Bayan Khundii Gold Project

Overview

The Bayan Khundii gold deposit is located in southwestern Mongolia, within the Khundii Minerals District, approximately 16 kilometres south of the Company’s Altan Nar deposit. In August of 2019, Erdene secured a mining license for Bayan Khundii from the Mineral Resource and Petroleum Authority of Mongolia (“MRPAM”). The Bayan Khundii mining license covers 2,309 hectares and, in addition to the Bayan Khundii high-grade gold deposit, includes Erdene’s highly prospective 20 km2 greater Dark Horse prospect area, including the Dark Horse Mane high-grade gold discovery.  The mining license is valid for an initial term of 30 years with the ability to extend to 70 years. 

Bayan Khundii Project Development and Construction Update

EM announced the construction decision for Bayan Khundii in January 2024 following the completion of early works in late 2023. Subsequently, mobilization for full construction began in February 2024. There are currently 470 staff and contractors on site. In July 2024, the Project reached the 1,500,000-person hour milestone without a lost time incident.

Similarly, zero reportable environmental incidents have occurred at the Project to date. Environmental management efforts are focused on mitigating adverse impacts and advancing environmental protection activities, such as endemic plant vegetation trials at the two-hectare facility on site and selected locations off-site.

Schedule and Budget

At the end of the second quarter, approximately 30% of total construction was complete, including nearly 90% of process plant civil works and over 20% of process plant structural steel installation. Though the Project has seen modest logistical and weather-related delays, the Project remains largely on schedule with first gold production projected in mid-2025. Project expenditures were US$60 million to June 30, 2024, against a total Project budget of US$100 million, as Project spend is front loaded due to the procurement of construction materials and mechanical equipment. EM Management will complete a detailed assessment of schedule and budget in the third quarter to determine if adjustments to forecast are necessary.

Process Plant

Earthworks and excavation for the process plant, including the grinding and crushing circuit, were completed during the early works phase in 2023 and excavation of crushed ore conveyor foundations was started in the first quarter of 2024. Reinforced concrete works for the process plant are 89% complete as of June 30, 2024, including all major footings and columns. Concrete for the crushing area, including the foundations and columns for the crushed ore conveyor and slab concrete work throughout the process plant is nearly complete. In total, 8,150 m3 of concrete has been poured at the Project to the end of Q2.

Structural steel and tank material deliveries began in the first quarter. In March, structural steel installation commenced at the main process plant building  and continued during the second quarter. Overall progress of structural steel installation for the main process plant building was 22% at the end of the quarter. Tank installation began in the leaching and water services areas and was 35% complete at the end of the second quarter.

Process mechanical equipment manufacturing is well advanced, with deliveries continuing during the second quarter. SAG and Ball mill equipment have arrived at site, along with the major elution plant and gold room module. Installation of the mills and thickeners began in the second quarter, with all major mechanical components scheduled to be installed in Q3.

Non-process Infrastructure

Bulk earth works and excavation for key non-process facilities were completed during the first quarter. Concrete works have been completed for the assay laboratory and administration office, and structural installation for these facilities reached over 60% complete at the end of the second quarter. The permanent camp, workshop, chemicals storage, water supply system and utilities reticulation works began in Q2 2024, with bulk earth works and concrete activities underway. Power supply installation work began this quarter, with temporary facilities set up, mobilization of supplies and equipment to site, and commencement of civil works.

Engineering and Procurement

Detailed engineering is substantially complete for the project. Design works continue for the process plant vendor data certification, shop drawings, and as-builts. Non-process infrastructure design has been completed, with all major regulatory review completed in the second quarter. Procurement of all mechanical equipment has been completed, with manufacturing and deliveries continuing through the third quarter as per schedule. Similarly, EPC contractor procurement remains on schedule, with major materials supply secured and critical subcontractor selections completed.

Mining

To date, approximately 35,000 tonnes of overburden have been removed from the Bayan Khundii pit for construction purposes. No mining activities occurred during the second quarter. Construction material excavation and handling are conducted by the EPC Contractor.

Construction Permitting

All major permits required for the Project have been received, including the statutory feasibility, environmental assessment, land and water permissions. Design and construction permits have been received for the majority of facilities, including the process plant and key non-process infrastructure.

