Robert Friedland, Executive Chairman and Chief Executive Officer of
Ivanhoe Mines (TSX: IVN)(NYSE: IVN)(NASDAQ: IVN), and John Macken,
President, announced today that a US$2.3 billion capital budget has
been approved for 2011 in what will be the peak year of
construction activity on the first phase of the Oyu Tolgoi
copper-gold project in southern Mongolia.
Approval of the budget by the Ivanhoe Mines Board of Directors
followed earlier full approval of the 100,000-tonne-per-day project
by the Ivanhoe Mines-Rio Tinto joint Technical Committee, which is
overseeing the Oyu Tolgoi Project, and the board of Oyu Tolgoi LLC,
the Mongolian company that holds the Oyu Tolgoi licences and is 66%
owned by Ivanhoe Mines and 34% owned by the Mongolian
government.
"Our ramp-up to full-scale construction during 2010 was so
successful that we now are targeting to deliver the first ore to
the concentrator up to six months earlier than previously
projected. Oyu Tolgoi should be making its first sales of copper
and gold in concentrate produced from ore from the Southern Oyu
open pit during the fourth quarter of 2012," Mr. Macken said.
"Outstanding work by our project team, which currently includes
3,000 Mongolian men and women, means that the accelerated
development program will generate earlier revenues from the
gold-rich open-pit ore while we also are maintaining the pace of
development of the future underground block-cave mine at the
copper-rich Hugo Dummett Deposit.
"The announcement of a series of financing measures last week as
part of a new agreement with Rio Tinto will enable us to proceed in
coming weeks with the signing of the largest contracts of the
entire phase-one construction program."
Principal elements of 2011 construction program
Principal elements of the 2011 construction program include:
-- US$561 million for the copper-gold concentrator, which will see complete
enclosure of the building, completion of steel work for the overland ore
conveyor, installation of one of four ball mills and installation of all
material-handling equipment in the pebble crusher.
-- US$186 million to purchase the initial mining fleet of trucks, shovels
and ancillary equipment, and to start pre-stripping of the Southern Oyu
open-pit mine.
-- US$713 million for project infrastructure and electrical power,
including completion of the central substation, completion of the
process-water supply, completion of the truck maintenance shop and
phases one and two of the operations camp.
-- US$211 million for ongoing underground mine development at the Hugo
North Deposit , construction of the headframe on Shaft #2 and further
sinking of Shaft #2, which are critical elements of the development of
the block-cave mine planned to begin production in 2015.
US$3.5 billion budgeted to reach start of copper-gold
process-plant commissioning in 2012
The 2011 project budget was approved after the Ivanhoe Mines and
Oyu Tolgoi LLC boards and the joint Technical Committee reviewed
current estimates of projected capital requirements through to
project completion. The reviews included cash requirements from
January 1, 2011, for the completion of the Southern Oyu open-pit
mine; completion of the 100,000-tonne-per-day concentrator; and
advancing construction on elements of the Hugo North underground
mine, including the Shaft #2 headframe, sinking of Shaft #2,
completion of final design and ongoing development of the
underground mine.
Total capital required for phase one from January 1, 2011, to
the start of commissioning of the ore processing plant, which is
planned for the second half of 2012, is projected to be US$3.5
billion. This includes approximately US$2.9 billion to complete
construction of the Southern Oyu open-pit mine, processing plant
and essential infrastructure, including electricity, water, roads,
a paved airport runway and Mongolian-designed passenger terminal;
it also includes taxes and continued underground development of the
phase-two Hugo North mine.
The commissioning will be followed later in 2012 by initial
phase-one production, and then by commercial production expected
during the first half of 2013. Capital required from January 1,
2011, through to completion of the phase-one, 100,000-tonne-per-day
project is expected to total approximately US$4.5 billion. This
estimate makes no allowance for potential revenues from the sale of
copper-gold concentrate produced from the milling of a projected
nine million tonnes of stockpiled ore in the weeks of initial
production in 2012.
Table 1. Oyu Tolgoi phase-one future capital requirements to initial
production, 2011-2013 (numbers have been rounded)
Future capital requirements (direct & indirect) US$ billions
----------------------------------------------------------------------
2011 Includes $172 million in Value-Added Tax and $48 $2.3
million in customs duties and taxes
----------------------------------------------------------------------
2012 - projected initial Oyu Tolgoi production Q4, 2012 $2.0
Includes $195 million in Value-Added Tax and $54
million in customs duties and taxes
----------------------------------------------------------------------
2013 - projected commercial production H1, 2013 $0.2
Includes $10 million in Value-Added Tax and $2 million
in customs duties and taxes
----------------------------------------------------------------------
Total future capital requirements 2011-2013 $4.5
----------------------------------------------------------------------
The 2011-2013 estimate also includes a total of US$1 billion
that has been allocated to cover: 1) Value-Added Tax payments to
the Mongolian government (US$377 million); 2) customs duties and
other taxes (US$104 million); 3) contingency allowances (US$403
million); and 4) escalation allowances (US$159 million). Individual
contracts and sub-contracts also have built-in contingency and
escalation allowances. By the end of 2010, it is expected that
capital expenditures on the progress of Oyu Tolgoi's development
will have totalled US$1.4 billion.
