Ivanhoe Mines (TSX: IVN)(NYSE: IVN)(NASDAQ: IVN) today announced
its results for the quarter ended March 31, 2010. All figures are
in US dollars, unless otherwise stated.
HIGHLIGHTS DURING THE QUARTER AND SUBSEQUENT WEEKS
- On May 11, 2010, Ivanhoe released a new Integrated Development
Plan (IDP-10) that estimates the Oyu Tolgoi Project in Mongolia
should produce more than 1.2 billion pounds (544,000 tonnes) of
copper and 650,000 ounces of gold every year for the first 10
years.
- Peak single-year production from Oyu Tolgoi is estimated at
1.7 billion pounds (800,000 tonnes) of copper and 1.1 million
ounces of gold.
- Full-scale construction at Oyu Tolgoi expected to commence in
June 2010 and production is expected to commence in mid-2013.
- Oyu Tolgoi expected to become one of the world's top three
copper-gold mines.
- IDP-10 is the first declaration of underground reserves at Oyu
Tolgoi contained in the first lift of the Hugo North block-cave
mine.
- On March 31, 2010, Ivanhoe announced the successful completion
of the conditions precedent that had been incorporated into the
landmark Investment Agreement to build and operate the Oyu Tolgoi
Project. The Investment Agreement, which creates a stable and
long-term regulatory, fiscal and legal environment for the project,
now has taken full legal effect and the Government of Mongolia has
become a partner in the development of the Oyu Tolgoi Project.
- During Q1'10, Ivanhoe's 57%-owned subsidiary, SouthGobi
Resources (TSX: SGQ)(SEHK: 1878), reported coal sales of $13.9
million from its Ovoot Tolgoi mine in southern Mongolia,
representing approximately 426,000 tonnes of coal sold to customers
in China.
- On March 31, 2010, Ivanhoe's 81%-owned subsidiary, Ivanhoe
Australia (ASX: IVA), announced the completion of a scoping study
for the Merlin molybdenum and rhenium Project by SRK Consulting
(Australasia). The study indicates that Merlin has the potential to
become a high return project with strong long-term cashflows.
- On March 25, 2010, Ivanhoe announced that it had increased its
interest from 49% to 50% in Altynalmas Gold Ltd., the company that
holds 100% ownership of the Kyzyl Gold Project in Kazakhstan.
Ivanhoe and its strategic partner will proceed to advance the Kyzyl
Project into production as soon as possible.
- On May 7, 2010, Ivanhoe shareholders approved a shareholders'
rights plan that will ensure fair treatment of all Ivanhoe
shareholders during any takeover bid for Ivanhoe's outstanding
common shares.
MONGOLIA: OYU TOLGOI COPPER-GOLD PROJECT
Ivanhoe Mines announces new 2010 Integrated Development Plan for
Oyu Tolgoi copper-gold mining complex
On May 11, 2010, Ivanhoe's Executive Chairman Robert Friedland
and President and Chief Executive Officer John Macken announced
that a new, independent Integrated Development Plan confirms that
Ivanhoe's Oyu Tolgoi Project in southern Mongolia has the mineral
resources to become one of the world's top three copper-gold
producers and an industry model of responsible,
environmentally-sound mineral development.
The new plan, IDP-10, is a comprehensive update of the original
2005 Integrated Development Plan and supports Ivanhoe Mines'
commitment to advance Oyu Tolgoi into full construction, with
production of copper and gold expected to begin in 2013.
The Oyu Tolgoi development blueprint contains the first
published declaration of underground reserves for the planned Hugo
Dummett block-cave mine. It also presents the results of extensive
studies of two complementary development scenarios:
1. A Reserve Case, based only on Proven & Probable Mineral
Reserves established to this point in time, which would sustain
mining for a projected 27 years.
2. A Life-of-Mine Sensitivity Case, which adds to the Reserve
Case a large base of resources identified through exploration to
date but currently classified only to the level of Inferred
Resources under Canada's internationally recognized definitions
standards. Inferred mineral resources are considered too
speculative geologically to have the economic considerations
applied to them that would allow them to be categorized as mineral
reserves, and there is no certainty that the Life-of-Mine
Sensitivity Case will be realized. The IDP-10 estimates that the
Life-of-Mine Sensitivity Case would sustain mining at Oyu Tolgoi
for a projected 59 years. Part of the ongoing exploration program
at Oyu Tolgoi is directed at upgrading Inferred Resources to higher
classifications, as has been progressively accomplished during the
past nine years of exploration and discovery at the project.
In both cases, the average annual production at Oyu Tolgoi over
the first 10 years would exceed 1.2 billion pounds (544,000 tonnes)
of copper and 650,000 ounces of gold.
IDP-10 independent report prepared by international experts
The 2010 Integrated Development Plan is an independent report
commissioned for the project by Ivanhoe Mines from a team of the
world's foremost engineering, mining and environmental consultants,
led by Australia-based AMEC Minproc and including U.S.-based
Stantec Engineering. The complete Plan, a technical report
compliant with Canada's NI 43-101 reporting standard, soon will be
made available on SEDAR.
The scale of the Oyu Tolgoi Project has increased significantly
since the release of the first Integrated Development Plan in 2005.
In accordance with its corporate responsibilities as a public
company, Ivanhoe Mines, the project's controlling shareholder, has
commissioned updates that reflect independent analyses of project
economics, increased mineral resources and reserves and revised
valuation estimates. Disclosure of this accumulated information
incorporated in the updated IDP-10 has been triggered by the
completion of the Oyu Tolgoi Investment Agreement, which took full
legal effect on March 31, 2010, which enabled the use of the
agreement's fiscal provisions in modelling for the IDP-10.
