Ivanhoe Mines (TSX: IVN)(NYSE: IVN)(NASDAQ: IVN) today announced
its results for the quarter ended June 30, 2010. All figures are in
US dollars, unless otherwise stated.
HIGHLIGHTS DURING THE SECOND QUARTER AND SUBSEQUENT WEEKS
-- Full-scale construction at Oyu Tolgoi copper and gold mine in Mongolia
commenced in June 2010 and there are now approximately 4,400 workers at
Oyu Tolgoi. Production is expected to commence in mid-2013.
-- 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.
-- 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.
-- In June 2010, Rio Tinto exercised its Series A warrants and Ivanhoe
issued 46 million common shares to Rio Tinto for total proceeds of
$393.1 million to be used to finance ongoing mine development activities
at Oyu Tolgoi. With the transaction, Rio Tinto increased its ownership
in Ivanhoe from 22.4% to 29.6%.
-- On May 25, 2010, Ivanhoe's 81%-owned subsidiary, Ivanhoe Australia (IVA-
ASX) signed a binding agreement with Barrick (PD) Australia Limited to
acquire the Osborne Copper and Gold Operation. The acquisition is
expected to close on September 30, 2010.
-- On August 12, 2010, Ivanhoe Australia announced that it had successfully
completed a A$251 million equity raising, being the institutional
component of its accelerated, non- renounceable, pro rata entitlement
offer and an institutional placement.
-- During Q2'10, Ivanhoe's 57%-owned subsidiary, SouthGobi Resources (SGQ -
TSX; 1878 - HK), reported coal sales of $17.7 million from its Ovoot
Tolgoi mine in southern Mongolia, representing approximately 449,000
tonnes of coal sold to customers in China.
-- In July 2010, Ivanhoe's 50%-owned Altynalmas Gold received an
independent National Instrument 43-101-compliant report on the Kyzyl
Gold Project that confirmed the economics of Altynalmas Gold's
development plan. The report was prepared by Scott Wilson Inc. of
London, England. Fluor Canada has been retained to complete a
Feasibility Study for the planned mine.
MONGOLIA: OYU TOLGOI COPPER-GOLD PROJECT (66% owned)
Full-scale mine construction at Oyu Tolgoi
Ivanhoe Mines is in the construction phase of the Oyu Tolgoi
Mine, with production planned to commence in 2013. Oyu Tolgoi
initially is being developed as an open-pit mining operation at the
Southern Oyu deposits, along with a copper concentrator plant,
related facilities and necessary infrastructure supporting an
initial throughput of 100,000 tonnes of ore per day. An underground
block-cave mining operation also is being developed at the Hugo
North Deposit.
Full-scale construction activities commenced in Q2'10 as
additional infrastructure (including a new 200 cubic metres per
hour concrete batch plant), manpower and contractors were mobilized
to site. The work force totalled approximately 4,400 at the end of
July, 2010. Fluor Corporation is in charge of overall program
management, as well as services related to engineering, procurement
and construction management for the ore processing plant and
mine-related infrastructure such as roads, water supply, a regional
airport and administration buildings. Fluor is executing the
engineering for the project from its Vancouver, Canada, and
Beijing, China, offices with operations being managed onsite in
Mongolia. Engineering is expected to be completed in Q1'11.
The development of the first lift of the underground block-cave
mine at the Hugo North Deposit is well underway, with full
production scheduled to begin by the end of the fifth year of
operations. Shaft #1 lateral mine development on the 1300-metre
level at the Hugo North underground deposit is ahead of schedule,
with a year-to-date advance of 1,712 metres. Raise-bore drilling
for the first of two ventilation shafts near Shaft #1 has
commenced, and a second mining fleet has been purchased to increase
advance rates for the underground mine development.
Detailed engineering at Shaft #2 has reached 67% completion.
Construction of the headframe foundation is progressing to plan.
Major works during Q2'10 included installation of scaffolding and
the commencement of rebar placement and anchor-bolt alignment for
the hoist foundation and concrete placement. Foundation work also
has begun for the air ventilation facilities that will serve for
the sinking and operation of Shaft #2. When completed, Shaft #2
will be the main service shaft for the Hugo North Mine.
