evident: Moorhead seems to have had his want granted. Xanadu has seized the higher hand within the chess match, which hopefully, will land a large payday for shareholders. The clock is ticking and punters will likely be watching each transfer.

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