The IDP-10 was prepared independently of Rio Tinto and the joint
Ivanhoe Mines-Rio Tinto Oyu Tolgoi Technical Committee. The IDP-10
recommends that Oyu Tolgoi LLC, the Mongolian company that is
developing and will operate the mining complex, conduct a
comprehensive review to establish a baseline for the Project with a
goal of improving or optimizing value. The IDP-10 also recommends
that its conclusions be reviewed and analyzed by the joint
Technical Committee to help determine detailed plans for the
ongoing implementation of the Project.
New IDP a green light to launch Oyu Tolgoi construction
Mr. Macken said that the IDP-10, developed within the terms of
the Investment Agreement signed with the Government of Mongolia in
October 2009, consolidates the extensive planning and construction
activities that have been conducted as part of the Oyu Tolgoi
Project since the completion of the original IDP in 2005.
"Given the scale of our discoveries and the outstanding
economics of this project, this updated Plan gives us the green
light we were expecting from this process to continue proceeding
straight into construction and operation of a world-class mine. The
increase in value and the amount of mineral reserve, with the first
inclusion of underground reserves, will support our financing plans
as we begin our drive toward operations at Oyu Tolgoi," Mr. Macken
said.
"This 2010 IDP incorporates the thinking of many of the world's
leading, independent authorities on efficient development of
natural resources and best-practice environmental management. The
Plan is further confirmation that Oyu Tolgoi will positively and
significantly contribute to Mongolia's economic growth and social
development for generations to come."
Scenario 1: Highlights of the Reserve Case
The Reserve Case sets out the likely path of development for the
initial phases of the Oyu Tolgoi group of deposits (stages 1
through 9 of the open pit on the Southern Oyu deposits and the
first lift, Lift 1, of the Hugo North Deposit's underground
block-cave mine).
- The first lift of the planned underground block cave on the
Hugo North Deposit contains 437 million tonnes of Probable Reserve
at 1.90% copper and 0.42 grams of gold per tonne - the project's
first declaration of an underground reserve since discoveries began
at Oyu Tolgoi in 2001.
- The planned open pit on the Southern Oyu copper and gold
deposits contains a Proven and Probable Reserve of 955 million
tonnes at 0.49% copper and 0.35 grams of gold per tonne.
- The total mineral reserve (Proven & Probable) contains
1.393 billion tonnes at 0.93% copper and 0.37 grams of gold per
tonne.
- Total production of 25.2 billion pounds (11.5 million tonnes)
of copper and 13.1 million ounces of gold is projected from mining
only the open pit on the Southern Oyu deposits and the first lift
of the underground block cave on the Hugo North Deposit.
- Production is expected to commence in mid-2013.
- The ore processing plant would be expanded from an initial
36.5 million tonnes per year to 58 million tonnes per year (100,000
to 160,000 tonnes per day) by the end of the fifth year of
operations.
- Peak single-year production is estimated at 1.7 billion pounds
(800,000 tonnes) of copper and 1.1 million ounces of gold.
- The economic analysis projects an after-tax Net Present Value
(NPV) of $4.536 billion at an 8% discount rate, an Internal Rate of
Return (IRR) of 16.33% and a payback period of 6.32 years (based on
$2.00/lb. copper and $850/oz. gold).
- Based on metal prices on May 10, 2010, of $3.23/lb. copper and
$1,200/oz. gold, the NPV would be $12.6 billion, with an IRR of
26.3% and a payback period of 4.73 years.
Scenario 2: Highlights of the Life-of-Mine Sensitivity Case
The Life-of-Mine Sensitivity Case reflects the development
flexibility that exists with later phases of the Oyu Tolgoi group
of deposits, which currently include the Heruga Deposit, the Hugo
South Deposit and the second lift of the Hugo North Deposit. These
subsequent phases will require separate development decisions in
the future based on conditions prevailing at the time and the
accumulated experience gained from developing and operating the
initial phases of the project.
Accordingly, the Life of Mine (Sensitivity) Case is effectively
a preliminary assessment. Insofar as the Life-of-Mine Sensitivity
Case includes an economic analysis that is based, in part, on
Inferred Mineral Resources, the Life-of-Mine Sensitivity Case does
not have as high a level of certainty as the Reserve Case. Inferred
Mineral Resources are considered too speculative geologically to
have the economic considerations applied to them that would allow
them to be categorized as Mineral Reserves, and there is no
certainty that the Life-of-Mine Sensitivity Case will be
realized.
- Oyu Tolgoi has been independently affirmed to be a world-class
mineral resource. The Life-of-Mine Sensitivity Case is intended to
show the significant, long-term potential of all classifications of
the entire mineral resource that has been identified to date at Oyu
Tolgoi.
- The Life-of-Mine Sensitivity Case would produce more than
twice as much copper and gold as projected under the shorter-term
Reserve Case, which is limited to the Southern Oyu open pit and the
first lift from the Hugo North underground mine.
- With a mine life projected to be 59 years, Oyu Tolgoi would
process an average of 58 million tonnes of ore per year (160,000
tpd), yielding total production of 52.5 billion pounds of copper
(23.8 million tonnes) and 26.4 million ounces of gold.
- The projected 59-year mine life incorporates the Reserve
Case's Proven and Probable mineral reserves at the Southern Oyu
open pit and the Hugo North block-cave's Lift 1 - and also adds
Inferred Resources from the Hugo North block-cave's Lift 2 and the
Hugo South and Heruga deposits.
- Mining of all resources delivers an after-tax NPV of $5.614
billion (based on $2.00/lb. copper and $850/oz. gold).