Detailed engineering for the ore concentrator now is at 80%.
Foundation preparation work has been completed for the first of two
Semi-Autogenous Grinding (SAG) mills, ball mill, pebble crusher,
south reclaim tunnel and construction offices. The first concrete
pours for the concentrator foundations commenced in June, 2010. The
concentrator initially is being built as a modular two-line mill,
capable of treating 100,000 tonnes of ore per day.
The 2010 independent Integrated Development Plan estimates that
the concentrator will be expanded from the initial rate of 100,000
tonnes per day to 160,000 tonnes per day when the first lift of the
Hugo North underground block cave begins commercial production,
augmenting the ore mined from the Southern Oyu open-pit mine.
New 2010 Integrated Development Plan for Oyu Tolgoi copper-gold
mining complex
On May 11, 2010, Ivanhoe announced that a new, independent
Integrated Development Plan (IDP-10) confirmed 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 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 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.
The IDP-10 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 IDP-10, a
technical report compliant with Canada's NI 43-101 reporting
standard, is available on SEDAR and on Ivanhoe's website at
www.ivanhoemines.com.
Ivanhoe Mines advances financing for Oyu Tolgoi copper-gold
project in discussions with leading international financial
institutions
The IDP-10 estimated that the initial capital cost required to
achieve first production from the open-pit mine on the Southern Oyu
deposits will be $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
following the commencement of production from the open-pit mine.
Ivanhoe is discussing additional financing options for the balance
of its capital requirements.
On May 21, 2010, Ivanhoe Mines signed a joint mandate letter
with the European Bank for Reconstruction and Development (EBRD)
and the World Bank Group's International Finance Corporation (IFC)
for evaluation of a major syndicated financing package for the
construction of the planned Oyu Tolgoi mining complex.
Under terms of the joint mandate letter, EBRD and IFC will
consider providing a two-part package consisting of:
-- up to $300 million each from EBRD and IFC, as part of a group of primary
lenders, in limited-recourse project financing under an "A loan"
structure; and
-- mobilization of a further $1.2 billion from commercial lenders under a
"B loan" structure.
Export Development Canada (EDC), the Canadian government's
export credit agency, is considering providing up to $500 million
in direct project financing capacity, subject to necessary
approvals, including ensuring that the Oyu Tolgoi Project meets
EDC's environmental and social impact review requirements. EDC is
reviewing information in that regard provided by Ivanhoe Mines.
Ivanhoe Mines selected Paris-based BNP Paribas and London-based
Standard Chartered to work with EBRD, IFC and EDC in arranging the
financing. The group of institutions will jointly work with the
commercial banks that will structure the debt financing package,
with completion targeted for Q1'11.
As leading global institutions, BNP Paribas and Standard
Chartered have a very strong presence in Asia and, consistent with
the commitments of the other core lenders, have indicated that they
are considering retaining a significant exposure to the Oyu Tolgoi
Project debt package through a mix of possible facilities. The
facilities include EBRD and IFC "A" loans, facilities backed by
export credit agencies and commercial loans.
IFC and EBRD financings are subject to detailed due diligence,
including a review of the extensive environmental and social
studies conducted by the Oyu Tolgoi Project, and approval by their
respective managements and boards of directors. The arrangements
also are subject to agreement of the Ivanhoe Mines Board of
Directors and other related approval processes.
Oyu Tolgoi Exploration
Exploration drilling continued on the area between the Southwest
Oyu and Heruga deposits; Zeus IP survey is ongoing
Less than half of the 20-kilometre-long mineralized trend at Oyu
Tolgoi has been extensively drill-tested to date. An ongoing
exploration program using Zeus™proprietary, induced-polarization
(IP) technology has identified numerous additional exploration and
development targets. Drilling continues to be directed at expanding
the project's resources and reserves.
During Q2'10, Ivanhoe Mines completed 10,030 metres of drilling
on a number of targets on the Oyu Tolgoi Project. The drilling of
two deep diamond-drill holes (OTD1502 and OTD1510) began during
Q2'10 in the area between the Southwest Oyu and Heruga deposits.
