Erdene Resource Development Corporation ($ERD)

Welcome to the Erdene Resource Development Fourth Quarter and Full Year Financial and Operating Results for 2025 Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] Now let me hand the call over to John Vincic. Please go ahead.

Thank you, operator, and hello, everyone. Thank you for joining our call today. Some housekeeping items to note. The accompanying presentation for today's call is available for download from the company's website at erdene.com. Yesterday's press release, the financial statements and the MD&A are all posted on Erdene's website and SEDAR+. It's also important to note that this conference call contains forward-looking information that is based on the company's current expectations, estimates and beliefs, and we may also use the terms that are non-IFRS performance measures. Please review Erdene's Q4 2025 disclosure materials and the company's most recent annual information form for the risks associated with this forward-looking information and the use of non-IFRS performance measures. Please note that all dollar amounts mentioned on today's call are in Canadian dollars unless otherwise noted. Today's speakers from Erdene are Peter Akerley, President and CEO; and Robert Jenkins, Chief Financial Officer. I'd now like to turn the call over to Peter. Please go ahead, Peter.

Thanks, John. Hello, everyone, and thanks for joining us today. Starting on Slide 4, the Bayan Khundii Gold Mine is an emerging high-grade, low-cost gold producer in Mongolia, with first gold delivered in September of 2025. The mine is owned 50% by Erdene and 50% by Mongolian Mining Corporation through the joint venture Erdene Mongol LLC. Our company also holds a 5% net smelter royalty on all minerals produced by the joint venture after the first 400,000 ounces of gold production, which is expected to be achieved in the first 5 years. Once in full production, based on the feasibility, the mine is forecast to produce approximately 80,000 ounces of gold annually with 93% recoveries from high-grade ore. Bayan Khundii is expected to sit firmly in the top quartile globally of all-in sustaining costs generating significant cash flow in today's strong gold price environment. Turning now to Slide 5 and the operating performance in the fourth quarter of 2025, our first quarter of operations. The Erdene Mongol mining team delivered 365,000 tonnes of ore to the Run of Mine pad at an average estimated grade of 2.4 grams per tonne. This was about 55% higher tonnage than projected in our feasibility study, largely due to a lower cutoff grade of 0.45 versus 0.67 and driven by higher gold prices. During this initial ramp-up phase, which included overburden stripping and establishing consistent working levels and while our mining workforce transitions from bulk mining experience to selective mining in a high-grade open pit environment, dilution was elevated. As seen on Slide 6, in Q4, we fed 145,000 tonnes into the plant at a measured feed grade of 2 grams per tonne. This produced 7,434 ounces of gold sold at an average price of $4,187. This generated USD 31 million in revenues. We also produced a silver byproduct of 2,634 ounces. On the processing side, our target is 1,950 tonnes per day, equating to 650,000 tonnes annually. At reserve grade, this supports approximately 80,000 ounces per year of production. In 2025, throughput averaged 77% of target, but reached nameplate by year-end, and that performance has continued into Q1. Gold recovery has exceeded expectations, consistently above 96%. Looking at mining operations. The left image on Slide 7 shows the surface areas mined during start-up, while the middle highlights new high-grade zones opened up in late Q1 and where mining will continue in Q2. As shown, mining is scheduled to move into denser high-grade zones, providing greater optionality. As we continue with our ramp-up phase, we're conducting ongoing training supported by experts in open pit mining. Grade control and improved mining processes are our focus as we move through Q2. One challenge to date has been blast fragmentation, which left approximately 15% of ore stockpiled as was oversized for the crusher. Because the hardest ore host the highest grades, fully crushed material is expected to yield better results. A mobile crushing unit was introduced in late Q1 and is allowing the plant to operate more efficiently. In addition, consultants have recently been on site advising on blasting improvements, which are being observed in the mine. During January and February, we blended lower-grade stockpile material, but as we added the ability to feed whole ore and continually improved our mining and blasting processes as well as adjustments to ROM pad blending, grades began trending upwards. Our objective is to deliver feed at the reserve grade of Bayan Khundii approximately 3.8 grams per tonne as established in our feasibility study. We will provide a Q1 production update for the Bayan Khundii mine in late April. Achieving this feed grade target requires managing dilution through strong grade control modeling, precise dig lines, well-defined blasting and efficient blending. With 85% of the Bayan Khundii deposit contained in just 25% of the ore, selective mining discipline is critical. Slide 8 provides a recap of the production projections from the 2023 feasibility study. We targeted 67,000 ounces in the first year of production, reaching greater than 80,000 ounces a year thereafter. As we complete our ramp-up in Q2, we will have an improved understanding of production for the remainder of 2026. At full production and accounting for inflation and higher royalties at current gold prices, we continue to target all-in sustaining costs in the lowest quartile globally. Overall, we are very pleased with progress to date and confident in Bayan Khundii's potential to become one of the highest grade open pit gold mines globally. Our highest priority remains reaching and consistently producing gold at the rates we've discussed. However, looking ahead, Slide 9 displays the wide range of growth opportunities offered by the Khundii district. These include Dark Horse, expansions west of the Bayan Khundii pit, Ulaan, Altan Nar and broader exploration across our licenses and potential acquisitions in the area. Moving on to Slide 10. The Bayan