Mr. Colin Moorhead reports

KHARMAGTAI RESOURCE GROWS TO 6,700 MILLION POUNDS (MLB) INDICATED & 3,800 MLB INFERRED CUEQ; INCLUDING 25 per cent INCREASE IN HIGHER-GRADE CORE

Xanadu Mines Ltd. has had a substantial increase in the mineral resource estimate for its flagship copper-gold project at Kharmagtai in the South Gobi region of Mongolia, being developed with the company's joint venture partner Zijin Mining Group Co. Ltd. The updated resource materially increases both the tonnes and contained copper equivalent metal. This includes a 25-per-cent increase in the higher-grade component to greater than 125 million tonnes, which is expected to enhance project cash flows in the early years. Kharmagtai's upgraded resource cements its position as one of the largest undeveloped gold-rich copper assets globally, and supports its rapid advance toward development with a prefeasibility study and maiden ore reserve, followed by a decision to mine in third quarter calendar year 2024.

Highlights:

• Significant increase in Kharmagtai resource to 790 million tonnes indicated and 460 million tonnes inferred, representing a 58-per-cent increase in indicated contained copper and 51-per-cent increase in indicated contained gold metal;
• Material 25-per-cent increase in the higher-grade core from 100 million tonnes of 0.76 per cent CuEq to 125 Mt of 0.75 per cent CuEq, at a 0.55-per-cent-copper-equivalent cut-off; this is an important driver of early payback in Kharmagtai project economics;
• Since 2021 resource update, the company has completed 162 diamond drill holes for 58,259 metres;
• 63 per cent of the updated resource is classified in the higher confidence indicated category, demonstrating the robust nature of the deposit;
• Strong exploration upside remains, with mineralization open to the east, to the west, to the south and at depth.

Xanadu's executive chairman and managing director, Colin Moorhead, said: "This upgraded resource is a major milestone for Xanadu and our joint venture partner Zijin Mining, and reinforces Kharmagtai as one of the largest undeveloped copper and gold resources on [the Australian Securities Exchange] and globally. The result is in line with our expectations for both the tonnes and the grade, and it is materially better where it matters. The higher-grade zones (0.75 per cent CuEq) that drive our project economics and capital payback are now 25 per cent larger, and these well-defined, large, high-value zones really set Kharmagtai apart from similarly sized orebodies. With 63 per cent of the mineral resource estimate now classified as indicated and holding together at rigorous cut-off grades, we have confidence in its ability to underpin a long-life, profitable mine operation across a wide range of metals prices.

"This completes the largest data acquisition step in the Kharmagtai PFS, and we are now commencing trade-off studies to select a single go-forward project design. Our next step is enterprise optimization, using the new resource model to maximize value from the increase in higher-grade zone material and to build in technology uplift in the form of electrification and advanced haulage. The optimized scheduling will then inform design and engineering works for both our mine and process plant, on track to deliver a maiden ore reserve and completed PFS in Q3 CY 2024.

"Importantly, the discovery journey is not over at Kharmagtai. We see significant potential for both growth of the existing resource, which remains open to the east, west, south and at depth, and for large-scale, new discovery. Recent drilling has already intercepted high-grade bornite outside the resource, and stepout drilling continues down plunge.

"Given the quality of resource, scale of the system, gold credits, infrastructure, logistics and social advantages, Kharmagtai has a clear potential to become a leading global supplier of copper and a part of the solution to the looming global copper shortage as the world electrifies and moves towards a carbon-neutral future."

Mineral resource estimate update overview

Xanadu engaged independent consultant Spiers Geological Consultants to prepare an updated resource for Kharmagtai. The resource has been reported in accordance with the Joint Ore Reserves Committee Code 2012 and National Instrument 43-101, is effective as of Dec. 8, 2021, and is shown in full in attached tables.

Drilling results from the past 24 months (including 162 holes for 58,000 metres of drilling) have been incorporated into an updated JORC 2012 mineral resource estimate (MRE) for the Kharmagtai copper and gold deposit in Mongolia.

