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Erdene Announces Positive Bankable Feasibility Study Results for Bayan Khundii Gold Project

July 20, 2020
Study demonstrates high-grade, shallow open-pit mine with strong NPV, IRR and low initial capital investment

NI 43-101 Technical Report Highlights (US$1,400/oz Gold Price)

  • Base Case after-tax Net Present Value of US$100 million (NPV5%) and 42% Internal Rate of Return (IRR), increasing to US$216 million and 77% IRR, respectively, at current gold price of US$1,800/oz
  • Life of Mine Earnings Before Interest, Taxes and Depreciation of US$257 million, increasing to US$400M at a US$1,800/oz gold price
  • Total recovered gold over the initial phase of the Khundii Gold District development of 381,700 ounces
  • All-in sustaining cost (“AISC”) of US$733/ounce of gold recovered and upfront capital costs of US$59 million
  • BK Measured and Indicated Resources of 521,000 ounces gold at an average grade of 3.16 g/t gold
  • BK Proven and Probable Reserves of 409,000 ounces gold at an average grade of 3.71 g/t gold
  • Average annual gold production of 63,500 ounces, including 77,600 ounces in Year 2
  • Eight-year project, comprising one-year pre-production, six-year operating life and one-year mine closure
  • Payback period of less than 2 years
  • Adjacent high-grade resources and recent discoveries provide high probability growth options
  • Significant benefits to Mongolia, including Life of Mine royalties and taxes of US$103 million and approximately 400 new direct jobs in Bayankhongor Province

HALIFAX, Nova Scotia, July 20, 2020 (GLOBE NEWSWIRE) -- Erdene Resource Development Corp. (TSX:ERD; MSE:ERDN) ("Erdene" or the "Company") is pleased to announce the results of an independent Bankable Feasibility Study (“BFS”) for the 100%-owned, high-grade, open-pit Bayan Khundii Gold Project (“BK” or "Project”) in southwest Mongolia. The independent BFS was prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and has incorporated detailed mine design and scheduling, front-end engineering design for the processing plant and site infrastructure, a hydrogeological assessment, mineral waste facility design, comprehensive capital and operating cost estimation, and an updated economic model. These studies have been completed by a consortium of International and Mongolian firms with significant experience operating in Mongolia and internationally. The Technical Report, prepared by the Roma Group Ltd, pursuant to NI 43-101 guidelines, will be filed on SEDAR within 45 days.

The Company will host a conference call to review the Bankable Feasibility Study results at 10:00 am EST on Tuesday, July 21, 2020.  The dial-in numbers for the conference call are as follows:

North America (toll free):1-877-703-1560
Overseas or local (Toronto):1-647-689-5569

Participants may also join the conference call via webcast at the following link: https://onlinexperiences.com/Launch/QReg/ShowUUID=67C7A554-57DF-4DCC-978D-4C232A233C68

Quotes from the Company:

“The Bayan Khundii BFS results confirm the high-return nature of this project in its base case, with significant potential upside due to ongoing district-wide exploration and exposure to rising gold prices. The shallow, high grade, open-pit Bayan Khundii deposit lends itself to conventional mining and processing techniques, reducing the execution risk in bringing the project into production in an accelerated timeframe,” said Peter Akerley, President and CEO. “As a low-capex, low-opex project with a less than two-year payback and significant growth potential, Bayan Khundii offers investors and stakeholders exposure and leverage to gold as we move towards first production in early 2022.”

“Recent exploration results, including intersections of high-grade gold in the Midfield SE and Striker SW zones of the Bayan Khundii deposit, currently classified as sub-grade material, are expected to add to the Project’s robust economics,” continued Mr. Akerley. “The Bayan Khundii development is the foundation for growth in our underexplored Khundii Gold District and we see significant potential to expand resources, extending the mine life and creating value for all stakeholders.  We will follow up on recent exploration success with additional drilling in Q3 2020.”

“We have recently engaged HCF International Advisers Limited ("HCF") to secure debt financing for the project,” concluded Mr. Akerley. “Their expertise, combined with the support of the European Bank for Reconstruction and Development (“EBRD”) position us well to secure the funding to commence construction later this year.”

