Oyu Tolgoi to become the world's next major copper and gold mine
with average annual production of more than one billion pounds of
copper and 330,000 ounces of gold for at least 35 years
ULAANBAATAR, Mongolia, Sept. 29 /PRNewswire-FirstCall/ -- Ivanhoe
Mines' Chairman Robert Friedland and President John Macken
announced today that an independent Integrated Development Plan
(IDP) prepared by a joint venture between AMEC Americas Limited, of
Vancouver, Canada, and Ausenco Limited, of Perth, Australia, with
input from 12 other leading international engineering and
environmental consultants, confirms the potential of Ivanhoe's Oyu
Tolgoi (Turquoise Hill) Project in southern Mongolia to become one
of the world's largest copper and gold producers and a model of
environmentally-sound mineral development. "The IDP provides a
comprehensive roadmap for the staged development of a new,
world-scale copper and gold mining complex at Oyu Tolgoi that will
positively and significantly contribute to Mongolia's economic
growth and social development for decades to come," Mr. Macken
said. "The study outlines the framework for the responsible
development of the mine, allowing Ivanhoe to integrate economic
progress with environmental care and social responsibility."
Development at Oyu Tolgoi is scheduled to occur over a 15-year
period, providing for an ultimate mine life that is expected to
exceed 40 years. The IDP consists of: 1. a feasibility-level
evaluation of an initial, large open-pit mine developed on the
near-surface Southern Oyu deposits; and 2. pre-feasibility and
scoping-level evaluations of the associated infrastructure, such as
power supply, and of a world-class, underground block-cave mining
operation at the Hugo Dummett North and South deposits. The
open-pit resources used in the IDP are all in the Measured and
Indicated categories. The underground resources used in the IDP
include some Inferred resources that have not yet been sufficiently
drilled to have economic considerations applied to them to enable
them to be categorized as reserves. Mineral resources which are not
reserves do not have demonstrated economic viability. Until there
is additional underground drilling and geotechnical rock
characterization to upgrade the Indicated and Inferred resources to
Measured and Indicated resources, the economic analysis contained
in the IDP is a preliminary assessment and there can be no
certainty that the predicted results of the IDP will be realized.
The independent study indicates that the Oyu Tolgoi Mine will be
capable of average annual production in excess of one billion
pounds of copper and 330,000 ounces of gold for at least 35 years.
Peak annual production in excess of 1.6 billion pounds of copper
and 900,000 ounces of gold is projected to be reached six years
after initial production begins (Year 6). To achieve this
production, the study contemplates a two-phase approach to
developing the mine. Summary of Phase 1 ------------------ The
first phase, the Base Case, consists of a concentrator with a
single SAG (semi-autogenous grinding) circuit with an initial
throughput rate of 70,000 tonnes-per-day (tpd), producing a
gold-rich copper concentrate by mining open-pit resources from the
Southwest Oyu Deposit. During the first three years of operation,
mill feed will be primarily sourced from stages 1 and 2 of the
open-pit mine centred on the gold-rich Southwest Oyu Deposit, while
the initial underground block cave mine at the copper-rich,
higher-grade Hugo North Deposit is being developed. After Year 3,
production at Hugo North is expected to commence. By Year 5, Hugo
North will be the predominant source of mill feed for the
concentrator. With modifications to the downstream portion of the
concentrator, the softer, underground mill feed is expected to
facilitate an increased throughput rate of 85,000 tpd by Year 6 in
the single SAG circuit concentrator. At this point, open-pit
production will be curtailed and only stages 1 and 2 of the
ultimate nine-stage open-pit mine plan will have been mined. In
this Base Case scenario, Hugo North provides the mill feed to
beyond Year 40. Summary of Phase 2 ------------------ Phase 2 of
the IDP, the Expanded Case, will be initiated with a decision in
Year 3 to develop a block-cave mine at the Hugo South Deposit and
proceed with the stripping of stages 3 and 4 of the open-pit mine.