Human Resources

At the end of the second quarter, 470 people were employed at the project site, including contractors. Approximately one-third of site personnel are residents of Bayankhongor province, a significant portion of whom reside in Shinejinst, the closest settlement to the Bayan Khundii Project. Of the Project’s total employees and contractors, approximately 17% are female.

Community Programs

Beyond the Project’s employment at site, the company has supported mining equipment operator training for 120 residents of Bayankhongor Province, representing the total planned operator staff. By the end of the second quarter, 90 percent of trainees had qualified and received offers of full-time operator employment at MMC’s Ukhaa Hudag mining complex to gain work experience before being deployed to work at the Bayan Khundii mine when operations commence.

The Company has executed a Local Cooperation Agreement (“LCA”) with the Provincial and Sub-Provincial governments that host the Bayan Khundii project as well as the company’s other projects in Bayankhongor. Under this agreement, the Company will provide approximately US$500,000 of funding in 2024 for local development programs focused on public infrastructure, education and health.

Additionally, EM is conducting community development programs focused on supporting small and medium-sized entities through local procurement, providing public health services and funding education for youth in the communities closest to its operations.

Updated Bankable Feasibility Study

In August 2023, Erdene announced the results of an updated independent Bankable Feasibility Study (“BFS”) for Bayan Khundii Gold Project. The BFS included an updated Mineral Reserve for Bayan Khundii.  Please refer to the Company’s August 15, 2023 news release and the BFS NI 43-101 Technical Report for full details.

BFS highlights include:

1. 1. The 2023 BFS is based on an open-cut mining operation targeting 650,000 tonnes per year of feed material for the processing plant located directly adjacent to the open pit.
   2. The total mineable mineralized plant feed is 4.0 million tonnes at an average diluted head grade of 4.0 g/t gold.
   3. Mineralization starts at surface, with the majority of the deposit contained within the top 100 metres.
   4. The 2023 BFS assumes processing of ore through a conventional crush and grind circuit and a carbon in pulp plant, the design of which is based on parameters optimized by extensive metallurgical testing.
   5. The process circuit has been designed to maximize water recovery, using an efficient dewatering process to achieve targeted 15% moisture in tailings, minimize chemical and reagent usage and minimize environmental impact.
   6. Using an estimated mill recovery of 93%, total recovered gold over the life of the Bayan Khundii deposit is 476,000 ounces.

Mineral Resources and Reserves

Bayan Khundii Gold Deposit – Mineral Resource Estimate, April 2023

Dark Horse Gold Deposit – Mineral Resource Estimate, November 2022

Bayan Khundii Gold Deposit – Mineral Reserve Statement, August 1, 2023

Dark Horse Gold Deposit – Mineral Reserve Statement, August 1, 2023

Please refer to the Company’s NI 43-101 Technical Report for full details. The Bayan Khundii license has a 1.0% net smelter returns royalty (“NSR Royalty”) in favour of Sandstorm Gold Ltd.

Project Financing

In January 2023, Erdene entered a Strategic Alliance with Mongolian Mining Corporation (“MMC”), the Country’s largest independent miner. Under the terms of the Strategic Alliance, MMC will invest a total of US$40 million for a 50% interest in Erdene’s Mongolian subsidiary, Erdene Mongol LLC (“EM”), which holds the Khundii and Altan Nar mining licenses and the Ulaan exploration license through a three-stage transaction. Erdene will retain a 50% equity interest in EM as well as a 5% Net Smelter Return royalty on all production from the Khundii, Altan Nar and Ulaan licenses, as well as any properties acquired within five kilometres of these licenses, after the first 400,000 ounces of gold recovered. In February 2024, Erdene executed financing documents with MMC to develop the Bayan Khundii Gold Project. The financing has been structured as a shareholder loan from MMC to EM, the entity co-owned by Erdene and MMC that holds the Bayan Khundii mining license, as well as the Altan Nar mining license and highly prospective Ulaan exploration license. The shareholder loan is for up to US$80 million providing the funding for construction of the Bayan Khundii gold project.

Additionally, Erdene and MMC are in discussions with Mongolian and International Financial Institutions for an upto US$40million working capital facility that will finance operations during mine commissioning and ramp up.

