Ivanhoe completes prefeasibility on Kyzyl project in Kazakhstan

A prefeasibility study on an underground mining operation at the Kyzyl gold project in northeastern Kazakhstan has concluded that the project could produce an average of 368,000 oz. gold a year during an initial mine life of up to 10 years, Ivanhoe Mines (IVN-T, IVN-N, IVN-Q) reports.

Ivanhoe owns 50% of Altynalmas, which owns 100% of the Kyzyl gold project.

Preproduction development is expected to start in 2011 with plant start-up likely in the second quarter of 2013.

Total gold produced over the life of the mine is anticipated to be about 3.31 million oz.

The projected lifespan was based only on initial probable reserves and Robert Friedland, Ivanhoe’s executive chairman, says he believes a ten-year mine life “will prove to be very conservative.”

“We have been highly successful in upgrading Soviet-era resources to modern, Canadian NI 43-101 standards,” he explained in a statement. “In addition to the ongoing program of re-drilling and upgrading the former Soviet-era gold resources, there is excellent potential to discover new high-grade gold mineralization along strike and to depth.”

The study by U.K.-based Scott Wilson contains the first estimate of underground reserves for Kyzyl. It also presents the results of extensive studies of two complementary development scenarios — the base case and the life-of-mine sensitivity case.

The base case only evaluates the probable reserves established to date. Under the base case, average annual production over a projected 10 years would reach 368,000 oz. gold for a total of 3.31 million oz. gold at an average gold price of US$905 per oz.

The production rate would be 4,300 tonnes per day or 1.5 million tonnes per year, with metallurgical recoveries averaging 88%. After-tax free cash flow would reach US$778 million; average total cash costs US$373 per oz.; and average total production costs US$605 per oz.

The life-of-mine sensitivity case adds to that base case scenario resources that have been identified through exploration but are classified only to the level of inferred resources. (A key goal of the drill program is to upgrade inferred resources to higher resource and reserve classifications.)

Under such a life-of-mine sensitivity case analysis, Scott Wilson estimates average annual production would be 358,000 oz. gold over a sixteen-year mine life with total production of 5.37 million oz. gold at an average gold price of US$903 per oz. Production rates and metallurgical recoveries would be the same as under the base case scenario. After-tax free cash flow would run to about US$1.61 million, with average total cash costs of US$372 per oz. and average total production costs of US$528 per oz.

The Kyzyl project consists of the Bakyrchik and Bolshevik deposits and associated satellite deposits. Scott Wilson estimated that current probable reserves contained in Lenses 1 and 9-10 of the Bakyrchik deposit total 13.58 million tonnes grading 8.65 grams gold per tonne for contained gold of 3.78 million oz., using a cutoff grade of 4 grams gold and a gold price of US$900 per oz.

Indicated resources contained in Lenses 1, 9 and 10 of the Bakyrchik deposit were converted into reserves for the prefeasibility study. Reserves were estimated as of May 31.

As of April 30, the Bakyrchik deposit, inclusive of reserves, contained indicated resources of 13.82 million tonnes grading 9.36 grams gold per tonne for 4.16 million oz. contained gold. Inferred resources add 12.02 million tonnes grading 8.58 grams gold for contained gold of 3.32 million oz.

Between October 2009 and April 2010, 28,298 metres were drilled to upgrade resources to reserves in support of the study.

Now Altynalmas is following up with a further 50,000 metres designed to upgrade the remaining defined resources to reserves and begin exploratory drilling on the other Bakyrchik deposit targets.

Gold in the Bakyrchik deposit lenses is associated with arsenopyrite and is refractory, making it necessary to oxidate the sulphides and eliminate or control the adsorption effect of the carbon.

The study considered a process flow sheet based on fluidized-bed roasting technology and assumes a secondary gold refining facility will be built to upgrade the dore produced in the primary gold recovery process to a purity level of 99.99%.

Kyzyl is 1,100 km north of the former capital, Almaty, 750km east of the present capital, Astana, 160 km southeast of Semey (formerly known as Semipalatinsk).

At presstime in Toronto Ivanhoe was trading at $14.01 per share and has traded in a range of $6.40-18.98 per share over the last year. It has 441.9 million shares outstanding.