Erdene Resource Development (TSX-V: ERD) - Technical Analysis

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 projects include Bayan Khundii, Altan Nar, Dark Horse, Zuun, and Khuvyn Khar. The company is listed on the Toronto Stock Exchange (TSX-V: ERD), the OTC Markets (OTCPK: ERDCF), and the Mongolian Stock Exchange (MSE: ERDN). 

Merlin Marr-Johnson 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, specialising 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 company focused on southwestern Mongolia where it has found a new high-grade gold district called the Khundii Minerals District. The company is looking to advance the district through exploration and development to establish a multi-million-ounce resource. The company seeks to bring these resources into production and create significant shareholder value. 

Company History

Erdene Resource Development first entered Mongolia in the 1990s when the country opened up for foreign investment. It set out to find major near-surface open-pit copper-gold deposits. The company realised that the premier place for exploration was in the southern part of the country that hosts the Central Asian orogenic belt. 

The company has been highly methodical and scientific in the exploration of potential deposits. Over the years, it has successfully found 4 deposits and a multitude of prospects. The company has a new location in southwestern Mongolia that is the premier location for copper-gold discoveries. 

Back in 1995-1996, Magma Copper discovered the Oyu Tolgoi mine in the eastern part of Mongolia, making the company one of the top new copper-gold developments in the world, led by Rio Tinto. Erdene Resource Development saw the potential of this belt and as a result, it established a scientific and methodical regional exploration program over the past decade. The company focused on other deposits situated along the trend. Based on existing knowledge, the company established its program and spent over $10M on regional exploration. Exploration of the 400km belt led the company to the discovery of the Khundii Gold-Copper District. 

Erdene Resource Development was established in 2002, based on its initial experience in Mongolia during the late 90s. The company was listed on the TSX exchange in 2004. In 2005, the company acquired the Zuun Mod molybdenum project which is now a large molybdenum-copper porphyry deposit. This asset established the company’s presence in the region. Between 2005 and 2011, the company focused on resource definition for Zuun Mod. Between 2009 and 2011, it allocated the majority of its exploration dollars towards regional exploration work, leading to the discovery of the Altan Nar polymetallic gold deposit followed by the Bayan Khundii system located 16km south. The company’s current focus is on the Bayan Khundii-Ulaan system, an epithermal system overprinted on an intrusive porphyry-like system located at depth. 

The company had raised significant capital just prior to the 2008 financial crisis. These funds equipped the company to carry out regional exploration in the district. Between 2012 to 2015, after the Altan Nar discovery, the company aggressively pursued funds for exploration. It was able to raise sufficient capital to establish the initial resource at Altan Nar. 

Erdene Resource Development also entered into a JV (Joint Venture) with Teck Resources Ltd. that provided the capital to carry out exploration. This led to the discovery of Bayan Khundii. The discovery coincided with the increase in gold prices and the market interest in gold equities in 2016-2017. During this time, 4,000g at-surface samples were found. The company was able to acquire funding in 2017 as a result of its strong market position. These funds enabled the company to focus on the definition and technical studies for Bayan Khundii. The company has been focused on the asset until mid-2020. Around this time, the company hit a sweet spot in the gold equities market, receiving support from Eric Sprott for a $20M capital raise. This enabled the company to once again pursue aggressive exploration. 

Although the joint venture exploration project concluded a few years back, Teck Resources continues to hold a 3%-4% shareholder position at Erdene Resource Development. 

New Discoveries

2021’s extensive exploration program led to the discovery of Ulaan and Dark Horse. The company has currently assigned 2 rigs on site. Drilling has been temporarily paused as the company awaits the next batch of assay results. Drill results from Ulaan were recently published and the company anticipates that the results from Dark Horse will be published within the next 2 weeks. The company plans to resume drill operations in March, once the assay results are back. 

Erdene Resource Development is currently developing a resource on Dark Horse. It had a drill cut-off between November-December 2021. The company is focused on establishing a resource that can be quickly developed into reserves. These reserves could potentially feed into the Bayan Khundii plant early in its life cycle. 

The Dark Horse discovery is situated 2.5km north of the Bayan Khundii deposit. It features fantastic grades of supergene oxide cap on a new discovery. The company continues to find ultra-high grades at the surface, however, the depth of the deposit is unexplored. The Dark Horse system is associated with a lithocap at the surface and an increase in copper content at depth. This has contributed to the surface fluids’ ability to generate assets to concentrate the gold into supergene. Similar pockets of supergene have also been identified at Bayan Khundii. The company has had 100g/t-500g/t intersections over 1m at top of Bayan Khundii. These occurrences are present in pockets, while at Dark Horse, the grades are present on a blanket that spans hundreds of metres along the trend. 

The Bayan Khundii Gold Deposit

Bayan Khundii is a low-sulphidation epithermal system that was discovered in 2015-2016. This deposit is represented at surface by intense quartz-adularia +/-hematite/specularite veins. The deposit is enveloped in a broad halo of 10m-100m of lower-grade disseminated gold mineralization that is almost devoid of sulphides. The features of this deposit serve as a benefit from a metallurgical perspective. 