NI 43-101 Technical Report Overview

The Technical Report incorporates an updated reserve estimate for Bayan Khundii. The BFS includes 3.4 million mineable tonnes from the Bayan Khundii resource at an average diluted head grade of 3.7 g/t gold, all of which are Proven and Probable Reserves.

The Technical Report envisions a high-grade, open-pit mine, beginning at surface in the southern portion of the Bayan Khundii deposit (Striker and Gold Hill), and expanding northward into adjacent zones at Midfield and Midfield NE. The development incorporates conventional crushing and grinding, leach and a Carbon in Pulp (“CIP”) plant with processing capacity of 1,800 tonnes per day.

The base case assumes a gold price of US$1,400/oz. All references to dollars within this release are US Dollars (US$), unless stated otherwise. The Technical Report, pursuant to NI 43-101 guidelines for the Bayan Khundii BFS will be filed on SEDAR within 45 days. Key metrics from the Technical Report are presented in Table 1 below.

Table 1. Khundii Gold Project Key Metrics

  ? BK BFS
Gold PriceUS$/oz1,400
Production Profile   
Average Head Grade Over Life of Mine1g/t gold3.7
Project Lifeyears8
Operating Lifeyears6
Target Plant Feed Rate Per Day3tpd1,800
Average Annual Saleable Goldoz63,500
Peak Annual Saleable Goldoz79,100
Average Gold Recovery Rate Over Life of Mine%93%
Strip Ratiot:t9.1
Operating Costs ?BK BFS
Life of Mine (“LOM”) Average Cash Cost4US$/oz731
LOM Cash Cost plus Sustaining Cost (AISC)4US$/oz733
Pre-Tax Net Present Value   
5% discount rateUS$M145
7.5% discount rateUS$M126
10% discount rateUS$M109
Pre-Tax Internal Rate of Return%55%
After-Tax Net Present Value   
5% discount rateUS$M100
7.5% discount rateUS$M86
10% discount rateUS$M73
After-Tax Internal Rate of Return%42%
Payback Period (After tax)years1.9
Capital Requirements   
Pre-production Capital Cost, including contingencyUS$M59
Life of mine (“LOM”) Remaining Capital CostUS$M5

Notes: 

  1. Average diluted head grade of mineralized rock fed to process plant. 
  2. Project life comprising one-year pre-production period, approximately six-year operating life and one-year mine closure period.
  3. Assumes process plant operates for 8,000 hours per annum to achieve the target production rate of 600 ktpa. 
  4. Operating costs reported in terms of saleable gold ounces for Bayan Khundii; costs include Royalty and Charges of US$86/oz.

Technical Report Sensitivities

The following tables shows changes in the after-tax NPV and IRR over a range of gold prices and discount rates, demonstrating the impact of higher gold prices and the Project’s resiliency to lower prices.

Table 2. Technical Report Sensitivities – After-Tax Gold Price Sensitivity Analysis

Gold Price Sensitivity AnalysisUnitsUS$1,200US$1,400US$1,600US$1,800US$2,000
NPV (5% discount rate)US$M43100158216274
NPV (7.5% discount rate)US$M3386138190242
NPV (10% discount rate)US$M2573120168215
IRR%22%42%60%77%93%

Bayan Khundii Mineral Resource and Reserve Estimate

The Bayan Khundii Mineral Resource Estimate (“Mineral Resource”) was prepared in accordance with NI 43-101 and CIM standards by Tetra Tech with an effective date of October 1, 2019. The details of the Mineral Resource are included in the “Khundii Gold Project NI 43-101 Technical Report” dated December 4, 2019 and authored by M. Phifer, C. Norton, Clark, A. Kelly, H. Ghaffari, M. Horan and M Fawcett (“KGP 2019 Technical Report”). The report is available on Edene’s SEDAR page (link here) and incorporated herein by reference. 

The Mineral Resource has been constrained to a conceptual pit shell and is reported at a cut-off grade of 0.55 g/t gold. The assumptions and parameters utilized to establish the cut-off grade and pit shell are reported below in notes to Table 3.  Tetra Tech recommends reporting the Bayan Khundii Mineral Resource at a 0.55 g/t gold cut-off, however a sensitivity analysis of the grade and tonnage relationships at different cut-off grades is shown for reference in Table 3. 

