Mongolia is back on the mining map as some standout discoveries, higher commodity prices
and a host of mainly positive political developments have brought the Asian nation to the fore.

Copper and gold are the two commodities gaining interest this time around for a country that
has the biggest consumer of both metals on its doorstep.
Politics is usually the first port of call for any investor looking to Mongolia and the country has
had its fair share of comings and goings in the past few years.
First up, it has a new president.
Khaltmaa Battulga, a former judo champion, has not made a huge impact since coming into
office in July, but his entrepreneur origins have given investors comfort he will be in the probusiness
camp.
The country, just before Battulga arrived, agreed a US$5.5 billion lifeline from the
International Monetary Fund. This not only helped it escape a sovereign debt default, but
restored confidence in the economy.
The budget deficit has subsequently been cut, bond payments have been rolled over, the
national currency has started to appreciate and the IMF has billed strong GDP growth for the
country over the next two years.
Commodity price rises have had a positive impact on the latter.
Copper is now above the magic US$3 per pound (US$6,615 per tonne), gold has recently
made moves to US$1,350 per ounce and coking coal, which Mongolia is a key supplier of to
China, is changing hands for more than US$200/t.
Mineral exports are important to the Mongolian economy, accounting for more than 30% of its
GDP.
And, the biggest project in the mining industry at the moment, the US$5.3 billion Oyu Tolgoi
(OT) underground expansion, is moving forward to first production in 2020.
An impasse between the government and Rio Tinto was eventually ended in 2016, with an
agreement struck to expand the copper-gold behemoth's life and production.
Coming out of the bear market
There are a few companies that hung in during the gloom in Mongolia and are now set to
profit from an improved environment.
Erdene Resource Development, Kincora Copper and Xanadu Mines could be considered the
poster boys for the mining sector, with Rio Tinto being the country sponsor.
The three all offer something different but, as with the country's flagship mine, scale is the big
draw.
Erdene, a TSX-listed company, made a discovery on the Altan Nar epithermal poly-metallic
project in late 2011, but the reveal of an intersection of 55m at 1.02g/t Au and 12g/t Ag from
just 20m depth came at the wrong time in the cycle.
Investors let the discovery go by without a passing mention as the stock, like all exploration
stocks at the time, went on a downward run.
Bayan Khundii, discovered in 2015, is now the flagship.
Situated in the same south-western part of the country, it is a 1.7km-long gold system hosted
within a zone of intensely silicified and sericitised devonian volcanic units overlain in part by
younger cretaceous and quaternary units.
Bayan Khundii is on the same Tian Shan Belt that has yielded the prolific Kumtor gold mine in
Kyrgyzstan, the 13 million ounce Kyzyl project being advanced by Polymetal in Kazakhstan
and, of course, the huge OT copper-gold porphyry.
The Tian Shan Belt has yielded some very large deposit
It is on its way to a maiden resource after capturing investor attention with shallow drill hits
such as 116m grading 2g/t Au, 131.5m averaging 3.86g/t and 108m at 2.8g/t.
These intervals show continuous mineralisation suitable for bulk mining, but CEO Peter
Ackerley is keen to emphasis the high-grade potential that could provide a high-margin kicker
at the front end of its mine life.
Back in October, he said about 20% of the holes have had hits higher than an ounce (28g/t),
with a target in excess of 500,000oz of 4g/t material already sitting at surface.
The exciting thing about Bayan Khundii - and many of the projects getting airtime in Mongolia
- is the fact it is a brand new discovery that is still growing.
The maiden resource, at last check in October, was set to come out around 1.4-1.5 million
ounces at a grade cutoff of 0.3g/t, according to Paradigm Capital analyst Don MacLean.
Yet, recent geological mapping and drilling has shown up several interesting prospects close
to the four main zones that could come into the fold after the resource debut.
On top of that, the discovery it made at Altan Nar over six years ago is still in the portfolio with
249,000 ounces of gold equivalent at an average grade of 2.1-2.5g/t. This is also growing
through drilling.
Tier-one potential
C$14 million (US$11 million)-capitalised Kincora Copper is the earliest stage of all three
Mongolian poster boys, but CEO Sam Spring would argue his firm has the most potential
upside.
Having stuck it out during the bear market, Kincora now has over 1,500sq.km of land in the
South Gobi covering both carboniferous finger-type porphyries and some devonian targets
already drawing analogues with OT.
The company's Bronze Fox asset is the most advanced in the portfolio and is in the
carboniferous category.
Kincora was recently handed an exploration target by consultancy Mining Associates of 416-
428 million tonnes grading 0.26-0.3% Cu for up to 2.4 billion pounds of copper and 840,000oz
of gold at Bronze Fox. This was compiled from 76 holes, or 24,139m, of drilling.
This exceeded Spring and Kincora's expectations, ranking as one of the largest potential insitu
copper-gold systems in Mongolia.
As the company turns this exploration target into a 43-101 resource, it will inevitably go back
to the West Kasulu prospect, which, before a licensing issue blocked access to it back in late
2013, had seen a drill hit of 37m at 1.11% copper equivalent from 573m. This was part of a
bigger plus-800m interval grading more than 0.40% CuEq.
However, the bulk of the C$5.92 million raised at the back end of last was slated to go
towards the company's earlier-stage opportunities.