Environmental, Social, and Governance

• European Bank for Reconstruction and Development (“EBRD”) ESIA public disclosure period satisfactorily completed in Q3 2020;
• Received approval of Mongolian DEIA in Q4 2021.
• Renewed the Local Cooperation Agreement with Provincial and Sub-Provincial governments, committing the parties to transparently supporting community development
• Planted over 10,000 trees as part of the Company’s one million tree commitment in support of the Mongolian President’s Billion Trees Program
• Trained over 100 local residents of whom nearly 30 were employed at site in 2022

Upside Potential

The Bayan Khundii gold deposit is one of several areas of gold mineralization identified to date on the Khundii and neighbouring Ulaan licenses.  Exploration results to date suggest the greater Khundii-Ulaan alteration zone, that includes the BK and Dark Horse Main gold deposits and the Ulaan SE gold prospect, are part of the same, large, gold-bearing hydrothermal system, that shows the potential to host a multimillion-ounce gold deposit. Exploration in 2022 further supports this thesis, with high-grade intercepts at Dark Horse, Ulaan SE and Bayan Khundii, and positive results from regional drilling programs. Many of these results, as well as those from drilling since the last BK resource update in 2021, are being incorporated into the updated BFS NI 43-101 Technical Report.  Exploration within the Khundii-Ulaan alteration zone will continue with additional geological mapping, geophysical studies and drilling, all designed to further grow mineral resources.

Peter Dalton, P.Geo. (Nova Scotia), Senior Geologist, Erdene Resource Development Corporation, is a Qualified Person within the meaning of National Instrument 43-101 and has reviewed and approved the scientific and technical information contained herein.

Bayan Khundii Gold Deposit

Overview

The Bayan Khundii Gold Deposit is located in southwestern Mongolia, within the Khundii Minerals District, approximately 16 kilometers south of the Company’s Altan Nar deposit. In August of 2019, Erdene secured a mining license for Bayan Khundii from the Mineral Resource and Petroleum Authority of Mongolia (“MRPAM”). The Bayan Khundii mining license covers 2,309 hectares and, in addition to the Bayan Khundii high-grade gold deposit, includes Erdene’s highly prospective 20km2 Greater Dark Horse prospect area, including the Dark Horse Mane high-grade gold discovery.  The mining license is valid for an initial term of 30 year with the ability to extend to 70 years. 

Peter Dalton, P.Geo. (Nova Scotia), Senior Geologist, Erdene Resource Development Corporation, is a Qualified Person within the meaning of National Instrument 43-101 and has reviewed and approved the scientific and technical information contained herein.

Dark Horse Mane Gold Deposit

Overview

Most of the drilling to date has been focused on the Dark Horse Mane discovered in early 2021. Erdene discovered the Dark Horse Mane, 2 kilometers north of the Bayan Khundii deposit, when initial drilling returned 6.0 g/t gold over 45 meters, beginning 10 meters downhole, including 8 meters of 27.1 g/t gold (AAD-58). Drilling over the past two years has defined a 1.5-kilometer trend of alteration and gold mineralization at Dark Horse Mane that remains open along strike to the north and south, and at depth. Highlight interceptions at Dark Horse Mane since the initial discovery include:

• AAD-58: 45 meters of 6.0g/t gold, including 22 meters of 12.0g/t gold.
• AAD-177: 23 meters of 11.4g/t gold, including 4 meters of 59.8g/t gold.
• AAD-178: 15 meters of 42.8g/t gold, including 5 meters of 123.5g/t gold
• AAD-146: 17 meters of 16.7g/t gold, including 3 meters of 65.0g/t gold
• AAD-137:  24.5 meters of 9.4g/t, including 13 meters of 16.1g/t gold

The Dark Horse Mane gold mineralization is associated with a north-south trending, linear structural corridor which intersects deep seated northeast trending transform faults, believed to be a conduit for primary mineralizing fluids, potentially from a magmatic porphyry source at depth. The N-S structure has been traced over five kilometers, from the southern portion of the Bayan Khundii deposit to the northern extension of Dark Horse Mane. Similar, parallel structures have also been identified east and west of Dark Horse Mane within the Greater Dark Horse area.

(Please note that these resource estimates are included within the Bayan Khundii Project Reserves and Resources).

Peter Dalton, P.Geo. (Nova Scotia), Senior Geologist, Erdene Resource Development Corporation, is a Qualified Person within the meaning of National Instrument 43-101 and has reviewed and approved the scientific and technical information contained herein.

Reports

ESIA

Illustrations

Maps/Sections