Erdene eyes $687M build for Mongolia moly project

Erdene Resource Development (TSX: ERD; US-OTC: ERDCF) has outlined a $687-million (C$976-million) development plan for its Zuun Mod molybdenum-copper project in southwestern Mongolia, expanding its ambitions beyond the nearby Bayan Khundii gold mine.

An initial economic study estimates an after-tax net present value of $745 million (at an 8% discount rate) and a 16% internal rate of return. The proposed open-pit operation would produce an average of 19.8 million lb. of molybdenum and 27.9 million lb. of copper annually over 34 years, with payback in the sixth production year, the company said late Wednesday.

“The project demonstrates compelling economic potential under our base case scenario with significant upside at current metals prices,” President and CEO Peter Akerley said in a release. “Rapid infrastructure development across southwestern Mongolia, including new roads and expanded power supply, further support the potential viability of the project.”

The preliminary economic assessment gives Erdene a potential second development centre in its Khundii Minerals District, where Bayan Khundii has entered commercial production. Molybdenum, used to strengthen steel, would generate about 78% of Zuun Mod’s projected revenue, with copper providing the balance.

Erdene shares rose 0.9% on Thursday morning in Toronto to C$5.66, valuing the company at about C$371 million. They’ve traded in a 52-week range of C$4.64 to C$10.63. 

Price sensitivity

The base case assumes molybdenum at $25 per lb. and copper at $5 per lb. Using prices the company identified as spot levels, $33 per lb. for molybdenum and $6.50 per lb. for copper, the after-tax value rises to nearly $2 billion and the internal rate of return reaches 28%, with payback in the fourth production year.

The proposed plant would process 25 million tonnes annually, producing separate molybdenum and copper concentrates. Life-of-project output is estimated at 672 million lb. of molybdenum and 947 million lb. of copper.

All-in sustaining costs are estimated at $13.89 per lb. of molybdenum after copper credits. Sustaining capital would add $463 million over the operating life, while closure costs are estimated at $87 million.

The economics exclude a 1.5% net smelter return royalty held by Versamet Royalties (TSX, Nasdaq: VMET), which can be reduced to 0.5% through a buy-down provision. The study also uses proposed Mongolian legislation to model copper royalties, alongside existing legislation for molybdenum.

Resource confidence

Inferred resources account for about 74% of the proposed plant feed, including 16% during the six-year payback period. Those resources require more drilling to establish sufficient geological confidence for conversion to reserves. The assessment is preliminary and doesn’t establish economic viability, Erdene said.

Measured and indicated resources total 407.1 million tonnes grading 0.048% molybdenum and 0.062% copper, containing 427 million lb. of molybdenum and 553.7 million lb. of copper.

Inferred resources add 596.2 million tonnes grading 0.041% molybdenum and 0.056% copper, containing 536.8 million lb. of molybdenum and 733.3 million lb. of copper. The estimate is effective May 1.

Zuun Mod, which is wholly owned, lies 35 km east of Bayan Khundii and about 280 km from a railhead at the Mongolia-China border. A regional coal haul road passes within 30 km of the project. The study assumes power would be purchased from a third party.

District plans

In a recent sponsored interview with The Northern Miner Group, Akerley described plans to use Bayan Khundii cash flow to fund broader district exploration and reduce reliance on equity financing.

Erdene is discussing offtake, financing and strategic partnerships for Zuun Mod. Drilling is scheduled to begin in late October, followed by work next year to upgrade inferred resources, initially targeting areas scheduled for the first five years of production.

“Engineering, environmental and hydrogeological programs will advance concurrently,” Akerley said. “We are in discussions with potential partners on pathways to take Zuun Mod into development.”