Ivanhoe gets specific on Oyu Tolgoi

With a long awaited investment agreement signed by the Mongolian government,
Ivanhoe Mines’ (IVN-T, IVN-N, IVN-Q) and Rio Tinto (RTP-N, RIO-L) are getting down to the nitty-gritty of planning a mine.

The two companies, which are joint ventured on the massive Oyu Tolgoi copper and gold project in the Asian country’s Gobi desert, said they expect to spend US$758 million next year alone as they begin full-scale construction of the mining complex.

“Ivanhoe is considering a schedule that could see construction of the initial open-pit mine completed in 2012 and commercial production begin in 2013,” Ivanhoe’s president and
chief executive John Macken said in a statement.

The companies still need to finalize a few details in connection with the investment agreement that was signed at the beginning of October — chief among them is a government review and approval of the feasibility stuty — but provided those matters are cleared up imminently construction at the site should get an earlier than expected start.

Thus far, Ivanhoe says seven of the ten conditions in the investment agreement have been satisfied.

Ivanhoe laid out some of the specifics of the construction plan, saying that it will resume sinking shaft #2 – a shaft needed for hoisting ore the underground mine a the Hugo Dummett deposit — as well as ramping up on the construction of the 31-storey headframe for the shaft.

The company will also be installing a 20-megawatt power station, digging the initial earthworks for the open-pit mine at the Southern Oyu deposits, doing more lateral underground development at Shaft #1 for Hugo Dummett, putting in a105-km highway link to the Chinese border, and building a regional airport.

Ivanhoe currently has roughly US$1 billion in cash assets to put towards the efforts. 

While that may seem a princely sum, it will need more funds next year to meet all of the capital requirements.

It says it will attain the money in one of two ways: either via Rio Tinto’s exercise of certain warrants (which if exercised would yield US$385-$393 million) or through more strategic investors. The company says some sovereign-wealth funds have already expressed unsolicited interest in partaking in the project.

The investment agreement with Mongolian government calls for Rio Tinto’s stake in Ivanhoe to move up from 9.9% to 19.7% through a US$388 million payment to Ivanhoe.

The final set-up will see the government holding a 34% interest in the project with the remaining 66% be held by Ivanhoe Mines.