These two holes currently are at the top of the mineralized system
at approximately 1,800 metres below surface. OTD1502 is an infill
hole, 250 metres from holes OTD1487A and OTD1500B, which previously
intersected broad zones of copper-gold mineralization. OTD1510 is a
300-metre step-out to the southeast from OTD1500B.
In the area east of Central and Southwest Oyu, three
condemnation holes (OTD1503, OTD1504 and OTD1505) totalling 2,270
metres were completed. The holes targeted an easterly displaced
segment of the Oyu Tolgoi Trend and a corresponding gravity anomaly
in the area of the proposed tailings dam. No significant
mineralization was found.
During Q2'10, the expanded gradient array IP survey utilizing
the Zeus technology continued from the northern end of the Hugo
North Deposit to the northern part of the Ivanhoe/Entree Gold Joint
Venture area.
Mongolian Government obtains a 34% interest in the Oyu Tolgoi
Project
On May 31, 2010, the Mongolian Government obtained a 34%
interest in Oyu Tolgoi's licence holder, OT LLC, upon the receipt
of fully registered shares of OT LLC. Ivanhoe Mines now holds a
controlling 66% interest in OT LLC. Provisions of the Investment
Agreement address the amount and term of the parties' investments
in the Oyu Tolgoi Project, the protection of those investments and
the right to realize the benefits from such investments, as well as
the commencement of mining operations with minimum environmental
impacts 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 execution of
the Investment Agreement and also was signed on October 6, 2009,
established the basis upon which the Mongolian Government, through
its wholly-state-owned company, Erdenes LLC (Erdenes), obtained and
will hold the initial 34% equity interest in OT LLC. The
Shareholders' Agreement provides the terms that govern the
respective rights and obligations of the parties as shareholders of
OT LLC. The Shareholders' Agreement also addresses the
circumstances and the requirements pursuant to which Ivanhoe Mines
and Rio Tinto will assume or arrange financing for the Oyu Tolgoi
Project and for Erdenes' portion of the investment capital needed
for the Project.
First meeting of OT LLC Board held in Ulaanbaatar, Mongolia
On June 9 and 10, 2010, the first meeting of the Board of
Directors of OT LLC was held in Ulaanbaatar, Mongolia. The meeting
addressed the normal organizational issues of a first board meeting
and formally approved the recent nomination of the former Mongolian
diplomat, Galsan Batsukh, as Chairman of the Board of Directors of
OT LLC.
Under the authority of the Shareholders' Agreement, Ivanhoe
Mines appointed six of the nine members of the OT LLC Board of
Directors and the Mongolian Government appointed three members. The
nine members of the Board met over a two-day period to address a
number of organizational issues pertaining to the business and
governance of OT LLC, including approval of Board Procedural Rules
and the Board's Code of Conduct. OT LLC is the entity that is
constructing and will operate the Oyu Tolgoi Project; it also holds
the Oyu Tolgoi mining licences.
OT LLC is progressing with discussions with key Mongolian
Government agencies to improve infrastructure at the Mongolia-China
border crossing to accommodate increased freight volumes and
implementation of regular transportation schedules through the
remainder of 2010 and the start of 2011. Community consultations
have taken place to address the construction schedule for the new
paved road to China and the new regional airport.
The OT LLC five-year training plan was released on June 30,
2010, to key Mongolian Government ministries in accordance with the
project's Investment Agreement. The project has authorized
development of educational and training programs for Mongolian
citizens in order to elevate the skills necessary for development
of an effective mine workforce. In that regard, a memorandum of
understanding covering ongoing training activities was signed with
the Ministry of Education on July 9, 2010.
MONGOLIA
COAL PROJECTS
SOUTHGOBI RESOURCES (57% owned)
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.
In Q2'10, SouthGobi shipped approximately 449,000 tonnes of coal
at an average realized selling price of approximately $43 per
tonne. This compares to 384,000 tonnes of coal shipped in Q2'09 at
an average realized selling price of $30 per tonne. The increases
in tonnes of coal shipped and average realized selling price
resulted in $17.7 million of revenue being recognized in Q2'10,
compared to $10.7 million in Q2'09.
