Mr. Colin Moorhead reports

QUARTERLY ACTIVITIES REPORT

Xanadu Mines Ltd. has released a quarterly activities report for the three months ended Dec. 31, 2023 (figures are unaudited and in Australian dollars except where stated).

December 2023 Quarter Highlights

During the quarter ending 31 December 2023 (December Quarter), Xanadu Mines Ltd (Xanadu or the company) continued to execute its three horizon strategy making strong progress on the Kharmagtai Project (H1) Pre-Feasibility Study (PFS) and associated exploration activities (H2), funded at Kharmagtai by US$35 million cash from the Joint Venture (JV or Khuiten JV) with Zijin Mining Group Co., Ltd. (Zijin). This progress included an important project milestone with the successful delivery of an updated Mineral Resource Estimate (MRE or Resource) for Kharmagtai totalling 1.3Bt including 3.4Mt of Cu, 8.5Moz of Au 1 , representing an increase of approximately 15 per cent contained copper and 9 per cent contained gold metal and achieving targeted classification upgrade of greater than 90 per cent Indicated within the currently defined open pit volumes.

Deep discovery drilling continued to test for significant mineralization below the existing Resource targeted using Xanadu's Exploration Model which is based on geologic analogues such as Hugo Dummett and Cadia East, with drill hole KHDDH649 returning a broad intercept of low-grade mineralization totalling 1080 metres of 0.21 per cent CuEq from 491m below The White Hill deposit. Shallow drilling also progressed testing known porphyry clusters outside the Resource extending the system and informing infrastructure planning.

The company also completed the first tranche of a $4.3M equity placement2 to further fund its Horizon 2 and Horizon 3 strategy, including exploration at the Red Mountain Copper-Gold Project and new exploration project acquisition. Subsequent to the quarter, the company announced entry into a new magmatic copper-nickel project Sant Tolgoi located in Western Mongolia.

Kharmagtai Resource

• Significant increase in Kharmagtai Resource to 1.3Bt containing 3.4Mt Cu and 8.5Moz Au representing a 15 per cent increase in contained copper metal (Cu) and 9 per cent increase in contained gold metal (Au).
• Material 25 per cent increase in the higher-grade core from 100Mt @ 0.76 per cent CuEq 4 to 125Mt @ 0.75 per cent CuEq, at a 0.55 per cent CuEq cut off. This is an important driver for early payback of Kharmagtai project capital.
• Since 2021 Resource update5, the company has completed 162 diamond drill holes for 58,259 metres.
• 63 per cent of the updated Resource is now classified in the higher confidence "indicated" category, demonstrating the robust nature of the deposit including greater than 90 per cent Indicated inside the pit shells defined in the scoping study.
• Strong exploration upside remains, with mineralization open to the east, west, south, and at depth.

Kharmagtai PFS

• Infill drill program completed.
• Sulphide (main orebody) metallurgical test-work advanced at ALS laboratories in Perth and TruTRC laboratories in Ulaanbaatar; results expected in Q1 CY2024.
• Oxide metallurgical test-work in progress at MPS laboratories in Perth and at Zijin Research Labs in Xiamen, China, for assessment of leach technologies; results expected Q2 CY2024.
• Water Reserve drilling and studies progressed with completion expected in Q2 CY2024.
• Power Supply, Tailings Management, and Infrastructure studies progressing through trade-off phase; majority of work to be completed by Q1 CY2024.
• Commenced studies for System Optimisation (Whittle Consulting), Mine Design (Mining Plus) and Process Engineering (DRA Global).
• New core processing facility delivered and operational during the Quarter.
• Kharmagtai PFS including Maiden Ore Reserve on-track for Q3 CY2024.

Extensional Drilling 6

• After the Quarter, extensional drilling at White Hill expands on recently identified higher-grade zone, located below the previous Scoping Study pit designs and outside the 2023 MRE, highlighting potential to expand the 2023 MRE and both grow and deepen the 2022 Scoping Study pit shells.
  • KHDDH808 - 64.45 metres of 0.74 per cent CuEq (0.61 per cent Cu & 0.74/t Au) from 516m, including 24.45 metres of 1.41 per cent CuEq (1.14 per cent Cu & 0.53 g/t Au) from 634m.
  • KHDDH806 - 50 metres of 0.73 per cent CuEq (0.94 per cent Cu & 0.25 g/t Au) from 545m, including 22 metres of 1.34 per cent CuEq (2.10 per cent Cu & 0.26 g/t Au) from 549.
• After the Quarter, step-out drilling at Golden Eagle returns grades higher than the 2023 MRE and extends mineralization.
  • KHDDH801 - 83.4 metres of 0.8 g/t AuEq (0.59 g/t Au and 0.11 per cent Cu) from 36.6m, including 29 metres of 1.42 g/t AuEq (1.14 g/t Au and 0.14 per cent Cu) from 57m, including 14 metres of 2.18 g/t AuEq (1.9 g/t Au and 0.14 per cent Cu) from 60m.

