Xanadu Mines : Complementary excellent Oxide Gold recoveries at Kharmagtai

20 March 2019

EXCELLENT OXIDE GOLD RECOVERIES AT KHARMAGTAI

COMPLEMENT EXISTING COPPER-GOLD RESOURCES

Xanadu Mines Ltd (ASX: XAM, TSX: XAM) ("Xanadu" or "the Company") is pleased to report that preliminary testwork on diamond core from shallow oxide gold mineralisation at the Kharmagtai copper-gold project in Mongolia has returned excellent results (Figure 1). Gold mineralisation at Golden Eagle is hosted in the oxide cap above a deeper and significantly larger copper-gold porphyry (Xanadu's ASX announcement - 16 January 2017). A new Exploration Target and metallurgical tests confirm the presence of significant, leachable oxide gold at Golden Eagle, one of eight zones known to contain significant shallow oxide gold mineralisation.

HIGHLIGHTS

•  Excellent gold recoveries up to 92.56% achieved in gravity and leach tests for Golden Eagle;

•  The Exploration Target confirms the presence of a substantial oxide gold system measuring ~500m in strike and up to 375m in width at surface, which is mineralised to at least 200m depth and remains open;

•  Seven other zones also contain significant shallow oxide gold mineralisation and provide project optionality and support for the company's ongoing exploration strategy at Kharmagtai;

•  Oxide gold may provide additional and or alternative options for the development of the project;

•  Further development of metallurgical performance will be targeted with additional testwork.

Xanadu's Managing Director & Chief Executive Officer, Dr Andrew Stewart, said "These early stage gravity and bottle roll results on composite samples from Golden Eagle are outstanding. The above average results, achieved at a moderate grind size, indicate high gold recoveries. Standard crushing, grinding and leaching is all that will be required to extract gold from the oxide cap mineralisation at Golden Eagle.

While further drilling is required across the resource as the project advances, previous intersections of significant widths of shallow oxide mineralisation in bedrock drilling highlight the potential and show that we have literally just scratched the surface in terms of the broader resource potential. Further, it represents the opportunity for a low cost, high-value gold leach operation which could be run early in the development life of Kharmagtai, injecting significant cash into the project to offset the cost of developing a large-scale copper-gold mine.

These positive metallurgical test results provide more confidence, with drilling underway to expand the resource by targeting shallow gold mineralisation above the current copper and gold resources".

METALLURGICAL TEST RESULTS RETURNED FOR GOLDEN EAGLE

Results of metallurgical testing on three composite samples taken from Golden Eagle at Kharmagtai have now been finalised. The aim of this test program was to assess the suitability of Golden Eagle mineralisation for gravity concentration and/or cyanidation processes. Three composite samples were selected for the work, based on grade ranges across a variety of rock types within a conceptual ~20Mt open pit. Each composite consisted of 10 individual two-metre sample intervals of drill core and coarse reject material from previous assays representing mineralisation of the following grades (2.35g/t Au, 1.32g/t Au and 0.5g/t Au).

Composites were submitted to MAK, Technological Research Centre in Ulaanbaatar for comminution, gravity concentration and bottle roll cyanidation tests at different grinds. Table 1 shows the head grades measured for each composite.

Table 1: Composite Head Grades

Composite ID	Grade, g/t
	Au g/t	Ag g/t	Cu ppm	Zn ppm
GE-01	2.35	1.79	1732	148.3
GE-02	1.32	1.15	1842	176.6
GE-03	0.50	1.54	968	183.1

Gold Recovery Testwork

Each composite was submitted for bottle roll cyanidation before and after gravity concentration - as shown in the flowsheet below:

Bottle roll cyanidation of each composite sample was conducted over 48 hours at three different grinds, namely 80% -150 µm, 80% -100 µm and 80% -70 µm. A 1kg charge and a 2:1 liquid:solid ratio was used for all tests. pH was maintained at 10-11 and cyanide was added throughout the test to maintain 1.0 gpl concentration.

Table 2: Cyanidation Results - No Gravity

Composite ID	P80, µm	Reconstituted Grade (g/t Au)	Residue grade	Au Recovery
			(g/t Au)	(%)
GE-01	150	2.42	0.96	79.34
	100	2.47	1.01	81.78
	70	2.74	1.13	82.48
GE-02	150	1.66	0.63	75.90
	100	1.29	0.56	86.82
	70	1.44	0.64	88.89
GE-03	150	0.81	0.33	81.48
	100	0.55	0.22	80.00
	70	0.66	0.28	84.85

A gravity concentration test was conducted on each composite using a Knelson MD3 laboratory-scale concentrator to produce an intermediate gravity concentrate which was subsequently cleaned on a laboratory scale Wilfley table. Gravity tests used a 10kg subsample from each composite that had been ground to 80% -150 µm in a laboratory ball mill. The flowsheet for this work can be found in Figure 4. Integrated gravity results from the three composites can be found in Table 3.

