High-Grade Mongolia Gold Project Nears Production in 2025

• Erdene Resource Development is in the final stages of bringing the high-grade Bayan Khundii gold project in southwestern Mongolia into production, with construction completion expected in April 2025 and commercial production by September-October 2025.
• The project has a high-grade open pit resource of 4 grams per ton gold, with expected production of 85,000 ounces per year and after-tax cash flows exceeding $100 million annually at current gold prices.
• Erdene has entered a 50/50 joint venture with Mongolia Minerals Corporation (MMC), retaining a 5% NSR that effectively gives them a 60/40 economic split once production exceeds 400,000 ounces.
• The company plans to allocate $10+ million annually to exploration starting in 2026-2027, focusing on expanding resources around Bayan Khundii and advancing other deposits in their Khundii Minerals District.
• Beyond gold, Erdene is advancing the Zuun Mod molybdenum-copper project, which benefits from improved infrastructure and strengthening molybdenum markets in China.

Erdene Resource Development (TSX: ERD, MSE: ERDN) is approaching a significant milestone as it nears production at its high-grade Bayan Khundii gold project in southwestern Mongolia. In a recent interview, President and CEO Peter Akerley outlined the company's imminent transition from developer to producer, its growth strategy, and the potential catalysts that could drive shareholder value. With construction nearing completion and commercial production expected within months, Erdene stands at a pivotal moment in its 27-year history, with multiple avenues for expansion across its Khundii Minerals District.

Production Timeline and Project Economics

Erdene is on schedule to complete construction at Bayan Khundii as the company moves into April 2025, followed by dry commissioning and final approvals in May and June. Wet commissioning is expected in July with first ore through the plant in the latter part of that month. According to Akerley, the company anticipates reaching commercial production in September-October, defined as achieving 90% of nameplate capacity while processing ore at the projected head grade of 4 grams per ton gold.

At full capacity, Bayan Khundii is designed to produce approximately 85,000 ounces of gold annually from an open-pit operation with a current reserve-based mine life of six years. The high-grade nature of the deposit (4 g/t gold) differentiates Erdene from most open-pit operations globally and provides economic resilience even during the typically challenging startup phase. At current gold prices, the project is projected to generate after-tax cash flows exceeding $100 million per year.

"When you look at the attention to our story, it's twofold. It's obviously the proximity to first gold, it's the high-grade nature of this deposit - four grams per ton we set ourselves far apart from most in the open pit world. It gives us a buffer on the economic side."

Strategic Partnership and Financial Structure

In early 2023, Erdene entered into a strategic alliance with Mongolia Minerals Corporation (MMC), which was formalized in January 2024 as a 50/50 joint venture on gold projects in the Khundii district. Importantly, Erdene retained a 5% net smelter return (NSR) royalty that begins after production of 400,000 ounces, effectively giving the company a 60/40 economic split once this threshold is reached.

When the alliance was formed, Erdene brought in $40 million in equity and an $80 million shareholder loan repayable over five years. Then, in December 2024, Erdene secured an additional $50 million in working capital facilities repayable over three years. This financing structure has allowed the company to advance to production without excessive equity dilution, a strategy that has begun to gain recognition in the market.

With strong cash flows projected once commercial production is achieved, Erdene could repay its debt within approximately 18 months at current gold prices. The company intends to balance debt repayment with exploration funding and potential returns to shareholders through dividends or share buybacks.

Near-Term Expansion Opportunities

Recent drilling programs around the Bayan Khundii pit have indicated potential for positive grade reconciliation, with numerous high-grade intersections in the top 15 meters of the deposit. Results from 13,000 meters of drilling are expected by the end of March 2025, which could demonstrate higher-than-modeled grades in the initial mining areas.

