Ivanhoe upgrades Oyu Tolgoi resource

Vancouver — Copper and gold resources in the southern, open-pit portion of Ivanhoe Mines‘ (IVN-T) Oyu Tolgoi deposit in Mongolia have been upgraded to the measured and indicated category.

The independent estimate is based on extensive drilling since February 2003, when the resource was last calculated. Five-hundred and thirty-nine holes (255,000 metres) were drilled on the southern deposits, compared with 155 holes in the previous calculation. The entire project has so far been subjected to 934 holes (more than 500,000 metres).

In the recent estimate, AMEC Engineering outlined a measured and indicated resource of 1.06 billion tonnes grading 0.47% copper and 0.36 gram gold per tonne, or 0.71% copper-equivalent. A cutoff grade of 0.3% copper-equivalent was used to a depth of 560 metres, and 0.6% copper-equivalent below 560 metres. Contained metals amount to 11.2 billion lbs. copper and 12.4 million oz. gold.

There is an additional inferred resource, primarily in the Hugo Dummett deposits, of 1.2 billion tonnes grading 1.25% copper and 0.24 gram gold, or 1.38% copper-equivalent. A 0.6% copper-equivalent cutoff grade was used. Contained metals here amount to 33.7 billion lbs. copper and 9.4 million oz. gold.

The company will incorporate the southern Oyu Tolgoi resource estimates into its full feasibility study, scheduled for completion by early 2005. A feasibility study of the proposed open-pit operation is under way, as is a prefeasibility study of the Hugo Dummett deposits.

Oyu Tolgoi is a massive copper-gold porphyry deposit. Mining is slated to begin in mid-2007, focusing on the southern portions. This open-pit phase will be followed by underground mining of the Hugo Dummett deposits, tentatively scheduled for late 2008.

In the second quarter, despite a record operating profit, Ivanhoe incurred a loss of US$20.2 million (or 7 per share).

The company realized higher copper and iron ore prices from the Monywa Copper operation in Myanmar and the Savage River Iron Ore plant in Australia. As a result, operating profits for the 3-month period totalled US$6.9 million and US$3.2 million, respectively, compared with losses of US$2.7 million and US$2.6 million a year earlier.

But the profits were offset by substantially increased exploration expenses, up substantially to US$24.8 million in the recent quarter from US$15.2 million a year earlier. The increase reflects advanced engineering studies and extensive drilling at Oyu Tolgoi.

Ivanhoe is in discussions with parties interested in forming a joint venture at Oyu Tolgoi. These parties include Chinese mining and financial companies, as well as Japanese mining and metal trading houses.

Meanwhile, Ivanhoe intends to redeem the US$50-million treasury bill it purchased from the Mongolian government in late 2003. Proceeds will be used to explore and develop Oyu Tolgoi. Ivanhoe’s purchase of the debt instrument contributed to Mongolia’s ability to repay and eliminate all the Soviet-era debt that remained outstanding to the Russian Federation.

In a meeting with Ivanhoe Chairman Robert Friedland, Mongolian President Natsagiyn Bagabandi reiterated continued support for development of Oyu Tolgoi. He said a “stability agreement” between the two parties is expected. The agreement pertains to taxes, fiscal measures, import-export issues and infrastructure.

Oyu Tolgoi is expected to contribute significantly to the Mongolian economy.