The west portion of the Ulaan system has a rock composition that is identical to Bayan Khundii. The system continues in the west where it remains open. At Bayan Khundii, the cut-off grade in the resource estimate is 0.4g, while the broader mineralized envelope features grades between 0.2g-0.3g. The overall grade at Bayan Khundii is 3g/t. 

The system here effectively traverses the entire distance of the company’s 2 licences. It features a very large intrusive alteration system at depth, featuring porphyry-style argillic alteration and advanced argillic tourmaline that is overprinted on by the low-sulphidation system. The low-sulphidation mineralized zones are trending to form along the northeast structures. Additionally, there are transform vaults that cut through the north-south, as seen at Dark Horse. The higher-concentration gold is found at the intersections of the northeast and north-south structures. 

At Bayan Khundii, the company found a relay ramp where 2 banding structures open up. These structures feature mineralization that increases in intensity within the relay ramp structure. The company has found zones of dilation and zones of intersection at Ulaan, Bayan Khundii, and Dark Horse deposits. 

It is important to note that these deposits were discovered from scratch. The Bayan Khundii district was originally a clay anomaly from satellites. The majority of the company’s drilling is focused on the deposit. 80% of the area hasn’t been drill tested before. In addition, the drilling hasn’t gone below 150m at depth, with an exception to the deposit areas. The company anticipates that this new district has enormous potential for more discoveries. 

Altan Nar’s clay alteration that is associated with geochemical stream sediment anomalies led the company to this new district. The company then decided to explore the region further. The Ulaan phyllic alternation zone features an ASTER anomaly similar to Altan Nar. 

Between the Bayan Khundii deposit and the Dark Horse, there are 6 shallow holes averaging less than 100m in depth, while the area between South Ulaan and Westgate, remains unexplored. The company is excited about the exploration potential of this district. 

The Ulaan Licence

Erdene Resource Development acquired 100% interest in the Ulaan licence in late 2020. It commenced exploration in 2021, which led to a massive discovery in the southeast corner. The company is yet to move westwards and explore the other anomalies indicated along the trend. 

The company has focused its drill operations to the southeast corner of the Ulaan West area, however, the gold anomalies that move to the west are largely untested. This area features similar geology with good rock and soil geochemical anomalism along with a good MAGLO association. Since the target areas have observed magnetite destructive events, they have a MAGLO association. 

The company anticipates that the deposits are a result of a multi-stage event that began with an early porphyry event that was subsequently overprinted on by the low sulphidation event. The company has carried out carbon dating to establish the age of the agile areas at Bayan Kundii, relative to Ulaan’s porphyry system. This leads to the conclusion that the deposit is a long-lived, multi-pulse system. 

Erdene Resource Development drilled discovery hole 10 at southeast Ulaan. Hole 10 returned grades of 40m at 3.7g, while the broader section of the deposit featured 258m of 0.12g at a 0.3g cut-off grade, bringing the effective grade to 1g. The company has stepped out in multiple directions and it continues to find intersections for the broad, mineralized zone along one of the north-south structural intersections with the north-east trending faults. These massive intersections feature gram-type material with 30m-70m wide intervals of 3g material. This region is a typical quartz agile area vein stockwork type system. 

Ulaan has a different geometry than Bayan Kundii. Bayan Khundii is cannibalised by a later post-mineral syenite. It is anticipated that the same mineralized structure has been used by the post-mineral intrusives that have come up and limited the extent of depth at Bayan Khundii. 

At the Ulaan licence, all the drilled holes are found to end in the volcanic tough hosts with an exception to the far southeast corner. Interestingly, 50% of the holes end in gold mineralization with some holes featuring up to 22g/t over 2m grades. 

Moving into Ulaan, the company has found plenty of room for open-at-depth opportunities. The relay ramp environment has led to the formation of a series of southwest dipping, high-grade veins. However, the volcanic package is the most susceptible to mineralization is dipping towards the northwest. There are 3 controls on mineralization where the high-grade zone potentially dips towards the centre of the Ulaan alteration system, an area that is 2km away and remains untested. 

Notably, Ulaan was a blind-top discovery where the company was looking for 300m-350m targets, expecting a large open pit. Most of these holes appeared to stop at 350m. However, when the company pushed one of the holes to a 450m depth, continuous mineralization was observed all the entire way. This led to the conclusion that the Ulaan discovery has a 350m minimum mineralization. 

The drill holes were angled at 85 degrees for an oriented core. The company is complementing the process of learning and understanding these systems and structures through external consultants, in addition to its team on the ground. The company has continued to consult with Jeffery Hedenquist, an advisor to the mineral industry to understand Bayan Khundii better. It has also re-engaged a structural expert to work with the additional data generated in 2021. This would enable the company to continue the interpretation of the system’s structural controls. The company has also appointed a number of other personnel who are helping in bringing external experts. 

