Xanadu project headed for top tier as copper price surges

The latest diamond hole drilled at Xanadu Mines’ Kharmagtai copper-gold property in Mongolia has provided a timely reminder of the project’s potential to develop into a tier-one asset.

As reported by Xanadu (ASX: XAM) on Monday, hole KHDDH559B, drilled at the Stockwork Hill deposit at Kharmagtai, intersected 226.2m at 0.68% copper and 1.43 g/t gold (1.41% copper equivalent) from a depth of 611.8m.

Chief executive Andrew Stewart said the intercept contained some of the best mineralisation seen at Kharmagtai and that it indicated that grade was increasing along strike and at depth, which would help to improve project economics.

“KHDDH559B represents a significant hole for Kharmagtai and confirms it as one of the most promising copper-gold projects globally,” he said.

“These results double the width of the high-grade bornite zone, clarify our understanding of its source and will help guide drilling for additional high-grade extensions.

“This is the first time we have seen this density of bornite at Kharmagtai and this gives a snapshot of what the lower zones of mineralisation could be like.

“The tenor of gold is exciting, containing two to four grams of gold for every per cent copper.”

Hole KHDDH559B was drilled as part of a 23,000m “phase one” drilling program designed to better understand the scale of the mineralised system at Kharmagtai that is nearing completion.

The program was initiated in August last year following a corporate reset and the implementation of a new exploration strategy focused on building the Kharmagtai resource to in excess of one billion tonnes at 0.5% copper equivalent grade or better.

The Kharmagtai resource currently stands at 600 million tonnes at 0.49% copper equivalent for 2.9 million tonne copper equivalent in contained metal.

At this size, it is already one of the largest copper-gold resources owned by an ASX-listed company and one of the few large porphyry deposits on the doorstep of the world’s largest consumer of copper, China.

As of Monday, Xanadu had completed 33 diamond holes for 21,223m as part of the phase one program, which is targeting extensions to mineralisation at the Stockwork Hill, Zaraa and Copper Hill deposits and testing five new prospects for shallow mineralisation.

Later this month the company anticipates delivering a new Exploration Target for the entire Kharmagtai project, which will give some sense of the growth potential, and then in March, an updated resource estimate is expected to be released.

A “phase two” drilling program will be finalised following the review of all phase one results and will feature a more surgical focus on priority targets that are likely to improve the project’s overall grade.

Xanadu chairman Colin Moorhead, a veteran geologist who spent 28 years with Newcrest Mining gaining intimate knowledge of some of the world’s largest copper-gold porphyry deposits, believes a higher grade starter pit or block cave at Kharmagtai would “differentiate the asset from the rest of the field”.

He suggests something in the order of 100 million tonnes at more than 0.8% copper equivalent within the one billion-tonne-plus, 0.5% copper equivalent resource would be desirable.

In initiating coverage of Xanadu late last year, CLSA analyst Trent Allen shared a similar view that for Kharmagtai to develop into a genuine tier one asset, grade was likely to be a key.

“The end game is to prove up a tier one mine, which to us means a reserve of +15 years with an average annual production of +70kt of Cu (or +300kozpa Au),” Allen wrote in his initiation note.

“Kharmagtai could potentially produce that with ease, but to be comfortably profitable through the commodity cycle, it needs an All-In Sustaining Cost of less than US$2/lb Cu.

“The key to this will be grade. Kharmagtai is a vast intrusive complex that is still relatively untested, in particular at depth.

“Management has the experience to vector in on additional higher-grade areas (+0.8% copper equivalent) areas of the system, but drilling takes time – a sweet spot might emerge in the current program or in 2021.”

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

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.