- A Real Options analysis produces an after-tax NPV of $7.55
billion, based on stochastic modelling with long-term prices of
$2.00/lb. copper and $850/oz. gold. (An accompanying IDP-10
presentation is available at www.ivanhoemines.com).
- Based on metal prices on May 10, 2010, of $3.23/lb. copper and
$1,200/oz. gold, the NPV would be $15.3 billion, with an IRR of
26.7% and a payback period of 4.62 years.
Production and Financial Results
---------------------------------------------------------------------------
Life-of-Mine
Description Reserve Case Sensitivity Case
---------------------------------------------------------------------------
Inventory Mineral Reserve Mineral Reserve plus
Inferred Resources
---------------------------------------------------------------------------
Peak production rate per year 58 million 58 million
tonnes/year (tpa) tonnes/year (tpa)
---------------------------------------------------------------------------
Peak production rate per day 160,000 tonnes per 160,000 tonnes per
day (tpd) day (tpd)
---------------------------------------------------------------------------
Total processed 1,393 million 3,019 million
tonnes tonnes
---------------------------------------------------------------------------
Net Smelter Return (NSR) $32.57/t $32.37/t
---------------------------------------------------------------------------
Copper grade 0.93% 0.89%
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Gold grade 0.37g/t 0.34g/t
---------------------------------------------------------------------------
Copper recovered 25.2 billion lb. 52.6 billion lb.
---------------------------------------------------------------------------
Gold recovered 13.1 million oz. 26.2 million oz.
---------------------------------------------------------------------------
Mine life 27 years 59 years
---------------------------------------------------------------------------
Initial capital - $3.5 billion $3.5 billion
(100,000 tpd concentrator -
Southern Oyu Open Pit)
---------------------------------------------------------------------------
Pre-production underground capital $1.1 billion $1.1 billion
---------------------------------------------------------------------------
Total project cash requirement $4.6 billion $4.6 billion
---------------------------------------------------------------------------
10-year cash cost
(net of gold credits) 0.45 cents/lb. 0.44 cents/lb.
---------------------------------------------------------------------------
NPV (8%) after tax $4.536 billion $5.614 billion
---------------------------------------------------------------------------
IRR after tax 16.33% 16.73%
---------------------------------------------------------------------------
Payback period 6.32 years 6.22 years
---------------------------------------------------------------------------
The Life-of-Mine Sensitivity Case includes an economic analysis
that is based, in part, on Inferred Resources that do not have as
high a level of certainty as the Reserve Case. Inferred Mineral
Resources are considered too speculative geologically to have the
economic considerations applied to them that would allow them to be
categorized as mineral reserves, and there is no certainty that the
Life-of-Mine Sensitivity will be realized.
Common start-up plan creates base for two development
scenarios
As studied in the IDP-10, both the Reserve Case and the
alternative Life-of-Mine Sensitivity Case share the same underlying
plan for the construction and operation of an initial concentrator
facility that would process 100,000 tonnes of ore per day (36.5
million tonnes per year). By the end of the fifth year of
operation, the concentrator would be expanded to a capacity of
160,000 tonnes per day (58 million tonnes per year).
Under the common start-up plan, ore initially would be sourced
from the open-pit mine on the Southern Oyu deposits while the
adjacent, higher-grade underground mine on the Hugo Dummett Deposit
is developed toward full production of 85,000 tonnes per day. The
expansion would be timed to provide for the processing of ore to be
mined from underground, as well as the open pit, when operations
reach full capacity. The initial infrastructure to be constructed
to support the mining also is common to both cases.
All the Proven and Probable ore included in the Reserve Case
would be from mineral resources classified as Measured and
Indicated, which would be mined from the open pit on the Southern
Oyu deposits and the first lift of the underground block cave on
the Hugo North Deposit.
Expanding on the Reserve Case, the Life-of-Mine Sensitivity Case
is based on the addition of Inferred Resources from the proposed
second lift of the Hugo North block cave, as well as Inferred
Resources from additional block caves at the Hugo South and Heruga
deposits. This expanded development plan would create a much larger
resource base for mining. The study of this case shows the possible
development plan for all of the currently identified future mining
areas at Oyu Tolgoi and the significant, long-life potential of the
entire mineral resource at Oyu Tolgoi.
The economic analysis of the Reserve and Life-of-Mine cases used
a price assumption of $2.00/lb. for copper and $850/oz. for gold at
a discount rate of 8%. The basis of the operational framework of
the mine used in the analysis is current Mongolian legislation and
also the terms of the October 2009 Investment Agreement between
Ivanhoe Mines, its strategic partner, Rio Tinto, and the Government
of Mongolia.
Additional features of the IDP-10
- Mining of the open pit on the Southern Oyu deposits and the
first lift of the underground block cave on the Hugo North Deposit
is confirmed as the foundation for long-term development plans.
- Total cash costs are estimated at $0.45 per pound of payable
copper produced, after gold credits, over the first 10 years (using
a gold price of $850/oz.). Total cash costs are conservatively
defined to include minesite costs and all treatment, refining,
transport and royalty costs arising from product sales.
- Cash costs for the Life-of-Mine Sensitivity Case, after gold
credits, will be $0.73/lb.
- The initial capital cost required to achieve first production
from the open-pit mine on the Southern Oyu deposits is forecast at
$4.6 billion. This amount includes $1.1 billion to be spent
advancing underground development at the Hugo North Deposit in
preparation for the start of block-cave mining.
