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Classified in: Mining industry, Business
Subject: BUSINESS CONTRACTS

Investment Deal Signed with Zijin; Pathway to Kharmagtai Production


TORONTO, Dec. 21, 2022 (GLOBE NEWSWIRE) -- Xanadu Mines Ltd (ASX: XAM, TSX:XAM) (Xanadu or the Company) is pleased to announce the execution of formal documentation for Phases 2 and 3 of the transaction with Zijin Mining Group Co., Limited (Zijin)1. This entails Zijin subscribing for additional shares in Xanadu to increase its corporate shareholding to 19.99% and the formation of a 50:50 Kharmagtai Joint Venture (Kharmagtai JV) through Xanadu's 100% owned subsidiary Khuiten Metals Pte. Ltd. (Khuiten), which holds a 76.5% effective interest in the Kharmagtai copper-gold project (Kharmagtai).

The significant cash investment by Zijin provides funding for the Pre-Feasibility Study for Kharmagtai (Kharmagtai PFS) which will commence in early 2023 and take the project to a potential Final Investment Decision (FID) as early as 2024. These funds will also drive Xanadu's exploration growth program, which will target high-grade mineralisation at depth, higher-grade deposit extensions, and new discoveries within the 66.5 square kilometre tenement.

Highlights

Executive Chairman & Managing Director, Colin Moorhead, said, "We are pleased to have finalised these agreements, achieving a mutually beneficial, long term partnership with Zijin, an experienced international developer and top 5 operator of large scale, open-pit copper-gold projects. Once completed, Xanadu will be in a very strong financial position, fully funded to take Kharmagtai to a decision to construct and capitalised to accelerate exploration programs across its highly prospective Kharmagtai and Red Mountain tenements. The deal structure enables us to deliver value for our shareholders in the future, irrespective of the prevailing market conditions.

We're looking forward to unlocking the full potential of both the world-class Kharmagtai project and our exciting Red Mountain advanced exploration project, during a period when we believe prices will be well supported given the global aggressive shift to electrification to achieve decarbonisation goals."

Strategic Partnership

Under the Strategic Partnership3, Zijin is investing at both the Xanadu corporate level and Kharmagtai project level through a series of transactions:

Zijin's total investment in the Strategic Partnership with Xanadu is estimated at approx. A$64 million4, of which approx. A$12.8 million will be invested in Xanadu shares and approx. A$51.5 million (US$35 million) directly into Kharmagtai.

Zijin has already received approval from the Australian Foreign Investment Review Board (FIRB) in respect of the investment5. Remaining approvals include People's Republic of China (PRC) regulatory approval and Xanadu shareholder approval, which are expected in Q1 2023.

Phase 2 - Placement

The Phase 2 Placement will involve Zijin subscribing for an additional tranche of ordinary shares in Xanadu to increase its total shareholding in Xanadu to 19.99% with the issue of approx. 179.1 million shares at an issue price of A$0.04 per share for a total investment of approx. A$7.2M. This represents an approx. 43% premium to Xanadu's share price of A$0.028 per share as of 19 December 2022. This will give Zijin the right to appoint one Director to the Board of Xanadu Mines Ltd (subject to Zijin maintaining at least a 10% interest in Xanadu (other than a result of the dilution of Zijin by Xanadu). An existing Participation Right will also continue in circumstances where the issue of shares to a third party requires shareholder approval.

Key features of the Phase 2 Placement are described in the Appendix to this announcement.

Funds from the Phase 2 Placement will be used as follows:

Phase 3 - Kharmagtai JV

The third and final stage of the partnership will involve Zijin and Xanadu establishing a 50:50 incorporated joint venture in Khuiten, the entity currently wholly owned by Xanadu, and which effectively owns 76.5% of the Kharmagtai project, along with 13.5% minority holder Ganbayar Lkhagvasuren (an Executive Director at Xanadu), and 10.0% minority holder QGX Ltd.

Zijin will subscribe for shares equal to 50% of Khuiten by way of a share placement for a cash payment of US$35 million to Khuiten, with Xanadu remaining the operator of the Kharmagtai JV until the earlier of delivery of the Kharmagtai PFS or 18 months from commencement of the Kharmagtai JV. Thereafter, driving towards the point of a construction decision, Zijin will then become the operator of the Kharmagtai JV and take leadership of the development and operational phase for the mine.

