Xanadu Mines managing director Colin Moorhead has joined the growing chorus of industry experts predicting a commodity “supercycle”, with the spot price for copper rising almost 15 per cent in the past year.
Moorhead told the “On the Couch” podcast series aimed at giving insights into the investing world, that while some commodities come and go, copper is here to stay.
The company’s flagship Kharmagtai project in Mongolia hosts a massive mineral resource of 1.3 billion tonnes at 0.3 per cent copper and 0.2g/t gold. The total resource includes 52 million tonnes of oxide material, primarily in the top 20m from the surface.
The spot price for copper currently sits at about the $14,700 per tonne mark, while gold is hovering at about $3500 per ounce.
Copper is just a basic building block of economic growth – it is necessary to transmit electricity and everything that goes with it. If you factor in normal growth, there is not enough copper in the supply line to fill requirements. If you put decarbonisation on top of that, then there is definitely a structural purpose for copper coming towards us and we are already seeing momentum in the copper price.
Moorhead said many experts were predicting a copper supercycle, adding that it takes some 20 to 25 years to get a significant project for the reddish metal off the ground and that many big plays were facing serious barriers and hurdles.
He also said that compared to the rest of the world, Mongolia remains relatively underexplored and Xanadu has a 100 per cent share in its Red Mountain project in the southern part of that country.
In January, the company entered into a binding term sheet to earn up to 80 per cent of the Sant Tolgoi project in Mongolia that hosts multiple shallow copper-nickel targets through several kilometres of strike.
“We have currently got three projects – two very early-stage ones and one quite advanced project in the Kharmagtai porphyry copper project,” he said.
“Kharmagtai is very similar in geology to Oyu Tolgoi – Rio Tinto’s project down the road. It is a big porphyry intrusive complex. It has a 1.3-billion-tonne resource containing 3.5 million tonnes of copper and 8.5 million ounces of gold.”
Last year, Xanadu completed two phases of its strategic partnership with China’s giant Zinjin Mining Group, providing access to funding for its recent exploration blitz at the operation. The deal saw Zijin invest US$35 million (AU$54 million), which will also be used to complete the Kharmagtai prefeasibility study (PFS).
A 50:50 joint venture (JV) has been created between the two partners at a project level, with Xanadu to be the operator on the ground. Moorhead said the Zijin deal had multiple benefits for Xanadu, including the security of an internationally-recognised company based right next door to Mongolia.
“The way for a junior to get maximum leverage for their shareholders is to get a big brother in to help you build these types of mines,” he said.
“We were able to do a deal with Zijin – one of the fastest growing metals producers in the world. I think they were close to a million tonnes of copper last year and were heading towards three million ounces of gold.
“They are in 16 different countries around the world now and they are one of the most rapidly growing companies in the world. They are also Chinese, which helps because Mongolia is a landlocked country and nothing can go out through Russia at the moment.
“Any product produced in Mongolia is going to go out through China, so having a Chinese partner certainly doesn’t hurt in terms of getting your commodity to market efficiently.”
The partnership has allocated 18 months to knock over the PFS, which is expected to be completed this year, while an earlier scoping study identified several upside opportunities that could materially upgrade the economics of the project.
“In the current quarter we will start to see this PFS come together so there will be some news flow out of that,” Moorhead said.
“There will be exploration results from Red Mountain coming through. In the September quarter you will see the PFS numbers – the actual physicals and financials around (the project) with a maiden ore reserve.
“I would suspect in the December quarter there will be some sort of deal news on the future funding of this project. My impression from everything Zijin say and do is that they are in a hurry to get this thing moving.”
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