Oyu Tolgoi to produce 3M oz. silver a year

With silver prices cruising to new heights, investor interest in the sizable Oyu Tolgoi copper-gold project in Mongolia has “prompted” Ivanhoe Mines (IVN-T, IVN-N, IVN-Q) to “more widely circulate the projections for silver production that have been prepared as part of our project planning and development studies,” chief executive Robert Friedland said.

The company expects the mine in southern Mongolia would produce an average of more than 3 million oz. silver each year in the first 10 years of commercial oper-ation, beginning in 2013.

Construction of Oyu Tolgoi’s first phase is ahead of schedule and on track to begin initial production in late 2012.

Oyu Tolgoi could produce about 78 million oz. silver during the projected 27-year mine life under the reserve case outlined
in the June 2010 independent
integrated development plan (IDP-10) for Oyu Tolgoi, Ivanhoe reports. (The reserve case is
based only on Oyu Tolgoi’s measured and indicated resources.)

But total silver production could be as much as 180 million oz. during the mine’s projected 59-year mine life under the IDP-10’s life-of-mine sensitivity case.

The IDP-10 presented two complementary development cases: the reserve case, based strictly on reserves; and the life-of-mine (sensitivity) case, which added a large base of inferred resources to the reserve case.

Either way, byproduct metals such as silver and molybdenum will cut costs significantly, Friedland noted.

“The reality is that silver and other byproduct revenues will considerably lower the average cash cost to produce a pound of copper, or an ounce of gold at Oyu Tolgoi,” he said.

Silver is trading at more than US$39 per oz., among the highest prices since October 1980.

The copper concentrate produced and sold at the project will contain byproduct gold and silver that would be recovered during the subsequent smelting and refining processes and sold separately.

The mine is also expected to produce 160 million lbs. molybdenum according to the 59-year life-of-mine sensitivity case. Most of the molybdenum at Oyu Tolgoi is found in the Heruga deposit, which would be brought into
production in later stages of development. Currently molybdenum oxide is trading at about US$18 per lb.

In Toronto at presstime, Ivanhoe was trading at $25.91 per share. Over the last year, it has traded in a range of $13.15 (May 25, 2010) to $30.28 per share (Dec. 7, 2010).
The company has 653.5 million shares outstanding.