Cost of sales was $13.2 million in Q2'10, compared to $9.1
million for Q2'09. The increase in cost of sales relates to the
higher sales volume and higher costs in Q2'10. During Q2'10,
SouthGobi incurred higher operating costs associated with the
continuing realignment of the open-pit and fleet utilization
issues. 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.
During June 2010, SouthGobi commenced the construction of a
basic coal-handling facility. The new facility will allow SouthGobi
to remove ash (waste rock) and enable the blending of coal from
different seams to create higher-value products. Expected to be
operational in early 2011, the coal-handling facility will include
a 300-tonne-capacity dump hopper, which will receive run-of-mine
coal from the Ovoot Tolgoi Mine and feed a rotary breaker that will
size coal to a maximum of 50 millimetres and reject oversize ash. A
radial stacker will facilitate loading of the sized coal into
customers' trucks. The coal-handling facility will be located
between Ovoot Tolgoi's Sunset and Sunrise open-pits and is expected
to initially operate on one 12-hour shift per day, six days per
week. Annual capacity on that basis will be up to six million
tonnes of coal and can be adjusted upwards as mining capacity
increases.
In June 2010, SouthGobi completed the commissioning of a second
fleet of coal-mining equipment consisting of a Liebherr 996
hydraulic excavator with a 34-cubic-metre bucket and four Terex
MT4400 218-tonne-capacity trucks. The new fleet supplements the
existing mine fleet, which consists of a Liebherr 994 hydraulic
excavator with a 13.5-cubic-metre bucket and seven Terex TR100
91-tonne-capacity trucks.
In Q4'09, SouthGobi commenced realigning the open-pit for a
north-south entry. Waste removal at Ovoot Tolgoi originally was
along the seam's strike-length (east-west). This allowed for better
utilization of capital cost controls when financing was more
constrained. Strip ratio and waste movements were lower and
customer's trucks were allowed to enter directly in the shallow pit
for loading. However, such an alignment is not beneficial over the
longer-term because it becomes less efficient as the pit depth
increases.
From an operating perspective, SouthGobi is encountering two
issues that will impact its short-term outlook. Firstly, there will
be proportionately less of the better quality coal coming from the
#5 seam in the near-term mine plan. Secondly, SouthGobi is
currently experiencing areas of higher sulphur content than
originally anticipated in mine plans and studies. Some of the
higher sulphur coal will not be attractive to customers in its
current form and may need to be stockpiled until appropriate
processing is in place or blending opportunities arise. As a
result, SouthGobi does not expect the rate of coal sales volumes to
be substantially different for the remainder of 2010 than for the
six months ended June 30, 2010.
Regional coal exploration
A number of SouthGobi's exploration licenses are associated with
the broader Ovoot Tolgoi Complex and Soumber Deposit. The 2010
exploration program includes drilling, trenching and geological
reconnaissance on a number of licence areas identified as having
good potential for coking and thermal coal deposits.
The 2010 exploration program began in March. Year-to-date
exploration activities include 62,270 cubic metres of trenching and
more than 64,000 metres of drilling (core and reverse circulation).
Key targets so far have been the Soumber Deposit, fields
surrounding the Soumber Deposit and also the SW target, which is
approximately six kilometres southwest of the Ovoot Tolgoi
Complex.
The drilling program will focus on further definition of known
coal occurrences to bring them to a NI 43-101-compliant definition
stage and to allow for registration with the Mongolian Government
as the next step toward expanding SouthGobi's mining licence
holdings.
AUSTRALIA
IVANHOE AUSTRALIA (81% owned)
Ivanhoe Australia incurred exploration expenses of $14.9 million
in Q2'10, compared to $8.8 million in Q2'09. The increase was
largely due to the commencement of the Merlin Pre-Feasibility
Study.
Ivanhoe Australia's key projects, all situated on granted Mining
Leases, are Merlin, Mount Dore and Mount Elliott. During Q2'10,
work focused on the acquisition of the Osborne Copper and Gold
Operation (Osborne), integration planning to join the Osborne and
Cloncurry sites, infill drilling on the inferred resource zone at
Merlin and the commencement of the Merlin Pre-Feasibility
Study.
