The discovery by
On the strength of Ivanhoe’s exploration results, a handful of Canadian junior mining companies have acquired ground in Mongolia, primarily in the South Gobi desert area. These include
More recently, Australia’s
“We are very pleased to have formed a joint venture with WMC,” states Keith Laskowski, Gallant’s vice-president. “WMC brings commitment and expertise to exploration and mine development in our Mongolian programs.” Fayed intends to take Gallant public and is planning its initial public offering later this year.
Known as “the land of blue sky,” Mongolia is a vast highland country, land-locked between Russia to the north and China to the south. The breakup of the Soviet Union in 1991 ended some 70 years of influence over Mongolia. The country’s first fully democratic, multi-party election was held in 1990. The Mongolian Democratic Coalition won the election in June 1996, ending 75 years of unbroken communist rule. In July 2000, the reformed communist party regained power, sweeping 72 of the 76 seats in parliament. In addition to parliamentary elections, Mongolian voters directly elect a president to a 4-year term of office.
Mongolia is 1.5 million sq. km in size and home to 2.5 million people, of which 700,000 live in the capital city of Ulaanbaatar. A third of the population are nomadic livestock herders, living in the traditional felt tent or “ger”. The rest live in small cities or settlements scattered throughout the country. Mongolia is a land of young people with 70% of its citizens under 30 years of age.
The country is largely homogeneous with 90% of the population comprised of Khalkha and Buriat Mongols. Buddhism is the main religion. The largest representative minority is the Kazaks, a Turkic Muslim group. The official language is Mongolian and the main spoken languages are Russian, English and German.
The climate is comparable to that of Canada’s prairie provinces, with a long cold winter interrupted by a brief warm summer. From snow-capped mountains in the west to the famous Gobi desert in the south and southwest, few nations compare to Mongolia’s size and diversity of natural ecosystems. The north is covered by the Taiga forest, with vast grasslands in the central and eastern parts of the country.
Since 1996, the government has undertaken a bold reform agenda aimed at stabilizing the economy, strengthening the role of the private sector, increasing private investment and improving the climate for foreign investment.
A new mineral law passed in 1997 is considered by many to be one of the best in all of Asia. It has greatly improved the legal environment for investors and offered a greater transparency with clearly defined legal rules, a simplified licensing process, guaranteed tenure and reduced royalty and exploration fees.
The mining industry is considered a pillar of the Mongolian economy, accounting for 30% of total industrial output and 65% of export revenue. The mining and cashmere-processing sectors are the main contributors to the country’s gross domestic product. Coal, copper, molybdenum, tin and fluorite dominate mining, while gold production totalled 3.7 million oz. in 2000 — a 10-fold increase over 1990 levels.
In March, the gold division of uranium giant
Cameco Gold agreed to invest US$12 million and vend a 60% interest in its Gatsuurt property, 35 km to the southeast, to obtain a 52% stake in AGR. The major has also committed to providing AGR with a further US$3 million for exploration around the Boroo and Gatsuurt properties in exchange for an additional 4% piece of AGR.
Boroo is an advanced-stage development project, with probable open-pit reserves of 9.4 million tonnes grading 3.76 grams gold per tonne, equivalent to 1.1 million oz. SRK Consulting estimated the reserves using a cutoff grade of 1.2 grams and a gold price of US$290 per oz. A revised 2001 feasibility study indicates that an open-pit mine and milling facility with a throughput rate of 1.7 million tonnes per year could produce an average of 150,000 oz. per year at a cash cost below US$200 per oz. over a 6-year life. Recoveries of 90% are projected. Capital costs are estimated at US$40 million and an existing mill has already been purchased.
AGR has arranged limited-recourse project financing of up to US$33 million through a bank syndicate led by Macquarie Bank and Standard Bank. The bank financing, plus Cameco’s US$12-million investment, will carry the project through to start-up. The project received government approval in mid-2000; however, permits were resubmitted for an increased annual mill throughput rate of 1.7 million tonnes, compared with the 1.3 million originally approved. A revised environmental assessment was due for completion in the second quarter.
