Independent Integrated Development Plan for Oyu Tolgoi highlights significant and long-lasting benefits for Mongolia

Oyu Tolgoi to become the world's next major copper and gold mine with average annual production of more than one billion pounds of copper and 330,000 ounces of gold for at least 35 years



ULAANBAATAR, Mongolia, Sept. 29  /PRNewswire-FirstCall/ -- Ivanhoe Mines' Chairman Robert Friedland and President John Macken announced today that an independent Integrated Development Plan (IDP) prepared by a joint venture between AMEC Americas Limited, of Vancouver, Canada, and Ausenco Limited, of Perth, Australia, with input from 12 other leading international engineering and environmental consultants, confirms the potential of Ivanhoe's Oyu Tolgoi (Turquoise Hill) Project in southern Mongolia to become one of the world's largest copper and gold producers and a model of environmentally-sound mineral development.

"The IDP provides a comprehensive roadmap for the staged development of a new, world-scale copper and gold mining complex at Oyu Tolgoi that will positively and significantly contribute to Mongolia's economic growth and social development for decades to come," Mr. Macken said. "The study outlines the framework for the responsible development of the mine, allowing Ivanhoe to integrate economic progress with environmental care and social responsibility."

Development at Oyu Tolgoi is scheduled to occur over a 15-year period, providing for an ultimate mine life that is expected to exceed 40 years. The IDP consists of:

  1. a feasibility-level evaluation of an initial, large open-pit mine
     developed on the near-surface Southern Oyu deposits; and
  2. pre-feasibility and scoping-level evaluations of the associated
     infrastructure, such as power supply, and of a world-class,
     underground block-cave mining operation at the Hugo Dummett North and
     South deposits.



The open-pit resources used in the IDP are all in the Measured and Indicated categories. The underground resources used in the IDP include some Inferred resources that have not yet been sufficiently drilled to have economic considerations applied to them to enable them to be categorized as reserves. Mineral resources which are not reserves do not have demonstrated economic viability. Until there is additional underground drilling and geotechnical rock characterization to upgrade the Indicated and Inferred resources to Measured and Indicated resources, the economic analysis contained in the IDP is a preliminary assessment and there can be no certainty that the predicted results of the IDP will be realized.

The independent study indicates that the Oyu Tolgoi Mine will be capable of average annual production in excess of one billion pounds of copper and 330,000 ounces of gold for at least 35 years. Peak annual production in excess of 1.6 billion pounds of copper and 900,000 ounces of gold is projected to be reached six years after initial production begins (Year 6). To achieve this production, the study contemplates a two-phase approach to developing the mine.

  Summary of Phase 1
  ------------------



The first phase, the Base Case, consists of a concentrator with a single SAG (semi-autogenous grinding) circuit with an initial throughput rate of 70,000 tonnes-per-day (tpd), producing a gold-rich copper concentrate by mining open-pit resources from the Southwest Oyu Deposit. During the first three years of operation, mill feed will be primarily sourced from stages 1 and 2 of the open-pit mine centred on the gold-rich Southwest Oyu Deposit, while the initial underground block cave mine at the copper-rich, higher-grade Hugo North Deposit is being developed. After Year 3, production at Hugo North is expected to commence. By Year 5, Hugo North will be the predominant source of mill feed for the concentrator. With modifications to the downstream portion of the concentrator, the softer, underground mill feed is expected to facilitate an increased throughput rate of 85,000 tpd by Year 6 in the single SAG circuit concentrator. At this point, open-pit production will be curtailed and only stages 1 and 2 of the ultimate nine-stage open-pit mine plan will have been mined. In this Base Case scenario, Hugo North provides the mill feed to beyond Year 40.

  Summary of Phase 2
  ------------------



Phase 2 of the IDP, the Expanded Case, will be initiated with a decision in Year 3 to develop a block-cave mine at the Hugo South Deposit and proceed with the stripping of stages 3 and 4 of the open-pit mine.

The Expanded Case envisions the ramping up of production from the underground block-cave mines and the doubling of the capacity of the concentrator, including the addition of a second SAG milling circuit, to increase Oyu Tolgoi's combined open-pit and underground production to at least 140,000 tpd by Year 7. Hugo North mill feed, combined initially with feed from stages 3 and 4 of the open-pit mine, will ensure that the 140,000 tpd production rate is maintained. By Year 12, when production from Hugo South will commence, underground production alone is expected to reach 140,000 tpd.

Assuming that the expansion is undertaken as scheduled, the IDP indicates that Oyu Tolgoi could produce approximately 35 billion pounds of copper and 11 million ounces of gold over the projected, initial 35-year life of the mine, based on resources delineated to May, 2005.

Given the significant potential to expand the known resources at Oyu Tolgoi, the ultimate rate of production from the expanded concentrator could exceed the projections provided in the IDP. Ivanhoe believes the project has the potential to achieve a mill throughput of 170,000 tpd, although this is not evaluated in the IDP. Ivanhoe estimates that minimal additional capital would be required to achieve this tonnage through the double SAG circuit.

