Xanadu Mines (ASX:XAM) CEO interview

We spoke with Xanadu Mines‘ CEO Dr. Andrew Stewart about the potential for Xanadu’s Kharmagtai copper-gold project in Mongolia, not far from the massive Oyu Tolgoi mine of Rio Tinto.

Xanadu’s current drilling programmes are aimed at markedly increasing the resource base at Kharmagtai and Andrew Stewart is excited about the potential for higher grade zones to yield the beginnings of a new mine.

 

Read our most recent article on XAM here

 

Transcription

 

Stuart Roberts: Hello and welcome to Stocks Down Under. My name is Stuart Roberts and I’m one of the co-founders of that publication. And with me today is the legendary Dr. Andrew Stewart, joining me from Sydney, away from his usual haunts in the South Gobi Desert of Mongolia. Andrew, good afternoon.

Dr. Andrew Stewart: Good afternoon, Stuart. Good to join you.

Stuart Roberts: It’s the 6th of October, 2021. Now, Andrew, I called you legendary a little while ago. You’re one of an elite group of people with a lot of on-ground experience in the South Gobi. You actually worked for Robert Friedland at Ivanhoe Mines, and so, therefore, in some way, responsible for that massive Oyu Tolgoi discovery that Ivanhoe made 15 years ago.

Dr. Andrew Stewart: Yeah, that’s correct, Stuart. You know, great time. We had an amazing exploration program there in the South Gobi, where we controlled most of the South Gobi and had, well, at that time, the biggest exploration program probably going globally for copper, very successful, obviously culminating in the discovery of Oyu Tolgoi. But, you know, I guess, you know, that, at the time was the first modern exploration in the South Gobi. And you think about that time period of that ground being held and very little exploration since then, this is an amazing [inaudible 00:01:19] of rocks that, you know, with limited exploration has held the most recent developed T1 asset in Oyu Tolgoi. But a lot more upside there, and, you know, that’s where our projects from outside Red Mountain come in.

Stuart Roberts: All right. And, I mean, I’ve been telling people, “Why should Robert Friedland and Rio Tinto have all the fun?” You’re about halfway towards having a serious company maker in your Kharmagtai project, dare to say.

Dr. Andrew Stewart: Yeah, no, it’s a big resource and growing, and, you know, it’s already 2008 end resources, 600 million tons, containing 1.2 million tons of copper, and over 4 million ounces of gold. We see that, you know, multiplying quite significant and that’s what should happen when you get into a district and control a porphyric district. So, you know, when you have those further discoveries, you grow those results bases. But more importantly, this is a resource base of a lot of gold, and, you know, we have a copper, but we like the gold part of it too. And having that gold really helps with the economics of these large copper systems.

Stuart Roberts: Right. Now, to that point, your chairman is Colin Moorhead, who at one stage oversaw all of Newcrest’s exploration outside Australia, as I understand.

Dr. Andrew Stewart: Yeah, he did. And also in Australia, so he was very involved in the early days at Cadia, not far from here at Orange, and also, yeah, outside Indonesia.

Stuart Roberts: Right. So he takes one look at the project you’ve got and says, “This is another Cadia, potentially,” if I exaggerate somewhat. The similarities are not dissimilar in terms of the large low-grade porphyry system. It seems to be open in all directions and if you just drill a bit harder, who knows what shows up?

Dr. Andrew Stewart: That’s right, Stuart. I was able to sneak Colin into Mongolia in January last year. Not a bad experience going into Mongolia in January at minus 30 and minus 40 and going down to the project, walking across it. And, you know, I think when you take someone to Kharmagtai, it’s the scale that pops out straightaway. But, you know, there’s a lot of copper systems around the world that are large and low-grade. But what we like about Kharmagtai, and what we’ve always liked, it has a high-grade component to it, and that’s very important. And it’s that high-grade part that we’ve focused our exploration on. Because you look at copper porphyries, there’s a lot of them. There’s a lot of big deposits of .4 copper. There’s the ones that are garbage and the ones that have that high-grade core that allow you to start there and get that early payback are the ones that you wanna have.

Stuart Roberts: Yeah, to that end, you’ve had a lot of drilling activity over the last few months of the diamond variety, because it’s a race now to get, potentially, to that billion tons in resource, and particularly the high-grade zones that you have a good idea where they’re sitting.

Dr. Andrew Stewart: Yeah, we’ve put out some of the best drill holes globally. This year, we’ve been quite excited at extensions to that high-grade zone. We’ve seen multiple intervals of over 200 meters, plus one and a half percent copper equivalent. That’s what you wanna see. And, you know, we’ve locked the data room now and that resource will be out in Q4. I’m not sure if we’ll get to our goals there, but we’ll be quite close to it. But, you know, we have to stop drilling. We’re drilling in the background, so for us, it’s a progression towards that resource. And, you know, why that’s important is, you know, you can see that resource. It’s easily going to grow in terms of scale. But that high-grade core is, you know, what we’re focused on, expanding that and differentiating this project from the other copper projects out there globally at the moment. And I’m gonna say globally because there’s quite a limited number of these sorts of projects on the AXX, but, you know, there is a few peers on the TXX, but, you know, just no one’s looking for these copper projects and, as we’ve discussed previously, these are the type of projects your majors want. We’re seeing growth come on in the M and A space now. We’re feeling that sort of move to, you know, people looking for where the next copper project’s gonna come from. So it’s exciting times to be sitting here in one of these types of deposits.

