Hi AdamRobust & constructive discussion took place during last...

Hi Adam

Robust & constructive discussion took place during last week’s roundtable, hosted by Xanadu Mines (XAM), between Mongolian Ministers & Sydney’s institutional investment community, on how to improve investor perception towards Mongolian exploration & mining.

Key Highlights:

1. Open to feedback & committed to enacting change, to develop a modern mining structure that’s clear, simple, offers long term stability, and ultimately encourages investment. Government of Mongolia (GOM) & Ministry of Mining and Heavy Industry (MMHI) looking to reshape policies and regulations, targeting greater commerciality and global competitiveness.

2. Mongolia mining sector aspiring to become more like Canada & Australia:

· Both governments sharing knowledge for Mongolia’s new Mining Law, with Australia regarded as key learning opportunity.

· Providing certainty/stability for investors is key goal.

· Boosting attractiveness of Mongolian exploration, targeted at building a solid and growing mine development pipeline.

· Expecting royalties, exploration licence tendering approach, tax on asset transfer pricing and differentiated policy approach appropriate for each development stage, are all on the improvement agenda.

3. New investor friendly policy, to drive regulation revisions & new Mining Law coming soon:

· GOM & MMHI preparing to submit new Mining Law during current season of parliament (Autumn/Fall session commenced 3 Oct 22, Spring session commencing 3 Apr 23).

· During the roundtable, both GOM & MMHI expressed support for development of Xanadu’s Kharmagtai Copper Gold project (Mineral Resource: 3Mt Copper, 8Moz Gold producing 50ktpa Cu, 110kozpa Au over 30yr mine life, with 200kt Cu & 500koz Au at US$1.02/lb Cu AISC for first 5yrs), and other Mongolian projects

· Kharmagtai expected to benefit from the timeframe outlined, with project targeting mine construction decision in 2024, and permitting approvals by mid 2025.

· Furthermore, other future beneficiaries, include Xanadu’s growing exploration portfolio of:

o Advanced exploration project, Red Mountain, characterised by near surface high grade mineralisation: Gold-Silver epithermal & Gold-Silver-Copper skarn), and

o Future acquisitions of prospective critical metals exploration licences in South Gobi, Mongolia.



Mining Roundtable with Mongolian Ministers – Meeting Notes



Tuesday 1 Nov 22 – Key Questions & Discussion Items between Institutional Investors/Stockbrokers/Wealth Management Firms & Honourable Guests:

H.E. GANBAATAR JAMBAL, Minister of Mining and Heavy Industry and Member of Parliament
MR DAMDINNYAM GONGOR, Member of Parliament


In terms of Australia, Western Australian policy structured well and has incentivised development regionally. Are there any places where you seek to emulate?
· Eastern Mongolia high potential for petroleum

· Southern Mongolia high potential for mining activities

· 76.5% special protected regions currently; working at decreasing the %, thus allowing for more exploration

· Obviously, jurisdictions like Canada & Australia we wish to be like. We find Australian jurisdiction is particularly interesting for us to learn from.

· Canadian & Australia govts bilaterally sharing knowledge with Mongolia for the new Mining Law.

· Regulation wise challenging - we need to make easier for investors.

· Right now, different minerals, have different approach.

· Democracy since 1990s.

· Mongolia different animal to Australia & Canada, and ultimately targeting for our policy to be fair.

· GOM and MMHI preparing to submit new Mining Law in the current season of parliament.

· Exploration different animal to developers.

· We will make sure it is comfortable for investors.

· GOM will support Kharmagtai and others who are developing in country.

· Good thing is China is our nextdoor neighbour, just dig & throw it, they have very high regard for our value-added mining products.

· Deposits are locked, GOM will be supportive to unlock exploration and encourage Investors to invest.



Farm ins/Earn ins/JV agreements are popular way to finance Resource development, investment in asset, rather than cash. If more than 30% of minerals project transferred in Mongolia, it is taxable event. It shouldn't be, like in Australia.
· We will make favourable changes in 3 to 4 months’ time.

