Erdene’s Zuun Mod PEA Targets $745M NPV, 34-Year Molybdenum-Copper Mine

Key Points

• Zuun Mod’s preliminary economic assessment projects an after-tax NPV of $745 million, a 16% IRR and nearly $5 billion in free cash flow under assumptions of $25-per-pound molybdenum and $5-per-pound copper prices.
• The proposed open-pit mine could operate for approximately 34 years, processing 25 million tonnes annually and producing an estimated 672 million pounds of molybdenum and 947 million pounds of copper.
• Estimated initial capital is $687 million, with production targeted for 2031; however, the PEA is preliminary, relies partly on inferred resources and does not establish mineral reserves. At higher assumed metal prices, NPV could approach $2 billion.

Erdene Resource Development TSE: ERD said its preliminary economic assessment (PEA) for the wholly owned Zuun Mod Molybdenum-Copper Project in southwestern Mongolia outlines a potential large-scale operation with an after-tax net present value of $745 million at an 8% discount rate under its base-case metal-price assumptions.

The study assumes molybdenum prices of $25 per pound and copper prices of $5 per pound. At those prices, Erdene estimated an after-tax internal rate of return of 16%, life-of-mine revenue of approximately $21 billion and free cash flow of just under $5 billion.

Company officials emphasized that the PEA is preliminary, is based partly on inferred mineral resources and does not establish mineral reserves. Erdene said actual capital costs, operating costs, recoveries, production rates and project economics could differ materially from the assessment.

Potential 34-Year Operation

President and CEO Peter Akerley said the proposed project would operate for more than 30 years, processing an average of 25 million tonnes of mill feed annually through conventional processing methods. The company expects the operation to produce 672 million pounds of molybdenum and 947 million pounds of copper over the proposed mine life.

Jon Lyons, Erdene’s chief development officer, said the PEA is based on a mineral resource estimate containing 427 million pounds of molybdenum and 553 million pounds of copper in the measured and indicated categories at a 250-parts-per-million cutoff grade. Inferred resources add a further 783 million pounds on a contained molybdenum-equivalent basis, according to the company.

The mine plan contemplates an open-pit operation with four conceptual pit-development stages, a process plant capable of treating 25 million tonnes per year and an average life-of-mine strip ratio of about 1.3-to-1. Lyons said metallurgical testing indicated potential recoveries of 88% for molybdenum and nearly 90% for copper.

The PEA assumes that mining, drilling and blasting would be carried out by contractors. The conceptual mining fleet would peak at 63 units during years seven through 13, while mining employment would peak at roughly 530 people, including contractor and owner personnel.

Capital, Costs and Metal-Price Sensitivity

Robert Jenkins, Erdene’s chief financial officer, said initial capital costs are estimated at $687 million, excluding mining-fleet capital because the assessment assumes a contract miner would finance, own and operate the fleet. Sustaining capital over the mine life is estimated at $463 million.

The company estimated C1 operating costs of $10.25 per pound of molybdenum produced, including a copper credit of $7.05 per pound. Including government royalties and sustaining capital, all-in sustaining costs were estimated at $13.89 per pound of molybdenum. The project’s estimated molybdenum break-even price is $18.50 per pound, Erdene said.

At metal prices of $33 per pound of molybdenum and $6.50 per pound of copper, which management described as current prices, the company estimated the project’s after-tax NPV would rise to nearly $2 billion and its IRR would increase to 28%. Under that scenario, undiscounted life-of-mine free cash flow would approach $9.5 billion.

During the question-and-answer session, Lyons said the capital estimate was supported by quotations for major mechanical equipment and by the company’s construction experience at the nearby Bayan Khundii gold mine. He also cited the use of contract mining, phased tailings-storage development, available regional logistics infrastructure and a 35% weighted-average contingency within the capital estimate.

Infrastructure and Development Plans

Zuun Mod is located about 35 kilometers east of the operating Bayan Khundii gold mine and approximately 200 kilometers from the Chinese border. Akerley said a coal-haul road has been developed within 35 kilometers of the project, while the power line built for Bayan Khundii is within 30 kilometers.

Erdene plans to begin drilling in coming weeks to test near-surface mineralization that had previously been modeled as waste and to advance the Khuvyn Khar copper target west of Zuun Mod. The company also plans hydrogeological, metallurgical, geotechnical and environmental and social work through the end of 2027.

Akerley said the indicative budget for those work streams is about $7 million and can be funded from cash on hand. He said Erdene had more than $20 million in treasury and did not plan to raise equity to advance Zuun Mod or its other wholly owned projects. The company is targeting a final investment decision within two years on an accelerated timeline and has set a goal of beginning molybdenum and copper production in 2031.

Management also said it has held discussions with potential concentrate buyers, construction groups, operating partners and international finance institutions. Lyons said several Asian downstream processors had expressed interest in potential molybdenum supply from the project, though the company has not announced any definitive offtake or financing agreements.

About Erdene Resource Development (TSE:ERD)

Erdene Resource Development Corp. is a Canada-based resource company producing gold at the high-grade, low-cost Bayan Khundii Gold Mine in underexplored and highly prospective Mongolia. The Company has interests in a portfolio of precious and base metal projects near the Bayan Khundii Gold Mine in the Khundii Minerals District, which provides a robust organic growth pipeline. Erdene Resource Development Corp. is listed on the Toronto ('ERD') and the Mongolian stock ('ERDN') exchanges and OTCQX Market ('ERDCF').

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