Erdene Resource Development Corp. ("Erdene" or the "Company") is pleased to announce the commencement of full construction at the high-grade, open-pit Bayan Khundii Gold Project (“Bayan Khundii”, “BK” or "Project”) in southwestern Mongolia and the close of the investment by Mongolian Mining Corporation (“MMC”) as part of the Strategic Alliance Agreement (“SAA”) to develop the Khundii Minerals District.
Peter Akerley, Erdene’s President and CEO stated, “We are extremely pleased to announce the formal commencement of construction at the Bayan Khundii gold project and the close of our Strategic Alliance with MMC, Mongolia’s leading publicly traded mining company. The Bayan Khundii gold mine is one of the highest grade, open pit gold mines under development globally and will be Mongolia’s largest gold primary producer when it reaches full production.”
Mr. Akerley continued, “The Bayan Khundii Gold Project is the foundation for the development of the Khundii Minerals District, located in a rapidly emerging mining region in southwest Mongolia. Our stakeholders benefit from tremendous exploration opportunities in an under-explored, world-class gold and copper belt with an established pipeline of high-quality projects, including high-grade gold satellite deposits to Bayan Khundii, the large Altan Nar gold-polymetallic deposit and the vast Zuun Mod molybdenum-copper porphyry resource. MMC is the ideal partner to develop the Khundii Minerals District with its experience in large scale mining, expertise in construction, power supply, transportation and logistics, and national and international relationships. Together, we will unlock new opportunities for the Mongolian mining sector, increase the industry’s contribution to the national economy and create long-term value for Erdene shareholders.”
Strategic Alliance with MMC
On January 10, 2023, Erdene executed a Strategic Alliance Agreement (“SAA”) with MMC to develop the Bayan Khundii Gold Project (see press release here). On January 23, 2024, the parties formally closed the SAA by issuing shares in Erdene Mongol LCC (“EM”) to MMC representing a 50% equity ownership. Details of the SAA include:
- MMC is Mongolia’s largest internationally traded mining company, listed on the main board of the Hong Kong Stock Exchange (HKEx: 975).
- MMC has invested US$40 million in EM, Erdene’s Mongolian subsidiary holding the Khundii and Altan Nar mining licenses and the Ulaan exploration license.
- Erdene retains a 50% equity interest in EM and a 5.0% Net Smelter Return royalty on production from the Khundii, Altan Nar and Ulaan licenses, as well as any properties acquired within a 700km2 area of interest, beyond the first 400,000 ounces gold recovered.
- Erdene maintains a 100% interest in its large Zuun Mod Molybdenum-Copper deposit and Khuvyn Khar Copper project, located approximately 30 kilometres east of Bayan Khundii, and adjacent to a planned railway development.
Bayan Khundii Construction
On January 15, 2024, Erdene and MMC reached a formal decision to commence construction at Bayan Khundii. With Proven and Probable reserves of 513,000 ounces of gold at an average head grade of 4.0 g/t gold, Bayan Khundii is scheduled to produce an average of 87,000 ounces of gold during years two through five of the seven year mine life. Furthermore, known resources in the District are expected to provide further reserves to significantly extend mine life.
The construction decision follows the successful completion of the Project’s early works program during the second half of 2023. Representing approximately 12% of the total construction effort, EM built temporary construction facilities, including aggregate crushing and concrete batch plants, fuel depot and construction camp, construction roads, and completed site leveling, detailed excavation, and all major reinforced concrete footings and columns installation for the Project’s process plant. Construction site photos are included below.
The contracts for early works and the Project’s Engineering, Procurement and Construction (“EPC”) services have been awarded to MCS Property LLC (“MCSP”), a leading Mongolian engineering and construction firm, and an affiliate of MMC. With a 25-year history operating in Mongolia, MCSP is a major contractor to the country’s mining industry, successfully delivering critical infrastructure for Rio Tinto’s Oyu Tolgoi underground operations and non-process infrastructure for MMC’s Ukhaa Khudag metallurgical coal mining operations. The fixed price EPC contract is valued at US$54 million, representing 60% of the Project’s capital costs. EM previously contracted with CITIC Heavy Industries for the Project’s Ball and SAG mills, COMO Engineers for the elution circuit and gold room and Hot Chengdu for the Project’s filtration equipment. In total, the Company has secured contracts for $74 million of the Project’s $90 million capital budget (excluding contingency).
The Project’s critical path construction activity is the completion of the process plant. With all major footings and columns in place and the first process mechanical equipment now on site, construction is expected to be substantially complete by year end with technical and state commissioning planned for Q1 2025. The Project is on schedule and budget to achieve operations commissioning and first gold in Q2 2025.
Additionally, EM has entered a power purchase agreement (“PPA”) with MCS International LLC (“MCSI”), another affiliate of MMC. Under the terms of the PPA, MCSI will build, own and operate under a take-or-pay arrangement a hybrid power station consisting of a 14.5 megawatt (“MW”) diesel station, 5 MW solar farm, 3 MWh battery storage system and associated infrastructure. Payments under the contract are expected to total US$44 million over the seven-year contract, excluding the cost of diesel, which has been matched to the initial mine life for Bayan Khundii. The PPA provides an option for MCSI to supply the power via an overhead transmission line (“OHTL”) under terms that will be no less favorable to EM than those for the hybrid station. Connection to power through an OHTL will provide access to lower incremental cost power for expansion opportunities and reduce diesel price risk for the project.
To date, approximately US$80 million has been invested in the Bayan Khundii Gold Project, including Erdene’s historic expenditures and the US$40 million funded by MMC under the Strategic Alliance Agreement. Erdene and MMC are finalizing arrangements for the balance of the funding required to complete the construction and expect to announce further details within Q1 2024.