Strategic Acquisition of Osborne Copper and Gold Operation
On May 25, 2010, Ivanhoe Australia announced the signing of a
legally binding agreement with Barrick (PD) Australia Limited to
acquire the Osborne Copper and Gold Operation. The acquisition is
expected to close on September 30, 2010.
Consideration for the acquisition of Osborne consists of:
-- A$17.4 million in cash;
-- 2% Net Smelter Returns royalty capped at A$15.0 million from ore
extracted from the Osborne tenements only; and
-- assumption of all site environmental obligations, including the
provision of an EPA Financial Assurance of A$18.4 million (discounted).
Osborne includes developed mines, a two million-tonne-per-annum
concentrator, infrastructure and tenements. Osborne will positively
impact Ivanhoe Australia's molybdenum and rhenium production plans
and provide the opportunity for supplementary copper and gold
production.
The key benefits to Ivanhoe Australia of the Osborne acquisition
are expected to be:
-- reduction of the upfront capital cost for the Merlin development by
approximately A$100 million;
-- facilitation of Little Wizard production by late 2011 and Merlin
production by 2012;
-- reduced project delivery risk for the Merlin operation; and
-- reduced permitting issues for the Merlin Project.
As a fully equipped operating mine site, Osborne is expected to
become the main operating centre for Ivanhoe Australia in the
Cloncurry district, in northwestern Queensland. The overall
integration planning to join the Osborne and Cloncurry sites is
progressing well.
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 also is 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 southern-most extent of molybdenum
mineralization of economic interest found to date. During Q2'10,
work continued on infill drilling on the Merlin Project to maximize
the indicated resources with assay results confirming molybdenite
intersections.
During Q2'10, the Merlin Pre-Feasibility Study work commenced
and is expected to be completed by November 2010. The
Pre-Feasibility Study will examine the various mining, processing,
and infrastructure options to develop the Merlin Deposit while
incorporating the Osborne facilities. A Feasibility Study then will
focus on the preferred development option and produce the financial
data for project approval. Environmental permitting will be
undertaken in parallel with the studies and is expected be
available at the end of the Feasibility Study.
Ivanhoe Australia completes A$251 million institutional equity
raising
On August 12, 2010, Ivanhoe Australia announced that it had
completed a A$251 million equity raising, comprising the
institutional component of its accelerated, non-renounceable, pro
rata entitlement offer and an institutional placement.
The equity raising, which (with the exception of the already
completed placement) is fully underwritten by UBS AG, Australia
Branch, and Morgan Stanley Australia Securities Limited, provides
Ivanhoe Australia with a very strong platform to move forward on
the funding of its large development project program and extensive
exploration portfolio.
The funds raised under the institutional entitlement offer and
placement support the following initiatives and commitments:
-- funding the acquisition of the Osborne Copper and Gold Operation.
-- development of the Merlin Project at Cloncurry.
-- partial repayment of approximately A$53 million of debt owed to Ivanhoe
Mines.
-- ongoing exploration, development studies and associated corporate costs.
In addition to the approximately A$251 million raised under the
institutional entitlement offer and placement, Ivanhoe Australia is
expected to raise approximately A$18 million in equity through the
retail entitlement offer and potentially up to a further
approximately A$158 million through the future exercise of the
options issued as part of the equity raising. Therefore, the total
proceeds of the entitlement offer, placement and exercise of
options may be up to A$427 million.
Ivanhoe Mines previously agreed it would not take-up its
entitlement under the institutional entitlement offer, but has
reiterated that it remains committed to its investment in Ivanhoe
Australia. The offer securities that correspond to Ivanhoe Mines'
entitlement were sold to a range of institutional investors. This
is expected to increase the liquidity and free float of Ivanhoe
Australia's shares. Following completion of the entitlement offers
and placement, Ivanhoe Mines will hold approximately 63% of Ivanhoe
Australia.