Khundii epithermal system is a 10-kilometer series of gold mineralized structures that host the main Bayan Khundii deposit as well as the Dark Horse satellite deposit north of Bayan Khundii, slated to begin production in late 2027. Our immediate exploration focus is on the Dark Horse area and west of the mine at Khundii West. As shown on Slide 11, Dark Horse is located just 2.5 kilometers north of the Bayan Khundii deposit on the same mining license. This area hosts a satellite pit with an established reserve of 48,000 ounces, grading 7 grams per tonne with additional low-grade oxide resources. Development of the high-grade pit is scheduled to begin in Q4 2027, allowing for a 12-month period, while the Bayan Khundii mine advances into deeper high-grade zones. Dark Horse also contains an extensive zone of near surface oxide mineralization along a 3-kilometer trend, with exploration extending into the Altan Nar area. This provides a tremendous opportunity to expand resources and extend mine life. Turning to Slide 12. Our Q4 drill program at Dark Horse intersected impressive grades, 9 grams per tonne over 19 meters, 28 grams per tonne over 3 meters, adding to the existing high-grade reserve. Resource updates for Dark Horse are planned for Q2 2026 with further drilling to fully define reserves and complete grade control ahead of mine planning in 2027. At Dark Horse North, Q4 drilling reflected shallow oxidized zones of gold enrichment, expanded mineralization and increased grade with mineralized zones extended at depth, including 43 meters of 1.9 grams per tonne gold. The oxides are now being evaluated for heap leach processing, potentially complementing the Bayan Khundii carbon and pulp plant. At Altan Nar in the Northeast portion of the greater Dark Horse area, the Q4 drill program returned multiple shallow intersections of gold-bearing oxidation zones, including a meter of 16 grams per tonne of gold within a broader zone of 16 meters at 1.4 grams per tonne beginning just 8 meters from surface. Overall, some very exciting results that we plan to build upon in 2026. As you can see on Slide 13, we have a substantial opportunity to expand production next to the current open pit in the Striker West and Ulaan areas. At Striker West, the most recent drilling intercepted thick high-grade zones, including 42 meters with 7 grams per tonne of gold. We'll look to incorporate Striker West into the mine plan as we move through 2026. Further West, the Ulaan prospect can turn broad low-grade intervals, 330 meters over 1 gram per tonne beginning at 80 meters depth as well as very high-grade intersections of 20 to 40 meters exceeding 8 grams per tonne. Overall, the vast epithermal system at Bayan Khundii is still in the early stages of exploration, and we are excited about the potential it offers. We've established a cornerstone reserve at Bayan Khundii and Dark Horse to support the initial mining period and the related infrastructure to support expansion in the region. The exploration opportunities on the Khundii/Ulaan licenses, the potential to upgrade production at our current carbon and pulp plant and a possible heap leach opportunity provides us with a solid foundation for long-term growth. As you can see on Slide 14, Erdene Mongol also holds the Altan Nar gold deposit located just 16 kilometers north of Bayan Khundii. The license hosts a 5.6 kilometer mineralized trend that is comparable in style of deposit to Fruta del Norte in Ecuador and Porgera in Papua New Guinea. Altan Nar has received limited exploration since our focus shifted to Bayan Khundii a decade ago, but is scheduled to see exploration later this year. This work will seek to upgrade our resources beyond the current shallow resource of approximately 500,000 ounces of gold. Metallurgical test work to date indicates that selective high-grade ore could be trucked to Bayan Khundii for processing or processed in a stand-alone flotation plant. In addition to the planned resource expansion, work in '26 and '27 will include metallurgical testing and technical studies aimed for a feasibility study being delivered by late '27. Let me now turn to our wholly-owned exploration and development projects. Starting on Slide 15, Zuun Mod is one of the largest undeveloped molybdenum-copper deposits in Asia. In October 25, the company reported an updated independent mineral resource significantly expanding on the previous estimate. Additionally, drilling in late '25 outlined further molybdenum mineralization in the near surface that is expected to positively influence the preliminary economic assessment scheduled to be delivered in Q3 of this year. To Slide 16, the drill program just mentioned also tested the Khuvyn Khar target, 3.5 kilometers northwest of the Zuun Mod molybdenum deposit, but in the same intrusive complex. Drilling returned to strongly mineralized copper zone with 65 meters averaging over 0.6% copper, including 30 meters of 1.2% copper. We're very excited about this discovery as it confirms a substantial copper component in the Khuvyn Khar porphyry system beyond the molybdenum-copper deposit defined at the nearby Zuun Mod deposit. Our plans for 2026 for Khuvyn Khar include a large-scale geophysical program to define targets throughout the complex for later in -- for drill testing later in '26. Moving on to Slide 17. Also outside of the alliance is the Tereg Uul copper-gold porphyry prospect, where we have an option to acquire an 80% interest. This property is located 10 kilometers southwest on the long trend of Oyu Tolgoi, one of the largest copper-gold deposits in the world. In 2025, Erdene completed license-wide exploration programs, resulting in the identification of several geophysical targets, but also a zone of anomalous gold mineralization over an area of approximately 2 kilometers by 800 meters. A series of scope drill holes are planned in Q2 to test the extent and grade of the gold mineralization as well as select geophysical targets. In summary, Bayan Khundii is our foundation, but the exploration pipeline is our future. By systematically derisking these exploration targets, we're building a district with significant leverage to new discoveries, providing significant upside for our shareholders. Now I'd like to turn the call over to Bob for some of the financial highlights in the quarter.

