Xanadu Mines : Kharmagtai Deferred Consideration Reduction & Full Repayment

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18 January 2016

REDUCTION AND FULL REPAYMENT OF KHARMAGTAI DEFERRED ACQUISITION CONSIDERATION

Xanadu Mines Ltd (ASX: XAM - Xanadu) is pleased to announce that it has reached agreement with Turquoise Hill Resources Ltd (TSX: TRQ) to reduce the balance of the Deferred Acquisition Consideration for the advanced Kharmagtai copper-gold project by over US$1 million. This reduction is subject to the remaining balance of US$2.8 million (A$4 million) (the New Balance) of the Deferred Consideration being paid by March 2016.

Prior to the renegotiation with TRQ, the outstanding balance of the Deferred Consideration was US$3.84 million and payable by July 2016. Based on the requirement to reduce the balance by 50% of net capital raise proceeds, Xanadu had budgeted an outflow of A$4.15 million from the recent (December 2015) $A8.3million capital raise. The revised agreement with TRQ allows us to achieve the important milestone of full repayment of the deferred consideration at less than budget.

Xanadu's Chief Executive Officer, Dr. Andrew Stewart said, "We are very pleased to be able to complete the acquisition of the Kharmagtai project and Xanadu is now able to enter 2016 with its main asset fully secured and an improved balance sheet."

Xanadu and its joint venture company, Mongol Metals LLC, entered an agreement with Turquoise Hill Resources Ltd (TRQ) to acquire a 90% interest in the advanced Kharmagtai copper-gold project located in the South Gobi region of Mongolia in early 2014 for US$14 million with US$10 million deferred. Under the Mongol Metals LLC joint venture terms, Xanadu has the right to earn an 85% interest in the Kharmagtai project, equivalent to a 76.5% effective interest, by funding deferred acquisition and exploration costs.

The Kharmagtai project is one of the most promising copper-gold projects in Asia. The advanced exploration project consisting of multiple high level gold-rich porphyry copper centres and deeper tourmaline breccia mineralisation occurs within a large under-explored Mining Licence. Since acquisition the Company has achieved several significant milestones including completion of a maiden JORC Mineral Resource Estimate of 203Mt containing 1,500Mlb Cu and 2.2Moz Au (refer ASX announcement 19 March 2015). This Resource represents the results of exploration over only a small portion of the porphyry complex. Continued exploration success at Kharmagtai is evidence of our evolving and increasing understanding of the mineral system and reinforces the view that the district has strong potential to host large scale high-grade copper-gold mineralisation and potentially shallow high-grade epithermal-style gold mineralisation (refer ASX announcement 17 December 2015).

CONTACT

Mark Wheatley

Executive Chairman T: [phone]

[e-mail]

www.xanadumines.com

AUSTRALIA

c/o Company Matters Pty Limited

Level 12, 680 George Street

Sydney NSW 2000

T: [phone]

MONGOLIA

2nd Khoroo, Military Town

AOS Street, Bayanzurkh District Ulaanbaatar, Mongolia

T: [phone]

ASX

XAM

Xanadu Mines Ltd (ASX: XAM) is an exploration company that has assembled a significant exploration portfolio across Mongolia's porphyry belts. These belts are part of the larger Central Asian Orogenic Belt - one of the last great exploration frontiers known to host large copper porphyry deposits - with Mongolia emerging as a globally significant copper province.

KHARMAGTAI COPPER-GOLD PROJECT

The Kharmagtai project is located in the under-explored South Gobi porphyry copper province which hosts the world-class Oyu Tolgoi copper-gold operation, the Tsagaan Suvarga porphyry copper-molybdenum development and Xanadu's Oyut Ulaan copper-gold exploration project. The Kharmagtai project is located within the Omnogovi Province, approximately 420km southeast of Ulaanbaatar. The project is an advanced exploration project consisting of multiple co-genetic gold-rich porphyry copper centres and tourmaline breccia pipes occurring within the Lower Carboniferous Kharmagtai Igneous Complex. Exploration has identified significant shallow high-grade porphyry copper gold mineralisation. A majority of the mineralised porphyry complex lies under under-explored shallow sediments. The large license area has only been partially explored and the potential for further discoveries remains high.

COMPETENT PERSON STATEMENT

The information in this report that relates to Mineral Resources is based on information compiled by Mr Andrew

J. Vigar, who is a Fellow of The Australasian Institute of Mining and Metallurgy. Mr Vigar is employed by Mining Associates Limited Hong Kong. Mr Vigar has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is 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'. Mr Vigar consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.

The information in this report that relates to Exploration Results is based on information compiled by Dr Andrew Stewart who is responsible for the exploration data, comments on exploration target sizes, QA/QC and geological interpretation and information, which is incorporated in the database that was provided to Mining Associates for undertaking the Resource estimate. Dr Stewart is an employee of Xanadu and is a Member of the Australasian Institute of Geoscientists. Dr Stewart has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as the "Competent Person" as defined in the 2012 Edition of the "Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves". Dr Stewart consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

For further information, please contact:

Mark Wheatley Andrew Stewart

Executive Chairman Chief Executive Officer

T: [phone] T: [phone]

M: [phone] M: [phone]

[e-mail] [e-mail]

www.xanadumines.com

APPENDIX 1: KHARMAGTAI TABLE 1 (JORC 2012)

Set out below is Section 1 and Section 2 of Table 1 under the JORC Code, 2012 Edition for the Kharmagtai project. Data provided by Xanadu. This Table 1 updates the JORC Table 1 disclosure dated 17 December 2015.