Alternative production options indicate that flexibility with
mine development could further enhance value and possibly support
additional production expansions to 265,000 tonnes per day - which
would make production at the Oyu Tolgoi complex among the largest
in the global mining industry. Economic analysis for these
scenarios has not been undertaken and thus the feasibility is
uncertain.
Ivanhoe Mines advancing project financing plan
Ivanhoe Mines is advancing its financing plan for the project.
Ivanhoe's consolidated cash position at March 31, 2010 was
approximately $1.32 billion, of which $590 million is solely
available for use by Ivanhoe Mines. This amount, combined with the
future proceeds from the expected exercise by Rio Tinto of its
Ivanhoe warrants valued at a total of approximately $1.2 billion,
will provide the foundation for the funding of the Oyu Tolgoi
Project.
In January 2010, Ivanhoe appointed New York-based leading global
investment banking firm Citi and independent mining-sector
specialist Hatch Corporate Finance, of London, England, to evaluate
and advise the company on a range of strategic options to further
enhance shareholder value.
Citi and Hatch are assisting Ivanhoe's management to evaluate a
range of options that include, but are not limited to, potential
debt/equity offerings, a credit facility, the sale of subsidiaries,
equity investments, project financing and/or various corporate
transactions.
Commitment to sustainable communities and best-practice
environmental management
Oyu Tolgoi LLC seeks to work in partnership with Mongolian
communities and leaders to ensure that demonstrable sustainable
benefits from the Oyu Tolgoi Mongolian business reach Mongolians in
the South Gobi Region and nationally. These partnerships are driven
by strategies and plans that align the development aspirations of
the Mongolian Government and the people of Mongolia with Oyu
Tolgoi's business objectives. At the heart of these partnerships
are enduring relationships with Mongolian communities, government,
civil society and like-minded international stakeholders based on
trust, openness and the joint pursuit of mutual interests.
Sound environmental practices are key to sustainable
communities. Oyu Tolgoi is complying with internationally accepted
standards and policies regarding environmental performance and the
management of socio-economic effects on communities, as described
in Ivanhoe Mines' Statement of Values and Responsibilities. The
Values Statement declares Ivanhoe's support of the United Nations
Universal Declaration of Human Rights, commitment to best
environmental practices, respect for cultural diversity, support of
local businesses, creation of opportunities for skills acquisition
and assurance of safe and healthy working conditions.
The Mongolian Government joins Ivanhoe Mines and Rio Tinto as a
partner in Oyu Tolgoi since procedural and administrative
conditions precedent have been satisfied
On March 31, 2010, the Mongolian Government confirmed that the
procedural and administrative conditions contained in the
Investment Agreement had been satisfied within the allocated
six-month period that followed the agreement's official signing on
October 6, 2009, thereby ensuring that the Investment Agreement has
taken full legal effect.
The Investment Agreement established a comprehensive framework
for maintaining a stable tax and operating environment for the
construction and operation of the Oyu Tolgoi Project.
Upon the receipt of fully registered shares of Oyu Tolgoi LLC,
the Mongolian Government will acquire a 34% interest in Oyu
Tolgoi's licence holder, Oyu Tolgoi LLC, while Ivanhoe Mines will
retain a controlling 66% interest in Oyu Tolgoi LLC. Provisions of
the Investment Agreement address the amount and term of the
parties' investments in the Oyu Tolgoi Project, protection of those
investments and the right to realize the benefits from such
investments, as well as the conduct of mining with minimum
environmental impact and progressive rehabilitation, the social and
economic development of the South Gobi Region and the training and
employment of thousands of new workers in Mongolia.
The Shareholders' Agreement, which accompanied the Investment
Agreement and also was signed on October 6, 2009, established the
basis on which the Mongolian Government, through its
wholly-state-owned company, Erdenes, will acquire and hold the
initial 34% equity interest in Oyu Tolgoi LLC and provides for the
respective rights and obligations of the parties as shareholders of
Oyu Tolgoi LLC. The Shareholders' Agreement also addresses the
circumstances and the requirements pursuant to which Ivanhoe Mines
and Rio Tinto will arrange financing for the Oyu Tolgoi Project and
for Erdenes' portion of the investment capital needed for the
Project.
Noteworthy provisions of the approved Investment Agreement and
Shareholders' Agreement also include:
- Ivanhoe Mines will arrange financing for the construction of
Oyu Tolgoi within two years of the Investment Agreement taking
effect. Production must begin within five years of financing being
secured.
- Ivanhoe Mines will fund the construction of the Oyu Tolgoi
Project through loans and equity obtained during the construction
and initial production periods. Ivanhoe Mines will receive loan
repayments, redemption of equity, dividends and interest at a rate
of 9.9% adjusted to the US CPI.
- Erdenes is entitled to nominate three directors and Ivanhoe
Mines will nominate six directors to the nine-member board of
directors of Oyu Tolgoi LLC.
- Ivanhoe Mines will nominate the management team that will be
responsible for Oyu Tolgoi's core operations. Management services
payments will be received, based on capital and operating costs,
through the construction period and after production begins.
- The Mongolian Government has the option to purchase an
additional equity interest of 16% of Oyu Tolgoi LLC, at an agreed
upon fair-market value, one year after the expiry of the initial
30-year term of the Investment Agreement and following the start of
the permitted 20-year extension. If exercised, this additional
equity interest would give the Mongolian Government a total maximum
interest of 50% of Oyu Tolgoi LLC for the remainder of the Oyu
Tolgoi Project's operational life. Ivanhoe Mines would continue to
hold management rights over the project and hold a deciding vote at
board and shareholder meetings.
