The latter will fund Xanadu’s PFS for its copper-gold mine projects covering the Red Mountain and Kharmagati tenements respectively. The PFS will focus exclusively on Kharmagati.
Xanadu will remain operator of the project, until the earlier of PFS completion or 18 months post Phase 3 completion, at which point Zijin assumes operatorship.
The total investment into the project from Zijin is estimated at approximately $64m - some $12m into Xanadu shares and $51m into the Kharmagati project.
As part of the deal, Zijin will become a 19.99% shareholder, a move approved by Canberra back in August. Xanadu will issue 179.1m shares to this end.
As part of the new funding arrangement, Zijin and Xanadu will now turn the latter’s subsidiary entity Khuiten into a 50:50 JV.
Khuiten holds a 76.5% interest in the project.
A further 13.5% is held by an executive director of Xanadu, Ganbayar Lkhagvasuren. The other 10% is held by an entity called QGX Limited.
Once the PFS for Kharmagati is published, Xanadu will have three options:
Remain on board and fund its share of the project
Sell 25% of the JV to Zijin for US$25m, with an obligation for Zijin to provide Xanadu a loan covering its share of project construction costs, and loan repayment commencing once commercial production achieved, with 90% of those dividends allocated to repayments
Sell Xanadu’s 50% of the Khuiten JV to Zijin for US$50m, allowing it to achieve a premium price relative to Phase 3
Zijin requires Xanadu to deliver a PFS incorporating a JORC-compliant reserve and demonstrating a mine life of at least 20 years.
The internal rate of return must also be at least 20% and the payback period, and must be less than six years.
Management is bullish on the news, as this enables Xanadu to be fully funded and take Kharmagtai to FID as early as 2024 and drive exploration growth programs at both of its assets.
“We are pleased to have finalised these agreements, achieving a mutually beneficial, long term partnership with Zijin,” Xanadu chief Colin Moorhead said.
“The deal structure enables us to deliver value for our shareholders in the future, irrespective of the prevailing market conditions.”
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