Discovery Exploration 7 , 8

• New shallow discovery drilling intersects mineralization across three largely unexplored porphyry clusters, including high-density stockwork, breccia and gold only mineralization.
  • KHDDH590 - 8 metres of 1.59 g/t Au from 289m, including 4 metres of 3.04 g/t Au from 291m at Cluster Two (Figure 1).
  • KHDDH622 - 15- @ 1.26 per cent Cu from 127m, including 6 metres of 2.97 per cent Cu from 132m at Cluster Three (Figure 1).
• Deep diamond drillholes targeting mineralization below White Hill, the largest deposit delineated to date at Kharmagtai, expands the mineralized system by over 600m.
  • KHDDH649 - 1080 metres of 0.21 per cent CuEq from 491m.
• Subsequent to the Quarter, deep drilling between Zaraa and Stockwork Hill encounters two broad zones of porphyry and tourmaline breccia style mineralization between Stockwork Hill and Zaraa, potentially indicating the edges of a very large-scale Cu-Au System.9
• Shallow drilling at Cluster 2 extends mineralization 800m along strike from the current MRE limit. Given proximity to the high-grade Stockwork Hill deposit, this extension could represent a mineralized porphyry stockwork offset.
  • KHDDH786 - 144 metres of 0.34 per cent CuEq from 117m, including 12 metres of 0.63 per cent CuEq from 144m, and including 12.3 metres of 0.54 per cent CuEq from 168m.
• Multiple new broad zones of gold-rich tourmaline breccia mineralization delivered over a 2km strike, at Cluster 5.
• Extensive discovery drilling continues with regular news flow to continue throughout 2023, focussed on extensions to known deposits and new porphyry copper gold systems.

Corporate

• Completed first tranche of a $4.3M equity placement.10
• • First tranche includes 62,996,490 Xanadu shares at $0.055 per share to professional and sophisticated investors (A$3.46M before costs).11
  • Second tranche of 15,185,328 Xanadu shares at $0.055 per share to Zijin (A$0.84M before costs) subject to formal shareholder vote at Xanadu Extraordinary Meeting (EGM) scheduled for 6 February 2024.12 , 13
• After the Quarter, agreed a binding term sheet for Sant Tolgoi, a prospective, district-scale magmatic copper-nickel sulphide project, aligned to its Horizon 3 Strategy to build a portfolio of copper, gold & future facing mineral projects.14
• Kharmagtai PFS and Discovery Exploration funded by US$35M from the Khuiten JV with Zijin Mining Group15; with US$11.7 million in cash on 31 December 2023.
• Xanadu is well-funded, with A$7.3 million in cash on 31 December 2023 and a continued slow burn rate as operator fees are paid by the Kharmagtai project.

Executive Chairman & Managing Director, Colin Moorhead, said: "During the December Quarter, Xanadu announced an updated Mineral Resource Estimate for our Kharmagtai Copper-Gold Project, which represents a major step for the PFS. The updated MRE meets our expectations by upgrading the resource classification of the mineralization within previously defined pit shells to Indicated, and importantly it increased size of the higher-grade zones by 25 per cent to 125Mt, a key factor driving Kharmagtai project economics. In parallel we effectively progressed other key aspects of the Kharmagtai PFS including metallurgy, infrastructure, tailings facility, water reserve and sterilisation drilling towards our Q3 CY2024 delivery date.

Our Kharmagtai our Horizon Two exploration program ran safely and effectively through the quarter, with positive results from both the shallow and deep exploration programs. The deep hole at White Hill demonstrates that system to extend at depth and will help our exploration team to vector towards higher grade mineralization at depth. The shallow drilling has also extended known mineralization laterally and also helps inform important infrastructure positioning for the PFS.

As a positive testament to our strategy and our team, Xanadu was able to raise $4.3M in a very challenging equity market. Pleasingly, this included proportional participation by Zijin, our largest shareholder, (subject to Xanadu shareholder approval at the upcoming Extraordinary General Meeting on 6 February). This will fund our Horizon 2 and Horizon 3 strategies, focused on new discovery and the acquisition of new exploration projects in Mongolia. The company is planning to commence drilling in the Spring at our Red Mountain project and to commence some early work at Sant Tolgoi, an exciting new project recently announced subsequent to the quarter.

I look forward to updating the market about our Kharmagtai PFS and Discovery Exploration during the upcoming quarters."