This resource is the first update to the resource announced on Dec. 8, 2021, with 162 diamond drill holes and 58,259 metres of drilling completed since 2021. The open-pit resources are reported above nominated metres relative level (mRL), which is unique to each deposit area. Levels are based on preliminary optimization analysis and a 0.2-per-cent-copper-equivalent cut-off grade. The underground resource is reported below the nominated mRLs based on preliminary optimization analysis and a 0.3-per-cent-copper-equivalent-cut-off grade, reported inside a 0.1-per-cent-copper-equivalent reporting wire frame.

SGC considers that data collection techniques are consistent with industry best practice and are suitable for use in the preparation of a resource to be reported in accordance with JORC Code 2012. Available quality assurance and quality control data supports the use of the input data provided by Xanadu.

The resource is considered to have reasonable prospects for eventual economic extraction (RPEEE) on the following basis:

• The deposit is located in a favourable mining jurisdiction, with no known impediments to land access or tenure status;
• The volume, orientation and grade of the resource are amenable to mining extraction through traditional open-pit and underground methods.

The resource models are well understood, and there is substantial upside potential to be realized by better understanding the economics of the deposit. Significant volumes of mineralization have been modelled that fall outside of the constraining pit wire frame. These parts of the model will be targeted for further investigation through economic studies to assess if more of this material can be brought into the mineral resource.

Geology and geological interpretation

A step change has occurred in the understanding of the geological controls on mineralization at Kharmagtai since the 2021 resource. Each deposit in the 2023 resource has been based on an updated detailed 3-D geological model to constrain populations of grade with hard or soft boundaries determined using statistical analysis. This approach allows for a much more realistic and accurate estimate.

The model is based on a complete relogging of the 272 kilometres of diamond drilling completed at Kharmagtai. This relogging has standardized the geology across the deposits and many phases of drilling/previous loggers, allowing a high-quality 3-D model to be generated. Detailed lithogeochemical analyses and modelling were used to refine the intrusive phase categories and separate out mineralized versus unmineralized phases, allowing for more accurate resource domains to be generated. This model not only forms a robust framework for the mineral resource update but allows predictions as to extensions to the deposits to be identified and drilled.

Three-dimensional geological wire frames were developed for all geological units within the deposits, including country rock, all porphyry phases, andesite dikes and breccia bodies. These wire frames were constrained to within a detailed 3-D structural model of each deposit. This structural model was built to define the boundaries between the main populations of grade. Individual lithology and mineralization style wire frames were generated for each fault block, and then each solid geology fault block was combined into a complete deposit model. The base of oxidation surface was generated using a combination of geological logging and geochemical data. Wire frames were generated for various cut-off grade shells using statistical changes in the grade data. Separate wire frames were generated for tourmaline breccia mineralization, both moderately mineralized and high-grade tourmaline breccia bodies. In some areas of the deposit, wire frames for high-density veining were used to constrain very high-grade blocks of mineralization, such as the high-grade bornite zone.

The additional drilling since the last mineral resource and other exploration and evaluation programs such as: relogging of historical core, detailed short wave infrared data collection, geophysical review and geochemistry studies have delivered superior understanding of the deposit geometry. This has led to greater confidence in the geological and grade continuity, and has infilled several areas of the deposits. The programs have collectively allowed it to deliver a more robust and larger mineral resource.

The mineral resources have been estimated using all available analytical data. This has included diamond core drilling (NQ, PQ and HQ) and reverse circulation percussion drilling.

Significant drilling has taken place since the last resource in 2021, which has driven the increase in resources. An attached table shows the drilling metre difference between the 2021 and 2023 resource.

Estimate methodology

The Kharmagtai resource models have been estimated by ordinary kriging (OK) using third party software and are post processed in SGC's preferred software. An internal process review was conducted by SGC, and no third party modelling was undertaken at this time.

