Sprott Money Presents: An Interview with Peter Akerley

Craig: Well, welcome back to "Sprott Money News" at sprottmoney.com. We've got a special feature presentation for you here late in the month of January, 2023. You know, wherever you watch this Sprott Money information, be it on YouTube, maybe you listen to a podcast on your iPod, who knows where you get your information, you always wanna remember it comes from Sprott Money. You want to give them a like, you wanna subscribe to whatever channel you're listening to, and you always wanna remember Sprott Money whenever you're in the market for physical metal.

We like to provide all sorts of information you go through the month whether it's a look at the charts with Chris Vermeulen, maybe we talk to an expert and answer your questions. Here's something a little bit different. I had a privilege a couple of days ago to talk to Eric Sprott and one of his business partners, Conor O'Brien, who we've had on this channel before, and they said, "You know, we've got this company that we've recently discovered that not a lot of people know about in a part of the world that maybe a lot of people aren't familiar with." And so, this might be kind of a fun little education. So, with me today to educate me as well is Peter Akerley. Peter is president and CEO of Erdene Resource Development, which is centered in Mongolia. Hey, Peter, thank you for taking some time to visit with me.

Peter: Happy to be here with you, Craig, and look forward to talking about Erdene today.

Craig: Well, and again, look, I think this is pretty cool. I gotta tell you, the closest...the only thing I know about Mongolia is maybe I've been to a Mongolian grill once or twice. And that's always tasty and fun. I know nothing... Look, you know, I always talk about when I interview CEOs, it's like, "Why are you drilling there?" It's like, "Well, why did you rob the bank?" Well, that's where the money is.

So, you drill where the gold is, you drill where the metals are, right? But you also have to have a jurisdiction that, you know, you feel good about, and you feel good about the rule of law, all that kind of stuff. So, you know, a lot of people stick with Canada, U.S., places like that. I don't know anything about Mongolia, Peter. Hey, let's start there. Tell us about doing business in Mongolia and what you think you have up there.

Peter: Sure, Craig. Thank you. So, I arrived in Mongolia in the late 1990s, just as it was opening up to foreign investment, coming out of the socialist period. And I'd been working throughout the Americas, South America, I had worked in the Philippines, Indonesia, so it had a good sense of some of the world's leading mining districts. And I arrived in Mongolia, had an opportunity to see a country that had one of the world's great golden copper belts, the Central Asian Orogenic Belt that traverses the southern part of the country with no exploration, no modern exploration.

And, you know, that opportunity in itself was enough to attract me to look at how I could do something myself here, how could I develop a company that would focus on this tremendous belt and move forward with exploration? So, this is '97, '98. At that time, the Oyu Tolgoi project had not been discovered yet, so there wasn't a lot of eyes on Mongolia. The industry kinda went through a significant slowdown from '99 to 2000, 2001, at which time Robert Friedland intersected the first significant copper-gold intersect at Oyu Tolgoi.

In the interim, I had been kind of building a series of investors and a plan to launch in Mongolia. So, the timing was right, and we launched Erdene in 2002 as a private company, went public in 2004, and set out really to be the leading explorer doing good scientific, methodical regional exploration in that country. And, you know, I can say today we're the only one that's managed to do that throughout this entire period since then. And it's resulted in the discovery of what we went there for in the first place, which is tremendously high-grade, open-pittable gold discoveries. and very exciting upside opportunity in front of us that we'll talk about some more.

Craig: Well, and this is what I think is fascinating, is clearly what caught Eric's eye. I read you just did a private placement back in late December, and Eric bought about half of it. The numbers, and I'll have you recite them to me out of this. Khundii...not Khundii. It sounds like it's a car. Khundii?

Peter: Bayan Khundii. That's right.

Craig: Khundii? All right. So, now, look, I'm speaking Mongolian. The Khundii Project. I mean, these numbers, if they were in the Golden Triangle or if they were in Nevada, people would be like, "Wow." But you're in Mongolia, and I feel like somehow this...I mean, this is just getting overlooked. So, tell us a little bit about what you have, at least what you've found so far.

Peter: Yeah. So, the Khundii Project is exceptionally high grade for not only a near surface deposit, but as you said, you could be looking at the depths of South African mines and still be excited about the numbers we're pulling out near surface. Bayan Khundii was the second discovery we had, and it was made in late 2015, first drilling in 2016.