Stuart Roberts: Right, and to that end, I think a lot of people have been surprised. Copper’s come off its recent highs, but it’s showing a lot of robustness above $4 a pound, U.S. And no surprises there. There’s hardly been a decent copper mine come onstream in over a decade, in spite of a few discoveries. And the copper the world needs is coming from some pretty long in the tooth mines that are more than 30 years old in northern Chile.

Dr. Andrew Stewart: Yeah, that’s exactly right. Everyone talks about the tidal wave of demand coming for copper, because of the electrification and, you know, ESG constraints and things like that. But it’s all about supply. We’re not finding enough projects and not putting them into development and there’s a real crunch in terms of supply of these types of deposits coming through. And we sit here today and we know, you know, the average timeline to put one of these things into production is 10 years. If we’re not putting them in production now, we’re not finding them. That copper price is gonna stay longer for stronger…stay stronger for longer, and we know that. And, you know, if you would have asked me two years ago where we see the copper price, we’d be happy with $3.50, be over the moon. But now we’re seeing it over $4.00, what, over the last 12 months now, and, you know, I don’t see that coming down, because it’s all about there’s not enough supply coming online in projects.

Stuart Roberts: Now, possibly sentiment towards Xanadu mines has been impacted by…every time I open the newspaper, it seems to be a story where Rio Tinto and the Mongolian government are squaring off on the Mongolian state’s fair share of Oyu Tolgoi. How does that affect where you sit with a relatively smaller project?

Dr. Andrew Stewart: Well, look. I think it’s two things. The development of Oyu Tolgoi has been fantastic. It’s created the infrastructure base for us not to worry about, we’ve got the power, we have water. You’ve got infrastructure. You’ve got railway lines and all that. So when you build big mines, the infrastructure comes on the back of them. We’re benefitting having a project only 100 kilometers away. We’ll benefit from that infrastructure in the long term. But, yeah, clearly, you know, that ongoing marriage-canceling that the Mongolian government and Rio have, you know, it does create a perception it’s a hard place to work.

But, you know, going back, that project was discovered in the early 2000s. Rio Tinto got involved with the project in 2008, went into commercial production in ’13. Like, that’s amazing timing. And that project has been in production since then, continuing to develop. Some of the constraints now are around the delays and the delivery of the underground mine. But, look, once that’s delivered, that’ll be the third biggest copper mine in the world. So you talked about those large Chile mines? One and two sit in Chile, Escondida and El Teniente. The other one will be Oyu Tolgoi. And, you know, sitting in the zone in Australia, on the doorstep of the biggest market in China, so, yeah. I mean it’s a place you can build mines. And I think that’s the important thing is, as a junior explorer, you need to know you can find world-class deposits. You need to know that you can have tenure in your projects, you can demonstrate that. And you need to have an ability to show that you can actually develop a project. No point being in the high Andes or being, you know, in the Atacama Desert with no water, no infrastructure, those things. We say in this industry that, you know, when you build a mine the CAP X is one-quarter infrastructure, one-quarter plant, one-quarter mining. if you can take the infrastructure out of it, and you know, the engineering around, you know, difficult mines, it makes a very competitive place to develop projects, and that’s why Oyu Tolgoi got developed so quickly.

Stuart Roberts: And people forget the location. Look on a map. China’s not very far away, but one of the world’s biggest copper consumers, looking forward.

Dr. Andrew Stewart: Yeah, well, one, two, and three, I think. You know, you’ve got access to Japan and Korea. So they’re all there.

Stuart Roberts: Right. And it’s fair to say that Mongolia’s come a long way in the years since the Iron Curtain came down. A lot of local talent is working with you. In fact, I imagine if I was able to get to Kharmagtai, I’d hardly find any ex-patriates at all onsite, right?

Dr. Andrew Stewart: Well, no. We don’t have any onsite at the moment. And, you know, we’ve got a lot of capacity in our Mongolian team. They’re executing amazingly on the ground in Mongolia under close supervision from our team management in Australia. But, you’re right. You know, there’s no need to do that. We have built an amazing team in executing [inaudible 00:09:05] give you in Oyu Tolgoi. You know, you see very few ex-pats too. it’s a real hats off to the country going, you know, from where they were, the training that’s happened, and, yeah, very, very good workforce there and very keen to learn, very young and very keen.

Stuart Roberts: Well, Andrew Stewart, hats off to you and your team for what you’ve achieved and here’s to a great FY22 with a mine that’s gonna have a heck of a lot more resource than what it had last time you were able to publish. Well done.

Dr. Andrew Stewart: Yeah, thank you, Stuart.