Thank you, Peter. Moving on to Slide 18. Let me provide an overview of the financial highlights for the year ended December 31, 2025. As a reminder to everyone on the call, Erdene's investment in Bayan Khundii is held through its joint venture interest in the Mongolian Company, Erdene Mongol LLC. Therefore, our consolidated results prepared in accordance with International Financial Reporting Standards reflect only our investment in this company and our proportionate share of Erdene Mongol's operating results as well as our corporate operations. For 2025, we recognized a loss from our investment in Erdene Mongol of $1.3 million, reflecting our portion of the company's pre-operating costs for the first 9 months of the year, partially offset by the net proceeds from gold sales following first pour in September 2025. At December 31, 2025, our investment in Erdene Mongol was valued at $46.5 million on our balance sheet, representing 84% of the Corporation's total assets as reported under IFRS. Corporately, we incurred approximately $2.5 million of exploration and evaluation expenses on our wholly-owned projects in 2025 compared to $1.9 million in 2024, with the year-on-year increase primarily due to exploration expenditures at the recently optioned Tereg Uul property. Corporate and administrative expenses in 2025 were nearly $4 million, down from $5 million in 2024, with the year-on-year reduction primarily due to onetime financing costs of $1.5 million in 2024, partially offset by modest increases in administrative services, professional fees and regulatory and compliance costs in the current year due to inflationary pressures. Erdene Mongol ended the year with USD 13 million of cash on hand. However, no further capital injections are expected from Erdene to Erdene Mongol to fund operations at Bayan Khundii as the mine is now generating positive cash flow from operations. Corporately, Erdene ended the year with CAD 5 million of cash, however, has $30 million in the treasury today following the proceeds from the block deal private placement closed in February 2026. This liquidity will allow us to invest in the exploration and technical programs at Zuun Mod and Tereg Uul mentioned by Peter earlier on today's call. This concludes the review of our financial performance and position. I'll turn the call back to Peter.