Data searches were aligned consistent with the strike, dip and plunge (where appropriate) of the mineralization consistent with the domain and geometry modelling as a result of the detailed geological investigation put forth by Xanadu.

According to the client's interpretation, the mineralization hosts exhibit geometries which are consistent with those geometries defined by the spatial analysis of grade (in this instance, copper, gold, molybdenum and sulphur).

A nominal composite length of four metres downhole was used for inputs, which was settled upon during consultation with the client and the client's preferred geological consultant team.

Where appropriate, data were transformed, and geometry modelling and variograms of the variables were calculated and modelled.

Several iterations of the modelling process were undertaken to assess the sensitivity of estimates to estimation limits. Postprocessing, model validation and reporting were undertaken in SGC's preferred third party software in line with the client's end use.

Ordinary kriging of the variables was performed in the UTM-47N grid. Block dimensions were selected in line with data density and modelling methodology, as well as taking into account potential mining methodologies. Search and data criteria were assessed and implemented, in line with modelling strategy. Models were constructed, and iteration was undertaken to assess modelling sensitivities to data and search criteria.

The block estimates were validated against the informing data to ensure that they were consistent with the original informing data in a 3-D sense and within the search neighbourhood through data analysis.

The block estimates were exported to SGC's preferred third party software and, where appropriate, a topographic surface was applied as were other surfaces and solids which may have acted upon the estimates. Each model area was then compiled into a global model where all fields underwent secondary validation and data were assigned (where deemed appropriate by SGC in consultation with the client's geological team), as well as coding for primary domain and the calculation of Cu per cent and CuEq per cent were completed.

Final densities were assigned where necessary, and model validation completed ahead of final report preparation.

Individual blocks in the resource models (within the global Kharmagtai resource model) have been allocated a resource classification of indicated and inferred confidence category based on the consideration of the number and location of data used to estimate the grade of each block in line with the modelling approach established during the week-long collaboration between XAM staff, SGC and a third party representative on behalf of XAM. In addition, further consideration incorporated into the resource classification discussion included (but not limited to) the following aspects: quality control and assurances (both internal to XAM and the associated laboratories employed, as well as third party laboratory analysis) relating to sampling, sample handling, sample preparation and analysis, database administration, and validation. The resource classification also takes into account structural complexity and the associated geological models and constraining solids, as well as population distributions and geometry.

Next steps -- resource growth potential

All six deposits within the updated mineral resource estimate for Kharmagtai are open and require additional drilling to determine the boundaries of each deposit.

At Stockwork Hill, the deposit comprises numerous areas on the edges of the resource where high-grade blocks are not closed off by drilling. These areas represent significant expansion opportunities.

White Hill represents the deposit with the most significant expansion potential. The resource is completely open to the south, to the west and at depth, and the drilling to date in the lower portions of the deposit is broad enough to allow numerous blocks of unknown high-grade material to exist. Further drilling will significantly expand the White Hill deposit.

Next steps -- exploration upside

Only a small portion of the potentially mineralized Kharmagtai intrusive complex has been drill tested. Most of the drilling, since 2021, of the resource has focused on expanding existing deposits and high-grade targets within and around known mineralization. There are more than five porphyry clusters identified across the lease, which have been ranked and will be tested by drilling in the coming 12 months. These targets have been identified from surface geochemistry, geophysics and the presence of the key features of porphyry deposits (veining, alteration and mineralization).

Next steps -- prefeasibility study

Xanadu and its joint venture partner Zijin are actively progressing a prefeasibility study at Kharmagtai, which includes data acquisition, trade-off studies and engineering to plus-or-minus-25-per-cent confidence, leading to a maiden ore reserve and full PFS report in Q3 CY 2024 for a decision to mine and commencing final engineering and construction in fourth quarter CY 2024.

