Erdene Sees Up to USD 2 Billion Value in Zuun Mod Molybdenum-Copper Project

Erdene Resource Development (TSX: ERD; MSE: ERDN; OTCQX: ERDCF) has released the results of an independent preliminary economic assessment (PEA) for its wholly owned Zuun Mod molybdenum-copper project in southwest Mongolia. The initial capital cost is estimated at USD 687 million for a 34-year open-pit mine that, according to the company, could enter production within five years under an accelerated schedule.

Project economics

At base-case prices of USD 25 per lb for molybdenum and USD 5 per lb for copper, the study estimates an after-tax net present value of USD 745 million at an 8% discount rate and an internal rate of return of 16.1%, with payback in the sixth year of production. At current market prices of USD 33 per lb for molybdenum and USD 6.50 per lb for copper, the after-tax value rises to nearly USD 2.0 billion and the internal rate of return to 27.8%.

The mine is planned to produce roughly 20 million lb of molybdenum and 28 million lb of copper a year. Molybdenum, used mainly in high-strength steel, would generate about 78% of revenue. All-in sustaining costs are estimated at USD 13.89 per lb of molybdenum after copper credits, and life-of-mine EBITDA at USD 7.1 billion at base-case prices.

Mine plan and taxes

The plan calls for a plant processing 25 million tonnes of ore a year to produce separate molybdenum and copper concentrates. Mining would be carried out by a contractor, which keeps mining equipment out of the upfront capital budget, and the initial cost estimate includes a 35% contingency. The site lies 35 km east of the Bayan Khundii gold mine and about 280 km from the Sekhee border rail station.

Over the mine life, the project is expected to pay about USD 3.7 billion in taxes and royalties, including USD 2.0 billion in royalties to the state budget. The study models royalties at 9% for molybdenum and 10% for copper, with the copper rate based on proposed legislation.

Partner search and path to production

Asia accounts for about two-thirds of global molybdenum demand, and several countries classify the metal as a critical mineral. Against this backdrop, Erdene is in discussions with potential partners on offtake agreements, financing and a strategic partnership to develop Zuun Mod. The company has not said how large a stake it would be willing to sell.

According to CEO Peter Akerley, drilling, engineering and environmental studies would take about two years and cost up to USD 20 million, followed by a three-year construction period. Erdene also plans to begin a new drilling program in the coming weeks, as the deposit remains open at depth and along strike.

The company notes that the PEA is preliminary and does not establish economic viability. About 74% of the planned plant feed comes from inferred resources, which carry a high level of geological uncertainty and will require further drilling.

Bayan Khundii cash flow and further development

Zuun Mod could become the second development centre in Erdene's Khundii Minerals District. The nearby Bayan Khundii gold mine, held through a 50:50 joint venture with Mongolian Mining, has entered commercial production. Its debt is expected to be repaid in 2027, after which the joint venture is forecast to generate more than USD 100 million in annual profit, part of which would flow to Erdene. The company expects that gold cash flow to help it advance Zuun Mod toward development.