Oyu Tolgoi costs push Ivanhoe deeper into the red

Vancouver – Accelerating exploration expenditures at Oyu Tolgoi, in southern Mongolia, led to a US$31.1 million net loss (10 per share) for Ivanhoe Mines (IVN-T) in its latest second quarter, versus a loss of US$21.7 million (9 per share) in the prior year’s comparative quarter.

Despite record quarterly operating profit of US$15.6 million from mining operations, principally Monywa copper in Myanmar, expensing of almost US$34 million in exploration and development costs pushed the company into the negative column.

Regardless of the loss, Ivanhoe maintains a strong working capital position of over US$213 million, including cash of US$197 million, bolstered by a large recent equity financing and the sale of its Savage River iron ore mine in Australia. Cash resources are sufficient to fund current and planned exploration and development for the balance of the year.

Ivanhoe spent US$23 million directly on Oyu Tolgoi in the second quarter, primarily on advanced drilling and engineering-development programs.

During the quarter, engineering firm AMEC delivered a revised resource estimate for Oyu Tolgoi. The copper-gold deposit contains a measured and indicated resource of 1.15 million tonnes grading 1.3% copper and 0.47 gram gold per tonne, using a 0.6% copper equivalent cut-off. The significant resource increase came mostly from the Hugo North deposit.

An integrated development plan for the monstrous copper-gold deposit is anticipated in September-2005, following which Ivanhoe will evaluate project financing options for initial development of an open pit operation at Southern Oyu. Production is anticipated to commence in 2008 with an estimated 40-year mine-life under current engineering plans.

In unison with Oyu Tolgoi development plans, work continues with the Mongolian government on negotiations securing a special stability agreement for the project.

The company’s current revenue generator, its 50%-owned Monywa copper operation, produced a total of 9,118 tonnes (about 20 million pounds) of cathode copper in the quarter, up 21% from the last year’s second quarter. A realized copper sale price of US$1.59 per pound surpassed the US$1.33 in prior year’s corresponding quarter.

Delivery delays for a new fleet of S&K mine haul trucks, at Monywa, is expected to reduce third quarter output due to the drop in ore stacked on the cells. A mine expansion plan in 2006 is anticipated to boost cathode copper production to about 50,000 tonnes annually, once power supply upgrades are completed.

Ivanhoe Mines posts a $2.8 billion market capitalization based on its 313.9 million shares outstanding and recent $9 per share trading level.