The Expanded Case envisions the ramping up of production from the
underground block-cave mines and the doubling of the capacity of
the concentrator, including the addition of a second SAG milling
circuit, to increase Oyu Tolgoi's combined open-pit and underground
production to at least 140,000 tpd by Year 7. Hugo North mill feed,
combined initially with feed from stages 3 and 4 of the open-pit
mine, will ensure that the 140,000 tpd production rate is
maintained. By Year 12, when production from Hugo South will
commence, underground production alone is expected to reach 140,000
tpd. Assuming that the expansion is undertaken as scheduled, the
IDP indicates that Oyu Tolgoi could produce approximately 35
billion pounds of copper and 11 million ounces of gold over the
projected, initial 35-year life of the mine, based on resources
delineated to May, 2005. Given the significant potential to expand
the known resources at Oyu Tolgoi, the ultimate rate of production
from the expanded concentrator could exceed the projections
provided in the IDP. Ivanhoe believes the project has the potential
to achieve a mill throughput of 170,000 tpd, although this is not
evaluated in the IDP. Ivanhoe estimates that minimal additional
capital would be required to achieve this tonnage through the
double SAG circuit. Financial Modelling Results
--------------------------- The IDP financial models were
constructed using a base copper price of $1.00/lb and a base gold
price of $400/oz, and are based on interpretation of existing tax,
mining and other relevant Mongolian laws. For comparison, current
copper and gold prices are approximately $1.80-$1.85/lb and
$470/oz, respectively. All dollar figures are in United States
dollars unless otherwise indicated. The estimated net present value
(NPV) of the Oyu Tolgoi Mine at an 8% discount rate, assuming the
Expanded Case production is developed as scheduled to 140,000 tpd,
is $3.44 billion before tax - and $2.71 billion after tax. At a 10%
discount rate, the NPV is $2.40 billion before tax and $1.85
billion after tax. The internal rate of return (IRR) of the
Expanded Case is 19.75% after tax and the payback period is 6.5
years. The engineering assessment of initial capital required to
fund the open-pit mine and the associated milling complex, capable
of processing 70,000 tpd, is estimated at $1.15 billion. In
addition, $232 million will be expended during the same period to
advance the development of the underground Hugo North Mine. This
initial expenditure carries the project through a six-month ramp-up
period to reach full production of 70,000 tpd at the beginning of
2009. Ivanhoe believes that the continued investment required
between 2009 and 2014 for the ongoing development of the mine to
reach the 140,000 tpd Expanded Case could be financed from cash
flows from initial mining operations. Financing this investment was
not assessed in the IDP. The IDP's sensitivity analysis shows that
the project's rate of return is most sensitive to changes in the
copper price, followed by changes in the gold price, changes to the
operating costs and, finally, changes in capital costs. At $1.10
copper and $400 gold, the after-tax IRR increases to 22.08%; the
after-tax NPV increases to $3.39 billion at an 8% discount rate and
$2.39 billion at a 10% discount rate. Although not included as a
basis of the financial analysis in the IDP, the NPV would increase
by more than $200 million in either the Base or Expanded cases if
gold production for the first six years was hedged at $550 an
ounce. Independent of the IDP process, Ivanhoe has received advice
from financial advisors that the futures market for gold currently
easily could support a hedge at $550 an ounce over this period. A
gold hedge at $550 in the first six years of full production would
lower estimated minesite cash costs to approximately 2 cents a
pound of copper produced during that six-year period. The NPV
calculations do not include any value for the new, high-grade Hugo
Far North mineralization discovered on the Ivanhoe-Entree joint
venture property, which is adjacent to and directly north of the
Oyu Tolgoi property. Ivanhoe is in the process of drilling off the
mineralization to the inferred and indicated status and expects to
have an independent resource estimate prepared by AMEC Americas
Limited by early 2006. As is the case with all long-life mining
projects, NPV calculations significantly understate the value of
anticipated cash flows from the project beyond the initial 10 years
of operation. Key Points in the IDP Report
---------------------------- - Production is forecast to commence
in mid-2008 from an open pit centred on the gold-rich Southwest Oyu
Deposit, which is the primary deposit of the near-surface Southern
Oyu group of deposits. - Full production, with an initial
throughput of 70,000 tpd (25.5 million tonnes per annum (mtpa)), is
expected at the beginning of 2009. - The initial capital cost of
$1.15 billion for the open-pit mine and associated milling complex
includes $55.2 million in escalation costs and $51.1 million in
operating costs incurred in the second half of 2008 as operations
commence and the mine ramps up to full production. - In addition to
the $1.15 billion in initial capital costs for the open pit and
mill, an estimated $232 million in underground development work
will be spent prior to reaching full production in the mill, which
will allow Ivanhoe to complete the development of Shaft No. 1 of
the underground Hugo North Mine and advance work on the No. 2 and
No. 3 shafts. An outline of the work underway on Shaft No. 1 is
given below. - Mill feed for the first 10 years of operation will
utilize more than 85% Measured and Indicated resources from both
open-pit and underground deposits. - Estimated average copper
recoveries over the initial life-of-mine considered by the IDP are
90.0%; gold recoveries are 78.1%. These estimates are based on
extensive testing by SGS Lakefield Research Limited, of Lakefield,
Canada, and MinnovEX Technologies Inc., of Toronto, Canada. - An
annual production rate in excess of 140,000 tpd (52.5 mtpa) is
expected to be achieved by Year 7, when a second SAG circuit is
completed. This is presented in the IDP as the Phase 2 Expanded
Case and would produce an average annual production in excess of
one billion pounds of copper and 330,000 ounces of gold for at
least 35 years. - At the Expanded Case level of production, the
average pre-tax annual gross revenue over the initial 35 years
would be $1.1 billion, peaking at $1.99 billion in Year 8. - The
Expanded Case estimates total cash cost, after gold credits over
the life of the project, at $0.40/lb. This total cash-cost figure
includes the realization costs of treatment, refining, product
transport and government sale royalties. - Site cash costs at the
mine gate (excluding realization costs) are estimated at $0.26/lb.