Ivanhoe Mines nominates former Mongolian diplomat to lead Board
of company building the Oyu Tolgoi mine
On May 12, 2010, Ivanhoe announced that former Mongolian
diplomat Galsan Batsukh has been nominated to become Chairman of
the Board of Directors of Oyu Tolgoi LLC, which is building, and
will operate, the Oyu Tolgoi Project.
Under provisions of the Shareholders' Agreement, Ivanhoe Mines
appoints six of the nine members of the Oyu Tolgoi LLC Board of
Directors and also nominates the Chairman. The Mongolian Government
appoints three Directors. Mr. Batsukh's nomination as Chairman will
be confirmed at the first meeting of Oyu Tolgoi LLC's new Board
being planned for June, 2010.
The complete list of appointees to the Oyu Tolgoi LLC Board is
contained in Ivanhoe's news release of May 12, 2010.
Rio Tinto increased its interest in Ivanhoe Mines to 22.4%
In March 2010, Ivanhoe Mines issued 15.0 million common shares
to Rio Tinto at C$16.31 per share for total proceeds of C$244.7
million ($241.1 million). Ivanhoe Mines used C$198.2 million
($195.4 million) of the proceeds to purchase from Rio Tinto key
mining and milling equipment to be installed during the
construction of the Oyu Tolgoi Project. Ivanhoe Mines will use the
balance of the proceeds, C$46.4 million ($45.7 million) to purchase
additional equipment and for general corporate purposes. With this
transaction, Rio Tinto increased its ownership in Ivanhoe Mines
from 19.6% to 22.4%.
Under the current agreement with Ivanhoe Mines, Rio Tinto has
rights to subscribe for common shares from Ivanhoe Mines
representing up to 44.3% of Ivanhoe Mines.
Prepayment of Mongolian taxes made
On October 6, 2009, Oyu Tolgoi LLC agreed to purchase three
Treasury Bills (T-Bills) from the Mongolian Government, having an
aggregate face value of $287.5 million, for the aggregate sum of
$250 million. The annual rate of interest on the T-Bills was set at
3.0%. The initial T-Bill, with a face-value of $115 million, was
purchased by Oyu Tolgoi LLC on October 20, 2009 for $100 million
and will mature on October 20, 2014.
During discussions with the Mongolian Government in relation to
the satisfaction of the conditions precedent, the Mongolian
Government requested an alternative arrangement for the advancement
of funds that would not involve the purchase of the remaining
T-Bills. Specifically, rather than purchasing the second and third
remaining T-Bills, with face values of $57.5 million and $115
million respectively, Ivanhoe has agreed to make a series of tax
prepayments.
- The first tax prepayment of $50 million was made on April 7,
2010.
- The second tax prepayment of $100 million will be made within
14 days of Oyu Tolgoi LLC fully drawing down the financing
necessary to enable the complete construction of the Oyu Tolgoi
Project, or June 30, 2011, whichever date is earlier.
The annual rate of interest on the tax prepayments is 1.75%
compounding from the date on which such prepayments are made to the
Mongolian Government by Oyu Tolgoi LLC. Unless already off-set
fully against Mongolian taxes, the Mongolian Government must
immediately repay any remaining tax prepayment balance, including
accrued interest, on the fifth anniversary of the date the tax
prepayment was made.
Ivanhoe acquires critical mining and milling equipment for Oyu
Tolgoi
In March 2010, Ivanhoe used $195.4 million of the $241.1 million
of proceeds received from the issue of 15 million common shares to
Rio Tinto to purchase from Rio Tinto key mining and milling
equipment to be installed during the construction of the Oyu Tolgoi
Project.
The equipment included principal components for the
100,000-tonne-per-day Oyu Tolgoi phase-one copper-gold concentrator
for the Oyu Tolgoi Project, including two 38-foot-diameter,
semi-autogenous grinding (SAG) mills, four ball mills, re-grind
mills, crushers, motors, gearless drives, conveyors and flotation
cells. Also included in the equipment list is the hoist and major
components for the sinking of Shaft #2 - the 10-metre-diameter,
main production shaft for the underground block-cave mine at the
Hugo North Deposit.
Much of the equipment originally was ordered by Ivanhoe from
various manufacturers during its negotiation of an Investment
Agreement with the Mongolian Government. Ivanhoe Mines subsequently
transferred ownership of the equipment to Rio Tinto in August 2008
under an agreement between the companies. Additional equipment also
was acquired by Rio Tinto directly from suppliers. At the time,
Ivanhoe Mines required funds for the ongoing development of the Oyu
Tolgoi Project. The equipment-sale agreement with Rio Tinto ensured
that the procurement and delivery schedules for the critical,
long-lead-time major mining and milling equipment were protected
while Ivanhoe and Rio Tinto worked with the Mongolian Government to
conclude the Investment Agreement.
MONGOLIA
COAL PROJECTS
SOUTHGOBI RESOURCES (57% owned)
Hong Kong Stock Exchange listing; global equity offering raised
C$459 million
On January 29, 2010, SouthGobi closed a global equity offering
of 27 million common shares at a price of C$17.00 per common share,
for gross proceeds of C$459 million. The proceeds of the offering
will be used to expand SouthGobi's coal mining and exploration
activities in southern Mongolia and for general corporate
purposes.
In conjunction with the closing of the global equity offering,
SouthGobi commenced trading on the Main Board of the Hong Kong
Stock Exchange (HK: 1878). SouthGobi is the first Canadian mining
company to have dual listings on the Hong Kong Stock Exchange and
the Toronto Stock Exchange.