Table 3.  Bayan Khundii Gold Deposit – Mineral Resource Estimate Summary, October 1, 2019

Cut-off Grade(1)Resource ClassificationQuantity (Mt)Grade (Au g/t)Gold (Koz)
0.4Measured1.73.15176
 Indicated4.62.45364
 Measured & Indicated6.42.64540
 Inferred1.13.10106
0.55Measured1.43.77171
 Indicated3.72.93350
 Measured & Indicated5.13.16521
 Inferred0.93.68103
1.0Measured0.77.31153
 Indicated1.75.56304
 Measured & Indicated2.36.05457
 Inferred0.46.8393
1.4Measured0.59.09148
 Indicated1.46.40294
 Measured & Indicated1.97.10441
 Inferred0.47.6191

Notes:

  1. The Statement of Estimates of Mineral Resources has been compiled under the supervision of Mr. Cameron Norton who is a full-time employee of Tetra Tech and a P. Geo. Mr. Norton has sufficient experience that is relevant to the style of mineralization and type of deposit under consideration and to the activity that he has undertaken to qualify as a Qualified Person as defined in the CIM Standards of Disclosure.
  2. All Mineral Resource figures reported in the table above represent estimates based on drilling completed up to April 22, 2019. Mineral Resource estimates are not precise calculations, being dependent on the interpretation of limited information on the location, shape and continuity of the occurrence and on the available sampling results. The totals contained in the above table have been rounded to reflect the relative uncertainty of the estimate. Rounding may cause some computational discrepancies.
  3. Mineral Resources are reported on a dry in-situ basis.
  4. The Mineral Resources is reported at a 0.55 g/t Au cut-off. Cut-off parameters were selected based on Tetra Tech’s internal cut-off calculator, which indicated that a break-even cut-off grade of 0.55 g/t Au, assuming an open cut mining method, a gold price of USD $1,350 per ounce, an open pit mining cost of USD $2 per tonne, a processing cost of USD $16 per tonne milled, a G&A cost of $5 per tonne, and a gold recovery of 95%.
  5. The mineral resource estimate has been constrained to a preliminary optimized pit shell which assumed a gold price of USD $2,000 and the economic potential tested using the above parameters.
  6. The mineral resource estimate assumes an average density of 2.66 t/m3 for the mineralized domains.
  7. Mineral Resources referred to above, have not been subject to detailed economic analysis and therefore, have not been demonstrated to have actual economic viability.
  8. Measured and Indicated mineral resources do not have demonstrated economic viability. Inferred mineral resources have a greater amount of uncertainty as to their existence and potential economic and legal feasibility, do not have demonstrated economic viability, and are exclusive of mineral reserves. 

BK Reserve Estimate

The Bayan Khundii, BFS Mineral Reserve has been estimated by Qualified Person, Mr. Anthony Keers, Director, Auralia Mining Consulting, using the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves to conform to the Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects. The total Mineral Reserve for the Bayan Khundii deposit is shown in Table 4. The Mineral Reserve is based on the October 1, 2019, Mineral Resource, reported herein. The Mineral Reserve includes both Proven and Probable Mineral Reserves that were converted from Measured and Indicated Mineral Resources. Tonnes and grades were calculated for the mining blocks, and allowances for dilution and mining recovery were applied to the estimate for the Mineral Reserve Statement. The effective date of the Mineral Reserve statement is July 1, 2020.

Table 4.  Bayan Khundii Gold Deposit – Mineral Reserve Statement, July 1, 2020

 Tonnage (Mt)Grade (g/t Au)Contained Au (Koz)
Proven Mineral Reserves1.24.2166
Probable Mineral Reserves2.23.5244
Mineral Reserve3.43.7409

Notes:

  1. The effective date of the Mineral Reserve estimate is July 1, 2020. The QP for the estimate is Mr. Anthony Keers of Auralia Mining Consulting
  2. The Mineral Reserve estimates were prepared with reference to the 2014 Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards (2014 CIM Definition Standards) and the 2003 CIM Best Practice Guidelines.
  3. Reserves estimated assuming open pit mining methods.
  4. Waste to ore cut-offs were determined using a NSR for each block in the model. NSR is calculated using prices and process recoveries for each metal accounting for all off-site losses, transportation, smelting and refining charges.
  5. Reserves are based on a gold price of $1,400/oz.
  6. Mineral Reserves were calculated from a diluted “mining” block model which included average dilution of 9% and losses of 1%.                    