Thank you, Bob. On Slide 19, I'd like to highlight our commitment to safety, environment and communities. Our success depends on our people and ensuring their health and safety is our top priority. At the end of Q4 2025, Erdene Mongol had 476 staff and contractors on site with approximately 40% of those local residents buying Mongol products. Since construction began, the Bayan Khundii project has logged 4.9 million person hours. And by year-end, our total recordable injury frequency rate was 1.8 per million person hours. On the environmental front, I'm proud to report 0 reportable incidents in 2025. Our stewardship efforts remain focused on mitigating impacts and advancing protection initiatives, such as endemic vegetation trials at the 2-hectare plantation at Bayan Khundii. In Q4, Erdene Mongol executed an updated local cooperation agreement with provincial and subprovincial governments. Through this, we continue supporting local development programs focused on infrastructure, education and health. We are deeply committed to the communities and proud of our progress achieved through these programs. Slide 20 summarizes our 2026 roadmap with a clear focus on transitioning Bayan Khundii into a steady-state producer. This operational foundation allows us to capture maximum value from current gold prices, while simultaneously executing a district scale exploration strategy to grow our mineral inventory. This two-pronged strategy, mine expansion and exploration is, in our view, the path to driving shareholder value. In closing, 2025 was a transitional year for Erdene. I want to congratulate our teams at Erdene and Erdene Mongol and thank our strategic partners, Mongolian Mining Corporation. Together, we safely built a gold mine in less than 2 years and joined the ranks of gold producers during a period of market strength. As we execute our growth plans, expanding Bayan Khundii and advancing adjacent opportunities, I believe we're very well positioned to deliver value for shareholders and stakeholders alike. With that, I'll hand it back to the operator to begin the Q&A. Thank you.

[Operator Instructions] And your first question will be from Jon Ogden at Eastern Value Limited.

Great to see the mine up and running. Just wanted to sort of go to the mathematics on the production because I calculated 1.6 grams per tonne that you're actually mining. So it's quite a way off. I mean I was actually on the call with Mongolia Mining, and they are sort of seeing it gradually creeping up towards 3 grams in the next few months. Maybe you can give us a bit more understanding why it's taking so long to get to reserve grade. Was it a case of not going to have grade control drilling or an experience from the operators? So that's one question. And then the other one is just you got $30 million in bank and obviously, a lot of drill targets and so on. And probably not going to get money back from the JV yet. So how are you going to approach that? Are you expecting to do a capital raise later in the year?

Thanks, Jon. Yes. So when you look at the ramp-up, we had always anticipated that we would be producing at a rate that was 50% of projected production as we move through what you would expect in terms of training up staff that are largely experienced in coal mining, so bulk mining moving into selective mining. As I mentioned in the presentation, we've had a number of experts on site assisting with things like blasting and just improving on the big lines. But during the first few months, we mined an average of 2.4 and put 2 gram into the plant. So you're probably looking at about a 20% dilution in that equation. As we moved into Q1 of this year, we did blend some of that large stockpile that we had into the plant. So grades would have been in that 1.5 to 2 gram range. But as we've seen these improvements, including that of the crusher, we are seeing the grades start to move up towards that target number. So I'm actually very pleased with the progress that we've seen to date. It's still a work in progress. I mean those things I mentioned will still be worked upon, and it's not a switch we can flip on to go from 2 grams to 4 grams. It's sort of an incremental thing where you see these improvements along the way. But I'm very optimistic given what we're seeing in the last few weeks that we're moving towards that point where we want to be. On the $30 million, I'm not quite sure what you're referring to in terms of a raise later this year. So the mine is cash flow positive. The $30 million is certainly sufficient to fund the exploration we have planned at our 100% owned projects. It also gives us the ability to act on acquisitions should we decide to, but there's certainly no consideration at this point of any raises in the near future or any need for it in our current plans.