At that point, subject to satisfaction of certain conditions, Xanadu will also have certain rights to partially or fully sell down its project interests in the Kharmagtai project to Zijin. These rights (structured as put options as described below) provide flexibility for Xanadu to manage its exposure to the future funding requirements of the development, as well as provide optionality to potentially realise value for shareholders after the economics of the project development are better defined.

The Joint Venture Agreement is typical for transactions of this nature, with key features described in the Appendix to this announcement.

Put Options

After completion of the Kharmagtai PFS, Xanadu will have three choices available to it, enabling the Company to take an action which generates greatest value to its shareholders at the time:

  1. Fund its share of the project construction; or
  2. Sell 25% of the Kharmagtai JV to Zijin for US$25 million in cash, together with an obligation for Zijin to fund 100% of Xanadu's share of expenditure under a loan carry (bearing interest at the 6-month Secured Overnight Financing Rate (SOFR) + 5% p.a.). This loan would cover all of Xanadu's share of construction costs, to be repaid out of operating dividends and other payments or distributions post construction; or
  3. Sell Xanadu's remaining 50% of the Kharmagtai JV to Zijin for US$50 million in cash.

For Xanadu to be entitled to be able to exercise either of the put options, the Kharmagtai PFS delivered by the Company must support an Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code, 2012) compliant Ore Reserve or National Instrument 43-101 (NI 43-101) compliant Mineral Reserve with a life of mine for the Kharmagtai Project of at least 20 years (using economic input parameters consistent with the Scoping Study conducted by the Company dated 6 April 20226 and the NI43-101 Preliminary Economic Assessment Technical Report prepared by the Company dated 20 June 20227), with an internal rate of return of at least 20% and a payback period of less than 6 years. Xanadu will also have to receive all required shareholder approvals pre-exercise of the put option.

Use of Funds

Funds received from the Phase 3 JV subscription will enable completion of the Kharmagtai PFS and continued exploration and development activities, including:

Advisors

Xanadu is being advised by Jefferies Australia Pty Ltd (Jefferies) as its financial adviser and HopgoodGanim Lawyers as its legal adviser for this series of transactions.

About Zijin Mining Group

Zijin is a multinational mining group dedicated to exploration and development of gold, copper, zinc and other mineral resources globally, as well as associated refining, processing, trading and other businesses. Its operations include projects and operations in 14 provinces in the People's Republic of China (PRC) as well as 13 overseas countries across Europe, Central Asia, Africa, Oceania and South America. It is one of the largest Chinese mining companies distinguished by its significant domestic and international copper and gold resource, reserves and production.

Zijin's Mining Operations in ChinaZijin's Global Mining Operations


https://www.globenewswire.com/NewsRoom/AttachmentNg/ae782dfd-6b1d-4b72-a33c-2b5231d30c18
 


https://www.globenewswire.com/NewsRoom/AttachmentNg/0100f4c9-6087-4857-9c87-2c16b2789e3f
 

About the Kharmagtai Copper-Gold Project

Kharmagtai is Xanadu's flagship project, located in the South Gobi region of Mongolia and has a Mineral Resource Estimate8 of 1.1 billion tonnes, containing 3 million tonnes of copper and 8 million ounces of gold. Xanadu recently released its Kharmagtai Scoping Study9, using a conventional and low risk open pit mine and sulphide process plant, which demonstrated a US$630 million net present value (NPV), 20% investment rate of return (IRR) project, with a 4-year payback, operating as a first quartile costs producer for its first five years of operation. Multiple upside opportunities were reported for evaluation during future studies, and gating to pre-feasibility stage was approved by the Board pending funding.

The next step of development at Kharmagtai will complete the Kharmagtai PFS, including delivery of a JORC Code, 2012 Compliant Ore Reserve and all Mongolian permitting and regulatory approvals to commence construction. This is anticipated to require 18 months and cost US$20 million to complete.


https://www.globenewswire.com/NewsRoom/AttachmentNg/973197c5-1d3f-468d-b5d2-95547df2c59a

For further information, please contact:

Colin MoorheadSpencer Cole
Executive Chairman & Managing Director Chief Financial Officer & Chief Development Officer
E: [email protected]E: [email protected]
P: +61 2 8280 7497 
W: www.xanadumines.com 

This Announcement was authorised for release by Xanadu's Board of Directors.

All dollar amounts are in Australian dollars unless otherwise indicated.