Mining

The BK BFS is based on an open-pit mining operation targeting 600,000 tonnes per year of feed material for the processing plant. The total mineable mineralized plant feed is 3.4 million tonnes at an average diluted head grade of 3.7 g/t gold and average strip ratio of 9.1:1 (waste tonne: plant feed tonne). Mineralization starts at surface, with the majority of the deposit contained within the top 100 metres. The deposit structure, grades and depth suggest selective open cut mining will be utilized. Mining will use hydraulic excavators in backhoe configuration. Drilled and blasted material will be loaded into haul trucks, with waste rock deposited in an engineered Integrated Waste Facility (“IWF”) adjacent to the pit, and ore hauled to a crusher or run-of-mine (“ROM”) pad adjacent to the processing plant.

The BK BFS has assumed contract mining based on methodology and costing contained in proposals received from contractors with suitable experience in Mongolia in similar open-pit mining environments. In this scenario the contractor provides the full fleet and personnel to operate the project on a schedule of rates (US$/tonne material moved) basis. The contractor is proposing a total of 4 x excavators (2 x ore, 2 x waste), 10 x 55t payload trucks, 3 x blasthole drills and a fleet of ancillary and support equipment to deliver the required material movement. The contractor’s workforce peaks at approximately 190 personnel to deliver the required schedule of production.

Processing

The BFS assumes processing of ROM material via a conventional crush and grind circuit and a carbon in pulp plant. Plant design by 360-Global has been based on testing at Blue Coast Research which has established optimal processing parameters, including; grind size of 80% passing 60 microns; design inputs for comminution circuit, low cyanide concentration in leach circuit (0.5 g/litre sodium cyanide); 36 hour retention time; carbon adsorption parameters and detoxification reagent dosages. The process circuit has been designed to maximize water recovery with the most efficient dewatering process (ceramic disc filters) to achieve targeted 15% moisture in tailings, minimize chemical and reagent usage and minimize environmental impact.

The ore-processing plant will be located adjacent to the Bayan Khundii open pit and throughput will target 600,000 ore-tonnes per year, nominally 1,800 tonnes per day. Total mineralized material from BK, processed in the plant over the course of the mine life, is 3.4 million tonnes at an average diluted head grade of 3.7 g/t gold. Using an estimated mill recovery of 93.1%, total recovered gold over the life of the Bayan Khundii deposit is 381,700 ounces.

Operating Costs

Operating costs are based on the mining and processing scenarios outlined above and assumes contract mining. Power for operations will be generated through a hybrid diesel and solar generation solution, provided under a power purchase agreement for the duration of the Project. All other activities are assumed to be owner-operated. The AISC for Bayan Khundii is estimated at $733/oz.

Table 5. Operating Costs

 LOM ($ millions)US$/ozUS$/tonne
Mine Operating Cost13335039
Processing Cost9625228
G&A13334
Total Site Operating Costs24263571
Royalty and Charges328610
Sustaining Capital & Closure Costs 5121
All-In Sustaining Cost27973382

Capital Costs

Construction costs (Year 0), primarily comprising the process plant and supporting infrastructure, accommodation village, and associated engineering and indirect costs is estimated at US$46 million. Pre-production costs, including construction readiness, mobile site equipment and pre-strip total $8M. The capital cost estimate includes a 10% contingency. Sustaining capital of US$4 million has been included in the mine plan and net mine closure costs are estimated at US$1 million, including salvage values. Total life of mine capital expenditures for the Bayan Khundii Gold Project are estimated at US$64 million.  

Table 6. Capital Costs

Item$ millions
Process Plant24
Non-Process Infrastructure10
Accommodation Village2
Construction Indirects6
Engineering & Support4
Construction Costs46
Pre-Production Costs8
Contingency5
Subtotal Plant and Infrastructure59
Sustaining Capital4
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