No, the reason I said that just you have so many great targets to go for. I thought you're going to have a very aggressive drill campaign. But of course, Mongolia, really is cheap than it will be in elsewhere such as Canada. Yes.

Yes. I'll maybe just expand on that a little bit. And a good point on the drilling. I think we're probably around $110 a meter here. But when we look at the projects that we are funding 100% of, we will do that first phase drilling at Tereg Uul, particularly testing that gold target beginning at the end of April, and that will be a first phase. So with success there, we would continue to ratchet that program up, but let's see what we get in the first go around. That will include testing that 2-kilometer gold target, but also some geophysical targets. So that's really just let's see what happens with the first stage. The same can be said about Khuvyn Khar. That could turn into a fairly expensive program. But what I'm focused on there is to get our deeper geophysics completed, and we are going to bring in an international group to complete that program. And that's a summer program following which we will test some of those targets. And again, it's one of those things where I can't commit to a large-scale program until we get that first phase in, but excited about both of them and let's see.

Question will be from Don MacLean at Paradigm Capital.

Congratulations to you and your team for a great year last year. We look forward to a good one this year, too, with the mine running away at full speed, hopefully by the midterm of the year. You touched on it this new discovery at Zuun Mod. Just wondering with the drill program that's planned, what is it you're looking for? We know that porphyries come in clusters, and this one is different than Zuun Mod. Maybe you could just give us some of the insights that you and your team have into what's happening in that neighborhood and the potential.

Yes. It has been a very interesting project for us for some time and largely because of the large volume of copper mineralization that we had seen in some reconnaissance holes or regional holes in that area. It wasn't unusual for us to be seeing a couple of hundred meters of 0.1 to 0.2 copper, but we hadn't anchored into those high grades. And so this most recent drilling intersected 30 meters of over 1%, 60 meters of 0.6. But the characteristics of that mineralized zone are what we're most exciting. We're seeing textures that suggest we're at the top of a porphyry system. We're seeing the UST textures. We're seeing breach and seal as you'd expect to see as you blow on the top of one of these features and then these interstitial fractions are filled with chalcopyrite. So we're pretty confident we're near the top of the system. And now the question is which way do we go to find the rest of that. But yes, the geological side of this, the character of it is what's most exciting.

And at this time, there are no further questions from the telephone. I'll now pass the call over to John Vincic to ask management the questions that have come in from e-mail and on the webcast. Please go ahead, John.

Thank you, operator. The first question through the webcast is, given all the opportunities across your portfolio of projects, how do you allocate capital?

