Oyu Tolgoi to produce 3 million oz. silver a year

With silver prices cruising to new heights, investor interest in the massive 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 announced today.

The company expects the mine in southern Mongolia will produce an average of more than 3 million ounces of silver each year in the first ten years of commercial operation, 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 ounces of silver, or 2.4 million kilograms, 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 ounces or 5.5 million kilograms 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: 1) the reserve case, based strictly on proven and probable reserves; and 2) the life-of-mine (sensitivity) case, which added a large base of inferred resources to the reserve case.)

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

“The reality is that silver and other by-product 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 currently is trading at more than US$34 per oz., among the highest prices since October 1980.

Silver, gold and molybdenum will be contained in Oyu Tolgoi’s copper concentrate.

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

In addition the mine is expected to produce 160 million pounds of 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 will be brought into production in later stages of development. Currently molybdenum is trading at about US$18 per lb.

In Toronto at presstime Ivanhoe was trading at $27.90 per share. Over the last year it has traded in a range of $13.15 per share (May 25 2010) and $30.28 per share (Dec. 7 2010). The company has 653.5 million shares outstanding.