Oyu Tolgoi, Mongolia — Convinced that its Turquoise Hill copper-gold porphyry discovery in southern Mongolia has the tonnage potential to rival that of the huge Grasberg deposit in Indonesia, Robert Friedland’s
During a recent site visit to Turquoise Hill (or Oyu Tolgoi, as it is known in Mongolia), The Northern Miner learned that another two drill rigs are being added to the four that are currently positioned over the Southwest Oyu discovery zone. Southwest Oyu is one of four distinct targets occurring in an area measuring 3 by 2 km. This past summer, Ivanhoe discovered a gold-enriched zone of hypogene copper mineralization after testing the depth potential of an earlier hole drilled by
BHP had drilled three other holes, spaced 400 metres apart into Southwest Oyu, as well as a large, northeasterly trending induced-polarization (IP) chargeability anomaly and a coinciding magnetic anomaly. These holes returned intervals of 140 metres grading 0.56% copper and 0.46 gram gold from 82 to 224 metres of depth, 218 metres of 0.5% copper and 0.4 gram gold from 24 to 242 metres, and 36 metres of 0.69% copper and 1.16 grams gold, starting at 113 metres of depth in the footwall of a dipping syenitic intrusion.
Ivanhoe’s discovery hole, OTD-150, was collared at minus 55 and directed toward the northeast. The hole reached a down-hole depth of 591 metres and averaged 0.81% copper and 1.17 grams gold over 508 metres, from 70 to 578 metres of depth. The 508-metre-long intercept included an upper 54 metres grading 0.51% copper and 0.45 gram gold, followed further down-hole by a 278-metre zone grading 1.02% copper and 1.6 grams gold between 188 and 466 metres.
“We knew instantly we had a significant deposit,” Douglas Kirwin, Ivanhoe’s senior vice-president of exploration, told The Northern Miner. “It was tremendously satisfying. Every field geologist spends his entire career trying to find something like this.” Kirwin gives full credit for the discovery to BHP’s geologists in Mongolia, who were opposed to BHP’s dropping this project.
Discovery hole 150 was undercut 120 metres by hole 169, which returned 507 metres grading 0.48% copper and 0.8 gram gold, from a down-hole depth of 103 to 610 metres. A higher-grade zone averaging 0.62% copper and 1.36 grams gold across 134 metres occurs at the bottom of the intercept.
Hole 160 tested the 120-metre updip extension of hole 150 and hit 288 metres averaging 0.8% copper and 1.68 grams gold, from 46 to 334 metres down-hole. The bottom 126 metres of the intercept averaged 0.89% copper and 2.39 grams gold.
Ivanhoe has completed a fence of holes on both sides of the Discovery section, stepping out 100 metres laterally to the northwest and to the southeast. Hole 162, collared 100 metres directly northeast of hole 160, hit 190 metres averaging 0.74% copper and 1.76 grams gold, including 130 metres grading 0.85% copper and 2.25 grams gold, starting at 110 metres down-hole. Hole 171 undercut hole 160 with a 290-metre intercept averaging 0.43% copper and 0.73 gram gold, including 100 metres of 0.67% copper and 1.29 grams gold. Assay results are pending for hole 172, which further tested the downdip extension to a depth of 772 metres.
On the southeastern side of the Discovery section, hole 161 intersected 358 metres averaging 0.71% copper and 1.7 grams gold, including 226 metres grading 0.85% copper and 2.39 grams gold. Stepping back 120 metres, hole 166 undercut hole 161 with a 478-metre intercept averaging 0.74% copper and 1.38 grams gold, including 108 metres of 0.99% copper and 2.59 grams gold. Assays are pending for hole 173, which was drilled to a depth of 690 metres below hole 166. Hole 173 unfortunately hit a zone of post-mineral dykes for a good portion of its length.