Shaft Work Underway ------------------- Ivanhoe and its underground
mining consultant, McIntosh Engineering Inc., of Tempe, USA,
recognize the enormous importance and value of the Hugo North
Deposit. Accordingly, its development is being fast tracked.
Critical to development of Hugo North is accessing the deposit by
means of the initial 6.7-metre-diameter Shaft No. 1. The Shaft No.
1 headframe, hoisting plant and associated infrastructure currently
is under construction and shaft sinking from the completed
headframe will commence in the fourth quarter of this year. In the
interim, pre-sinking excavation is underway. The work is being
performed by the Redpath Group of North Bay, Canada, one of the
world's leading shaft-sinking firms. When completed, Shaft No. 1
will provide access to the Hugo North and Hugo South deposits and
enable the completion of detailed feasibility studies, further
resource delineation drilling and rock characterization work. Shaft
sinking is scheduled to be completed by the third quarter of 2007
and will be followed by underground drifting and diamond drilling
in 2007 and 2008. McIntosh has commenced engineering work for the
project's second shaft, which is being designed as a
10-metre-diameter production and service shaft. Additional Economic
Enhancements -------------------------------- There remains
significant upside to further enhance the economics of the project,
given the continuing exploration underway to expand and upgrade the
resources that were used as the basis for this assessment. Given
that the mining plans in the IDP do not fully exploit the May,
2005, estimated resources, and the excellent potential to add
significant new resources, Ivanhoe and the independent engineers
believe there is potential that the ultimate mine life will be
greater than the initial 35 to 40 years envisioned in the IDP. The
IDP does not include any of the high-grade copper and gold
mineralization discovered north of the Oyu Tolgoi northern
boundary, on the Shivee Tolgoi property, which is owned by Entree
Gold Inc. and is subject to Ivanhoe having the right to earn up to
80% of resources discovered on the property. Drilling has extended
the strike length of the Hugo Far North copper-gold discovery to
more than 600 metres beyond Oyu Tolgoi's northern boundary. Ivanhoe
currently has four deep-hole-capacity drilling rigs focused on
testing the extent to which the mineralized zone of Hugo North
extends into the Ivanhoe-Entree joint-venture property, as well as
testing satellite deposits and new targets throughout the Oyu
Tolgoi District. Additional upside considerations assessed by the
IDP include: - Increased Concentrator Capacity. The results of
throughput determinations by means of lab-test simulations and SAG
mill pilot-plant testing were discounted 10% for operational
contingency and potential sample-set bias. The IDP process plant
design may have additional capacity without the need for further
capital expenditure. - High-Density Tailings. The combined use of
high-compression thickeners to increase the deposition density of
tailings and of decant towers to reduce the size of the tailings
pond area has the potential to reduce make-up water requirements
and operating costs. - Smelting and SX/EW copper production. To
increase value and/or reduce risk, evaluation of the possible
benefits of a dedicated smelter at or near the site is warranted.
If a dedicated smelter is demonstrated to be advantageous, then
optimization of metal recoveries and concentrate grades to suit the
revised treatment and transportation conditions should be
considered. With a smelter providing a nearby source of sulphuric
acid, it could be advantageous to process the low-grade resource
identified in the Southwest open pit and the Central Oyu Deposit in
a heap leach, solvent-extraction/electrowinning (SX/EW) operation.
Mineral Resources Identified To Date
------------------------------------ The IDP is based on resources
for the Southern Oyu and Hugo North deposits that were
independently estimated by AMEC Americas Limited, in May, 2005,
based on drilling to April, 2005, and on resources for the Hugo
South Deposit independently estimated by AMEC in May, 2004. The
drilling consisted of approximately 273,000 metres in 583 drill
holes for the Southern Oyu open-pit deposits, which include the
Southwest, South, Wedge and Central zones, and 287,000 metres in
267 drill holes, including daughter holes, for the Hugo North and
Hugo South underground deposits. AMEC estimated that the project
contained Measured and Indicated resources totalling 1.15 billion
tonnes grading 1.30% copper and 0.47 grams per tonne (g/t) gold (a
copper equivalent grade of 1.54%), containing 32.9 billion pounds
of copper and 17.3 million ounces of gold, at a 0.60% copper
equivalent cut-off. In addition to the Measured and Indicated
resources, AMEC estimated that the Oyu Tolgoi Project contained
Inferred resources of 1.16 billion tonnes grading 1.02% copper and
0.23 g/t gold (a copper equivalent grade of 1.16%), at a 0.60%
copper equivalent cut-off, containing approximately 26.2 billion
pounds of copper and 8.4 million ounces of gold. Details of the
estimate are in Ivanhoe's May 3, 2005, news release. >
DATASOURCE: Ivanhoe Mines Ltd. CONTACT: in North America,
Investors: Bill Trenaman, (604) 688-5755; Media: Bob Williamson,
(604) 688-5755; To request a free copy of this organization's
annual report, please go to http://www.newswire.ca/ and click on
reports@cnw.
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