Erdene’s Bayan Khundii
 gold discovery in Mongolia

VANCOUVER — Erdene Resource Development’s (TSX: ERD; US-OTC: ERDCF) presence in Mongolia dates back to the late 1990s, and it has experienced the good and bad of the oft-volatile country. The company’s dedication could pay off, however, due to its wholly owned Bayan Khundii gold discovery and a clearer socio-political landscape, courtesy of Rio Tinto’s (NYSE: RIO) productive investment negotiations at its Oyu Tolgoi copper-gold mine.

Bayan Khundii has grown to prominence in the past year. The company has held a variety of mineral interests in Mongolia, but has recently leaned towards gold. Erdene had been advancing its Altan Nar project before regional prospecting changed the story.

Erdene’s manager of corporate development Dawson Brisco, who worked on exploration programs in Mongolia for Erdene between 2005 and 2010, explained in an interview that Erdene’s crews stepped out a little ways and mobilized to do mapping a year ago, and ran a rock-sampling survey over an area 20 km southeast of Altan Nar.

“The gold values were significant and pervasive,” Brisco said. “Since there’s no glaciation in Mongolia, the grab samples are close to the source. It lit up like a light bulb, and we saw visible gold all over the place. It really wasn’t that long ago — Bayan Khundii has essentially become our priority and flagship overnight.”

In late 2015, Erdene followed up on the geochemical results with a 695-metre program over 15 holes, which focused on a 500-by-400-metre area that includes the Striker and Gold Hill prospects. Results from the maiden campaign in December identified five gold mineralized zones and visible gold in “multiple intervals.”

Map of early surface sampling and drilling at Bayan Khundii in 2015. Credit: Erdene Resource Development.

Highlights from the program include: 26.4 metres grading 5.9 grams gold per tonne from 33 metres deep in hole 9; 35 metres of 5.7 grams gold from surface in hole 10; and 7 metres grading 27.5 grams gold from 14 metres deep in hole 1.

Bayan Khundii is a low-sulphidation epithermal gold system, where mineralization is associated with quartz veins and breccias within hematite-specularite veins and fractures, and disseminated within the altered host rocks.

“The host rock is predominantly volcanics, and it’s heavily mineralized in lower-grade gold. So you have these high-grade veins running through a slightly lower-grade host rock, and that means there could be two pulses of mineralization … that’s what we’re trying to figure out right now,” Brisco said.

In April Erdene announced a 3,500-metre drill program to follow up on initial results and test more prospect areas over a 1.7 km trend. The exploration campaign is split into two phases: 1,800 metres at the core Striker and Golden Hill area; and 1,700-metres in regional targets.

Erdene released assays on the program’s first seven holes on May 9. Hole 17 cut 63 metres of 5.3 grams gold from 50 metres down-hole at Striker; while 40 metres southeast, hole 22 intersected 27 metres of 1.9 grams gold from 54 metres deep.

Cross-section (line 4) of Bayan Khundi drilling. Credit: Erdene Resource Development.

Gold mineralization at Bayan Khundii. Credit: Erdene Resource Development.

The earlier results attracted interest from Sandstorm Gold (TSX: SSL; NYSE-MKT: SAND), which invested $2.5 million in Erdene in February. The financing includes: a $1-million private placement composed of 5 million Erdene shares at 20¢ per share, plus $1.5 million in Sandstorm shares in exchange for a 2% net smelter return royalty on Bayan Khundii and Altan Nar.

“Mongolia took a knock on the chin in relation to the Oyu Tolgoi negotiations, but it’s now resolved … the government has realized the value of the mining industry, and that’s reflected in many of the regulatory changes that have come around over the past two years,” Brisco said.

“Over this recession period there just weren’t a lot of companies doing boots-on-the-ground exploration and making discoveries, but that’s the Bayan Khundii story. It started from the desk and satellite imagery work to soil samples, and ultimately to the drill bit. It has definitely increased our ability to finance because there aren’t many companies out there talking about the country … there’s a growing level of excitement. People are looking for gold exploration stories to get behind,” he said.

Bayan Khundii’s metallurgy looks good. According to tests in February, gold from samples is “free milling and amenable to conventional processing techniques.”

Erdene reported 99% gold recoveries from the higher-grade material using gravity and cyanide leach, while the lower-grade composite indicated 92% recoveries.

The company had just mobilized for the second regional phase of drilling at press time, and expects results from the regional program by mid-year.

Map of Q4-2015 and Q2-2016 drilling at Bayan Khundii. Credit: Erdene Resource Development.

“We haven’t even tested the targets undercover, and the high-resistivity goes with the alteration package,” Brisco said. “Stepping out 1 km northeast of the Striker area, we have a window of the same volcanic lithologies that we see in the main zone poking up through that younger cover. It’s the same alteration signature, and they’re all hot with gold at the surface. If you look at depth through geophysics they have that same signature and style we see in the main zone.”

Exploration at the Bayan Khundii gold discovery in Mongolia. Credit: Erdene Resource Development.

Erdene shares has traded within a 52-week range of 11¢ to 55¢, and jumped 191% — or 32¢ to start the year — en route to a 49¢-per-share close at press time.

The company has 115 million shares outstanding for a $61.3-million market capitalization, and reported $2.5 million in working capital at press time.