Stockworks
The mineralization is hosted in quartz sulphide stockworks in basaltic andesite porphyry and monzodiorite porphyry. The higher-grade core is in a zone of intense quartz, chalcopyrite-pyrite-magnetite veins and stockwork overprinting finely disseminated chalcopyrite, pyrite and magnetite. The mineralization is associated with high-temperature potassic alteration and secondary biotite alteration. The main vein direction appears to be oriented northwest-southeast.
Ivanhoe is drilling off the Discovery zone on an 80-by-120-metre grid pattern. The first 13 holes were aimed to the northeast, all at an angle of minus 55. Four subsequent holes have been drilled at right angles to the existing grid in order to test for structural controls and confirm the continuity of mineralization between sections. Assay results for these four holes are pending.
Overall, the gold-enriched mineralized zone, at a 1-gram cutoff, has an outer shell measuring some 300 metres in diameter at 300 metres of vertical depth. It remains open at depth. Ivanhoe’s geologists believe it is possibly centred in some sort of stock, similar to Grasberg or Newmont Mining’s Batu Hijau. Gold grades in the porphyry core are rich, often 2-to-1 to copper. Consulting geologist Imants Kavalieris says they are at a high level in the system and that there is considerable depth potential.
Preliminary metallurgical tests were performed by Lakefield Research on 400 kg of mineralized core. Flotation tests indicate recoveries of greater than 90% for copper and more than 80% for gold, all reporting to the rougher copper concentrate. Bottle-roll tests on the leachability of the chalcocite blanket have also produced good results.
The Discovery zone is coincident with one of several magnetic anomalies that have been identified in the Southwest Oyu area. Recent drilling encountered weaker overall grades while testing the southwest extension of the Discovery zone. Three widely spaced holes tested coincident magnetic anomalies that occur outside the main induced-polarization (IP) chargeability high. Hole 165 intersected 466 metres of 0.41% copper and 0.31 gram gold; hole 167 pulled 318 metres grading 0.49% copper and 0.52 gram gold; and hole 168 cut 382 metres averaging 0.21% copper and 0.3 gram gold.
The holes indicate that the Southwest Oyu contains continuous copper-gold mineralization in an area extending 1,200 metres along strike, up to 300 metres in width and to a depth of 500 metres. There is no sericite alteration envelope around the mineralization. Only propylitic alteration is evident, going from biotite into chlorite.
The geology in the immediate area of the Turquoise Hill is dominated by a Silurian-Devonian age sequence of andesitic and basaltic flows interbedded with fine-to-coarse-grained volcaniclastic sediments. This package has been intruded by a complex variety of feldspar porphyry, feldspar-hornblende porphyry and quartz-feldspar porphyry stocks and dykes that are both syn- and late-mineral in their emplacement. Post-mineral syenitic granitoid and dykes of rhyolite plus andesitic composition occur throughout the project area.
First visit
Ivanhoe made its first preliminary visit to Mongolia in 1996. “It had obvious geological potential,” Kirwin says. The landlocked Central Asian country lies east of Kazakstan, between China and Russia. A major geotectonic belt runs from the “Stans” and swings through southern Mongolia and into China, explains Kirwin. Outside Mongolia, this belt hosts several big gold deposits, and it also has associated island-arc, large porphyry copper-gold deposits, mid-Paleozoic in age. Another prospective belt of rocks is a Cretaceous extensional zone that extends from the Arctic down through Siberia and into the eastern portion of Mongolia. Kirwin considers this belt highly prospective for large-tonnage epithermal gold deposits. Elsewh
ere in the country, a large section of Proterozoic and mid-Paleozoic rocks offers potential for a spectrum of banded iron formation and iron oxide copper-gold targets.
“It was obvious that there was potential in Mongolia for company-maker type deposits,” says Kirwin.
Mongolia covers more than 1.5 million sq. km, measuring 2,378 km from east to west, and up to 1,251 km from north to south. It is home to 2.4 million people, more than a third of whom live in the capital city of Ulaanbaatar. Some 40% of Mongolia’s citizens live in the countryside, primarily as nomadic livestock herders. The country is largely homogeneous in its ethnicity, religion and language. Buddhism is the main religion, and Mongolian is the official national language.