Boroo mineralization
Gold mineralization occurs in association with zones of intense hydrothermal alteration at the contacts of late Permian to early Triassic leucocratic and biotite granites, and the sandy sediments of the lower Paleozoic Kharin group. The mineralized zones have been traced for up to 700 metres along strike and for 150-300 metres downdip at an angle of 10 to 20 degrees. There are two main horizons — a 7-to-8-metre-thick upper zone and a 3.5-metre-thick lower zone, separated by a 4-metre-thick zone of weakly mineralized granites. The mineralization is oxidized to a depth of 40 metres. The open pit has a planned depth of 60-80 metres.
AGR controls about 4,130 sq. km of ground around the Boroo site and plans to conduct further exploration to search for additional reserves to extend the life of the mill. Cameco’s land position includes 770 sq. km along the Yeroo Gol structural trend, with Gatsuurt being the most advanced prospect.
Cameco, through Kumtor Gold and another subsidiary, operate and own a one-third interest in the Kumtor gold mine and milling facility in Kyrgyzstan. The open-pit mine produced 752,700 oz. in 2001 at a cash cost of US$142 per oz., with Cameco’s share totalling 250,900 oz. The failure of a pit wall has dramatically reduced this year’s production forecast to 500,000 oz., a decrease of some 200,000 oz.
The Erdenet copper-molybdenum mine is Mongolia’s single-largest mining operation. Situated 365 km northwest of Ulaanbaatar, the open-pit mine was put into operation in 1978 by a 51-49 joint venture between the Mongolian and Russian governments respectively.
The mine delivers about 124,000 tonnes of copper and 1,672 tonnes of molybdenum annually from concentrate, based on an operating capacity of 20 million tonnes of ore per year. By-products include silver, gold, selenium, rhenium, tellurium and tungsten. The concentrate is transported by rail to Russia for smelting and refining.
The Erdenet mine is considered a typical stockwork copper-molybdenum porphyry deposit occurring within a larger intrusion-volcanic complex. Estimated reserves exceed 1.8 billion tonnes grading 0.62% copper and 0.025% molybdenum.
Following enactment of its 1997 Minerals Law, Mongolia experienced a fairly significant exploration boom led by several Canadian juniors (International Pursuit, Java Gold and Mongolia Gold Resources, to name a few) and a number of majors, including BHP, Rio Tinto, Phelps Dodge and Newmont Mining. The fallout from Bre-X, along with some very public problems at Mongolia Gold Resources’ Bumbat gold project in the Zaamar region, soon made it impossible for Canadian juniors to raise exploration dollars in this neck of the woods, and most had left by 1999.
The Mongolian Geological Survey, with the assistance of Russian and Eastern European geological survey teams, has been actively conducting mineral exploration since the 1960s. Geological mapping, geochemical sampling and airborne geological surveys have generated a vast database. More than 6,000 occurrences of 80 different mineral commodities are known. The country has seen very limited western-style exploration.
In the past, the evaluation of Mongolia’s mineral potential was hampered by a lack of infrastructure, a command economy and government restrictions.
“The geological history of Mongolia contains elements of island-arc accretion and Andean-style subduction, basin and range rifting with accompanying bimodal volcanism, and sedimentation into thrust controlled foreland basins,” states Art Ettlinger, formerly with an analyst with Yorkton Securities and now president of
Ettlinger believes Mongolia is an area play waiting to happen despite the country’s remoteness and the general difficulties in financing non-flow-through share opportunities.
Largest land position
Robert Friedland’s Ivanhoe Mines has been quietly but diligently working away in Mongolia for over five years and has amassed the largest land position of any mineral exploration company in the country. Ivanhoe now has approval for exploration licences covering 82,770 sq. km.
The new areas were staked based on the company’s extensive exploration and geophysical database. High-priority targets scheduled to be drilled this year include Central Kharmagtai, OV3, Oyut Hyar, Chun, Shuteen, Oyut Ulaan, Chandman Uul, Oyut Ovoo and Saran Uul.