KAZAKHSTAN
Fluor Canada retained to complete Feasibility Study for planned
Kyzyl Gold mine
In August 2010, Altynalmas Gold announced that it had retained
Fluor Canada Ltd., of Vancouver, Canada, to complete a detailed
Feasibility Study as the next step in the development plan for the
Kyzyl Gold Project in northeastern Kazakhstan. The study is
expected to be completed in the first quarter of 2011. Ivanhoe
Mines has a 50% interest in Altynalmas Gold, the company that holds
100% ownership of the Kyzyl Gold Project.
Altynalmas is focused on building a new, state-of-the-art gold
mine designed to produce a first-stage average of 368,000 ounces of
gold per annum over a 16-year mine life. Based on current
parameters, the operation initially would treat an estimated 1.5
million tonnes of ore per year at an estimated average gold grade
of 8.53 g/t. Recent metallurgical test-work programs have achieved
gold recoveries of between 86% and 90% using fluidized-bed
roasting.
In September 2009, Altynalmas Gold commenced a deep-level
drilling program at the Bakyrchik Deposit intended to upgrade the
present mineral resource. During Q2'10, 64 drill holes totalling
19,692 metres were completed and more than 2,800 samples were
collected, prepared, and submitted for assay.
As of July 31, Altynalmas had completed a total of 52,563 metres
of drilling. Altynalmas is continuing its aggressive drilling
program designed to expand and upgrade the NI 43-101-compliant
resources and reserves at the Kyzyl Project, with a further 39,000
metres planned for completion in 2010. Intersection widths and gold
grades of the new drill holes correlate well with the results of
the earlier, Soviet-era drilling. A summary of Altynalmas Gold's
recent drill results is contained in Ivanhoe Mines' news release
dated August 9, 2010.
In August 2010, Scott Wilson Inc. produced an independent
Pre-Feasibility-level NI 43-101-compliant report on the Kyzyl Gold
Project (the Technical Report) that confirmed the economics of
Altynalmas Gold's development plan. The Technical Report's Base
Case economic assessment is based only on mineral reserves and
calculated an after-tax net present value of $406 million using a
5% discount rate. A Life-of-Mine Sensitivity Case, completed to
better reflect the Kyzyl Gold Project and the size of the mineral
resource, calculated an after-tax net present value of $820
million, using the same economic parameters. The results from the
Pre-Feasibility Study provided Altynalmas Gold the confidence to
continue the project development with the commencement of the
Feasibility Study and detailed design.
Rio Tinto increased its interest in Ivanhoe Mines to 29.6%
In June 2010, Rio Tinto exercised its 46.0 million Series A
warrants four months ahead of schedule. Upon the exercise of the
Series A warrants, Ivanhoe Mines issued 46.0 million common shares
to Rio Tinto at $8.54 per share for total proceeds of $393.1
million. The proceeds will be used to finance ongoing mine
development activities at the Oyu Tolgoi Project. With this
transaction, Rio Tinto now has invested approximately $1.7 billion
in Ivanhoe Mines, inclusive of the convertible debt, and increased
its ownership in Ivanhoe to approximately 29.6%.
Ivanhoe Mines' shareholders' rights plan approved at Annual
General and Special Meeting
Ivanhoe Mines' shareholders approved a Shareholders' Rights Plan
at the Annual General and Special Meeting on May 7, 2010. The plan
was supported by 95.7% of the votes cast by Ivanhoe Mines'
shareholders (excluding votes cast by Ivanhoe Executive Chairman
Robert Friedland and Rio Tinto).
The purpose of the Shareholders' Rights Plan is to provide the
Ivanhoe's Board and shareholders with sufficient time to properly
consider any take-over bid and to allow enough time for competing
bids and alternative proposals to emerge. The Shareholders' Rights
Plan also seeks to ensure that all shareholders are treated fairly
in any transaction involving a change of control of Ivanhoe Mines
and that all shareholders have an equal opportunity to participate
in the benefits of a take-over bid. The Shareholders' Rights Plan
encourages potential acquirers to negotiate the terms of any offer
for Ivanhoe Mines shares with the Board of Directors or,
alternatively, to make a Permitted Bid (as defined in the
Shareholders' Rights Plan) without the approval of the Board.
