Erdene Resource Development (ERD) - Aims for 150,000oz Gold Production

Erdene Resource Development Corporation is a Canada-based resource company that is focused on the acquisition, exploration, and development of precious and base metals in Mongolia. The company's assets include Bayan Khundii, Altan Nar, Dark Horse, Zuun, and Khuvyn Khar projects. The company is listed on the Toronto Stock Exchange (TSX-V: ERD), the OTC Markets (OTCPK: ERDCF), and the Mongolian Stock Exchange (MSE: ERDN).

Matt Gordon caught up with Peter Akerley, President, CEO, and Director, Erdene Resource Development. Peter has over 3 decades of experience in mineral exploration, corporate financing, project development, and management of publicly-listed resource companies. He is one of the founders and principles of Erdene Resource Development and has held the position of President and CEO since March 2003.

He is a geologist that has worked extensively in foreign jurisdictions including North America, South America, and Asia, with a recent focus on Mongolia, where he led the technical team through the confirmation of a major molybdenum and copper deposit, the discovery, and definition of the Altan Nar gold deposit and the recent discovery of the Bayan Khundii gold project. He previously served on the Board and Special Committee of Temex Resources Corporation. His educational credentials include a B.Sc. degree from St. Mary's University in Halifax, specializing in geology along with an Institute of Corporate Directors Audit Committee Effectiveness course.

Company Overview

Erdene Resource Development Corp. engages in the exploration and development of deposits in Mongolia and North America. The company was founded in 2002 and is headquartered in Dartmouth, Nova Scotia. Anian Resources LLC, Erdene International Exploration Inc, Erdene Energy Xxk, Erdene Gold International Inc, ERD Aggregate Corporation, and Erdene Mongol Xxk are the company's subsidiaries.

Erdene Resource Development is a TSX-listed company focused on a new district-scale gold discovery in southwestern Mongolia called the Khundii minerals district. The company is approaching district development with a two-pronged approach. It has an opportunity to identify and grow from its current 1Bn oz resource to an excess of 2Moz resource by the end of 2022. At the same time, the company is moving forward with initial development that is targeted toward a 75,000oz-80,000oz yearly production facility.

During the 2019-2020 Feasibility Study, the company had a core resource that enabled it to support a high-grade, moderate-scale start-up. The company believed that this was a good way to generate cash flow and explore a new high-potential gold district. It has identified a number of targets over the past 2 years. However, the impact of covid and supply chain issues has hampered the company’s progress on the production front.

These issues have provided the company with an opportunity to demonstrate the potential of Ulaan and Dark Horse discoveries. The company now has a 2Moz resource base which it is looking to deliver in a 2022 resource estimate. This development has changed the overall scope of the project. The company is currently carrying out the required studies to determine potential add-ons and project scalability. It is also working with a gravity circuit to determine whether it can bring in more gold through the CIP (Carbon in pulp) plant.

The 2Moz target is planned for the end of 2022. The company anticipates that this gold district has the potential for a multi-million-ounce discovery. So far, the company has had tremendous success by investing a limited amount of dollars into the ground. It currently has 4 deposits, out of which 3 are gold deposits that are sitting either near surface or within 150m below the surface. The company is yet to drill deeper than 150m.

Within the Bayan Ulaan region, the company has identified a 10km trend. The district is expected to have a multi-million-ounce potential. In order to get to the initial production, the company has plans to continue its approach, albeit on a larger scale.

According to the company, it is often hard to raise capital in the gold sector. Companies need to generate a cash flow in order to avoid dilution. Erdene Resource Development is focused on reaching the initial operation stage. It anticipates that the original size of operation in the Feasibility Study will likely be doubled. The company is looking at a 100,000oz-120,000oz production as a base number. Once finalized, the company will have a better understanding of the underlying resource. The initial scale-up points to a moderate-to-large scale operation in a multi-million-ounce gold district. The company also has future expansion plans.

Ongoing Operations

Over the past 12 months, the company has had a lot of ongoing work across resources, human resources, and finances that have gone into establishing the site. The company has also updated the tendering process and has acquired the final permits. All this work has taken place behind-the-scenes to ensure that the company is shovel-ready. On-site, the company has been working on upgrading its bore field in order to prepare for the initial water flow to the site. The company is installing communication towers. It has hired 30 local employees on-site and is expanding the existing camp. In addition, the company is also installing fencing in place around the vegetation areas.

Erdene Resource Development has been working to become construction-ready for quite some time. However, it is still facing issues in Mongolia due to supply chain issues at the Chinese border. The issues have now started to dissipate. The company is monitoring coal shipments across the borders. In a recent development, companies have now started construction in Mongolia. In October 2022, a Chinese Congress meeting is planned. The company anticipates that this meeting will lift the ongoing zero-covid policy. This change will provide clarity which would enable the company to start building the project and deliver goods on a timely basis.

Currently, the biggest concern is the potential roadblocks in transporting material across the border. The company intends to hit the ground in spring and commence full construction. It is looking to initiate gold production with a gravity plant later next year. At the same time, the company is also looking to carry out additional studies that will be part of the first stage of production. In 2024, the company is looking to start working on the CIP plant, which will pave the way to full production in the later part of the year.

