Xanadu Mines is facing criticism from Mongolian authorities and...

Xanadu Mines is facing criticism from Mongolian authorities and local media over its partnership with Zijin Mining on the Kharmagtai Project. Last week, several local media reported that Xanadu Mines is in talks with Zijin Mining to sell Kharmagtai Project at a reduced price, aiming to finalize the sale before its potential inclusion in strategic deposits. Mongolian lawmakers and politicians raised concerns as well, suggesting the issue could soon be added to related discussions. Gantumur Luvsannyam, Minister of Economic Development and leader of the Democratic Party in Mongolia, noted that a proposal to include Kharmagtai in upcoming negotiations concerning strategic deposits will be made soon. Xanadu Mines has recently released a Pre-Feasibility Study for its Kharmagtai Copper-Gold Project in Mongolia, highlighting its potential as a world-class, low-cost, and long-life mine. The key regulatory challenge is the Investment Agreement with the Mongolian Government, which clarifies key assumptions in the Pre-Feasibility Study, including royalties and taxation. It mentions a 4% royalty rate, expected to generate a high economic return, but in reality, the current rate is 19%. The development and operational stages are expected to be managed by a joint venture, equally owned by Xanadu Mines and its partner Zijin Mining, each holding a 50% stake. Xanadu Mines is currently considering three options: funding its share through debt and equity, selling a 25% JV stake to Zijin for $25m with the remaining loan carried, or selling the remaining 50% to Zijin for $50m, leaving Xanadu with no stake. However, it appears this deal may not proceed without local participation. Mining accounts for over 90% of the Mongolia’s exports and 30% of its GDP. Despite its wealth in natural resources, around one in three Mongolians still lives in poverty. In response, lawmakers are working to direct mining revenues into funds aimed at economic development and welfare. The Mongolian parliament on April 19 approved the Sovereign Wealth Fund law, allowing the government to take a 34% stake in strategic mines and capping individual or group ownership at 34%. Currently, there are 16 strategic mining deposits in Mongolia, six of which are state-owned. And Mongolian lawmakers keen to expand the list to include high-potential projects like Kharmagtai. Kharmagtai is located in a region of the South Gobi which hosts several strategic deposits, including Rio Tinto’s Oyu Tolgoi Mine and the state-owned Tavan Tolgoi project.