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Ivanhoe to spend $758 million next year on Oyu Tolgoi copper/gold project

Ivanhoe Mines plans rapid construction progress on the Oyu Tolgoi copper/gold mine in Mongolia it is building with Rio Tinto.

Author: Cameron French
Posted: Tuesday , 08 Dec 2009

TORONTO, (Reuters) - 

Ivanhoe Mines (IVN.TO) said on Monday it will spend $758 million in 2010 on its Oyu Tolgoi copper-gold project in southern Mongolia and should have the the $3.5 billion open-pit component of the mine finished in 2012.

That timetable -- which envisions an early start to development and commercial production by 2013 -- would seem a bit more accelerated than what Ivanhoe predicted in October, when company officials eyed output by late 2013.

Rio Tinto (RIO.L) (RIO.AX) is a minority stakeholder and funding partner in the project.

"Ivanhoe is clearly undertaking an aggressive development program on the Oyu Tolgoi project," BMO Capital Markets analyst John Hayes said in a research note.

Ivanhoe, Rio and Mongolia wrapped up a long-awaited investment agreement on Oyu Tolgoi in October, giving the Mongolian government a 34-percent stake in the project.

Oyu Tolgoi is seen as one of the world's largest untapped copper and gold deposits, and lies in the Gobi Desert, about 80 km (50 miles) from the border with copper-hungry China.

The initial open-pit phase of the project is expected to cost $3.5 billion, while the partners will concurrently spend $1 billion to begin to develop an underground component to the mine.

TO BUILD AIRPORT

In a statement, Ivanhoe said the 2010 budget provides for an early start on a site-wide development program, pending the successful completion of remaining conditions required to put the investment agreement in effect.

Those conditions include review of a feasibility study, which Ivanhoe expects to be concluded in coming weeks.

"This is basically to kick-start the project from the point of view of infrastructure," Ivanhoe Chief Executive John Macken said at a mining conference on Monday.

Work in 2010 is expected to include construction of a 97-metre (320 foot) concrete headframe and a regional airport capable of accommodating Boeing 737-sized aircraft.

The company, which has a cash position of about $1 billion, has said the mine should produce an average of more than 1 billion pounds of copper and 500,000 ounces of gold annually over the first 10 years of its 30-plus years of life.

Ivanhoe recently received $388 million from Rio Tinto, completing the second phase a private placement financing deal.

Under the financing agreement between the two companies, Rio has the right to buy 43.1 percent of Ivanhoe's common shares over the next two years. It may increase this stake to 46.6 percent through purchases on the open market.

Rio currently owns a 19.7 percent stake in Ivanhoe.

Shares of Ivanhoe were up 42 Canadian cents at C$12.97 on the Toronto Stock Exchange on Monday afternoon.

($1=$1.05 Canadian) (Additional reporting by Euan Rocha; editing by Peter Galloway)