The company is cognizant that there’s a lot of work that needs to be done here. It has several kilometres of open ground along the trend that hasn’t been drilled. The company has been selective in its focus, targeting areas that can be used for expansion around the known resources. The Ulaan discovery, the Dark Horse discovery, and adding oxide resources at Dark Horse are some of the targets that are directly adjacent to Dark Horse. The company is testing out these areas in a controlled manner. It is spending exploration dollars in order to reach a 2Moz resource.

The company is currently running drill operations at the asset and in Q3, it has plans to approach the resource modeller in order to consolidate the land package. Erdene Resource Development anticipates that exploration in the district will continue for decades to come. The current discoveries are expected to continue working for the foreseeable future. The company is looking to carry out sufficient exploration to become cashflow positive.

The Market Landscape

Erdene Resource Development recognizes that the current market conditions are challenging. Each day is a potential tipping point where the market and sophisticated explorers in the mining industry may recognize something unique. The company currently has 4 deposits with ultra-high grades. It is challenging for any project across the globe to furnish such high grades. The company continues to work on project expansion. At the same time, it is working on entering production in the later part of 2023. It is taking an upscaled approach where a gravity circuit could be used while putting together the final financing package that would enable the company to move into production by 2023.

The deposit is open-pit and high-grade. The company is looking at something that would be better than the upper decile in terms of global grades. The economics for such a product would endure and withstand most gold price fluctuations. The company has extensive support from its financial partners and stakeholders in Mongolia. The Mongolian cabinet and the local population are looking forward to gold production in the country, driving the project further in a positive direction. So far, the company has been successful in establishing a unique, high-grade, large-scale project.

In Mongolia, there has been a lightening of ESG (Environmental, Social, and Governance) concerns in recent years. This is largely driven by Rio Tinto’s acquisition of Turquoise Hill. The project is now approved and is moving into phase 2. Rio Tinto is taking the project to a larger scale on a global level. The Turquoise Hill shareholders are being rewarded for the acquisition. Notably, there are only a limited number of public companies that are active in Mongolia today, however, recent developments are pointing towards a better operating environment for mining companies.

The Mongolian government is desperate for economic renewal as it comes out of covid and faces ongoing supply chain issues at the border. The government recognizes that the mining business is a key area of focus. There’s a lot of support for the hard rock gold industry within Mongolia, especially because it has significantly fewer constraints compared to bulk commodities that traverse the borders. The overall environment appears to be quite positive. While some people are still hesitant to invest in Mongolia, the sentiment seems to be changing in a positive direction. Over the last two years, the company has had a lot of support. It anticipates that the hesitancy towards investing in Mongolia is slowly dissipating.

The Gold Market

A $1,4000 gold pricing was used in the previous Feasibility Study. During discussions with lead bankers, the company is using a $1,350 gold price. Due to the ultra-high grades, the project has very strong economics. Given the current gold prices in terms of the fundamental support factors, the project is at its strongest to date. There has been a slight dip in gold prices, which is caused by the strengthening of the US dollar. The company anticipates that gold will continue to have a tremendous upside as the US dollar weakens due to market fundamentals.

The ongoing Russia-Ukraine conflict has had a major impact on Mongolia. This is because 90% of the country’s oil and gas supply is generated in Russia. Mongolians continue to buy Russian oil, but run the risk that the supply could be cut-off at any time in the future.

The Western countries are supportive of Mongolia and recognize that country does not have options when it comes to sourcing oil and gas. The West is also supporting the country’s hydroelectric capacity. The Indian government is investing in a refinery in Mongolia. In the eastern part of the country, the Chinese government is producing oil, which is expected to be supplied into Mongolia.

The recent geopolitical shift is expected to diminish Russia’s influence in the country. China will have a much great influence on Mongolia from an economic perspective. Western nations are looking to provide greater support for any democratic nation that is within Russia’s shadow. This support will also be extended through development banks in countries such as Korea, Japan, the US, Australia, and Canada. All these countries have major investments in Mongolia and the support is expected to grow with time.

Targets 2022 and Beyond

Erdene Resource Development is looking to achieve a 2Moz target by the end of this year. This target will also support the plant size upscaling. In the Feasibility Study, the company had planned annual production of 64,000oz-65,000oz on an annual basis. It expects to use the reserves out of the 2Moz to achieve a 100,000oz- 120,000oz annual production capacity. By Q4 2022 or Q1 2023, the company is looking to upgrade the Feasibility Study and technical studies. During this time, the non-processing infrastructure will remain unchanged, enabling the company to initiate development by early 2023.

The company is currently running studies on the gravity plant. It has ultra-high gold grades of 125g of 5m. It is looking to run the gold through the gravity plant, take 50% gold out and run the tails into the full plant. This will enable early cash flow generation. It will also help the company in smoothing out the grades as they are introduced into the CIP plant, leading to less carbon loading and increased production from the gravity plant. The company is working on several elements of the plant in order to scale up operations and develop a facility with even stronger economics.

For the past few months, Erdene Resource Development has been carrying out the gravity work. The company has realized that it can pull 50% of the high-grade gold out at the gravity stage, while the tails would help recover around 42% gold, leading to a 92%-93% gold recovery from the head-grade material.

To find out more, go to the Erdene website