Climate
The climate is comparable to that of Canada’s prairie provinces, with large temperature fluctuations and low total rainfall. During the short summer months, temperatures can reach 25-30C, while winter lows average minus 25C without accounting for wind chill. Extensive grasslands cover 65% of the countryside, the Gobi desert dominates the south-central region, and forests comprise 12% of the total land area, primarily in the northernmost regions.
Mongolia secured its independence from China in 1921 and remained closely aligned with the Soviet Union until its breakup in 1989, leading to the fall of Mongolia’s communist government. The first fully democratic, multi-party election was held in 1990. In July 2000, the reformed communist party, the Mongolian People’s Revolutionary Party, regained power in a landslide victory, taking 72 of 76 seats in parliament.
The mining industry accounts for nearly one-fifth of Mongolia’s gross domestic product and more than 40% of its export earnings. Mining is dominated by coal, copper and fluorite. Gold production, most of which comes from placer operations, totalled 3.7 million oz. in 2000 — a ten-fold increase from 1993 levels.
The Erdenet copper-molybdenum mine is Mongolia’s single largest mining operation. Situated 365 km northeast of Ulaanbaatar, the open-pit mine was put into operation in 1978. It is a 51-49 joint venture between the Mongolian and Russian governments.
Operating at a capacity of 20 million tonnes of ore per year, Erdenet produces 124,000 tonnes copper and 1,672 tonnes molybdenum annually from concentrate, along with byproducts of gold, silver, selenium, tellurium and tungsten. The concentrate is transported by rail to Russia for smelting and refining.
The Erdenet mine consists of four spatially separated stockwork zones hosted in a large porphyritic intrusion-volcanic complex. Estimated reserves exceed 900 million tonnes grading 0.81% copper and 0.017% molybdenum.
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 geophysical surveys over portions of the country have generated a vast database. More than 6,000 occurrences of 80 different mineral commodities are on record.
However, Kirwin says the country has never really had its geological potential evaluated by modern Western methods. Previous attempts at evaluation have been hindered by a lack of infrastructure and available financing, a command economy and government restrictions.
New law
Today, the government of Mongolia encourages foreign investment and direct participation in the exploration, extraction and processing of mineral resources. A new Minerals Law was adopted in mid-1997, containing strict requirements for the transparent processing of exploration and mining licence applications, while guaranteeing secure tenure and transfer rights for licence-holders. An application for an exploration permit takes only 10 days to process.
An exploration licence is valid for an initial three years, which can then be renewed twice for an extension of two years each renewal, allowing for a maximum period of seven years. Mining licences are granted for a 60-year period that can be renewed for an additional 40 years. Mineral rights are maintained in good standing by payment of a yearly fee per hectare.
Kirwin says Mongolia’s mineral law is considered one of the best in all Asia.
Mining operations are subject to a 2.5% sales royalty on all minerals produced. Mongolia currently provides investment and tax incentives for all mineral development projects, with the exception of gold. A 10% value-added tax is also imposed on all gold exports.
The investment incentives include a 5-year income-tax holiday, followed by a 50% reduction in income tax over the next five years. The corporate income tax rate varies between 15% and 40%, depending on the amount of a firm’s taxable income.
It is unknown whether the Turquoise Hill project would be taxed as a copper project or a gold project.
Following enactment of the 1997 Minerals Law, there was a fairly significant exploration boom led by several Canadian juniors, along with BHP, Rio Tinto, Phelps Dodge and Newmont Mining. “Just about everybody had a look, and quite a few people stayed,” says Kirwin. However the fallout from Bre-X scandal made it impossible for the Canadian juniors to raise exploration dollars, and most had left by 1999.
