Special Report: Respected Bell Potter analyst Peter Arden has flagged more significant news to come from Xanadu Mines (ASX:XAM) following the release of an interim scoping study on its flagship Kharmagtai copper-gold project in Mongolia.

Xanadu announced the results of a scoping study on a “starter pit” development at Kharmagtai at the end of April, with managing director Andrew Stewart saying it “clearly demonstrated that the project is one of the leading copper-gold development assets globally”.

In a research report on the scoping study, Arden agreed with Stewart’s assessment on the quality of Kharmagtai, but suggested this would become even more apparent over time.

“While we feel ASX-imposed constraints on the reporting of some of the scoping study outcomes has detracted from its impact, the study is only interim, with more significant findings expected to progressively enhance Kharmagtai’s standing and advantages over its peers,” he said.

The scoping study was based on Kharmagtai’s recently upgraded open pit resource of 598 million tonnes containing 1.9 million tonnes of copper and 4.3 million ounces of gold, which is spread over three porphyry deposits: Stockwork Hill, Copper Hill and White Hill.

According to the study, the open pit resource, which represents 51 per cent of the overall Kharmagtai Mineral Resource, would underpin an operation processing 20 million tonnes a year for an initial 15 years and costing an initial US$484 million to build.

While Xanadu was unable to disclose production forecasts, Arden estimated such an operation could yield approximately 54,000 tonnes of copper and 118,000 ounces of gold in concentrate a year at an average all-in sustaining cost of $US1.73 per pound of copper.

Near-surface gold a big opportunity

One opportunity not explored in the scoping study that he believed shapes as delivering a share price re-rating for Xanadu is Kharmagtai’s near-surface gold potential.

This has emerged strongly over the past 12 months, to the point where a low-cost heap leach operation now appears to be on the table as an early-stage development option for the project.

“Recent shallow drilling around the exciting new Zaraa porphyry deposit and at Golden Eagle has elevated the importance of the oxide gold and we now see scope for it to be a value-creating catalyst to enable a more significant and efficient development of the Kharmagtai copper-gold porphyry mineralisation,” Arden said.

“With high indicated gold recoveries, Golden Eagle could readily become a high value heap leach operation and could run early in Kharmagtai’s development life, injecting significant cash into the main Kharmagtai development.”

Further upside abounds

Arden also noted there was considerable upside given that neither the underground mining of the Stockwork Hill and Copper Hill deposits or the extensive copper-gold mineralisation discovered over the past 18 months at Zaraa were considered in the scoping study.

Board changes that came into effect at the end of April, including the appointment of veteran Melbourne-based geologist Daryl Clark as executive chairman, should also aid Xanadu in receiving an “overdue re-rating” by the market.

The company appears well placed with large-scale copper-gold assets in high demand among the majors, as evidenced by Newcrest Mining paying US$806 million for 70 per cent of the Red Chris mine in British Columbia and the ongoing speculation on whether Newcrest or BHP will end up owning Solgold’s Cascabel project in Ecuador.

Research published recently by S&P Global Market Intelligence showed that new copper discoveries were at decade-long lows and suggested a major supply shortfall could emerge in 15-20 years if the situation didn’t change.

This story was developed in collaboration with Xanadu Mines, a Stockhead advertiser at the time of publishing.
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