But we walked out there in 2015 and we were picking up samples that at surface were over 100 ounces of gold, 4,000 grams per ton. And nobody had ever walked across this land before. The entire license holding we have has never seen modern geologists walk across it. So, we picked up these 4,000-gram samples pretty quickly, moved some drills into the target, and our first hole from surface was 7 meters of almost an ounce of gold, and that was the discovery hole.

Since then, we've drilled off about 400,000 ounces of 3-1/2-gram average grade in an open pit with up to almost 2 million ounces now in the surrounding deposits that we've begun to identify. But we're just drilling, you know, shallow targets, most of our drilling within the top 150 meters. As we get deeper into that system down to 100, 150 meters, we hit intersections up to 2000 grams per ton.

Craig: Oh, my gosh.

Peter: Exceptionally high grade over a meter. And all of our deposits now, the 4 that we've discovered within the top 100 meters from surface, all have ounce-plus intersections. It's just a tremendously rich system. You know, when you step back and look at when you go looking for elephants, I think, as you alluded to at the start, you know, we're in this great gold belt with deep-seated structures. You've got the right geology, the right fertility, the right structure, and we're right in the heart of that, and nobody's explored there before.

We have now five deposits, including the Zuun Mod copper deposited in this area that's about 60 kilometers by 40 kilometers. And there's just so much more to come. You know, nobody's ever put holes into the depths of this system looking for other deeper intermediate systems or porphyry systems. So, yeah, it's kind of like a kid in the candy store when it comes to this new district, the Khundii Minerals District.

Craig: It's remarkable. It's like virgin territory, right? It's someplace where no one's ever looked before.

Peter: Yeah. Really a geologist's dream to be out here in this type of environment with this type of potential. And this partnership, we'll get into a little bit, really gives us the room to grow, and to acquire, and to look at the long-term potential of this exciting district.

Craig: Well, and that's where I was gonna go next. I would imagine somebody listening to me is like, "Well, that's all well and good." But I mean, it could be on the moon for all that matters.

Peter: Right.

Craig: If you can't get it out, get it someplace, do something with it. I mean, again, we're talking Mongolia here. So, tell us a little bit about infrastructure, and then this... This was kind of the key deal, right? This news came out a couple weeks ago about a strategic alliance with the Mongolian Mining Corporation?

Peter: That's right. Yeah. So, I'll come to that. And that was announced on January 10th. But just thinking about the infrastructure and how things have changed in the Gobi Desert, you know, when you look back 10, 15 years ago, truly was remote infrastructurally challenged. But what we've seen in this region along the southern boundary of Mongolia with the Chinese border, is that what was 1000 kilometers from rail or blacktop highway has now shrunk in the eastern part of Mongolia now with a network of blacktop highways, railways, power plants, and multiple major mines, including the multi-billion dollar Oyu Tolgoi mine being built by Rio Tinto, and in our area, 500 kilometers to the west.

We're just 200 kilometers now from a major mining district with blacktop highways going to the border, multiple rail lines coming to the border, all being built by China to access raw materials coming from Mongolia now and in the future. And I think they very much have their eye on what that future can bring in districts like we have at Khundii.

So, you know, when you look at that type of development, and I see this region we're in, we call the Khundii Minerals District as certainly being a multi-mine district as you look out 5, 10 years, when we looked at our plans for development, it was fairly obvious that we needed a partner. But also from the investor's eyes, you look at, you know, why wouldn't an investor jump into Erdene with the type of results we just talked about and that exploration potential?

Well, it comes down to jurisdictional risk and/or just a misunderstanding or lack of understanding of that jurisdiction. But also, we're an exploration company that doesn't have a track record of taking a mine to production. So, the operational construction void that existed, both of those things get plugged by this partner that we brought in.

So, on January 10th, we announced that we were introducing Mongolian Mining Corp into the mix. That deal brings $40 million to the gold projects. and makes them a equal partner 50/50 on the subsidiary level that holds the 4 gold assets and the areas around that. But on top of that, we've maintained a 5% NSR at Perenco. So, when you do the math on that and you look at the value of an NSR versus the net profits, Erdene will have over the life of this district being developed, about a 60% or higher portion of the net profits. So, a tremendous position to be in when you think about that future vision being crystallized.