Kincora, through an all-share deal with IBEX sealed in 2016, gained access to several targets
just down the road from OT and the under-construction Tsagaan Suvarga (TS) copper mine.
The age of these rocks has Spring and the company thinking they could have tier-one
credentials.
Kincora is gradually working up the targets on its plus-1,500sq.km of land in the Gobi
"The geological theory goes: if you're going to find tier-one assets it is most likely to be in
those devonian rocks that host the two existing large-scale economic projects in the belt,"
Spring told Mining Journal.
That would be OT and TS.
While OT's 550,000t per annum peak copper production is well-known, TS' construction has
gone under the radar.
The $1.1 billion development, being carried out by a local company, is slated to produce
316,000tpa of copper concentrate and 4,000tpa of molybdenum concentrate at full capacity. It
has resources of 256Mt at 0.55% Cu and 0.02% Mo.
These are two pretty good analogues for a junior explorer to draw on.
Kincora's first two "tier one" targets - Bayan Tal and East Tsagaan Suvarga - are coming
along nicely.
Quote: “The geological theory goes: if you're going to find tier-one assets it is most
likely to be in those devonian rocks that host the two existing large-scale economic
projects in the belt”
First phase drilling has started at Bayan Tal, one of its "Oyu Tolgoi style" targets, for some
2,850m across six holes. Past intercepts include 18m grading 0.66% CuEq and 18m at 0.75%
CuEq.
It has also carried out some 3,145m of drilling over 13 holes at East Tsagaan Suvarga, which
it refers to as its "brownfield TS style target". Six of these 13 holes intersected the interpreted
devonian quartz monzodiorite of the regionally-important Tsagaan Suvarga Intrusive
Complex.
All of this bodes well for the company increasing its modest market capitalisation.
"If we can get Bronze Fox into that more advanced drilling peer group - and try to support our
valuation on that - and then you have the rest of the district that has the best chance of a tierone
asset that sits in the portfolio as well, then that is hopefully an attractive scenario for
investors," Spring said.
Blind discoveries
Australia-listed Xanadu Mines shows up in the Kincora corporate presentation several times
and for good reason.
Its flagship Kharmagtai copper-gold project in the South Gobi is what the Toronto-listed firm
hopes its Bronze Fox asset could one day turn into.
Xanadu, taking its lead from Ivanhoe Mines' 2001-2006 work on the asset, has generated a
1.53 billion pound copper and 2.18Moz gold resource grading 0.55% CuEq from three
deposits at Kharmagtai. Mineralisation starts from just below surface and has been shown to
go down beyond 1,000m vertical depth.
Kharmagtai accounts for the majority of Xanadu's circa-A$150 million (US$118 million)
market capitalisation, but it also has the Oyut Ulaan project, 260km east of Kharmagtai, to its
name. This has some interesting porphyry and epithermal gold targets highlighted by
intersections such as 184m grading 1.06% CuEq from surface and 3m at 13.28g/t Au.
Xanadu has been working on expanding its 2015 resource at Kharmagtai
The majority of focus in 2018 will be on Kharmagtai.
The company has uncovered significant mineralisation during stepout and depth drilling since
the maiden resource was published in 2015 and is continuing to up the ante through the
addition of a fourth drill rig.
Part of the company's success can be put down to its use of advanced geochemistry and
geophysics. This has helped identify targets under cover in the South Gobi.
It has ended up giving Xanadu many potential targets to work on, but this year it will continue
to maintain its dual drill strategy of expanding known mineralisation through exploration of
tourmaline breccia-hosted mineralisation below and along strike from the current resource
base and test all shallow high-priority porphyry copper-gold and gold targets under cover.
The discovery of a new blind porhryry would have the "greatest impact on the project
economics", according to managing direct Andrew Stewart.
Smelling the sentiment
The South Gobi offers the geological bounty and geographical location to make these
projects work.
Investors are slowly realising this, with Erdene, Kincora and Xanadu raising equity close to
US$29 million in equity, combined, for exploration last year.
Those not clued into the country still struggle to get their heads around a developing nation
quick to intent on profiting from its nascent industry but, as has often been the case,
sentiment is still summed up by Rio Tinto's actions.
On that note, the most recent indications have been positive.
Despite its well-publicised Mongolia tax squabbles, it has recently set up shop in Ulaanbaatar.
Its office is unlikely to used as just a handy stopover for its executive team on their way
through Asia, with Rio saying it will act as a working exploration hub.
Such an investment, along with the $5.3 billion being spent underground at OT, requires
confidence in the country's ability to put in place a workable long-term investment framework.
If that wasn't enough, Codelco has reportedly made plans to invest in Mongolia after
exhausting options in Chile and realising there are few jurisdictions, globally, offering the
same rich copper mineralisation.
It may have taken its decision after analysing Rio's in-country exploration work.
Just last year, Rio's Turquoise Hill subsidiary started drilling a licence outside of OT, near to
Kincora's Red Well licence. It also has plans to drill other targets this year.
Spring said: "When you've got the largest expansion project already in the industry that has
100-year mine life (Oyu Tolgoi openpit and underground), what are you looking for at
grassroots exploration that could move the needle?"
"Perhaps there is at least another Oyu Tolgoi out there - the distribution of orebodies in more
established porphyry districts would suggest so."

Published Date:2018-02-09