Table 3. Gravity Test Results - Whole Ore

Test Product	GE-01			GE-02			GE-03
	Mass	Au grade	Au recovery	Mass	Au grade	Au recovery	Mass	Au grade	Au recovery
	%	g/t	%	%	g/t	%	%	g/t	%
Table Concentrate	0.43	119.20	22.86	0.19	35.35	5.36	0.36	21.70	14.68
Table Mids	-	-	-	0.46	3.90	1.47	-	-	-
Table Tailing	0.99	7.98	3.53	1.36	4.41	4.88	0.98	3.72	6.92
Knelson Tailing	98.58	1.67	73.62	97.99	1.11	88.29	98.66	0.42	78.41
Total (Feed)	100.00	2.24	100.00	100.00	1.23	100.00	100.00	0.53	100.00
Knelson Concentrate	1.42	41.63	26.38	2.01	7.16	11.71	1.34	8.51	21.59

Three comparative bottle roll tests were then conducted on each composite, using 1kg charges of Knelson tailing material taken from the gravity concentration testing using similar conditions to the cyanidation testing of primary mineralization samples. Results for this comparative work are summarised in Tables 4 and 5. Table 5 displays the integrated gravity separation and leach results.

Table 1: Cyanidation - Gravity Tailing

Composite ID	P80, µm	Reconstituted Grade (g/t Au)	Residue grade (g/t Au)	Au Recovery (%)
GE-01	150	1.93	0.89	92.23
	100	1.90	0.88	92.63
	70	1.88	0.89	94.68
GE-02	150	1.07	0.46	85.98
	100	1.06	0.48	90.57
	70	1.21	0.56	92.56
GE-03	150	0.50	0.20	80.00
	100	0.48	0.19	79.17
	70	0.49	0.20	81.63

Xanadu notes that the recovery data given in Table 4 relates only to the recovery of gold remaining in the gravity test tailings. If the gravity test results are combined with the gravity tailing cyanidation results, then the performance of an integrated gravity + cyanidation flowsheet is implied. The integrated results are given in Table 5.

Table 5: Integrated Gravity Concentration and Cyanidation Results

Composite ID	Au Recovery by gravity (%)	Gravity Tails P80, µm	Gravity Tailings Recovery		Total recovery, %
			Au %
GE-01	22.86	150	92.23	90.76
		100	92.63	91.05
		70	94.68	92.56
GE-02	5.36	150	85.98	81.27
		100	90.57	85.32
		70	92.56	87.08
GE-03	14.68	150	80.00	77.41
		100	79.17	76.75
		70	81.63	78.69

These preliminary metallurgical testwork results provide a very good indication of the viability of a simple and efficient gold recovery process at Golden Eagle using SAG or ball milling to a grind of approximately 80% -100µm whilst using gravity concentration to recover the larger gold grains and then using cyanidation (Carbon in Pulp) to extract the finer gold. The testwork suggests gold recoveries in the range of 76% to 92%.

Comminution Testing

Bond abrasion tests and Bond ball mill work index tests were completed on all three composites to determine the crushing and grinding properties of mineralisation at Golden Eagle.

Bond abrasion testing was conducted on -19.0 + 12.5 mm sized composite samples. Table 6 summarizes the test results, along with an interpretation of abrasivity.

Table 6: Bond abrasion results for Golden Eagle

Parameter	Composite ID
	GE-01	GE-02	GE-03
Product average P80, mm	12.00	14.00	15.26
Bond Abrasion index, g	0.133	0.068	0.051
Ore type	Slightly abrasive	Not abrasive	Not abrasive

All samples were found to have low abrasion indices, with only GE-01 being slightly abrasive.

Bond ball mill work index testing was conducted on -3.35 mm sized composite samples using the sieve with opening size 106µm. Table 7 displays the results of these tests, along with an interpretation of hardness.

Table 7: Bond Mill Work Index results for Golden Eagle

Parameter	Composite
	GE-01	GE-02	GE-03
Feed F80, mic	1897.05	1825.50	1877.82
Product P80, mic	71.82	83.15	82.32
Total cycle	14	10	8
Grinding, g/rev	0.96	1.33	1.33
Bond Work index, kWh/t	18.22	15.41	15.20
Hardness classification	Hard	Hard	Hard

With BWi results in the 15-20 kWh/t range, all samples were found to be hard.

SHALLOW GOLD POTENTIAL AT KHARMAGTAI - EXPLORATION TARGETS DEVELOPED

A review of the shallow gold potential of the Kharmagtai lease has been conducted with the aim of assessing the potential for a low-cost, high-value gold project to deliver cash into the early stages of a larger scale copper-gold development.

