ERDENE ANNOUNCES POSITIVE BANKABLE FEASIBILITY STUDY RESULTS FOR BAYAN KHUNDII GOLD PROJECT 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)
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ERDENE ANNOUNCES POSITIVE BANKABLE FEASIBILITY STUDY
RESULTS FOR BAYAN KHUNDII GOLD PROJECT
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 t axes of US$103 million and
approximately 400 new direct jobs in Bayankhongor Province
Press Release
Halifax, Nova Scotia
2020.07.20
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
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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.
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Table 1. Khundii Gold Project Key Metrics
BK BFS
Gold Price US$/oz 1,400
Production Profile
Average Head Grade Over Life of Mine1 g/t gold 3.7
Project Life2 years 8
Operating Life years 6
Target Plant Feed Rate Per Day3 tpd 1,800
Average Annual Saleable Gold oz 63,500
Peak Annual Saleable Gold oz 79,100
Average Gold Recovery Rate Over Life of Mine % 93%
Strip Ratio t:t 9.1
Operating Costs BK BFS
Life of Mine (“LOM”) Average Cash Cost4 US$/oz 731
LOM Cash Cost plus Sustaining Cost (AISC)4 US$/oz 733
Pre-Tax Net Present Value
5% discount rate US$M 145
7.5% discount rate US$M 126
10% discount rate US$M 109
Pre-Tax Internal Rate of Return % 55%
After-Tax Net Present Value
5% discount rate US$M 100
7.5% discount rate US$M 86
10% discount rate US$M 73
After-Tax Internal Rate of Return % 42%
Payback Period (After tax) years 1.9
Capital Requirements
Pre-production Capital Cost, including contingency US$M 59
Life of mine (“LOM”) Remaining Capital Cost US$M 5
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.
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Table 2. Technical Report Sensitivities – After-Tax Gold Price Sensitivity Analysis
Gold Price Sensitivity Analysis Units US$1,200 US$1,400 US$1,600 US$1,800 US$2,000
NPV (5% discount rate) US$M 43 100 158 216 274
NPV (7.5% discount rate) US$M 33 86 138 190 242
NPV (10% discount rate) US$M 25 73 120 168 215
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 Classification Quantity (Mt) Grade (Au g/t) Gold (Koz)
0.4 Measured 1.7 3.15 176
Indicated 4.6 2.45 364
Measured & Indicated 6.4 2.64 540
Inferred 1.1 3.10 106
0.55 Measured 1.4 3.77 171
Indicated 3.7 2.93 350
Measured & Indicated 5.1 3.16 521
Inferred 0.9 3.68 103
1.0 Measured 0.7 7.31 153
Indicated 1.7 5.56 304
Measured & Indicated 2.3 6.05 457
Inferred 0.4 6.83 93
1.4 Measured 0.5 9.09 148
Indicated 1.4 6.40 294
Measured & Indicated 1.9 7.10 441
Inferred 0.4 7.61 91
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
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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 Reserves 1.2 4.2 166
Probable Mineral Reserves 2.2 3.5 244
Mineral Reserve 3.4 3.7 409
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 $1,400/oz.
6. Mineral Reserves were calculated from a diluted “mining” block model which included average dilution of 9% and losses of 1%.
Mining
The BK BFS is based on an open-pit mining operation targeting 600,000 tonnes per year of feed material for the
processing plant. The total mineable mineralized plant feed is 3.4 million tonnes at an average diluted head grade
of 3.7 g/t gold and average strip ratio of 9.1:1 (waste tonne: plant feed tonne). Mineralization starts at surface, with
the majority of the deposit contained within the top 100 metres. The deposit structure, grades and depth suggest
selective open cut mining will be utilized. Mining will use hydraulic excavators in backhoe configuration. Drilled and
blasted material will be loaded into haul trucks, with waste rock deposited in an engineered Integrated Waste Facility
(“IWF”) adjacent to the pit, and ore hauled to a crusher or run-of-mine (“ROM”) pad adjacent to the processing plant.
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The BK BFS has assumed contract mining based on methodology and costing contained in proposals received from
contractors with suitable experience in Mongolia in similar open-pit mining environments. In this scenario the
contractor provides the full fleet and personnel to operate the project on a schedule of rates (US$/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$/oz US$/tonne
Mine Operating Cost 133 350 39
Processing Cost 96 252 28
G&A 13 33 4
Total Site Operating Costs 242 635 71
Royalty and Charges 32 86 10
Sustaining Capital & Closure Costs 5 12 1
All-In Sustaining Cost 279 733 82
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
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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 Plant 24
Non-Process Infrastructure 10
Accommodation Village 2
Construction Indirects 6
Engineering & Support 4
Construction Costs 46
Pre-Production Costs 8
Contingency 5
Subtotal Plant and Infrastructure 59
Sustaining Capital 4
Reclamation and Mine Closure 3
Salvage (2)
Total 64
Note: Rounding may cause some computational discrepancies
Opportunities to Enhance Project Value
The Company sees the following opportunities to enhance value at the Khundii Gold Project:
• Additional Resources at Bayan Khundii:
o The Bayan Khundii Resource includes measured and indicated resources of 521,000 ounces at an
average grade of 3.16 g/t gold, and Inferred Resources of 103,000 ounces of gold at a grade of 3.68 g/t
gold which could potentially be added to open-pit reserves through both additional drilling and rising
gold prices.