2011-2013 capital estimates include almost US$500 million toward
development costs for phase-two Hugo North underground mine
The US$4.5 billion phase-one capital costs projected between
2011 and 2013 include an allocation of US$498 million, not
including taxes and other associated costs, to continue ongoing
development work on the Hugo North underground mine that will form
the second phase of Oyu Tolgoi's planned production.
One key item is the ongoing construction of the 31-storey-high
Shaft #2 headframe and sinking of the 10-metre-diameter,
concrete-lined shaft. Shaft #2 is the first production shaft and
the key personnel and materials shaft for the Hugo North block-cave
mine, which is the biggest value driver for the Oyu Tolgoi
Project.
Phase-one capital costs also will cover the underground lateral
development program, geotechnical program and mine planning and
expansion studies through to mid-2012. Final design of the
underground mine is set for 2012, when decisions will be made about
optimum production rates from the underground mine.
Capital spending to the end of 2010 will have included US$337
million spent on underground-mine development off Shaft #1.
Capital invested to accommodate future expansion in phase-one
construction
Mr. Macken said that the engineering and construction stages
have recognized the need to accommodate a major increase in ore
processing capacity in the future while minimizing potential
disruption to operations that will be underway at the time.
"Wherever possible, we have taken the opportunity to allow for
expansion with minimal impact on operations. Our plans call for
initial production of 100,000 tonnes of ore per day and we expect
to move to between 150,000 and 160,000 tonnes per day when ore from
the underground mine becomes available.
"To facilitate this expansion, we are building a third reclaim
tunnel that will increase the capacity to feed ore to the
concentrator by 50% to 60% over our initial rate of production. To
cater to future increased production, we have installed a pipeline
that, with minor modifications, can supply water for processing up
to 160,000 tonnes a day," Mr. Macken added.
"We've allowed for expansion in the concentrator by adding space
in the flotation area and installing other equipment to handle
higher production. We also have on-going studies examining options
to process additional underground ore and stockpiled open-pit
ore."
In another development, the Oyu Tolgoi Technical Committee has
decided to increase the capacity of the mining fleet's trucks,
opting for 290-tonne units that will help to move an estimated 112
million tonnes per year of ore and waste - a 12% increase over an
earlier plan. Pre-stripping of the open-pit mine will begin in 2011
to ensure that planned production levels can be achieved.
About Ivanhoe Mines (www.ivanhoemines.com)
Ivanhoe Mines (TSX: IVN)(NYSE: IVN)(NASDAQ: IVN) is an
international mining company with operations focused in the Asia
Pacific region. Assets include the company's 66% interest in the
world-scale, Oyu Tolgoi copper-gold mine development project in
southern Mongolia; its 57% interest in Mongolian coal miner
SouthGobi Resources (TSX: SGQ; HK: 1878); a 62% interest in Ivanhoe
Australia (TSX & ASX: IVA), a
copper-gold-uranium-molybdenum-rhenium exploration and development
company; and a 50% interest in Altynalmas Gold Ltd., a private
company developing the Kyzyl Gold Project in Kazakhstan.
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 harbour" 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
expectation that the delivery of the first ore to the concentrator
will occur during the third quarter of 2012; the expectation of
production of the first copper-gold concentrate from the open-pit
mine during the fourth quarter of 2012; the expectation that the
mine will begin commercial production in 2013 at a rate of 100,000
tonnes of ore per day; the projected capital requirements on the
project between January 1, 2011, and the start of initial
production in late 2012 of US$4.3 billion; and that the capital
expenditures on the first phase of Oyu Tolgoi are expected to total
US$1.4 billion by the end of 2010; the expected costs to first
production including direct payments to the Mongolian government
totalling US$608 million, consisting of US$414 million in
value-added tax, US$105 million in income taxes and social
insurance, and US$88 million in import duties;, 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" included in the preliminary
prospectus or in the Company's Annual Information Form, which are
filed on Sedar and EDGAR. The reader is cautioned not to place
undue reliance on forward-looking information or statements.
Contacts: Ivanhoe Mines Ltd. Bill Trenaman Investors
+1.604.688.5755 Ivanhoe Mines Ltd. Bob Williamson Media
+1.604.331.9830 www.ivanhoemines.com
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