Eight gold targets across the lease have been reviewed in detail and exploration targets developed for each of these prospects. This work informs a decision point for drilling and further metallurgical work. These targets include sparsely drilled oxide gold above the existing resources at Copper Hill and Stockwork Hill, oxide gold potential above Golden Eagle, disseminated free gold and electrum within Golden Eagle and numerous carbonate base metal epithermal gold veins previously drilled while targeting porphyry mineralisation (Table 8). The location of each target is summarised in Figure 5.

The Exploration Target is conceptual in nature as there has been insufficient exploration to define a Mineral Resource. It is uncertain if further exploration will result in the determination of a Mineral Resource under the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, the JORC Code" (JORC 2004). The Exploration Target is not being reported as part of any Mineral Resource or Ore Reserve.

Table 8: Kharmagtai oxide gold exploration targets

Target Name	Gold Style*1	Length*2	Width*3	Depth*4	Density*5	Tonnage Range*6	Grade Range*7	Metallurgical Recoveries*8	Potential Oz Range including metallurgical factor*9
Golden Eagle (0.3 to 0.6g/t Au)	Oxide gold cap and disseminated free gold and electrum	400 to 500m	300 to 375m	200m	2.76	66Mt to 103Mt	0.3 to 0.6g/t Au	77 to 92% (average 85%)	1MOz to 1.32MOz
Golden Eagle (0.6 to 1g/t Au)	Oxide gold cap and disseminated free gold and electrum	200 to 350m	75 to 100m	150m	2.76	6.2Mt to 14.5Mt	0.6 to 1g/t Au	78 to 92% (average 85%)	170KOz to 240KOz
Copper Hill Oxide Gold	Oxide gold cap above Copper Hill	150 to 200m	50 to 100m	30m	2.75	0.62Mt to 1.65Mt	1 to 2g/t Au	No metallurgy assumes 85%	34KOz to 45KOz
Stockwork Hill Oxide Gold	Oxide gold cap above Stockwork Hill	200 to 400m	85 to 100m	30m	2.75	1.4Mt to 3.3Mt	1 to 2g/t Au	No metallurgy assumes 85%	77KOz to 90KOz
Zaraa Vein One and Two	C.B.M Oxide Epithermal Gold	2 X 200 to 400m veins	2 to 3m	45	2.75	99.5Kt to 195Kt	Vein one 2.5 to 18g/t Au Vein Two 1 to 3g/t Au	No metallurgy assumes 85%	15KOz to 32.75KOz
Wolf Vein One and Two	C.B.M Oxide Epithermal Gold	2 x 400 to 500m	1.5 to 2m	45	2.75	148Kt to 248Kt	2 to 4.5g/t Au	No metallurgy assumes 85%	16KOz to 22KOz
Badger Vein	C.B.M Oxide Epithermal Gold	280 to 500m	1.5 to 2m	45	2.75	52Kt to 124Kt	2.8 to 5.7g/t Au	No metallurgy assumes 85%	9.5KOz to 10KOz
Seventeen One and Two	C.B.M Oxide Epithermal Gold	2 X 400 to 500m	1.5 to 2m	45	2.75	128Kt to 248Kt	1 to 1.5g/t	No metallurgy assumes 85%	5.2KOz to 6.8KOz
Target Two	C.B.M Oxide Epithermal Gold	400 to 500m	2 to 3m	45	2.75	100Kt to 185Kt	1 to 3g/t Au	No metallurgy assumes 85%	5KOz to 8.2KOz

1* - Each style of gold mineralisation will manifest (size, shape, gangue minerals) differently and perform differently within metallurgical plant

2* - Length of the exploration target is defined as a conservative maximum and minimum length estimation based off the distances over which drill intercepts are observed and geological or geophysical characteristics associated with the mineralisation are observed

3* - Width of the exploration targets is taken from drill intercepts and expressed as a range

4* - Depth information is gained from drill intercepts. The oxide/weathering zone is often taken from geochemical data from drilling, i.e. sulphur often helps define the base of oxidation as it is readily weathered and does not commonly exist in the weathering profile. The base of oxidation is interpreted to be the depth that sulphur appears within the drill hole

5* - Density data is taken from drilling or assumed to be the average rock density in the Kharmagtai dataset (2.75)

6* - Tonnage range is estimated as a calculation of the maximum and minimum length, width and depth.

7* - Grade range is taken directly from drill results

8* - Metallurgical factor is either taken from existing metallurgical results or assumed to be 85%.

9* - Potential Oz range is estimated from a calculation of tonnage ranges and grade ranges. Larger tonnage with lesser grade range and smaller tonnage with higher grade range.