o Recent drilling at the Midfield SE and Striker SW zones of the Project area intersected exceptionally high-
grade gold, including one metre of 582 g/t gold within an intersection of 5.5 metres grading 126 g/t at
Midfield SE, in areas of the resource currently classified as waste or sub-grade material. The areas are
expected to provide additional high-grade feed in the early phases of development.
o Additionally, very high gold grades observed in drilling in the Striker West portion of the deposit have
the potential to provide additional high-grade resources should closer spaced drilling improve
continuity.
o The reported resource is pit constrained based on multiple parameters (Table 1, note 4) including a
US$1350 gold price. Multiple high-grade intersections outside the pit provide expansion targets
requiring additional drilling in a rising gold price environment.
o Further drilling is planned for Q3 2020 to confirm the existence of high-grade material within the Bayan
Khundii project area.
• Exploration: The Bayan Khundii deposit is situated in a highly prospective region that has received minimal
historical exploration. On the Bayan Khundii property, multiple high-grade targets have been established
through limited shallow drilling and surface sampling within 4 kilometres of the deposit, including the Khar
Mori (Dark Horse) prospect identified in late 2019.
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o Erdene recently trenched new gold zones at Dark Horse, with assays returning 6 metres grading 8.8 g/t
gold, including 1 metre of 50.8 g/t gold, and 4 metres of 14 g/t gold, including 1 metre of 45.3 g/t gold.
As a large untested prospect, Dark Horse provides significant discovery potential along strike with a
well-defined and continuous gold-in-soil anomaly along a NE trending structure for 1.3 kilometres. In
addition, there are several isolated but intense gold-in-soil anomalies at or near NE-NW structural
intersections. Drilling is planned for Q3 2020.
• Recoveries: Although a 93% gold recovery has been utilized for the BFS, testing of a recent master composite
sample, representative of the BK ore, with a head grade of 3.6 g/t gold, returned recoveries averaging 95%
indicating an opportunity for increased recoveries in the plant.
• Higher Grade Upside: The very high-grade nature of the Bayan Khundii deposit provides upside should
continuity of the ultra high-grade zones (greater than 20 g/t gold) be established during mining.
• Underground Potential: Further underground mining potential has been identified in conceptual studies for
Midfield North and Striker West which, if proven economical through further studies, could lead to a further
increase in the economic reserve of the Bayan Khundii Project.
• Additional Resources at Altan Nar: Erdene’s Altan Nar deposit, located approximately 16km north of Bayan
Khundii, has an established Indicated Resource of 5.0 Mt grading 2.0 g/t gold (318,000 ounces of contained
gold) and an Inferred Resource of 3.4 Mt grading 1.7 g/t gold (186,000 ounces of contained gold).
Approximately 250,000 ounces of the current Altan Nar resource could potentially be processed by the Bayan
Khundii Project processing facility at modest incremental capital cost (see “KGP 2019 Technical Report”). A
number of development options for Altan Nar are under consideration.
Environmental and Permitting
In June 2020, Erdene completed an independent Environmental and Social Impact Assessment in accordance with
the Performance Requirements of the European Bank for Reconstruction and Development (“EBRD”). The study was
led by Sustainability East Asia LLC, in consortium with Eco Trade LLC and Ramboll Australia Pty Ltd. Concurrently,
the Mongolian statutory Detailed Environmental Impact Assessment (“DEIA”) for the Project has been prepared by
Eco Trade LLC in accordance with the applicable national standards. Local stakeholder consultations on the DEIA are
planned for Q3 2020. Following the consultations, the company will submit its statutory DEIA to the Ministry of
Environment and Tourism of Mongolia for approval.
Erdene has obtained many of the key permits required to construct the Bayan Khundii Gold Project over the past
year. In August 2019, the company received the Bayan Khundii Mining License, securing the site for 30 years, with the
option to extend for 70 years. Additionally, the Company’s Statutory Technical and Economic Assessment
(“Mongolian Feasibility Study”) was approved by the Mineral Resource and Petroleum Authority in early 2020. The
Mongolian Ministry of Environment and Tourism approved a water reserve and flow rate to be utilized for the planned
processing plant and infrastructure of the Khundii Gold Project. Additionally, the Project’s Land Arrangement Plan
has been approved by the local community, granting access to the 100-hectare area required to construct the BK
open-pit and associated surface infrastructure. Permission to construct is expected to be received following
approval of the Mongolian DEIA.
Project Finance and Next Steps
The Company has engaged HCF to act as Project Finance advisor, with primary responsibility for securing debt. HCF
is a leading independent corporate finance advisory boutique based in London, focused on the global natural
resources and infrastructure sectors. HCF provides strategic and financial advice to companies and financial
institutions across the complete life cycle of a project, including structuring of debt finance. HCF possess significant
Mongolian experience, having acted as an advisor on the financing of Oyu Tolgoi, Mongolia’s largest mining project,