Erdene Resource Development (Toronto: ERD) (ERDCF) is essentially the one-stop-shop for mineral exploration in Mongolia, notes Brien Lundin, junior mining expert and editor of Gold Newsletter.
With a long and deep history in this mineral-rich country, they’ll benefit from the next wave of exploration and development that will happen as this bull market evolves.
Most importantly, they already control one of the world’s highest-grade open-pit projects — the Khundii Gold Project, with over 500,000 ounces in measured and indicated resources grading 3.16 g/t gold, plus an additional 100,000 ounces of inferred resources at 3.68 g/t gold — and a clear path to much greater resources.
Erdene could have Khundii in production by the end of this year, after which they’ll have about $30 million in annual free cash flow to exploit and expand their many targets and opportunities in the country.
As I mentioned already, the Bayan Khundii deposit, which will host the initial open-pit mining operation for Khundii, boasts a life-of-mine head grade of 3.16 g/t, or more than three times the average grade of the world’s open pit mines.
The project has a low capex of just $59 million and an impressive internal rate of return of 42%. Better still, if you want leverage to rising gold prices, this project offers it in spades. At a gold price of $2,000/ounce, that IRR rises to a remarkable 93%.
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This is all well and good but, as we all know, many development stories go into a period of little news flow, with what news there is being somewhat boring to investors.
The key here in terms of timing is that Erdene has been conducting a large, 18,000-meter exploration drilling program on nearby and outlying targets on its property licenses, and the results have been consistently returning high-grade hits. We’ll continue to get drill results, and potentially market-moving ones, throughout the year as the mine construction progresses.
So we have the best of both worlds with Erdene — a severely undervalued development story with the kicker of exceptional exploration upside in the near and medium terms.