Appendix - Key Features of Agreements

Phase 2 Placement

Completion of the Phase 2 Placement is subject to the following conditions:

a)   Xanadu shareholder approval under ASX Listing Rule 7.1 and for all other purposes (and any other regulatory approvals as required);

b)   Zijin obtaining PRC regulatory approvals as required (noting that FIRB approval has already been obtained);

c)   no breaches of warranties by Xanadu prior to completion;

d)   no material adverse change in respect of Xanadu and its business prior to completion; and

e)    the parties entering into the subscription agreement for the Phase 3 JV and the Company obtaining any shareholder approval required by ASX under that agreement.

These conditions must be satisfied on or before 4 months from execution of the subscription agreement for the Phase 2 Placement and the Phase 2 Placement will complete 10 Business Days after all approvals have been obtained.

On completion of the Phase 2 Placement, Zijin is to be provided the following rights:

(a)  a right to appoint one director to the Board of Xanadu. The nominee must be reasonably acceptable to the Board in terms of being of good character or repute and holding appropriate experience to be a director of a listed public company; and

(b) continuation of the Limited and Conditional Participation Right granted to Zijin under the Phase 1 Placement and summarised in the ASX/TSX Announcement dated 19 April 2022 (Participation Right). After completion of the Phase 2 Placement, Zijin will be notified on a strictly confidential basis of Xanadu's intention to undertake any issue of shares to a third party which requires shareholder approval, and Zijin will have a 5-business day period in which to indicate whether it wishes to participate in that capital raising on the basis of, and subject to shareholder approval (and subject to receipt of any relevant FIRB, PRC or other required regulatory approvals). This Participation Right is subject to compliance with ASX Listing Rules and ceases where Zijin's interest falls below 5% and remains below that threshold for more than 20 consecutive days on which the ASX is open for trading.

The right for Zijin to nominate a director to the Board will continue for as long as Zijin retains not less than a 10% interest in Xanadu or where its interest falls below 10% because of either:

(a)   an issue of shares by Xanadu other than in accordance with the Participation Right; or

(b)   an issue of shares by Xanadu to a third party pending a further issue of shares to Zijin as a result of exercising its Participation Right.

Phase 3 Kharmagtai JV

Completion of the Phase 3 JV is subject to the following conditions:

(a)   the parties entering into the subscription agreement for the Phase 2 Placement and the Company obtaining shareholder approval under that agreement (and any other regulatory approvals as required);

(b)   Zijin obtaining PRC regulatory approvals as required;

(c)   the issuance to the Company of shares in Khuiten in full and final satisfaction of the aggregate total of all shareholder loans made by the Company to Khuiten. These loans represent all exploration related expenditure at Kharmagtai subsequent to project acquisition in 2013 (being a current amount of approximately A$59.7 million) (Xanadu Loan Conversion);

(d)   no breaches of warranties by Xanadu or Khuiten prior to completion; and

(e)   no material adverse change in respect of Xanadu, Khuiten or their businesses prior to completion.

These conditions must be satisfied on or before the same date as for the Phase 2 Placement, being 4 months from execution of the subscription agreement for the Phase 3 JV and the Phase 3 JV will complete 10 Business Days after all approvals have been obtained and Xanadu has completed the Xanadu Loan. This is expected to occur on or shortly after completion of the Phase 2 Placement.

Xanadu and Zijin have entered into a Joint Venture Shareholders' Agreement typical for transactions of this nature, the key features of which include:

_____________________________________

1 ASX/TSX Announcement 19 April 2022 - Strategic Partnership with Zijin Mining and Placement
2 Kitco - https://www.kitco.com/news/2022-09-26/Top-10-largest-copper-mining-companies-in-Q2-2022-report.html
3 ASX/TSX Announcement 19 April 2022 - Strategic Partnership with Zijin Mining and Placement
4 Completed A$5.6M for Phase 1; Remaining A$7.2M for Phase 2 and US$35M for Phase 3; using 0.68 USD / AUD exchange rate
5 ASX/TSX Announcement 22 August 2022 - Foreign Investment Review Board Approves Zijin Investment in Xanadu
6 ASX/TSX Announcement 6 April 2022 - Scoping Study - Kharmagtai Copper-Gold Project
7 ASX/TSX Announcement 20 June 2022 - NI 43-101 Preliminary Economic Assessment Technical Report 
8 ASX/TSX Announcement - 8 December 2021 - Kharmagtai Resource Grows to 1.1 billion Tonnes. 
9 ASX/TSX Announcement 6 April 2022 - Scoping Study Kharmagtai Copper-Gold Project 



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