With far less competition to worry about, and aided by Mongolian geologists, Ivanhoe spent the summers prospecting and building its own database while looking for a project with size potential. The company has carried out extensive helicopter-supported field investigations of more than 350 mineral occurrences throughout Mongolia. This work resulted in Ivanhoe’s securing 100% ownership in four new copper-gold porphyry prospects in the central and southeastern regions of Mongolia. Field crews have since carried out systematic mapping and sampling programs in conjunction with ground magnetic and IP surveys. At least two of the prospects will be drill-tested early next spring.
Two years ago, Ivanhoe looked at BHP’s Turquoise Hill project, deep in the South Gobi Desert, 560 km south of Ulaanbaatar. “We liked it, and within six months we had signed an option to purchase,” says Kirwin. “It was obviously a gold-bearing system and it was a big one.”
The May 2000 option agreement with BHP stipulates Ivanhoe must spend US$3 million on exploration by May 2003, before it can elect to acquire a 100% interest in the Turquoise Hill property by making cash payments of US$1 million at the earn-in date and US$4 million one year later. Ivanhoe will also be required to post a US$3-million security bond to cover further exploration obligations over the subsequent four years.
NSR
BHP will retain a 2% net smelter return royalty and certain back-in rights to repurchase a participating interest based on the nature and size of the deposit. BHP will have the right to re-purchase a 40% interest if and when “a significant mineral occurrence” contains a potential resource of at least 250 million tonnes of 1% supergene copper, which can be processed using solvent extraction-electrowinning and acid leaching methods.
If a resource of at least 300 million tonnes of hypogene copper grading 1% or more has been defined, which can be processed by conventional means, BHP will have the right to re-purchase a 60% interest in that portion of the project.
If either or both of the back-in rights are exercised, BHP will pay a cash sum equal to three times the value of all exploration expenditures incurred by Ivanhoe, and reimburse Ivanhoe for its purchase payment if the mineral resource should lie in the Central Oyu area.
Ivanhoe is quick to note that BHP’s back-in rights are based solely on copper and not on combined copper and gold.
Representatives of BHP Minerals International Exploration first visited the Turquoise Hill property in September 1996 at the insistence of senior Mongolian geologist D. Garamjav, during a regional reconnaissance program investigating porphyry-style copper targets. Based on the recommendations of Dennis Cox, who recognized signs of a leached cap and supergene enrichment, BHP applied for and was granted an explorat
ion concession, which originally covered 1,350 sq. km. The licence area has since been trimmed back to cover 238 sq. km.
BHP spent US$2 million between 1996 and 1998 exploring the advanced argillic cap at Turquoise Hill, conducting geological mapping, stream and soil sediment geochemical sampling, and magnetic and IP surveys. This was followed by three separate phases of drilling for a total of 3,800 metres in 23 widely spaced holes over a 5-sq.-km area.
With mixed results, BHP suspended work at Turquoise Hill and shelved the project during a period when financial difficulties forced the Aussie major to modify its exploration program.
RC drilling
In June 2000, Ivanhoe began a reverse-circulation (RC) program targeting the supergene-enriched chalcocite blanket discovered in an earlier BHP hole in the Central Oyu area. By September, Ivanhoe had completed 109 holes totalling 8,828 metres. Two distinct targets were tested, including Central Oyu and South Oyu. The widely spaced drilling delineated a broad, near-surface, supergene-enriched chalcocite and copper oxide blanket averaging 20-35 metres in thickness and containing an estimated 50 million tonnes grading 0.73% copper with minor gold credits.
While the initial program focused on delineating the supergene mineralization, many of the holes bottomed in copper and gold hypogene mineralization. This set the stage for the 2001 drilling program that began last summer.
In Central Oyu, primary covellite, chalcocite and chalcopyrite mineralization was found beneath a chalcocite and copper oxide blanket that extends 1,300 by 600 metres across the area. Ivanhoe has tested the Central zone so far with only a single deep drill hole. Collared 1.2 km northeast of the Southwest discovery hole, hole 159 was drilled to a depth of 450 metres, intercepting 375 metres of chalcocite-covellite mineralization grading 0.69% copper from 47 to 422 metres. The upper part of the intercept averaged 1.5% copper and 0.22 gram gold across 30 metres.