In May, Ivanhoe announced an updated resource estimate for its 100% owned Turquoise Hill project (or Oyu Tolgoi, as it is known in Mongolia), 560 km due south of Ulaanbaatar and 80 km north of the Chinese border.
The Southwest Oyu discovery zone, alone, was estimated by AMEC E&C Services to contain an inferred mineral resource of 821 million tonnes grading 0.52 gram gold and 0.38% copper, equivalent to 13.8 million oz. gold and 6.8 billion lbs. copper, at a cutoff grade of 0.3% copper-equivalent. Southwest Oyu hosts a higher-grade core of 120 million tonnes grading 1.55 grams gold and 0.7% copper, for a contained 6 million oz. gold and 1.8 billion lbs. copper.
The higher-grade zone is contained in a sub-vertical, pipe-like body that is 300 metres in diameter and extends to at least 1,000 metres below surface. The Southwest Oyu database consists of 37 diamond drill holes totalling 21,050 metres. Several rigs are conducting infill definition drilling on the Southwest zone to better delineate the grade and extent of the deposit, and to upgrade a portion of the inferred resource to a measured and indicated category.
The resource estimate does not include newly discovered mineralization in the Central and Far North zones, nor the Far Southwest zone. A new updated resource estimate is in the works as the company prepares to move the project forward to prefeasibility.
Turquoise Hill is a collage of copper-gold systems. Mineralization has been identified in four regions of the project, designated Southwest Oyu, South Oyu, Central Oyu and North Oyu, within an area of 3 km north-south by 2 km east-west.
BHP identified porphyry-style mineralization in the South, Southwest and North Oyu area, and discovered an enriched supergene chalcocite blanket underlying a leached cap in Central Oyu. However, in 1999, BHP suspended all operations in Mongolia as part of a corporate reorganization.
Ivanhoe optioned the project from BHP in May 2000 and has now earned a 100% interest by spending US$6 million on exploration and paying US$1 million cash. Ivanhoe’s last remaining payment of US$4 million, due in early 2003, is secured by a letter of credit. BHP retains a 2% net smelter return royalty.
In June 2000, Ivanhoe kicked off its exploration work with a reverse circulation (RC) drilling campaign that targeted the supergene chalcocite blanket at Central Oyu for its low-cost, heap-leach solvent extraction-electrowinning potential. The program, consisting of 109 RC holes for a total of 8,800 metres, outlined a resource of 39.2 million tonnes grading 0.73% copper, which was considered too small to be economic as a stand-alone operation.
The next year, Ivanhoe began testing the supergene and deeper hypogene potential in all four zones, resulting in the discovery of high-grade copper-gold porphyry mineralization at Southwest Oyu. In July 2001, Ivanhoe intercepted 508 metres averaging 0.56% copper and 0.46 gram gold between 70 and 578 metres of depth. The intercept included a 278-metre-long zone grading 1.02% copper and 1.6 grams gold. Ivanhoe was off to the races.
Kazakh Mongol belt
The Turquoise Hill project lies near the boundary of the South Mongolian and the South Gobi Tectonic units, in the Kazakh Mongol belt. The geology in the immediate area of the project is dominated by a Silurian-Devonian sequence of basalts and basaltic andesites, interbedded with volcaniclastic sediments. The volcanic rocks are intruded by a complex variety of feldspar porphyry, feldspar-hornblende porphyry and quartz-feldspar porphyry stocks.
The mineralized areas consist of mafic volcanic rocks intruded by quartz monzodiorites. Copper-gold mineralization appears to lie in both the basaltic volcanic country rocks and the intrusions, except to the Far North where a sedimentary package comes into play.