This PFS builds on the 2022 scoping study, which confirmed the project as a potential world-class, low-cost, long-life mine with an estimated 20-per-cent internal rate of return (range 16 to 25 per cent), a $630-million (U.S.) net present value at 8 per cent (range $405-million (U.S.) to $850-million (U.S.)) and a four-year payback (range four to seven years) over a 30-year life of mine. This included first-quartile all-in sustaining costs and projected production ranges from 30,000 to 50,000 tonnes per year copper and 50,000 to 110,000 ounces per year gold during the first five years, operating a 15-million-tonne-per-year plant for five years and then expanding to 30 Mtpy from year six.

Kharmagtai economics are driven by scale, gold byproduct credits, a low approximately 1 to 1 strip ratio and early payback from mining the higher-grade zone. The 25-per-cent increase in the higher-grade zone from 100 million tonnes to 125 Mt will add early value to the project in PFS stage.

This upgraded resource, along with completion of continuing metallurgical test results, will complete most of the PFS data acquisition stage. The next stage for the PFS will be to progress trade-off studies to select a single go-forward option. Some key trade-off studies include:

• Enterprise optimization: utilizes updated grade, recovery and material characteristics by domain to refine and optimize the mine staging and stockpiling requirements; this will maximize benefit from the increased higher-grade zones; also builds in technology uplift scenarios such as hybrid, electrification and automated haulage systems;
• Mine design and engineering: utilizes enterprise optimization outcomes for detailed scale, sequencing, equipment selection, engineering and technology evaluation to develop mine plan for PFS and maiden ore reserve;
• Process design and engineering: builds flow sheet, technology, rates, scale and alternative streams based on updated scheduling, grade, recovery and material characteristics by domain.

Studies related to non-process infrastructure, power, water, tailings, environmental and operations design are also under way.

Competent person statement

Robert Spiers is a full-time principal geologist employed by Spiers Geological Consultants. Mr. Spiers is contracted on a consulting basis by Xanadu.

Mr. Spiers graduated with a bachelor of science (BSc) honours and a double major of geology and geophysics from Latrobe University, Melbourne, Victoria, Australia, and has been a member of the Australian Institute of Geoscientists for 26 years, working as a geologist for in excess of 30 years since graduating.

Mr. Spiers has sufficient experience that is relevant to the style of mineralization and type of deposit under consideration and to the activity being undertaking to qualify as a competent person as defined in the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves and as defined in National Instrument 43-101. Mr. Spiers consents to the inclusion in the report to which this statement is to be attached of the matters based on his information in the form and context in which it appears.

The information in the report to which this statement is to be attached that relates to mineral resources is based on information compiled by Mr. Spiers, a competent person who is a member of the Australian Institute of Geoscientists or a recognized professional organization included in a list posted on the Australian Securities Exchange website from time to time.

Mr. Spiers consents to the disclosure of the information herein in the form and context in which it appears.

To the best of Mr. Spiers's knowledge, neither SGC, nor himself, nor other related parties have any conflict of interest with Xanadu in accordance with the transparency principle set out by the JORC Code and supported by ASX rulings.

In relation to the above statement, Mr. Spiers holds 750,000 ordinary shares in the Australian Securities Exchange-listed Xanadu entity purchased on market in accordance with the Xanadu trading policy (guidance note 27). The aforementioned shareholding does not constitute a material holding in the company in question.

Mr. Spiers has read the definition of competent person set out in the JORC Code and in National Instrument 43-101 guidelines for the reporting of mineral resource estimates, and certifies that by reason of his education, affiliation with a professional association (MAIG) and past relevant work experience, he fulfills the requirements of a competent person for the purposes of JORC 2012 and NI 43-101.

As of the date of this document, to the best of Mr. Spiers's knowledge, information and belief, the public release/technical report to which this statement is to be attached (in relation to the reporting of the Kharmagtai mineral resource estimation, December, 2023) contains all the scientific and technical information that is required to be disclosed in relation to the mineral resources to make the public release/technical report not misleading with respect to the sections for which Mr. Spiers is responsible.

We seek Safe Harbor.