Strategic Horizon 1 - Kharmagtai Copper-Gold Project

During the December Quarter, the company continued to aggressively progress both the PFS and Discovery Exploration at Kharmagtai Copper-Gold Project, which is funded by US$35 million from the JV with Zijin. Xanadu is operator of the joint venture during the PFS delivery period of 18 months, after which Zijin will become operator for final engineering, construction, and operations delivery.

Resource Update

An upgraded Resource was announced in December 2023, based on the infill drilling program completed in the September quarter.16 The updated Resource increases both the tonnes (+12 per cent) and contained copper equivalent (CuEq) metal (+13 per cent). This includes a +25 per cent increase in the higher-grade component to >125Mt, which is expected to enhance project cashflows in the early years. Importantly for an infill program, it successfully delivered an upgrade of material within the pit shells to the higher confidence "Indicated" classification, demonstrating the robust nature of the deposit.

Xanadu engaged independent consultants, Spiers Geological Consultants (SGC), to prepare the updated Kharmagtai Resource. The Resource, effective 8 December 2023, incorporates drilling results from the past 24 months (including 162 holes for 58k metres of drilling) and is reported in accordance with the JORC Code 2012. It is the first update to the Resource announced on 8 December 2021.17

PFS Deliverables & Schedule

The largest component of the Data Acquisition stage of the Kharmagtai PFS is completed, following infill drill program completion and recently announced new Resource. Remaining data acquisition work includes:

Final phases of primary sulphide metallurgical test-work.

Geometallurgical modelling to support mine and plant optimisation.

Oxide leach testwork, converting waste from the PEA into ore.

Water Reserve studies and drilling, which will recommence after winter.

Waste rock and tailings geochemistry.

Environmental and socioeconomic baseline studies.

The Trade-Off Options studies stage of the Kharmagtai PFS are now well underway to select a single go-forward option for each key areas of the mine. These include:

• Tailings Storage Facility.
• Power Supply.
• Pit Scheduling.
• Comminution Circuit.
• Flotation Circuit.
• Surface Infrastructure.

During Q1 CY2023 the emphasis of the project will shift towards studies including mine engineering and process engineering. The project remains on track for delivery of a PFS and Maiden Ore Reserve in Q3 CY2024.

Extensional Drilling

Subsequent to the quarter, assays were returned from extensional drilling18 at both White Hill and Golden Eagle.

Three drill holes were collared at White Hill, aiming to extend the recently discovered higher-grade core beneath the 2022 scoping study open pits (Figure 1). These intercepted the moderate grade halo (+0.3 per cent CuEq) +350m shallower than expected and encountered two zones of higher grade (+1 per cent CuEq) mineralization.

Five drill holes have been collared at Golden Eagle designed to extend the new higher-grade gold zone (+1 g/t Au) at Golden Eagle. These returned a broad zone of moderate grade gold with a higher-grade zone at the expected interval. Importantly, the grades encountered were higher than those in the new 2023 MRE19.

Strategic Horizon 2 - World Class Discovery

Shallow Discovery Exploration at Kharmagtai

Shallow exploration drilling at Kharmagtai targeted additional porphyry copper-gold deposits outside the currently defined MRE. This programme also serves to inform future infrastructure location decisions associated with the potential development of the Kharmagtai Project into a large-scale mining operation.

Through the December quarter, a total of 9,000m diamond drilling in forty-one shallow (200m) diamond drill holes was completed21 (Figure 2) since the last update to the shallow drilling program.22 Important outcomes for which follow-up drilling is being planned include:

• Identified a broad zone of porphyry mineralization above the Resource cut-off grade, including a cohesive zone greater than 0.6 per cent CuEq mineralization. This may represent a faulted offset to Stockwork Hill.
• Encountered mineralized structures at Cluster Three near surface containing up to 1.3 per cent Cu.
• Defined a 2km long zone of gold-rich tourmaline breccia at Cluster Five.
• Encountered broad zones of peripheral porphyry and tourmaline breccia mineralization approximately 1km along strike from the Stockwork Hill Tourmaline Breccia.
• Encountered a broad zone of shallow, low-grade porphyry mineralization approximately 1.5km southwest of Golden Eagle where there is little drilling to date, suggesting the presence of a large-scale porphyry in this area.

Deep Discovery Exploration at Kharmagtai

Existing geochemical, geological, and geophysical datasets point to known mineralization at Kharmagtai as a shallow surface expression of a much larger porphyry system at depth (Figure 3). Deep drill holes have been designed to ensure that a potential high-grade, large-scale and deeper "Oyu Tolgoi" style deposit is discovered early in the PFS process, allowing optimal infrastructure decisions to be made, without sterilising what could be the major value driver at Kharmagtai (Figure 4).