China Investment Corporation converts $250 million of its
convertible debenture
On March 29, 2010, a wholly-owned subsidiary of China Investment
Corporation (CIC), at SouthGobi's request, converted $250 million
of its convertible debenture into common shares of SouthGobi at a
conversion price of C$11.88 per share. As a result of the
conversion, Ivanhoe Mines' ownership interest in SouthGobi was
reduced to approximately 57%.
Expansion planned for SouthGobi's Ovoot Tolgoi coal mine
SouthGobi is producing and selling coal at its Ovoot Tolgoi
Project in Mongolia's South Gobi Region, 40 kilometres north of the
Shivee Khuren-Ceke crossing at the Mongolia-China border.
To increase the amount of coal traffic across the border,
Chinese and Mongolian authorities agreed in July 2009 to create a
designated coal transportation corridor at the Shivee Khuren-Ceke
border crossing. This facility is under construction and is
expected to be operational by Q3'10. When completed, it will permit
coal to be transported across the border through three corridors
that are separate from other, non-coal, border traffic. SouthGobi
believes that these improvements in the border crossing capacity
will allow SouthGobi to continue to substantially increase the
amount of coal shipped into China.
The Ovoot Tolgoi Mine's proximity to the Shivee Khuren-Ceke
border crossing allows SouthGobi's customers to transport coal by
truck on an unpaved road from the minesite to China. SouthGobi is
studying the feasibility of building additional road infrastructure
from the Ovoot Tolgoi complex to the Mongolia-China border.
A north-south railway line in China already connects Ceke with
Jiayuguan City in Gansu Province and with the interior of China.
Another east-west railway line from Ceke to Linhe, an industrial
city in China's eastern Inner Mongolia, is expected to be
operational in 2010. This line is expected to have an initial
transportation capacity of approximately 15 million tonnes per
year, later increasing to 25 million tonnes per year. Coal could be
shipped along this line to Baotou and to ports further to the east,
on China's Bohai Gulf.
SouthGobi has approved the construction of a basic coal-handling
facility. The initial design and engineering details for the major
components have been established.
In Q4'09, SouthGobi commenced realigning the open-pit for a
north-south entry to allow for longer mining faces to be exposed
for larger shovels to access; mining the thinner seams "face on" as
opposed to "along strike", enabling cleaner mining and a lower-ash,
higher-value product and more efficient access for haul trucks as
the pit deepens. Realigning the pit has impacted operations because
the process requires substantial above-trend waste removal.
SouthGobi expects the open-pit realignment to be completed in
2010.
In Q1'10, SouthGobi shipped approximately 0.4 million tonnes of
coal at an average realized selling price of approximately $36 per
tonne. This compares to 0.1 million tonnes of coal shipped in Q1'09
at an average realized selling price of $29 per tonne. This
resulted in $13.9 million of revenue being recognized in Q1'10,
compared to $3.5 million in Q1'09.
Cost of sales was $20.3 million in Q1'10, compared to $3.2
million for Q1'09. The increase in cost of sales relates to the
higher sales volume in Q1'10 and includes a $6.5 million write-down
of the carrying value of inventory. In Q1'10, the carrying value of
inventory exceeded its net realizable value by $6.5 million due to
including waste-removal costs associated with realigning the
open-pit as a cost of inventory produced during the period. Cost of
sales is comprised of the cost of the product sold, inventory
write-downs, mine administration costs, equipment depreciation,
depletion of pre-production stripping costs and stock-based
compensation costs.
AUSTRALIA
IVANHOE AUSTRALIA (81% owned)
Ivanhoe Australia incurred exploration expenses of $10.8 million
in Q1'10, compared to $6.1 million in Q1'09. The increase was
largely due to Ivanhoe Australia's studies undertaken on the Merlin
Project and an earlier restart to drilling after the wet season
compared to Q1'09.
Ivanhoe Australia's key projects, all situated on granted Mining
Leases, are Merlin, Mount Dore and Mount Elliott. During Q1'10,
work focused on infill drilling on the Merlin Project to maximize
the indicated resources.
Merlin molybdenum and rhenium
The Merlin Deposit is the lower-most mineralized zone in the
Mount Dore Deposit, starting near the surface and dipping east at
between 45 and 55 degrees. To date, the deposit has been
intersected to approximately 500 metres down-dip. The overall
mineralized zone at Merlin has an average true thickness of
approximately 20 metres. Mineralization has been found over a
strike length of 1,300 metres in step-out holes. However, the
mineralization thins to the north, where it is also noted that the
copper, zinc and gold content increases. To the south, the
mineralization flattens and pinches out. The high-grade Little
Wizard Zone represents the southernmost extent of molybdenum
mineralization of economic interest found to date. During Q1'10,
work focused on infill drilling on the Merlin Project to maximize
the indicated resources.
On March 31, 2010, Ivanhoe Australia announced the completion of
a scoping study on the Merlin Deposit and a new resource estimate
for the Little Wizard Zone.
KAZAKHSTAN
Kyzyl Gold Project (50% owned)
In March 2010, Ivanhoe Mines increased its interest from 49% to
50% in Altynalmas Gold, the company that holds 100% ownership of
the Kyzyl Gold Project. Ivanhoe Mines and its strategic partner
will proceed to advance the project under the Altynalmas Gold
umbrella.
During 2009, Altynalmas Gold established that single-stage
roasting was not to be a long-term technology solution for the
Kyzyl Gold Project that hosts the Bakyrchik and Bolshevik gold
deposits. Altynalmas Gold has engaged consultants to undertake
laboratory bench-scale and pilot test work using a fluidized-bed
roasting technology. This technology involves two stages: a
reductive first stage, followed by an oxidative second stage.