  Financial Modelling Results
  ---------------------------



The IDP financial models were constructed using a base copper price of $1.00/lb and a base gold price of $400/oz, and are based on interpretation of existing tax, mining and other relevant Mongolian laws. For comparison, current copper and gold prices are approximately $1.80-$1.85/lb and $470/oz, respectively. All dollar figures are in United States dollars unless otherwise indicated.

The estimated net present value (NPV) of the Oyu Tolgoi Mine at an 8% discount rate, assuming the Expanded Case production is developed as scheduled to 140,000 tpd, is $3.44 billion before tax - and $2.71 billion after tax. At a 10% discount rate, the NPV is $2.40 billion before tax and $1.85 billion after tax. The internal rate of return (IRR) of the Expanded Case is 19.75% after tax and the payback period is 6.5 years.

The engineering assessment of initial capital required to fund the open-pit mine and the associated milling complex, capable of processing 70,000 tpd, is estimated at $1.15 billion. In addition, $232 million will be expended during the same period to advance the development of the underground Hugo North Mine. This initial expenditure carries the project through a six-month ramp-up period to reach full production of 70,000 tpd at the beginning of 2009.

Ivanhoe believes that the continued investment required between 2009 and 2014 for the ongoing development of the mine to reach the 140,000 tpd Expanded Case could be financed from cash flows from initial mining operations. Financing this investment was not assessed in the IDP.

The IDP's sensitivity analysis shows that the project's rate of return is most sensitive to changes in the copper price, followed by changes in the gold price, changes to the operating costs and, finally, changes in capital costs. At $1.10 copper and $400 gold, the after-tax IRR increases to 22.08%; the after-tax NPV increases to $3.39 billion at an 8% discount rate and $2.39 billion at a 10% discount rate.

Although not included as a basis of the financial analysis in the IDP, the NPV would increase by more than $200 million in either the Base or Expanded cases if gold production for the first six years was hedged at $550 an ounce. Independent of the IDP process, Ivanhoe has received advice from financial advisors that the futures market for gold currently easily could support a hedge at $550 an ounce over this period. A gold hedge at $550 in the first six years of full production would lower estimated minesite cash costs to approximately 2 cents a pound of copper produced during that six-year period.

The NPV calculations do not include any value for the new, high-grade Hugo Far North mineralization discovered on the Ivanhoe-Entree joint venture property, which is adjacent to and directly north of the Oyu Tolgoi property. Ivanhoe is in the process of drilling off the mineralization to the inferred and indicated status and expects to have an independent resource estimate prepared by AMEC Americas Limited by early 2006.

As is the case with all long-life mining projects, NPV calculations significantly understate the value of anticipated cash flows from the project beyond the initial 10 years of operation.

  Key Points in the IDP Report
  ----------------------------

  - Production is forecast to commence in mid-2008 from an open pit centred
    on the gold-rich Southwest Oyu Deposit, which is the primary deposit of
    the near-surface Southern Oyu group of deposits.
  - Full production, with an initial throughput of 70,000 tpd (25.5 million
    tonnes per annum (mtpa)), is expected at the beginning of 2009.
  - The initial capital cost of $1.15 billion for the open-pit mine and
    associated milling complex includes $55.2 million in escalation costs
    and $51.1 million in operating costs incurred in the second half of
    2008 as operations commence and the mine ramps up to full production.
  - In addition to the $1.15 billion in initial capital costs for the open
    pit and mill, an estimated $232 million in underground development work
    will be spent prior to reaching full production in the mill, which will
    allow Ivanhoe to complete the development of Shaft No. 1 of the
    underground Hugo North Mine and advance work on the No. 2 and No. 3
    shafts. An outline of the work underway on Shaft No. 1 is given below.
  - Mill feed for the first 10 years of operation will utilize more than
    85% Measured and Indicated resources from both open-pit and underground
    deposits.
  - Estimated average copper recoveries over the initial life-of-mine
    considered by the IDP are 90.0%; gold recoveries are 78.1%. These
    estimates are based on extensive testing by SGS Lakefield Research
    Limited, of Lakefield, Canada, and MinnovEX Technologies Inc., of
    Toronto, Canada.
  - An annual production rate in excess of 140,000 tpd (52.5 mtpa) is
    expected to be achieved by Year 7, when a second SAG circuit is
    completed. This is presented in the IDP as the Phase 2 Expanded Case
    and would produce an average annual production in excess of one billion
    pounds of copper and 330,000 ounces of gold for at least 35 years.
  - At the Expanded Case level of production, the average pre-tax annual
    gross revenue over the initial 35 years would be $1.1 billion, peaking
    at $1.99 billion in Year 8.
  - The Expanded Case estimates total cash cost, after gold credits over
    the life of the project, at $0.40/lb. This total cash-cost figure
    includes the realization costs of treatment, refining, product
    transport and government sale royalties.
  - Site cash costs at the mine gate (excluding realization costs) are
    estimated at $0.26/lb.