Ivanhoe Mines is of the view that the Shareholders' Rights Plan,
approved by all members of the Ivanhoe Board on April 5, 2010 (with
the exception of the Rio Tinto appointee, who opposed the Plan),
following the recommendation of a committee of independent
directors, is not in breach of any of Rio Tinto's existing
contractual rights. However, the Rights Plan does restrict Rio
Tinto - and other shareholders and third parties, whether acting
alone or in concert with another party - from acquiring additional
Ivanhoe Mines shares in the market beyond the amounts provided for
in existing contractual arrangements unless an offer is made to all
shareholders.
Rio Tinto, which presently owns 29.6% of Ivanhoe Mines, claimed
in a filing for arbitration on July 9, 2010, that the Ivanhoe Mines
Shareholders' Rights Plan breached certain of Rio Tinto's rights
under the October 2006 private-placement agreement, as amended,
between Rio Tinto and Ivanhoe Mines. It is Ivanhoe Mines' view that
nothing in the private placement agreement prohibits Ivanhoe Mines
from implementing a Shareholders' Rights Plan and that nothing in
the Shareholders' Rights Plan breaches any of Rio Tinto's existing
contractual rights under the private-placement agreement, as
amended. Ivanhoe Mines will continue to support its Shareholders'
Rights Plan in the arbitration proceeding initiated by Rio
Tinto.
Ivanhoe Mines advises Rio Tinto of termination of restrictions
on potential new strategic investors
On July 12, 2010, the Ivanhoe Mines Board of Directors
authorized the termination of the Strategic Purchaser Covenant that
has, since October 2007, restricted the ability of Ivanhoe Mines to
issue shares to strategic investors. The termination of the
covenant will permit Ivanhoe Mines to issue more than 5% of its
common shares to one or more third-party strategic investors, which
could include major mining companies. The covenant's removal will
give the Ivanhoe Mines Board of Directors additional flexibility to
consider all available opportunities as part of its objective of
realizing maximum value for Ivanhoe Mines' shareholders. Rio Tinto
continues to retain its right of first refusal over any shares that
Ivanhoe may issue to strategic investors in accordance with the
terms of, and in the circumstances contemplated by, the
private-placement agreement, as amended.
Andrew Harding, Chief Executive of Rio Tinto's copper division,
resigned from the Ivanhoe Mines Board of Directors on July 10,
2010.
Financial Results
In Q2'10, Ivanhoe Mines recorded a net loss of $30.0 million
($0.07 per share) compared to a net loss of $24.9 million ($0.07
per share) in Q2'09, representing an increase of $5.1 million.
Results for Q2'10 mainly were affected by $39.5 million in
exploration expenses, $13.2 million in coal cost of sales, $14.7
million in general and administrative expenses, $8.3 million in
interest expense, $4.9 million in mainly unrealized foreign
exchange losses and $13.2 million in share of loss of significantly
influenced investees. These amounts were offset by coal revenue of
$17.7 million, $2.5 million in interest income and $72.2 million
change in fair value of embedded derivatives.
Exploration expenses of $39.5 million in Q2'10 increased $4.3
million from $35.2 million in Q2'09. The exploration expenses
included $23.2 million spent in Mongolia ($25.2 million in Q2'09),
primarily for Oyu Tolgoi and Ovoot Tolgoi, and $14.9 million
incurred by Ivanhoe Australia ($8.8 million in Q2'09). 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' cash position, on a consolidated basis at June
30, 2010, was $1.5 billion. As at August 16, 2010, Ivanhoe Mines'
current consolidated cash position is approximately $1.4
billion.
SELECTED QUARTERLY DATA
This selected financial information is in accordance with U.S.
GAAP.
