Erdene Resource Development Corporation is on track to pour first gold from its Bayan Khundii project in Mongolia in 2025.
The final details of a financing package are currently being put in place, as chief executive Peter Akerley completes another trip to Ulaanbaatar, and a green light on full-scale construction can be expected before the end of the year. Early works are already underway.
When it’s completed, the Bayan Khundii mine is expected to produce approximately 85,000 ounces of gold per year over an initial six-year mine life at an all-in sustaining cost of US$869 per ounce.
Given that the gold price is hovering at around US$1,900 per ounce, that provides a huge margin for the company, and allows it to budget for significant exploration in the future.
Which is all to the good, because in terms of the wider district, the proposed mine at Bayan Khundii is likely only just the beginning.
It’s no accident that Bayan Khundii was first out of the gate – it’s high grade, it’s got easy metallurgy, the mining method is straightforward, and the initial capital outlay is relatively modest, at US$100mln, including contingency.
But Mongolia is big country when it comes to mining, and it’s no surprise to hear Erdene’s chairman Layton Croft referencing the giant Oyu Tolgoi mine on a call earlier this week.
“Oyu Tolgoi is generating billions in annual revenue,” he says.
“But twenty years ago, it was similar to what we have now.”
In short, what Erdene has is a licence to explore and operate across a huge swathe of land in south-west Mongolia, much of which falls into the category of greenfields, but on which five deposits have also already been established.
And because of the ongoing work at and imminent construction of Bayan Khundii, Erdene is likely to remain largely in control of its own destiny.
“As an exploration company, the prospect of having cash flow in the near term is beautiful,” says Croft.
Cash flow from production allows for meaningful work on the wider district to take place rapidly and at scale.
But will any further equity be required between now and then?
Well, there might not be.
Erdene is finalizing due diligence with international financial institutions active in Mongolia on the project’s debt financing. Eric Sprott is on the register as a big shareholder, bringing some serious mining industry respectability to the offering.
And the company is also in joint venture across its entire property with Mongolian Mining Company (MMC), a Hong Kong-listed company that to date has largely been interested in coal.
MMC is part of one of Mongolia’s leading business groups, and as such brings access to construction and other in-country infrastructure expertise, and in a way it looks like the perfect fit.
“We’ve been in Mongolia for twenty-five years,” says Croft, “but we’re not miners. And MMC are Mongolia’s most successful mining company, but they’re not explorers.”
If there is a winning formula to finding the next Oyu Tolgoi, this looks like about as good an effort at putting together a dream team as you could make.
There’s a long way to go yet, of course.
We’re not starting from scratch by any means, but Erdene needs to close the financing on the initial project at Bayan Khundii, and then get back out there on the ground and start delivering new results.
From an investment perspective, though, that’s all grist to the mill.
Times are tough in the mining industry at the moment. But they’re a whole lot tougher if you don’t have production, or the prospect of production, and indeed if you don’t have major international financial institutions and Sprott aligned with you.
And it could be that in terms of a buying opportunity we are some way into a sweet-spot. The shares may well re-rate on financing news, and will more than likely re-rate when production moves into view. And after all, 2025 isn’t that far away. The gold price may be under pressure now, due to the strengthening dollar, but given how high it already is, what might it do once the dollar weakens again?
In the meantime, there’s plenty of comfort at Bayan Khundii in the shape of that huge margin. And in any case, if anything on the scale of Oyu Tolgoi does end up getting discovered, the current valuation levels will be academic.