· Regulated by certain regulation, not by law, so won't take long.



Very difficult for explorer to build a large mine. Majors these days don't tend to explore and JV, relying on explorers to find these. Need juniors exploring else there won't be a pipeline. Mongolia is no doubt prospective, and a great place to explore. That alone is not enough. Easier to explore/develop/mine vs PNG, Indonesia & Chile etc, plus ESG risks are very limited. Mongolia has done great job on infra, new power, new water, new rail since last went there. Why are Newcrest and BHP not there and only RIO, that means there are issues that need to be addressed. Different risk/return for exploration and miners, and different suite of investors. Need to make sure taxable event for transferring from exploration to mining is simple. You need to grow up and make it a good environment and I foresee a great period of very solid growth for Mongolia.
· We need to open up.

· We understand that explorers need to transfer assets to the big brother major miner at a certain development point, and we will facilitate this to make it easier and more appropriate.



Perception out there is that Mongolia is hard place to work. Easy to explore, no jungles or helicopter required. Very prospective and underexplored. Copper, Gold and Coal are the focus, but battery minerals like Nickel, Cobalt, Lithium, and Graphite will become the focus over time. Big belt potential, on either side of border in Kazakhstan and China massive gold deposits, why have these +20Moz deposits not been found in Mongolia? Perception issue. Going back ~10yrs ago all the major miners were here. Royalties, licences and taxes once they are changed, perception disconnect will change. What do investors say to you about Mongolia?
· High net worth and institutional investors invested in XAM, but they go away when market capitalisation/share price performance decreases.

· Marketing of country needs to be right, needs to simple and clear.

· Message that is conveyed is that we are all on the same side, and make it win-win for GOM and investors.

· Need to make the message easier, clearer and stabler for the investor.



My first Mongolian investment was Ivanhoe Mines in 2003, which played out very well. Been to Mongolia twice in 2003/4, but never been back since. Something is missing. Explorers not exploring, not vibrant, it’s all but disappeared. Maybe Oyu Tolgoi was a curse, too good, too early? We are in risk business and current policy for last 10 - 15yrs hasn’t factored in that risk, needs to be fairer split of wealth. At some point you need to be decide what you’re doing, is it 30-40% tax, equity ownership, royalties? Need to attract people to explore, simplify ownership structures. Make the exploration more vibrant. Geology is there. Yet to be convinced that Mongolia is a place to invest. It is competitive world. Doesn't need to be no tax. Most importantly, you need to get the explorers there.
· Different exploration/mining stages we understand, and we know we have to address appropriately.

· We are changing and we need to open up to make more accessible for juniors.

· All the concerns you raised, we understand and will address.



CBM and battery minerals presents new opportunity to Mongolia. Don't use Oyu Tolgoi as the model for these. How do you nurture that, so it grows and grows? Need to address the perception issue that is clearly in the room. Needs stability and long term, given most of these are typically 30 to 40yr projects. Amazing opportunity but needs to be nurtured.


You want good juniors, otherwise you won't ever get the majors. Need a use it or lose it policy and other policies that encourage the right juniors to be involved. To get majors to develop you need simple, easy and stable policy in place, that encourages investment.


We are not without fault in Australia, Queensland changed royalty rates on coal and scared off investors. Always rumours around what happens to Oyu Tolgoi when new GOM comes in. GOM need to mature, with the basic framework continuing irrespective of which side gets in.


Need to settle on something. Nurture, develop and encourage. It is all about attracting the capital. Only handful of junior companies in country. Could be a 2nd Oyu Tolgoi out there. Right now, it is difficult and challenging. Once someone finds the next Tier 1, things will change again for Mongolia, but it’s not going to happen with nobody really exploring there.


What is going to make investors go back to Mongolia? Blown away by how much has been spent in country on infrastructure. Recommend people to go - worth going back and revisiting.
· Infrastructure follows when large scale deposits are found.

· Today is about encouraging people to invest in discovery.