Erdene has identified several opportunities to optimize and potentially expand the processing plant without significant capital expenditure. Through improved grade and mill optimization, production could increase by 10-15% to approximately 95,000-100,000 ounces annually. With a modest capital investment of $20-25 million for a gravity circuit, additional ball mill, and processing tanks, annual production could potentially reach 120,000-125,000 ounces.

Interview with CEO Peter Akerley

Zuun Mod Molybdenum-Copper Project

Beyond its gold assets, Erdene controls the Zuun Mod molybdenum-copper project, in which the company has invested $15 million to date. While this project has historically taken a back seat to the gold developments, improved infrastructure and strengthening molybdenum markets have enhanced its prospects.

The project area now benefits from rail connections and paved highways to the nearest border crossing with China, just 200 kilometers away. Molybdenum prices have sustained levels above $20 per pound for approximately five years, occasionally reaching $40 per pound. Recent market analysis conducted by Erdene in China indicates a supply deficit, with the Shanghai Metals Exchange projecting 5% annual growth in molybdenum demand driven by increasing production of high-strength steel alloys.

The Zuun Mod deposit has a molybdenum-to-copper ratio of approximately 1.3:1, with molybdenum representing the dominant value component. Erdene plans to advance the project with a preliminary economic assessment later in 2025.

Mongolia's Strategic Position

Mongolia's geographic location adjacent to China provides strategic advantages for resource development companies like Erdene. While some Western companies face increasing pressure to avoid Chinese partnerships, Erdene's established presence in Mongolia and proximity to Asian markets creates opportunities for offtake agreements and financing. This is particularly relevant for the Zuun Mod project, which could supply molybdenum and copper concentrate to Chinese processors.

As global geopolitical tensions impact mining investment decisions, Erdene's position allows it to maintain access to both Western capital markets through its Toronto Stock Exchange listing and Asian consumer markets through Mongolia's proximity to China. This balanced approach reduces market access risks in an increasingly fragmented global economy.

The Investment Thesis for Erdene Resource Development

• Near-term producer: Construction completion expected April 2025, with commercial production by September-October 2025, providing strong cash flow visibility
• High-grade deposit: Open-pit mine with exceptional 4 g/t gold grade, providing economic resilience and high margins ($100M+ annual after-tax cash flow at current gold prices)
• Immediate expansion opportunities: Recent drilling suggests potential for positive grade reconciliation and simple mill optimizations that could increase production by 10-15% with minimal capital
• Strong balance sheet: Strategic partnership with MMC provides $170M in financing, reducing equity dilution risk with comfortable 5-year loan repayment terms
• District-scale exploration upside: Multiple high-grade targets within trucking distance of processing plant could extend mine life from 6 years to 12-15 years
• Commodity diversification: Advanced-stage Zuun Mod molybdenum-copper project provides exposure to critical industrial metals with improving infrastructure access
• Jurisdictional advantage: Strategic position in Mongolia provides access to both Western capital markets and Asian consumer markets, particularly China
• Management with proven track record: Team that discovered and advanced Bayan Khundii from initial sampling in 2015 to production in 2025

Macro Thematic Analysis:

Gold continues to attract significant investor interest amid persistent macroeconomic uncertainties, inflation concerns, and geopolitical tensions. The precious metal has established new all-time highs in 2024-2025, creating a favorable environment for emerging producers like Erdene Resource Development.

What sets Erdene apart is the combination of high-grade resources and near-term production in a market where new mine development has become increasingly challenging. 

This scarcity premium is particularly relevant for high-grade deposits like Bayan Khundii, which at 4 grams per ton offers significantly higher margins than typical open-pit operations. The project's economics appear robust even in more conservative gold price scenarios, while providing substantial leverage to continued strength in gold prices.

Additionally, Mongolia's strategic position adjacent to China provides unique advantages in an era of increasing economic fragmentation. While many Western mining companies face pressure to diversify supply chains away from China, Erdene's established foothold in Mongolia gives it access to both Western capital and Asian markets, positioning it well in the evolving global resource landscape.