UBS ups targets for Ivanhoe and Mongolia mine

Vanouver – Ivanhoe Mines’ (IVN-T, IVN-N) massive Oyu Tolgoi copper project in Mongolia is likely to be much larger than previously planned now that Rio Tinto (RTP-N, RIO-L) is involved, according to a new investment report.

In his Dec. 4 report, UBS mining analyst Tony Lesiak said the initial production level at Oyu Tolgoi could reach 100,000 tonnes-per-day, a 50% increase from previous Ivanhoe estimates, and cost US$2 billion to develop.

Mr. Lesiak increased his stock price target for Ivanhoe to roughly $15 from approximately $12 –, reflecting his view that Rio Tinto’s involvement will remove previous capital and technological barriers that should set the stage for a substantial increase in the scale of the mine.

The prediction comes just two months after Rio Tinto committed to make staged investments of up to US$1.5 billion in Ivanhoe Mines to finance construction of the Oyu Tolgoi mining complex.

Mr. Lesiak’s forecasts are ahead of any announcements by either Rio Tinto, which have yet to reach a long term investment agreement with Mongolia that will govern the amount of tax and royalties that will be generated by a future mining operation.

However, he says he is confident that the investment contract will be signed by the end of the first quarter of 2007 and ratified by the Mongolian Parliament by the middle of next year.

“As we have previously stated, we believe one of the key benefits of Rio Tinto’s partnership is that it should allow the senior officials in Mongolia to more easily sell the benefits of the Oyu Tolgoi investment contract to its own people and Parliament,” the UBS analyst said. “Any slippage will directly result in project startup-delays.”

Oyu Tolgoi, also known as Turquoise Hill, is located in the south Gobi desert region of Mongolia, approximately 550 kilometres south of Ulaanbaatar and 80 kilometres north of the Chinese-Mongolian border.

Ivanhoe shares rose 36 cents to $10.96 in Toronto Monday.

Back in Sept. 2005, Ivanhoe estimated that it would cost around US$1.3 billion to launch what would initially be a 70,000 tonne-per-day open pit mine.

However, Mr. Lesiak is predicting ting that a new integrated development plan that he expects to be released in the second quarter of 2007, will boost the initial production rate to 110,000 tonnes per day.

He says a move to block caving techniques, where controlled explosions result in the downward collapse of the orebody, could eventually double the production rate. UBS is assuming that commercial production at Oyu Tolgoi will begin in 2009 and that the capital costs will reach US$2.25 billion.