  Shaft Work Underway
  -------------------



Ivanhoe and its underground mining consultant, McIntosh Engineering Inc., of Tempe, USA, recognize the enormous importance and value of the Hugo North Deposit. Accordingly, its development is being fast tracked. Critical to development of Hugo North is accessing the deposit by means of the initial 6.7-metre-diameter Shaft No. 1. The Shaft No. 1 headframe, hoisting plant and associated infrastructure currently is under construction and shaft sinking from the completed headframe will commence in the fourth quarter of this year. In the interim, pre-sinking excavation is underway.

The work is being performed by the Redpath Group of North Bay, Canada, one of the world's leading shaft-sinking firms. When completed, Shaft No. 1 will provide access to the Hugo North and Hugo South deposits and enable the completion of detailed feasibility studies, further resource delineation drilling and rock characterization work. Shaft sinking is scheduled to be completed by the third quarter of 2007 and will be followed by underground drifting and diamond drilling in 2007 and 2008. McIntosh has commenced engineering work for the project's second shaft, which is being designed as a 10-metre-diameter production and service shaft.

  Additional Economic Enhancements
  --------------------------------



There remains significant upside to further enhance the economics of the project, given the continuing exploration underway to expand and upgrade the resources that were used as the basis for this assessment. Given that the mining plans in the IDP do not fully exploit the May, 2005, estimated resources, and the excellent potential to add significant new resources, Ivanhoe and the independent engineers believe there is potential that the ultimate mine life will be greater than the initial 35 to 40 years envisioned in the IDP.

The IDP does not include any of the high-grade copper and gold mineralization discovered north of the Oyu Tolgoi northern boundary, on the Shivee Tolgoi property, which is owned by Entree Gold Inc. and is subject to Ivanhoe having the right to earn up to 80% of resources discovered on the property. Drilling has extended the strike length of the Hugo Far North copper-gold discovery to more than 600 metres beyond Oyu Tolgoi's northern boundary. Ivanhoe currently has four deep-hole-capacity drilling rigs focused on testing the extent to which the mineralized zone of Hugo North extends into the Ivanhoe-Entree joint-venture property, as well as testing satellite deposits and new targets throughout the Oyu Tolgoi District.

  Additional upside considerations assessed by the IDP include:

  - Increased Concentrator Capacity. The results of throughput
    determinations by means of lab-test simulations and SAG mill
    pilot-plant testing were discounted 10% for operational contingency and
    potential sample-set bias. The IDP process plant design may have
    additional capacity without the need for further capital expenditure.
  - High-Density Tailings. The combined use of high-compression thickeners
    to increase the deposition density of tailings and of decant towers to
    reduce the size of the tailings pond area has the potential to reduce
    make-up water requirements and operating costs.
  - Smelting and SX/EW copper production. To increase value and/or reduce
    risk, evaluation of the possible benefits of a dedicated smelter at or
    near the site is warranted. If a dedicated smelter is demonstrated to
    be advantageous, then optimization of metal recoveries and concentrate
    grades to suit the revised treatment and transportation conditions
    should be considered. With a smelter providing a nearby source of
    sulphuric acid, it could be advantageous to process the low-grade
    resource identified in the Southwest open pit and the Central Oyu
    Deposit in a heap leach, solvent-extraction/electrowinning (SX/EW)
    operation.

  Mineral Resources Identified To Date
  ------------------------------------



The IDP is based on resources for the Southern Oyu and Hugo North deposits that were independently estimated by AMEC Americas Limited, in May, 2005, based on drilling to April, 2005, and on resources for the Hugo South Deposit independently estimated by AMEC in May, 2004. The drilling consisted of approximately 273,000 metres in 583 drill holes for the Southern Oyu open-pit deposits, which include the Southwest, South, Wedge and Central zones, and 287,000 metres in 267 drill holes, including daughter holes, for the Hugo North and Hugo South underground deposits.

AMEC estimated that the project contained Measured and Indicated resources totalling 1.15 billion tonnes grading 1.30% copper and 0.47 grams per tonne (g/t) gold (a copper equivalent grade of 1.54%), containing 32.9 billion pounds of copper and 17.3 million ounces of gold, at a 0.60% copper equivalent cut-off. In addition to the Measured and Indicated resources, AMEC estimated that the Oyu Tolgoi Project contained Inferred resources of 1.16 billion tonnes grading 1.02% copper and 0.23 g/t gold (a copper equivalent grade of 1.16%), at a 0.60% copper equivalent cut-off, containing approximately 26.2 billion pounds of copper and 8.4 million ounces of gold. Details of the estimate are in Ivanhoe's May 3, 2005, news release.

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DATASOURCE: Ivanhoe Mines Ltd.



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