Scoping-level studies, due for completion by year-end, will evaluate all possible production and cost scenarios, review metallurgical processing alternatives and guide current exploration. Some of the resource at Southwest Oyu may be too deep to recover profitably by open-pit methods. An internal review by Ivanhoe’s engineering staff indicates open-pit mining could recover approximately two-thirds of the current resource, using a 0.5% copper-equivalent cutoff, to depths of 500 metres below surface. The deeper portions of the high-grade zone may be amenable to underground sub-level caving mining methods.
Recent drilling on the Central zone has encountered intrusion and volcanic-hosted hypogene, gold-rich, chalcopyrite mineralization similar to that in the Southwest discovery zone. The primary zone appears to surround, both laterally and to depth, a core of secondary copper-rich covellite and chalcocite mineralization that lies directly beneath the near-surface supergene-enriched blanket. At last report, primary chalcopyrite mineralization had been intersected by 10 widely spaced holes over a distance of 1,000 metres east-west and up to 800 metres north-south.
These three distinct contiguous zones offer the potential for a second open pit. Drilling is continuing to define the scope of the Central zone, while recovering samples for metallurgical and geotechnical testwork. A new resource estimate is expected shortly, pending the completion of another eight holes. In July, drilling intercepted wide intercepts of chalcopyrite mineralization at the Far North Oyu zone, 4 km north of the Southwest discovery. While results have yet to be announced, Ivanhoe continues to drill off the zone.
No infrastructure
The Turquoise Hill project lies deep in the South Gobi desert. There are no roads or infrastructure in place. It’s a 12-hour journey in a four-wheel-drive vehicle along a track from Ulaanbaatar. The nearest power line is 350 km away and water sources for a mining operation have not been developed. Friedland argues that the project’s proximity to Chinese markets is a highly strategic geographic advantage, from a development and concentrate marketing point of view. The company has opened up discussions about developing railway access to the northern border with China.
Since making the Southwest Oyu discovery, Ivanhoe has raised a staggering US$73 million during the second half of 2001 and the first half of 2002. Ivanhoe has 201.8 million shares outstanding, or 214.2 million fully diluted.
The company has budgeted US$15 million this year for exploration at Turquoise Hill and other projects in Mongolia. The company continues to bring drilling rigs into the country and will soon have a dozen in operation at Turquoise Hill, alone.
Elsewhere in the country, Ivanhoe has been drilling a number of prospects in the Ovoot Hyar licence area, 120 km north of Turquoise Hill. During the summer, high-grade monzodiorite porphyry-style mineralization was encountered in the vicinity of a previously drilled scout hole (72 metres of 3.08 grams gold and 1.89% copper) on the Central Kharmagtai prospect. Ivanhoe’s second hole intercepted 64 metres grading 2.49 grams gold and 1.1% copper at a downhole depth of 76-140 metres. A third hole hit 102 metres grading 2.09 grams gold and 1.05% copper between 40 and 142 metres downhole.
Earlier this year,
“Kharmagtai has turned into more of a district play,” says Ivanhoe Deputy Chairman Edward Flood. “We have four or five different mineralized areas that were identified in the reconnaissance sampling and the geophysics.” The company is using two rigs to drill Central Kharmagtai and the nearby Stockwork Hill prospect, which are separated by a 2-km distance. The Chun prospect was also tested by a couple of holes.
A third rotary rig is being used on a grid-style drilling campaign on the OV3 gold target, 16 km west of Central Kharmagtai. The company has completed 45 widely spaced holes to date on OV3. Visible gold in altered calcareous sandstones was encountered in several surface trenches, along with jasperoid mineralization. The sediment-hosted mineralization coincides with a major northeast-striking fault system 8 km long. Drilling is being done at 250-metre spacing along 400-metre lines.
“We see large bleached areas, we’ve got jasperoids with breccia; it’s very much a ‘Nevada-sounding’ type of property,” says Flood. “It’s reminiscent of the exploration in Nevada and quite a fascinating system.”
Outside of the Kharmagtai area, field crews have completed geophysics and preliminary mapping at Chandman Uul — another prospective porphyry system — and have moved onto Oyut Ulaan.
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