($ in millions of dollars, except
per share information)
Quarter Ended
-------------------------------------
Jun-30 Mar-31 Dec-31 Sep-30
2010 2010 2009 2009
-------------------------------------------------------------------------
Revenue $17.7 $13.9 $9.9 $11.9
Cost of sales (13.2) (20.3) (8.5) (8.6)
Exploration expenses 39.5 (71.4) (67.2) (40.6)
General and administrative (14.7) (8.3) (15.0) (12.5)
Foreign exchange (losses) gains (4.9) 1.7 2.2 19.5
Change in fair value of embedded
derivatives 72.2 (1.4) (45.0) -
Loss on conversion of convertible
credit facility - (154.3) - -
Net (loss) income from continuing
operations 30.0 (200.5) (138.7) (47.5)
Income (loss) from discontinued
operations - 6.6 9.2 (22.3)
Net (loss) income 30.0 (193.9) (129.5) (69.8)
Net (loss) income per share - basic
Continuing operations ($0.07) ($0.47) ($0.35) ($0.12)
Discontinued operations $0.00 $0.02 $0.03 ($0.06)
Total ($0.07) ($0.45) ($0.32) ($0.18)
Net (loss) income per share - diluted
Continuing operations ($0.07) ($0.47) ($0.35) ($0.12)
Discontinued operations $0.00 $0.02 $0.03 ($0.06)
Total ($0.07) ($0.45) ($0.32) ($0.18)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarter Ended
-------------------------------------
Jun-30 Mar-31 Dec-31 Sep-30
2009 2009 2008 2008
-------------------------------------------------------------------------
Revenue $10.7 $3.5 $3.1 $0.0
Cost of sales (9.1) (3.2) (2.2) -
Exploration expenses (35.2) (34.1) (73.0) (56.8)
General and administrative (10.5) (7.8) (8.1) (5.1)
Foreign exchange (losses) gains 21.7 (9.3) (40.6) (20.0)
Writedown of other long-term
investments - - (18.0) -
Loss on conversion of convertible
credit facility - - - -
Net (loss) income from continuing
operations (27.0) (63.4) (165.0) (95.8)
Income from discontinued operations 2.1 7.4 5.0 7.8
Net (loss) income (24.9) (56.0) (160.0) (88.0)
Net (loss) income per share - basic
Continuing operations ($0.07) ($0.17) ($0.44) ($0.25)
Discontinued operations $0.00 $0.02 $0.01 $0.02
Total ($0.07) ($0.15) ($0.43) ($0.23)
Net (loss) income per share - diluted
Continuing operations ($0.07) ($0.17) ($0.44) ($0.25)
Discontinued operations $0.00 $0.02 $0.01 $0.02
Total ($0.07) ($0.15) ($0.43) ($0.23)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Resources
Ivanhoe Mines' results for the three months ended June 30, 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;
commencement of initial production and commercial production from
the Oyu Tolgoi Project; possible expansion scenarios for the Oyu
Tolgoi Project; the Oyu Tolgoi Project's anticipated yearly
production; implementation of the Oyu Tolgoi Project's training and
development strategy; the availability of project financing for the
Oyu Tolgoi Project and Ivanhoe Mines' ability to fund ongoing
construction as currently scheduled pending receipt of project
financing; the Oyu Tolgoi Project's anticipated mine life, future
production and cash flows; statements respecting future equity
investments in Ivanhoe Mines by Rio Tinto; 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 outcome of
Ivanhoe Australia's planned additional equity financing
transactions and initiatives; Ivanhoe Australia's total potential
proceeds from its equity financing trasactions; the planned use of
proceeds from Ivanhoe Australia's equity financing transactions;
the expected closing of the acquisition of the Osborne Copper and
Gold Operation on September 30, 2010; the impact that the Osborne
acquisition will have on Ivanhoe Australia's molybdenum and rhenium
production plans and for supplementary copper and gold production;
the planned timing of the completion of Merlin Project's
Feasibility and environmental studies; the planned drilling program
and Feasibility Study at the Kyzyl Gold Project; the planned
construction of a new gold mine at the Kyzyl Gold Project designed
to produce a first-stage average of 368,000 ounces of gold per
annum over a 16-year mine life; the plan for the Kyzyl operation to
initially treat an estimated 1.5 million tonnes of ore per year at
an estimated average gold grade of 8.53 g/t; the anticipated
achievement of 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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