Whereas the reductive first stage volatizes and drives off arsenic,
the oxidative stage oxidizes sulphur and carbon. Following the
completion of the pilot test work, Altynalmas Gold believes that
gold recoveries of up to 90% can be realized in a commercial-scale
plant using this technology. A NI 43-101 compliant Preliminary
Feasibility Study Technical Report undertaken by Scott Wilson RPA,
of Toronto, Canada, is scheduled to be released in the near future.
The study will provide an independent economic evaluation of the
Kyzyl Gold Project.
In September 2009, Altynalmas Gold commenced a 39,000-metre
deep-level drilling program at the Bakyrchik Deposit intended to
upgrade the present mineral resource for inclusion in a
prefeasibility study and follow-on feasibility study. At the end of
March 2010, 24,417 metres of drilling had been completed. During
Q1'10, 31 drill holes totalling 15,238 metres were completed and
2,938 samples were collected, prepared, and assayed. Following
quality assurance and quality control verification initial assay
results are expected to be released in Q2'10. The drill work
undertaken to date confirms the thickness and extent of known
mineralization.
In Q4'09, Altynalmas Gold submitted an application to renew the
work program that expired on December 31, 2009. The application is
being reviewed by the Ministry of Energy and Mineral Resources and
State Privatization Committee. The work program as contemplated
includes the construction of a fluidized-bed roaster and
development of an underground mine by 2013. Altynalmas Gold is
exploring options for advancing the Bakyrchik Gold Project to
feasibility stage and on to development. It is also undertaking
exploration work to increase and upgrade the gold resource along
the Kyzyl Shear.
Ivanhoe's shareholders' rights plan approved at Annual General
and Special Meeting
On May 7, 2010, Ivanhoe shareholders approved the company's
shareholders' rights plan at the Annual General and Special
Meeting. The plan was supported by 95.7% of the votes cast by
Ivanhoe Mines' minority shareholders.
The adoption of the plan will ensure fair treatment of all
Ivanhoe shareholders during any takeover bid for Ivanhoe's
outstanding common shares, or any other transaction that would
involve a change of control.
Financial Results
In Q1'10, Ivanhoe Mines recorded a net loss of $193.9 million
($0.45 per share), compared to a net loss of $56.0 million ($0.15
per share) in Q1'09, representing an increase of $137.9 million.
Results for Q1'10 were mainly affected by $71.4 million in
exploration expenses, $20.3 million in cost of sales, $8.3 million
in general and administrative expenses, $13.4 million in interest
expense, $154.3 million in loss on conversion of convertible credit
facility and $10.1 million in share of losses of significantly
influenced investees. These amounts were offset by coal revenue of
$13.9 million, $4.6 million in interest income, $6.6 million in
income from discontinued operations and $1.7 million in mainly
unrealized foreign exchange gains.
Exploration expenses of $71.4 million in Q1'10 increased $37.3
million from $34.1 million in Q1'09. The exploration expenses
included $59.2 million spent in Mongolia ($26.9 million in Q1'09),
primarily for Oyu Tolgoi and Ovoot Tolgoi, and $10.8 million
incurred by Ivanhoe Australia ($6.1 million in Q1'09). Exploration
costs are charged to operations in the period incurred and often
represent the bulk of Ivanhoe Mines' operating loss for that
period. Ivanhoe Mines will commence capitalizing Oyu Tolgoi
development costs in Q2'10.
Ivanhoe Mines' cash position, on a consolidated basis at March
31, 2010, was $1.3 billion. As at May 14, 2010, Ivanhoe Mines'
current consolidated cash position is approximately $1.3
billion.
SELECTED QUARTERLY DATA
This selected financial information is in accordance with U.S. GAAP.
($ in millions of dollars, except
per share information) Quarter Ended
----------------------------------------
Mar-31 Dec-31 Sep-30 Jun-30
2010 2009 2009 2009
---------------------------------------------------------------------------
Revenue $13.9 $9.9 $11.9 $10.7
Exploration expenses (71.4) (67.2) (40.6) (35.2)
General and administrative (8.3) (15.0) (12.5) (10.5)
Foreign exchange gains (losses) 1.7 2.2 19.5 21.7
Change in fair value of embedded
derivatives (1.4) (45.0) - -
Gain on sale of long-term
investments - - 1.4 -
Loss on conversion of convertible
credit facility (154.3) - - -
Net (loss) income from continuing
operations (200.5) (138.7) (47.5) (27.0)
Income (loss) from discontinued
operations 6.6 9.2 (22.3) 2.1
Net (loss) income (193.9) (129.5) (69.8) (24.9)
Net (loss) income per share - basic
Continuing operations ($0.47) ($0.35) ($0.12) ($0.07)
Discontinued operations $0.02 $0.03 ($0.06) $0.00
Total ($0.45) ($0.32) ($0.18) ($0.07)
Net (loss) income per share - diluted
Continuing operations ($0.47) ($0.35) ($0.12) ($0.07)
Discontinued operations $0.02 $0.03 ($0.06) $0.00
Total ($0.45) ($0.32) ($0.18) ($0.07)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Quarter Ended
----------------------------------------
Mar-31 Dec-31 Sep-30 Jun-30
2009 2008 2008 2008
---------------------------------------------------------------------------
Revenue $3.5 $3.1 $0.0 $0.0
Exploration expenses (34.1) (73.0) (56.8) (66.0)
General and administrative (7.8) (8.1) (5.1) (7.5)
Foreign exchange (losses) gains (9.3) (40.6) (20.0) (1.0)
Writedown of other long-term
investments - (18.0) - -
Gain on sale of long-term
investments - - - 201.4
Loss on conversion of convertible
credit facility - - - -
Net (loss) income from continuing
operations (63.4) (165.0) (95.8) 119.6
Income from discontinued operations 7.4 5.0 7.8 7.9
Net (loss) income (56.0) (160.0) (88.0) 127.5
Net (loss) income per share - basic
Continuing operations ($0.17) ($0.44) ($0.25) $0.32
Discontinued operations $0.02 $0.01 $0.02 $0.02
Total ($0.15) ($0.43) ($0.23) $0.34
Net (loss) income per share - diluted
Continuing operations ($0.17) ($0.44) ($0.25) $0.29
Discontinued operations $0.02 $0.01 $0.02 $0.02
Total ($0.15) ($0.43) ($0.23) $0.31
---------------------------------------------------------------------------
---------------------------------------------------------------------------
QUALIFIED PERSONS
Disclosures of a scientific or technical nature in this release
and the Company's MD&A in respect of each of Ivanhoe Mines'
material mineral resource properties were prepared by, or under the
supervision of, the qualified persons (as that term is defined in
NI 43-101) listed below:
Oyu Tolgoi Project Stephen Torr, P.Geo, Employee of the Company
Ivanhoe Mines
Ovoot Tolgoi Project Stephen Torr, P.Geo, Employee of the Company
SouthGobi Energy
Ivanhoe Mines' results for the three months ended March 31,
2010, are contained in the audited Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations, available on the SEDAR website
at www.sedar.com and Ivanhoe Mines' website at
www.ivanhoemines.com.