So we have a lot of projects. As you know, we -- if we focus on Erdene Mongol first off, the priority there is really to focus on those opportunities that can most readily add to our production. So when we look at Dark Horse, we are scheduled to begin mining there late next year. And we haven't completed much of the exploration along trend. There's a 3-kilometer trend of gold mineralized oxides along that strike. And so we want to fully explore that so we can ensure that as we get up there to open up that 50,000 ounces of 7 grams, we can understand fully how big that pit may get. And with the current -- with the recent drilling that we've just included in our release today, the Dark Horse North area is starting to come together as a substantial ore body as well. And that introduces this concept of potentially a heap leach. And there's work to do there. But if you can imagine, we can take the high grade and put it into the CIP and take a lot more low grade now that we have the higher gold price and put that under a heap leach, it be a great complement to one another. So excited about that opportunity, and I'd say that's the priority in the coming months. Immediately after that and really part of our near-term plan is to fully define that potential as we move West. As you would have seen in the image I shared in the presentation, substantial intersections across that area from the 40 meters of 7 grams that we intersected at West Striker over to Ulaan where we're seeing similar intersections up to 40 meters of 8. So terrifically high-grade zones that we want to start to incorporate into our plans moving forward. So those would be the 2 highest priorities at EM. I think when you come back to the 100% owned projects, we talked about Tereg Uul and Khuvyn Khar, earlier stage but very exciting grassroots projects, one next to the fourth largest copper-gold mine in the world and the other part of a very large porphyry copper system. So it'd be very exciting to see those drills turning on both those targets this year. But I'd say on the 100% owned projects, the real value driver there is Zuun Mod. I think it's sometimes hidden in our portfolio that we're sitting on an 800 million pound molybdenum equivalent resource that's exposed at surface, great low stripping ratio. And if there was a knock against it in the past, it was that it was remote and infrastructurally challenged. But here we are in a region now that we just brought power in from the border, 240 kilometers away. There's coal mine haul roads now passing by this district. So the infrastructure has come, and it's at a time when there's a molybdenum deficit in China. So I'm very excited about Zuun Mod and looking forward to getting our PEA delivered later this year. We have a couple of people in Asia working with upstream moly producers to talk about potential relationships moving forward. So that project, I think, will be a surprise for our shareholders as we move through the latter part of this year. So lots on our plate, but that's sort of the sequencing of both the EM and the Erdene projects.

Peter, the next question is a follow-on to something you alluded to in your answer. And the question is, what is the potential for heap leach? And is Mongolia's climate compatible? And do you have indications of potential recovery from the low-grade ore?

It's interesting when we first came into this district, which is quite some time ago now, but I wouldn't have imagined that we would have been talking today about thick zones of oxide. At Dark Horse South, we're seeing that oxidation zone go down 80 to 100 meters. So deep 100-meter thick zones of oxide. And we're not just seeing it at Dark Horse South. We discovered it later in the exploration life at Bayan Khundii, where we had midfield Southeast, again, given these supergene enriched zones of 100-gram plus intersections. We're now looking at Altan Nar, again, and a lot of our drilling was below sort of 50, 60 meters coming in at an angle. But now as we go back and look at the trench samples, we're seeing enrichment there as well. So I think there's a very strong likelihood that we can come up with substantial oxide resources, certainly at Dark Horse, but likely in other areas and begin to develop that heap leach opportunity. We also have a significant volume of low grade at Bayan Khundii, which because of the higher gold price, our cutoff has dropped, as I mentioned at the outset, and that potentially could be blended in as well. I wouldn't anticipate as higher recovery, but nonetheless, an opportunity for us to gain value from that low-grade material. We've done the bottle roll testing on the Dark Horse material. It looks like good recoveries, and that material has now been sent as a bulk sample off to a lab in Canada to do the column leach work, which will be delivered over the summer. So a number of fronts advancing there, but very excited about that. There are a number of heap leach mines now operating in Mongolia. So I often get questions about cold weather here, but a very viable opportunity here in Mongolia. So yes, excited about that.

Peter, next question. You've said consistently that Bayan Khundii is a low-cost mine. Can you give us an indication or a range of what you think the all-in sustaining cost will be?

I think to be fair on that we need a couple of commercial quarters to really be able to establish what that all-in sustaining cost will be. But to set the stage for that, when we did our feasibility in 2023, the independents had assessed the -- or determined that the all-in sustaining cost would be USD 869. Obviously, there's been inflation, Mongolian inflation runs at about 8% per annum. And with the higher gold price, the royalties that we pay to the state increase proportionate to that. So if you apply those 2 elements to the $869, we would be somewhere in that $1,250 range. So that would be the math. But let's see when we get a couple of quarters of commercial production under our belt, we'll have a better understanding of the all-in sustaining cost.

Thank you, Peter. And operator, that concludes our call from the webcast and e-mail -- or pardon me, questions from the webcast and e-mail.

We will now turn the call back over to Peter.

Thank you, everyone. I'd just like to thank you all for joining us today and look forward to our next update. We will be issuing Q1 production numbers as we move towards the end of April and certainly welcome any questions you want to send our way. Thanks again.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.