The recent start of pre-stripping of the open-pit that will mine the gold-rich Southern Oyu and Central Oyu deposits serves to underscore the early gold and silver production potential of Ivanhoe Mines’ Oyu Tolgoi Project in southern Mongolia, according to Ivanhoe’s chief executive officer and founder Robert Friedland. 1

“The recent sharp increases in gold and silver prices have reinforced the importance of having a multi-commodity deposit such as Oyu Tolgoi,” he says. “While copper is Oyu Tolgoi’s most important metal over the longer term life of the mine, gold and silver are major contributors to the launch of value building during the project's initial years of mining.

“Revenues from gold and silver will have a significant positive effect on lowering the average cash cost to produce a pound of copper during the first five years of mining at Oyu Tolgoi.”

Using current prices of about US$1850/ounce for gold, US$42/ounce for silver and US$4.00/pound for copper, the estimated annual contribution of gold and silver to total revenue in the first five years of production from the open-pit mine will average 44%, with a peak of 53%. The estimates are from the May 2010 Integrated Development Plan, an independent, NI 43-101 technical report.

Based on the plan’s assumed long-term price of US$850/ounce for gold, US$13.50/ounce for silver and US$2.00/pound for copper, the estimated annual contribution of gold and silver would include peaks of 50% and average 35% of Oyu Tolgoi’s total revenues during the first five years of mining.

Oyu Tolgoi’s average annual metal output during the first 10 years of commercial production is expected to exceed 650,000 ounces of gold, 3 million ounces of silver and 1.2 billion pounds of copper. Peak annual gold production is expected to reach about 1.1 million ounces in year seven.

Mineralization in the Southwest Oyu open-pit deposit is characterized by high gold content, with gold-copper ratios of about 1:1 in the main part of the deposit, rising to 3:1 in the core of the system and at depth. Development of the open pit will progressively encompass the Southwest and South Oyu deposits, known as Southern Oyu, and the adjacent Central Oyu Deposit.

Robert Friedland said that the open-pit mine was the last major element of the first phase of the Oyu Tolgoi mining complex to begin development as work continues around the clock for the expected start of test production next year.

“Gold-rich ore from the open pit will be the primary feed to the processing plant during Oyu Tolgoi’s first five years of production of gold, copper and silver. With overall mine construction quickly advancing toward 50% completion, Oyu Tolgoi’s phase-one mine is on track to begin initial production from the open pit in late 2012 and to ramp up to commercial production in the first half of 2013.”

Current independent estimates of Oyu Tolgoi’s resources put the measured and indicated gold resources at almost 21 million ounces, plus an additional 25.4 million ounces in inferred resources, based on a 0.60% copper equivalent cut-off.

Meanwhile, Rio Tinto has exercised its subscription right to acquire additional shares of Ivanhoe. The acquisition will generate total proceeds of almost Can$529.477 million for Ivanhoe and raise Rio Tinto’s interest from 46.5% to 48.5%. Rio states that the acquisition “reinforces Rio Tinto’s commitment to the Oyu Tolgoi Project, which is a natural fit with its strategy of focusing on cost-competitive, long-life assets with significant growth potential.”

www.ivanhoemines.com

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