Ivanhoe Mines shares are listed on the Toronto, New York and
NASDAQ stock exchanges under the symbol IVN.
Forward Looking Statements:
Certain statements made herein, including statements relating to
matters that are not historical facts and statements of our
beliefs, intentions and expectations about developments, results
and events which will or may occur in the future, constitute
"forward-looking information" within the meaning of applicable
Canadian securities legislation and "forward-looking statements"
within the meaning of the "safe harbor" provisions of the United
States Private Securities Litigation Reform Act of 1995.
Forward-looking information and statements are typically identified
by words such as "anticipate", "could", "should", "expect", "seek",
"may", "intend", "likely", "plan", "estimate", "will", "believe"
and similar expressions suggesting future outcomes or statements
regarding an outlook. These include, but are not limited to, the
Oyu Tolgoi Project becoming one of the World's largest copper and
gold producers; timing of initial production and commercial
production for the Oyu Tolgoi Project; possible expansion scenarios
for the Oyu Tolgoi Project; the Oyu Tolgoi Project's expected
payback period of capital; the Oyu Tolgoi Project's mine life under
the Reserve and Life-of-Mine Sensitivity Cases and the anticipated
yearly production, including average annual production; peak single
year production for the Oyu Tolgoi Project; the ability of the Oyu
Tolgoi Project's mine development to support an expansion to
265,000 tonnes per day; the Oyu Tolgoi Project's anticipated
financial results; launching the Oyu Tolgoi Project's training and
development strategy; the availability of project financing for the
Oyu Tolgoi Project; the timing of commencement of full construction
of the Oyu Tolgoi Project; the Oyu Tolgoi Project's anticipated
future production and cash flows; the ability of the partners to
arrange financing for construction of the Oyu Tolgoi Project;
statements respecting future equity investments in Ivanhoe Mines by
Rio Tinto; Rio Tinto's exercise of its Ivanhoe Warrants; statements
respecting anticipated business activities; planned expenditures;
corporate strategies; mining plans and production forecasts for the
Ovoot Tolgoi Coal Project; the schedule for carrying out and
completing an expansion of the production capability of the Ovoot
Tolgoi Coal Project; the potential improvement of the export
conditions at the Shivee Khuren-Ceke border between Mongolia and
China; the planned drilling program and feasibility study at the
Kyzyl Gold Project; the ability to achieve gold recoveries of up to
90% from a commercial scale plant at the Kyzyl Gold Project; the
impact of amendments to the laws of Mongolia and other countries in
which Ivanhoe Mines carries on business, particularly with respect
to taxation; cost and outcome of plans to continue the development
of non-core projects, and other statements that are not historical
facts.
All such forward-looking information and statements are based on
certain assumptions and analyses made by Ivanhoe Mines' management
in light of their experience and perception of historical trends,
current conditions and expected future developments, as well as
other factors management believes are appropriate in the
circumstances. These statements, however, are subject to a variety
of risks and uncertainties and other factors that could cause
actual events or results to differ materially from those projected
in the forward-looking information or statements. Important factors
that could cause actual results to differ from these
forward-looking statements include those described under the
heading "Risks and Uncertainties" elsewhere in the Company's
MD&A. The reader is cautioned not to place undue reliance on
forward-looking information or statements.
The news release also contains references to estimates of
mineral reserves and mineral resources. The estimation of reserves
and resources is inherently uncertain and involves subjective
judgments about many relevant factors. The accuracy of any such
estimates is a function of the quantity and quality of available
data, and of the assumptions made and judgments used in engineering
and geological interpretation, which may prove to be unreliable.
There can be no assurance that these estimates will be accurate or
that such mineral reserves and mineral resources can be mined or
processed profitably. Mineral resources that are not mineral
reserves do not have demonstrated economic viability. Except as
required by law, the Company does not assume the obligation to
revise or update these forward-looking statements after the date of
this document or to revise them to reflect the occurrence of future
unanticipated events.
Contacts: Ivanhoe Mines Ltd. Bill Trenaman Investors
+1.604.688.5755 Ivanhoe Mines Ltd. Bob Williamson Media
+1.604.688.5755 www.ivanhoemines.com
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