Drilling in the December Quarter was designed to test for a large-scale high-grade extension beneath White Hill. KHDDH648 intercepted a very large (+1km) zone of porphyry mineralization, expanding the White Hill mineralized system more than 600m down dip.23 This hole has provided the vectors required to target higher-grade mineralization at depth. 3D geological modelling is underway to refine these vectors for further high priority drilling.

Subsequent to the Quarter, assays were returned for a single deep diamond drill hole was collared between Zaraa and Stockwork Hill, designed to test for a large-scale porphyry deposit. KHDDH779 encountered two broad zones of porphyry and tourmaline breccia style mineralization between Stockwork Hill and Zaraa. This hole appears to have encountered the edges of a very large-scale Cu-Au System.

Red Mountain Exploration

No exploration activity was undertaken at Xanadu's Red Mountain copper-gold project during the December 20023 Quarter. A key purpose of the December 2023 equity placement24 was to provide funds to re-commence this exploration in 2024. The 2024 Red Mountain exploration program will leverage significant targeting information generated from drilling, trenching and BoxScan in prior years and will be subject of a separate announcement.

Strategic Horizon 3 - Portfolio Growth

Subsequent to the Quarter, Xanadu announced a binding term sheet with STSM LLC (STSM) granting the right to earn up to 80 per cent interest in two exploration licences XV-17774 (Oyut) and XV-21887 (Sant Tolgoi) located in the Zavkhan Province of Western Mongolia (Figure 5)25. These two licenses make up the Sant Tolgoi Project, which is considered highly prospective for discovery of new magmatic intrusion-related Copper-Nickel sulphide systems.

The Sant Tolgoi project hosts multiple shallow copper-nickel targets over several kilometres of strike and is well aligned to Xanadu's Horizon 3 Strategy to build a portfolio future facing metals projects. Detailed mapping, geochemistry and geophysics is planned to start in March 2024.

March 2024 Quarter Planned Activities

Key activities planned during the quarter ending 31 March 2023 (March Quarter) include:

Strategic Horizon 1 - Kharmagtai PFS

• Follow-up drilling for Kharmagtai PFS primarily focused on sterilisation and geotechnical.
• Water reserve geophysics, modelling and drilling.
• System Optimisation Trade-Off Studies for Process Plant, Mine Design & Scheduling
• Convergent Power Studies
• Infrastructure and Tailings Storage Facility design work
• Completion of sulphide metallurgical testing
• Initial findings from oxide leach tests

Strategic Horizon 2 - Discovery

• Kharmagtai Shallow and Deep Discovery Exploration drilling programmes.
• Commence a Red Mountain exploration plan.

Strategic Horizon 3 - Portfolio Expansion

• Continue evaluating new battery metals project opportunities in Mongolia.

Financial

Capital Structure

On 31 December 2023, the company had 1,700,820,681 fully paid ordinary shares and 121,860,000 options over ordinary shares on issue, and approximately A$7.3 million in cash. This total of ordinary shares excludes the Tranche 2 placement to Zijin which remains subject to shareholder approval at the EGM scheduled on 6 February 2024 (see below). The Khuiten JV, which controls the Kharmagtai project, had US$11.7 million in cash available to progress the Kharmagtai PFS and exploration.

Equity Placement

Xanadu announced an A$4.3 million equity placement (before costs) on 20 November 2023 to provide funding for its strategic Horizons 2 and 3, as well as working capital.26 This was well supported by both domestic and international institutions and included proportionate participation by Zijin, Xanadu's largest shareholder. The placement was offered across two tranches to eligible and sophisticated investors, comprising 78,181,818 fully paid ordinary shares in Xanadu at an issue price of $0.055 each:

First tranche, being the issue of 62,996,490 New Shares to raise A$3.36 million, is unconditional and was issued pursuant to the company's existing placement capacity under ASX Listing Rule 7.1. Second tranche, being the proposed subscription of 15,185,328 New Shares by Xanadu's major shareholder Zijin for A$0.84 million, is subject to formal documentation and approval by Australia Foreign Investment Review Board (FIRB) and Xanadu shareholder approval.

Bell Potter Securities Limited acted as Lead Manager and Ord Minnett acted as Co-Manager to the Placement.

An EGM is scheduled on 6 February 2024 to seek the necessary Xanadu shareholder approvals.27

About Xanadu Mines

Xanadu is an ASX and TSX listed Exploration company operating in Mongolia. We give investors exposure to globally significant, large-scale copper-gold discoveries and low-cost inventory growth. Xanadu maintains a portfolio of exploration projects and remains one of the few junior explorers on the ASX or TSX who jointly control a globally significant copper-gold deposit in our flagship Kharmagtai project.

We seek Safe Harbor.