The Central zone appears to be a separate system, with mineralogy and geochemistry that differ from those of the Southwest zone. Central Oyu is almost invisible in the regional magnetics data but shows up strongly in a large doughnut-shaped circular chargeability feature that also contains the North Oyu zone. The doughnut shape is a classic porphyry signature.
Two targets
The North IP anomaly measures 1,600 metres long and 400 metres wide. An old BHP hole, drilled on the northernmost end of the anomaly, intersected narrow zones of chalcopyrite-rich stockwork mineralization grading 1.09% copper and 0.23 gram gold across 14 metres in volcanic rocks sandwiched between post-mineral syenite dykes. Both the Central and North zones will be targeted in future drilling.
Current drilling in the South Oyu target area is designed to test adjacent magnetic and IP anomalies underlying outcropping copper oxide mineralization. A previous RC hole intercepted copper oxide mineralization underlain by a supergene chalcocite blanket, giving a 59-metre intercept grading 1.3% copper. Ivanhoe has tested the South zone with three core holes to date. At the collar, hole 149 penetrated 63 metres of supergene mineralization averaging 1.08% copper and 0.31 gram gold before hitting 52 metres of sheeted vein structures grading 1.73% copper and 0.23 gram gold. The hole then passed through 60 metres of barren rhyolite and andesite dykes followed by 82 metres of 0.57% copper and 0.27 gram gold, and a further 76 metres of 0.49% copper and 0.38 gram gold.
Hole 164 undercut hole 149 and tested the mineralized system to a depth of 500 metres. The hole intersected multiple intervals, including 204 metres grading 0.49% copper and 0.06 gram gold, followed by 120 metres of 0.43% copper and 0.26 gram gold, 18 metres of 0.36% copper and 0.65 gram gold, and 32 metres of 0.54% copper and 0.24 gram gold.
Both holes were drilled along the margins of a large magnetic high.
Hole 170 tested an adjacent IP anomaly, returning 88.1 metres of 0.28% copper and 0.16 gram gold, plus 163 metres of 0.4% copper and 0.12 gram gold.
The South Oyu zone has overall dimensions of at least 800 by 300 metres, as defined by the IP survey. Further drilling is planned.
Kirwin is convinced there are other copper-gold porphyries out there. “They don’t live alone,” says Kirwin. Ivanhoe has started to tie-up large blocks of ground along a 250-km-long belt of rocks.
Remote
At first glance, the Turquoise Hill project could not be in a more remote part of the world. The country is landlocked, with little or no infrastructure in many places. Road access to the project is limited to a well-defined track, 560 km directly south of Ulaanbaatar, that can be traveled in a 4-wheel-drive vehicle in about 12 hours. Light aircraft can make the trip in 1.5-2 hours.
The closest town, with 2,500 people, is 44 km away. The nearest railhead in Mongolia is 360 km east of the property. Large, undeveloped open-pit coal deposits 140 km west of the project site could potentially be used to provide cheap energy.
Ivanhoe’s Chairman, Robert Friedland, says there is no better place to have a copper mine than right next door to the world’s biggest copper importer, China. The Chinese-Mongolian border is just 80 km south of Turquoise Hill. Friedland points out that there are five large smelters south of the border.
He adds that he is convinced the Japanese and Chinese will compete to provide project financing. “We’re not up at 13,000 ft. elevation, where they are still fighting the 20,000-year war, and we’re not putting tailings into a river,” he says, alluding to the problems that plague Freeport-McMoRan Copper & Gold’s Grasberg mine in Indonesia.
“This is the best place in the world to have a copper mine. No one can figure out, at this early stage in the discovery, what is economic and what’s not, but you have to be completely brain-dead not to understand that 1 gram of gold and 0.7% copper is clearly economic for a 50,000-tonne-per-day plant.”
Ivanhoe is already putting together a preliminary scoping study and has begun hydro-geological and archaeological studies. “This is a mine for 2007,” says Friedland.
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