The Dark Horse Gold Prospect

The centralised intrusive alteration systems are surrounded by the low-sulphidation bodies. Bayan Khundii-Ulaan is located in the south, while the Dark Horse system is in the north. The company has identified an eroded surface through the argillic alteration zone that has overprinted on the low-sulphidation system. Along this zone, the company has 4 deposits and prospects that stretch over 5km, anchored by Ulaan in the south followed by Dark Horse. 

The Dark Horse discovery sits approximately 2.5km north of the Bayan Khundii deposit. Moving north from Bayan Khundii, the company found an increase in arsenic antimony molybdenum association with the gold mineralization. When the company returned to Dark Horse in early 2021, it found a previous hole that demonstrated intense indicator element association, but with limited gold presence. The company carried out drilling here and found that one of the holes featured 20m of 5g gold. This was the initial discovery in early last year which led to the development of a significant drill program at Dark Horse that continued through the majority of 2021. 

Through the Dark Horse discovery, the company has found long sections featuring over 0.4g gold. The company has divided the zone into Dark Horse South which is located near the magmatic-hydrothermal breccia. The south zone features intense very high-grade intersections. Here, the company has found multiple holes featuring between 10m-30m of over 5g. The company also found ounce+ material in the oxide zone that starts in the south from near-surface up to a depth of 25m. This material plunges to depth as it moves towards the north. 

The company plans to continue tracing the highly- oxidised structures located at depth. The majority of the company’s drilling has been focused on these near-surface oxide zones. The company is currently testing the zone and is looking to determine whether the ultra-high grade extends to the south. Overall, the deposit features a deep, high-grade oxide blanket that extends from the surface to a depth of 20m-40m. The drill results are expected within the next 2 weeks. 

Erdene Resource Development has only 2 holes at depth intersecting the sulphide-rich zones. The company has found 20m-30m of 2g-3g material in these 2 holes. It plans to carry out additional exploration to locate higher-grade feeder zones that become narrower at depth. 

The company was originally anticipating good grades in the oxide. However, the continuity in these types of grades will enable the company to add ounces rapidly. 

Based on the initial bottle roll testing, the company found that the recoveries from the oxide system are between the high-80s and the mid-90s. The company is currently in discussion with Blue Coast Research in Vancouver to carry out advanced work. 

Dark Horse North

Dark Horse North features 10m-20m of 0.1g-0.2g gold grades. Here, the company has observed broad areas of epithermal breccias, chalcedonic veining, and very thick intersections of low-grade material that is deeper in the system. The company has identified up to 130m of 0.5g grade in one of the instances, though the drilling has been shallow so far. The deposit is open at depth and the company has drilled it up to a depth of 100m. Although the company has majorly focused on the near-surface oxides, it expects to see a bigger system forming at depth.

Targets 2022 and Beyond

Erdene Resources Development is looking at near-term opportunities that will help complement the development of Bayan Khundii. Presently, the company has a 400,000oz gold reserve at a grade of 3.5g. It plans to bring in additional material of grade so that it can increase production while retaining the existing plant design. 

The company is focused on bringing the oxide material at Dark Horse into the reserved category. It is also looking to include the indicated resource into its updated reserve model. This will enable the company to push the production from Bayan Khundii closer to 75,000oz-80,000oz annually, while simultaneously increasing the mine life from 6 to 8 years. Once the assay results are back for Dark Horse, the company plans to work with engineers to establish both Dark Horse and Altan Nar as viable economic pits. 

The Ulaan licence provided the company with a substantial new discovery. It has hit 100m-300m wide zones of 1g gold. The western extension is yet to be tested. The western extension is planned for testing through a major program this year as the company believes it has tremendous potential. 

The company is looking for a 50,000m drill program between Ulaan, deep Dark Horse, and Altan Nar. In the initial stages of the program, the company will drill 10,000m in Q2 2022. A part of this initial stage will be focused on establishing additional targets. The company has several intersections in drilled holes that are pending a follow-up. These intersections feature in excess of an ounce of gold near-surface and are based on other areas of the licence. 

Erdene Resource Development is planning to continue its exploration at a more aggressive scale in Q2, 2022. The company has been successful in past capital raises while avoiding massive dilution. Exploring the company’s land package with take a very long time due to its scale and it will lead to a world-class discovery. The company is looking to balance the exploration through a 2 pronged approach where it seeks to get the initial shovel-ready project up and running at the earliest while also advancing exploration. Thanks to the $2,000 gold price, the company has found it easier to access funds and explore without dilution. 

The 40km stretch to Zuun Mod and the 16km stretch to Altan Nar are both world-class gold polymetallic and porphyry systems that remain unexplored. 

Erdene Resource Development decided to advance the Bayan Khundii asset as it features world-class grades. Furthermore, the company anticipates that the grades found here could be the top decile of grades for open pits globally. The area features simple metallurgy which allows for great recoveries. The area also has limited water issues and is located close to developed infrastructure. As the project is located 200km from a major mining district, the company believes that starting-up operations will be easier. The company is looking to generate substantial discoveries in 2022. 

‍To find out more, go to the Erdene Resource Development website