MMC's parent company...MMC, sorry, is the largest publicly listed miner in Mongolia. They operate two massive coal mines in the South, coke and coal mines, that ship coal into the Chinese market. They have about 2000 employees, have vast experience in terms of construction and operations, and they have a parent company, MCS, that controls about 40% of MMC, who's the largest conglomerate in Mongolia.

They're involved in most sectors, but includes engineering, construction, energy, all those things that you would need to build out the infrastructure that you need in this new area that, as I said at the beginning, is now just 200 kilometers from that access point into China. So, all the pieces kind of come together with this arrangement and leaves Erdene with, you could kind of look at it as three silos.

We have the gold subsidiary that now has $40 million. We have the 5% NSR that could have tremendous value given what we see as the growth opportunity. And then on the side of that, which we kept 100% interest in, we have this massive molybdenum copper deposit with great copper prospectivity as well. So, you kind of have those three silos sitting underneath Erdene. And just to finish off the thought on the investment we did just before Christmas, we did raise $7 million, and that sits at a Perenco level that will be available for funding things like the Zuun Mod Copper Project.

Craig: So, I'm listening to you talk, and I'm...you know, this is fantastic. I mean, it's not like you're just staking ground and poking holes in it. If you're gonna do business in Mongolia, you got to talk to the right people. It sounds like this Mongolian Mining Corporation, I mean, they know how to do business in Mongolia. They're connected. What's the jurisdiction like, though? I mean, I don't know anything about the government in Mongolia.

Peter: So, you know, Mongolia has probably emerged from the socialist period in the former Soviet sphere of influence as the most democratic nation coming out of that era, that region.

Craig: Great.

Peter: Regular parliamentary elections. They have a parliamentary system, a president. But the parliament system has worked very well. There's been democratic elections every two to four years, and quite frequently, a changing of the guard. So, it's not like you see in some of the other stands where you have a monopoly or authoritarian type government. You have a very open, transparent, and growing, democratic free-market system.

Craig: On China's northern border if my world geography serves me okay.

Peter: That's right.

Craig: Is that a plus, a minus? How do you feel about it?

Peter: You know, to dig into that a little bit, you know, they're situated between Russia and China. Russia has very little influence today. They do provide the bulk of the fuels, oil and gas into the country. But aside from that, their influence and their involvement in Mongolian affairs has dissipated quite significantly. China, you know, their economic growth obviously has an influence. They're one of the biggest funders into the Mongolian country projects. But Mongolia also strives to keep a strong third-neighbor policy. So, you do have strong influence from Japan, Korea, the U.S., Australia, Canada.

If you look at the Oyu Tolgoi Project, the major funders in that would be the IFC, EBRD, Export Development Canada, all have, you know, in combination, probably $2 billion invested there. So, yeah, there's a balance which they recognize they need to keep. And you see that today with the sort of very chaotic geopolitical world we live in. You continue to see them strive to keep that balance with that strong third neighbor policy while welcoming in Chinese investment into certain projects and infrastructure projects.

Craig: Well, we think certainly not only gold, but the copper you have there as well would be of...I mean, you got a willing training partner just to yourself. Tell me a little bit about your team. That's another thing I always like to emphasize. If you put together a group of people that know what they're doing, they've done it before, they're likely to do it again. You've been doing this obviously for decades. Tell me about the rest of your team.

Peter: Yeah. So, most of us have been together for the better part of a decade, and some of us as long as since the company was initiated in 2002, a very strong team of explorationists, both Canadian and Mongolian. We've really built, I'd say, the leading explorers in Mongolia, a team of about eight on-the-ground geologists led by an individual named Bat-Erdene, who is probably recognized as one of the top explorers in the country, came out of the Rio Tinto early days, but vast experience and just a tremendous addition to the success that we've had.

Michael Gillis is here in the Canadian office and is our VP of exploration, and is by my side to lead this exploration effort for the past 20 years. On the Mongolian sort of corporate and project development side, you know, we've built a team of experts on the corporate development government relations side, and we've brought on board over the last few years a number of people that will allow us to move directly into the construction and operations side as well.

Craig: Well, all right. Peter, this is...you've certainly piqued my interest, and I suppose a lot of other people's interest. And now this is a time where, you know, you always get the disclaimer, you gotta do your own due diligence, you gotta do your own research, you gotta assess your investment horizons, your risk tolerance, and all that kind of stuff. You can begin your research by going to the website of Erdene.

