PETER AKERLEY: Local residents of Bayankhongor may become shareholders in Erdene
Toronto-listed Erdene Resource Development operating the Bayan-Khundii and Altan Nar mine in Bayankhongor Province is set to become the first official dual-listed company in Mongolia. The company is offering 2.7 percent of its stake or four million shares on the Mongolian Stock Exchange (MSE) for 640 MNT per share through its secondary listing.
In addition to the public offering, Erdene is conducting a concurrent non-brokered private placement on the Toronto Stock Exchange, which in combination with the public offering is expected to raise up to 4.4 million USD.
In the lead up to the much-anticipated dual-listing President and CEO of Erdene Peter Akerley visited MSE to ring the opening bell for the 5,736th day of trading on June 4. Minister of Mining and Heavy Industry D.Sumiyabazar, Chairwoman of the Financial Regulatory Commission (FRC) S.Davaansuren, CEO of MSE Kh.Altai, and CEO of BDSec D.Dayanbilguun, the main underwriter for the dual-listing, were present.
After ringing the opening bell of MSE, CEO and President of Erdene Peter Akerley sat down with Unuudur to discuss the dual-listing and the company’s future moving forward.
Erdene will soon become the first dual-listed company on MSE. In addition to the public offering on MSE, your company is also conducting a private placement on the Toronto Stock Exchange. What was the main basis for your decision to list your shares on MSE?
We have maintained belief that if our mining exploration endeavors are successful, we would provide an opportunity for Mongolians to tangibly benefit from the development of their nation’s mineral endowment through stocks. We first proposed the idea of listing our shares on MSE about six years ago. However, at that time, the legal environment for a dual-listing on MSE was not fully developed. Parliament made amendments to the Law on Securities and the subsequent approval of the dual-listing procedure by the FRC laid the foundation for a legal environment.
A company being listed on a stock exchange allows its shareholders to see how the company operates and what it is spending its capital on. Our company is listed on the international stock market. We have mainly worked with foreign investors. There have not been many Mongolian investors in our company. Mongolians investing in our company will help make our operations more open and transparent.
I also believe it will help create a better understanding of not only our company but other mining companies. Resource exploration carries a lot of risk. Only after a rather large sum of capital is expended on exploration, the reserves of a mine are confirmed and the economic benefits are determined. Our Bayan Khundii and Altan Nar mines are exactly in this stage of the process. The indicated reserves at the mines are a near-surface discovery that have high grades of gold. Preliminary calculations show that the mine is economically beneficial. The orders for the private placement on the Toronto Stock Exchange based on the Bayan-Khundii and Altan Nar mines have concluded. The offering on MSE is around 10 percent cheaper compared to the private placement on the Toronto Stock Exchange, which is mutually beneficial for all parties. I have been working closely with Mongolia for 20 years. It is my belief that mining companies will be the biggest force to help speed up the development of the Mongolian stock market. This is also one of the reasons why Erdene is offering its shares on MSE.
There were talks about Erdene providing an opportunity for Bayankhongor Province residents to own shares in the company. Does this mean that Bayankhongor Province residents will be given priority in the order of the shares?
Our company works together with the residents of Shine Jinst soum and Bayan-Undur soum of Bayankhongor Province. We have been providing scholarships to children in those provinces to help them attain higher education for almost 10 years now. Last year, we provided funds to help finance a well in Shine Jinst soum. When we informed the soums that we had intentions to offer our shares through MSE, the soum authorities made it very clear that soum residents wanted to become shareholders. Our company donates a certain amount of money every year to improve the lives and work of the soum residents.
The local authorities proposed that we provide shares to the residents equal to the donation that we provide every year. This allows the residents of Shine Jinst and Bayan-Undur to become shareholders in our company. We have discussed that residents becoming shareholders in our company will be mutually beneficial.
In addition, we are planning to organize training courses to help the youth in these soums become mining professionals. This will provide jobs to the soum when our mining operations commence. But they will have the opportunity to not only work at our company but various mining companies.
Can you please give us detailed information about the indicated reserves at the mines, when exploration will be completed, and when mining operations at the BayanKhundii and Altan Nar mines will commence?
The Altan Nar mine has reserves of gold, silver, and zinc. The Mongolian Mineral Resources and Reserves Committee (MRC) confirmed our exploration results that the mine has a reserve of 20 tons of gold. We have completed drilling at the Bayan-Khundii mine. An independent company is currently working to confirm our exploration results. We estimate that the Bayan Khundii mine has a reserve of 20 to 35 tons of gold. Therefore, the two mines possibly have a collective reserve of 40 to 45 tons of gold. We are planning to have the reserves at Bayan-Khundii confirmed by the MRC by the third quarter of 2018, in addition to drafting our operational plan. After that, we will apply for our mining license. Our feasibility study will be completed in 2019 and construction of the mine will likely begin in 2020. Therefore, we predict that opening bell production will commence somewhere around late 2021.
The southern region of Bayankhongor Province does not have much infrastructure. This will understandably bring up issues when opening up the mine. What plans are there to find a solution to the lack of infrastructure?
In comparison to copper and coal mining, gold mining is beneficial in that it does not require a need to transport a lot of ores or overburden. We will import heavy machinery and equipment to be used for the mine from China. About 200 kilometers from our mine, there are coal mines that are operating that have a railway and road connection. There are many companies that help transport the coal from those mines. We have invested one million USD into finding water reserves. We will be using solar power and diesel power stations to power our operations. The ores will be refined at the mine to be constructed at Bayan-Undur and will be transported to Ulaanbaatar. Then it will be sold to Mongol Bank. Since the gold will be refined, it will not be large in size or weight, therefore transport costs will be minimal.
How much funding will be required to open the mine and construct an ore refining factory?
That will depend on the scope and extent of our operations at the mine. A feasibility study will make the required investment more clear. Right now, it is estimated that around 40 to 120 million USD will be required in investment. This much funding will be required in order to construct a mine capable of producing 50,000 to 100,000 ounces of gold annually. The exact numbers will be clear after a study.
How will this be financed? Will more shares be offered on the stock market?
If our public offering on MSE is successful, we will consider raising capital on the Mongolian market as a feasible option. We see this as an opportunity for not only Mongolians to invest in our company but for foreign investors to buy shares in our company through Mongolian brokerage companies. It is inevitable that a company will expend a certain amount of its own money when constructing something. But we have planned to raise the majority of the money required from the stock market.
People invest in order to receive benefits or profit. How much benefit can you promise Mongolian investors?
It is very difficult to make promises. The mineral reserves greatly affect how much economic benefit a shareholder receives. Say if one ounce of gold is sold for 1,300 USD on the international market, the company retains around 30 to 150 USD from that. You can calculate how much dividends you will receive going by these numbers. Say our company earned a profit of 50 USD for every ounce of gold sold. If 35 tons of gold is sold for 1,300 USD, the profit will be 75 million USD. This is the economic benefit that the shareholders will receive. Erdene trades its shares on the Toronto Stock Exchange. The market capitalization of the company on that exchange has reached 50 million USD. It is understandable that an investor would research in detail about our company before investing their money in it.