1.1 JORC TABLE 1 - SECTION 1 - SAMPLING TECHNIQUES AND DATA

Criteria	JORC Code (Section 1) Explanation	Commentary
Sampling techniques	Nature and quality of sampling and assaying. Measures taken to ensure sample representivity and the appropriate calibration of any measurement tools or systems used. Aspects of the determination of mineralisation that are Material to the Public Report.	The resource estimate is based on drill samples only. Representative 2 metre samples were taken from ½ NQ or HQ diamond core and chip channel samples from trenches. Only assay result results from recognised, independent assay laboratories were used in Resource calculation after QAQC was verified.
Drilling techniques	Drill type and details.	DDH drilling has been the primary drilling method.
Drill sample recovery	Method of recording and assessing core and chip sample recoveries and results assessed. Measures taken to maximise sample recovery and ensure representative nature of the samples. Whether a relationship exists between sample recovery and grade and whether sample bias may have occurred due to preferential loss/gain of fine/coarse material.	DDH core recoveries have been very good, averaging between 97% and 99% for all of the deposits. In localized areas of faulting and/or fracturing the recoveries decrease; however this is a very small percentage of the overall mineralised zones. Recovery measurements were collected during all DDH programs. The methodology used for measuring recovery is standard industry practice. Analysis of recovery results vs. grade indicates no significant trends. Indicating bias of grades due to diminished recovery and / or wetness of samples.
Logging	Whether core and chip samples have been geologically and geotechnically logged to a level of detail to support appropriate Mineral Resource estimation, mining studies and metallurgical studies. Whether logging is qualitative or quantitative in nature. Core (or costean, channel, etc) photography. The total length and percentage of the relevant intersections logged.	Drill and trench samples are logged for lithology, mineralisation and alteration and geotechnical aspects using a standardised logging system, including the recording of visually estimated volume percentages of major minerals. Drill core was photographed after being logged by a geologist. The entire interval drilled and trenched has been logged by a geologist.
Sub- sampling techniques and sample preparation	If core, whether cut or sawn and whether quarter, half or all core taken. If non-core, whether riffled, tube sampled, rotary split, etc and whether sampled wet or dry. For all sample types, the nature, quality and appropriateness of the sample preparation technique. Quality control procedures adopted for all sub-sampling stages to maximise representivity of samples.	DDH Core is cut in half with a diamond saw, following the line marked by the geologist. The rock saw is regularly flushed with fresh water. Sample intervals are a constant 2m interval down-hole in length. Trench chip channel samples taken close to the base of the trench wall (about 10cm above the floor). Samples are about 3kg. Trench Sample collected with a plastic sheet or tray.

Criteria	JORC Code (Section 1) Explanation	Commentary
Measures taken to ensure that the sampling is representative of the in situ material collected, including for instance results for field duplicate/second-half sampling. Whether sample sizes are appropriate to the grain size of the material being sampled.	Routine sample preparation and analyses of DDH samples were carried out by SGS Mongolia LLC (SGS Mongolia), who operates an independent sample preparation and analytical laboratory in Ulaanbaatar. All samples were prepared to meet standard quality control procedures as follows: Crushed to 90% passing 3.54 mm, split to 1kg, pulverised to 90% - 95% passing 200 mesh (75 microns) and split to 150g. Certified reference materials (CRMs), blanks and pulp duplicate were randomly inserted to manage the quality of data. Sample sizes are well in excess of standard industry requirements.
Quality of assay data and laboratory tests	The nature, quality and appropriateness of the assaying and laboratory procedures used and whether the technique is considered partial or total. For geophysical tools, spectrometers, handheld XRF instruments, etc, the parameters used in determining the analysis including instrument make and model, reading times, calibrations factors applied and their derivation, etc. Nature of quality control procedures adopted (eg standards, blanks, duplicates, external laboratory checks) and whether acceptable levels of accuracy (ie lack of bias) and precision have been established.	All samples were routinely assayed by SGS Mongolia for gold, copper, silver, lead, zinc, arsenic and molybdenum. Au is determined using a 30g fire assay fusion, cupelled to obtain a bead, and digested with Aqua Regia, followed by an atomic absorption spectroscopy (AAS) finish, with a lower detection (LDL) of 0.01 ppm. Cu, Ag, Pb, Zn, As and Mo were routinely determined using a three-acid-digestion of a 0.3g sub-sample followed by an AAS finish (AAS21R). Samples are digested with nitric, hydrochloric and perchloric acids to dryness before leaching with hydrochloric acid to dissolve soluble salts and made to 15ml volume with distilled water. The LDL for copper using this technique was 2ppm. Where copper is over-range (>1% Cu), it is analysed by a second analytical technique (AAS22S), which has a higher upper detection limit (UDL) of 5% copper. Quality assurance was provided by introduction of known certified standards, blanks and duplicate samples on a routine basis. Assay results outside the optimal range for methods were re-analysed by appropriate methods. Ore Research Pty Ltd certified copper and gold standards have been implemented as a part of QAQC procedures, as well as coarse and pulp blanks, and certified matrix matched copper--gold standards. QAQC monitoring is an active and ongoing processes on batch by batch