I'm sure the Sprott Money folks will put that link on this page. So, you can go there, check it out, all kinds of presentations there, the corporate presentation is there, all of the financial information is there. You gotta check it out. You can also check it out by the symbol. In Toronto, it's just ERD. How can you screw that up? ERD for Erdene. You add the C and the F if you're down here in the U.S., ERDCF. Peter, tell just kind of the highlights of your financial situation. You brought in a lot of cash, as you said, with the deal with Mongolian Mining Corporation, this latest placement. How's the balance sheet look? And tell every little bit about your market cap too.

Peter: Sure. I'll just add that there is a third exchange. We're the only dualistic company on the Mongolian Stock Exchange with...

Craig: Hey, how about that?

Peter: ...5,000 Mongolian shareholders.

Craig: Nice.

Peter: That was a significant move by us a few years ago. In terms of the financial situation, we're in a very strong position. We've just completed that placement in December, which leaves us with a full bank account here at the corporate head office of about $7 million dating. But more importantly, at the subsidiary level, MMC will bring in $40 million to allow us to kick off the early works later this year on the initial build.

We also have arrangements in place with Export Development Canada to be the senior lender on this project, so that would introduce as much as $60 million. And we also have, as our second-largest shareholder, after Eric Sprott, the European Bank for Reconstruction and Development, which is Mongolia's largest lender project supporter. And there'll be a significant addition to the financing team as we move forward with this, so in a very strong position to avoid future dilution and move forward with this build and continue our expiration.

Our market cap today is approximately $75 million to $80 million. And, you know, when you look at the cash flows that can come out of this initial development, it's a very low market capitalization relative to the quick payback we'll see on this first initial mine in this great new district.

Craig: You know, and I know this is important to you, that what you're doing economically in Mongolia too.

Peter: Absolutely. Yeah. You know, I haven't been there as long as I have, and I think this is something that we saw in the partner as well. There's a mutual interest in making lives better in the community in which we work, and I think we can do that. We've shown we can do that, and we look forward to doing that on an exponentially sort of greater scale as we move to development.

Craig: If I come over there to check it all out, can you hook me up with one of those guides that they'd fly the eagles and stuff and they come in...?

Peter: Absolutely, yes. [inaudible 00:18:56] great shots. We are planning a trip later in the summer. So, get your name on the list and we'll hook you up with an eagle.

Craig: I saw that on "60 Minutes," Peter. That's all I know about that. Oh, my gosh. Well, I'm thrilled to have met you, Peter. I think this is a really interesting possibility. Again, I mean, where else can you go on the planet really in year 2023 where no one has bothered to look for gold before? I mean, this is remarkable.

Peter: Absolutely. And to have next door to us now, a company that effectively did the same thing. You know, Ivanhoe stepped in there in '99, I guess it was, and bought BHP's interest. But from that point, they've developed what's gonna be one of the top five copper mines in the world by 2030. So, Rio Tinto's largest development project is effectively our neighbor and a testament to what you can do in Mongolia.

Craig: Yeah. And you talk about that infrastructure kind of growing toward you...

Peter: Absolutely.

Craig: ...and that big customer right there to yourself, and what seems like, I was reading some of these numbers, 68 grams per ton, 67 grams per ton off those latest results. That's huge.

Peter: Yeah, we're getting spoiled. I think we had 5 meters of 120 grams per ton at surface, starting from surface. So, yeah, it just keeps on coming. And we really...you know, we're not super well funded. We've been doing this I wouldn't say on a shoestring, but it's been a district that's seen very limited expiration dollars over...well, for history, because we were the first ones in there.

Craig: Fascinating. All right. Again, Peter Akerley, president, and CEO of Erdene Resource Development, symbol ERD in Canada, ERDCF in the U.S. Fascinating stuff, Peter, I hope we can do this again soon. We're gonna have to revisit this later this year if you don't mind. I'm gonna need an update.

Peter: Would love to. Thanks very much, Craig.

Craig: Always fun. It is really great fun to meet with you. And again, really great fun to do this for Sprott Money. And make sure you thank them for all this great content by either liking or subscribing on this platform, or just go to sprottmoney.com and add some physical metal, never a bad time to do it. Give them a call at (888) 861-0775. Thank you, Peter. Have a great rest of your day.

Peter: Thanks, Craig.

Craig: And from all of us at Sprott Money and sprottmoney.com, thanks for watching. Have a great rest of your day.