· Need structure for exploration that incentivises.

· Easy permitting.

· Encourage exploration and drilling.

· Pick the best structures and stick to it, so many good examples out there to learn from and shape yours.

· Geology haven, need to clear all the uncertainties to exploration.



Transparent business is what is required. Time to restart and make change. New Recovery Policy is targeted to build the Mongolian economy. We have learned what’s best for investor, we need to keep learning and create a modern mining structure that encourages investment. Improved dialogue is key, and we want to work together with investors to get them back into investing in Mongolia mining. Needs to be improved, and in the shorter term.


Discussion Summary – Key Points:

Policy/Regulation to be reshaped to provide certainty/stability that incentivises and builds wealth for all
Differentiated policy for explorer vs developer vs miner
Bring explorers back into the country to make vibrant again

Closing remarks:

Today GOM is not able to help with providing funding to exploration projects.
Funding the basic geological survey work. Next year's budget will be $2.5M allocation, small, but will look to lift in future.
Understand investor concerns on Mongolian investment risk and low share price/market capitalisation companies.
We will do our best to make sure we boost attractiveness of exploration.
Both political parties are pro mining, so policies will be shaped to encourage more activity, and most importantly exploration.
In 2023, expecting US$5bn from coal investment, and linked to this GOM is paying particular attention to CBM.
I can't give you any promises right now, as Mongolia has democracy, so policy needs to be agreed upon.
We understand junior companies are concerned about policy, we will fix regulation and address the issues you have raised and are concerned about.




XAM Investment Summary:



With Mongolian mining policy and regulation improvements very high on the agenda, and targeted at encouraging investment boost:

exploration & mining is expected to have a bright future,
underpinned by a significantly improved investor sentiment, that could eventually transform it into an investment destination of choice, with
XAM’s current (Kharmagtai Copper-Gold & Red Mountain Gold-Copper-Silver) and growing (targeting acquisitions of new exploration licences focussed on critical minerals in South Gobi, Mongolia) portfolio expected to be key beneficiaries of these improvements.


XAM offers an extremely compelling & opportunistic investment proposition; current share price at 30% discount relative to Zijin Mining’s investment for 9.8% minority stake at 4cps. Xanadu expected to move back towards 4cps & incorporate greater proportion of Zijin Strategic Partnership value of ~8cps, following:

Documentation finalised for JV and Sale & Purchase agreements (both at very advanced stage; completion expected very soon),
Subsequent shareholder approval (at upcoming EGM; date to be advised once documentation finalised)
Subsequent PRC approval in the near term (independent of EGM timeline; expected to occur at a relatively quicker pace, with Zijin Mining majority state owned (23.1% Minxi Xinghang State-owned Assets Investment Co. Ltd.), plus recent strengthening of Mongolia-China bilateral relationship)
Following completion of Strategic Partnership Phases 2/3 (expected December Qtr 2022), XAM retains control of Kharmagtai & remains operator of 50:50 JV.



Market expected to more appropriately price the deeply discounted XAM1:

with commercial & globally competitive Mongolian Mining Law revisions to be tabled during current Autumn session of Parliament, and as
project derisks with fully funded US$20M2 PFS (targeted at growing production economically, including opex & capex improvements through real upside opportunities, with all underpinned by upcoming maiden Mineral Reserve) targeted towards a mine construction decision and
US$15M2 Kharmagtai discovery exploration targeting high impact new discoveries & strike extensions focused on higher-grade ore sources, at depth and along strike.
US$7M to grow project pipeline (beyond Kharmagtai), including Red Mountain discovery exploration and acquiring new South Gobi critical minerals projects


1 https://www.investi.com.au/api/announcements/xam/950d65df-a8b.pdf (See Slide 9 : Kharmagtai Copper Resource – Best Ranked on ASX)

2 Cash funds both Xanadu’s & Zijin’s portion of each activity. There is no further cash required till mine construction decision at the end of 2024.



Best Regards

Anna



Telephone: +61434411016
Email: [email protected]