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2ND UPDATE: Ivanhoe Mines Boosts Oyu Tolgoi Production Estimates
May 12,2010 08:57CST
industry news

May 11, 2010 (DOW JONES NEWSWIRES) -- Ivanhoe Mines Ltd. (IVN) unveiled an updated development plan for the big Oyu Tolgoi project in Mongolia that could boost copper production by 50% and gold output by 126%.

Oyu Tolgoi, the world's largest undeveloped copper-gold project, recently got the go-ahead from the Mongolian government when a 50-year investment agreement was finalized. The government holds a 34% stake in the project, with Vancouver-based Ivanhoe owning the remaining 66% stake.

Anglo-Australian miner Rio Tinto PLC owns a 22.4% stake in Ivanhoe and has the right to increase its stake to 46.6%.

Based only on proven and probable reserves, Ivanhoe said it now expects average annual production of 1.2 billion pounds of copper and 650,000 ounces of gold from Oyu Tolgoi for the first 10 years of production. By comparison, the previous estimates for the mine, done in 2005, were for average annual production of about 990 million pounds of copper and 330,000 ounces of gold over 35 years, a company spokesman said.

Ivanhoe repeated that the mine is expected to begin production in 2013.

The mine is being development based on a copper price of $2 a pound and a gold price $850 an ounce. At that these levels, the mine's economics will be "robust," Ivanhoe Chairman Robert Friedland said on a conference call to discuss the independent plan.

Copper is curently trading around $3.23 a pound and gold is about $1,200 an ounce.

Friedland said that the mine's average operating cash costs for the first 10 years of the mine's life, after taking into account gold credits, are 45 cents a pound of copper.

Friedland reconfirmed Ivanhoe expects to spend about $758 million this year on the mine's development. By the end of the year, the company expects to determine the definitive capital cost for the project, executives said on the call.

Looking further ahead, Ivanhoe will considering build a power plant for the project as well as smelter, executives said on the call.

Friedland stressed that the announced development plan for Oyu Tolgoi was developed by 18 independent firms. It's not an Ivanhoe or Rio Tinto technical report, he said.

The study released Tuesday was prepared by engineering, mining and environment consultants led by AMEC Minproc of Australia and including Stantec Engineering of the U.S.

As well, the study includes a so-called life-of-mine sensitivity case that boosts estimated copper production by 50%, to 52.5 billion pounds, and gold production by 126%, to 26.4 million ounces. It stressed that this sensitivity case is based on inferred resources, which are "considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorized as mineral reserves."

Part of the current exploration program is aimed at upgrading the inferred resources to higher classifications.

Nevertheless, Ivanhoe said it believes the 59-year mine life projected by the life-of-mine sensitivity case "will prove to be very conservative."

Friedland said that the mine "is on track" to be one of the top three copper and gold mines in the world.

Neighboring China has a huge appetite for copper, as evidenced by the recent C$679 million bid by two Chinese companies for Corriente Resources Inc. (ETQ).

Friedland recently said the company was looking at a number of alternatives to enhance shareholder value. It has hired Citigroup Inc. (C) and Hatch Corporate Finance to explore financing options.

In New York Tuesday, Ivanhoe closed down $1.04 to $15.16 on 1.15 million shares.

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