Ivanhoe Mines reported in November 2011 that overall construction at the Oyu Tolgoi copper-gold-silver complex in the South Gobi region of Mongolia would be 70% complete by year-end 2011. Key elements of the project were ahead of schedule, including the concentrator complex, primary crusher and tailings-thickening ponds. Commercial production of copper-gold-silver concentrate is scheduled to begin in the first half of 2013.

The Oyu Tolgoi project is owned 66% by Ivanhoe Mines and 34% by the Mongolian government, with Rio Tinto holding a 49% interest in Ivanhoe Mines. In mid-December 2011, an independent arbitrator upheld Rio Tinto’s claim in respect of Ivanhoe Mines’ shareholder rights plan (SRP) that after a standstill agreement expired on January 18, 2012, Rio Tinto would have the ability to purchase additional shares in Ivanhoe beyond its current 49% holding without being diluted by the SRP.

According to a statement from Rio Tinto, “Depending upon its [Rio Tinto’s] assessment of Ivanhoe’s business, prospects, and financial condition; the market for Ivanhoe’s shares; general economic and tax conditions; and other factors, Rio Tinto may seek opportunities to increase its shareholding in Ivanhoe to a majority position but currently has no intention of making a full takeover bid for Ivanhoe’s shares. Rio Tinto reserves the right to change its intention in the future.”

The Oyu Tolgoi project initially is being developed as an open-pit operation, with the first phase of mining to start at the near-surface, gold-rich Southern Oyu deposits. A copper concentrator, related facilities and necessary infrastructure will support an initial throughput of 100,000 mt/d of ore from the open-pit.

Commissioning of the initial open-pit mining fleet began in September 2011, with delivery of the first Bucyrus RH340 hydraulic shovel and Komatsu 930E haul trucks. The full fleet of 28 trucks is expected to be in operation by August 2012.

Along with the surface mine development, an 85,000-mt/d underground block-cave mine is being developed at the Hugo North deposit, with initial production expected in 2015. Throughput capacity of the concentrator is scheduled to be expanded to about 160,000 mt/d by the time underground mine begins production. Development of the first lift of the underground block-cave mine at the Hugo North deposit is ongoing.

In May 2011, the Oyu Tolgoi project received the final approvals required to proceed with construction of a 220-kV power transmission line from Oyu Tolgoi along a 95-km route south to the Mongolia-China international border. Construction of the transmission towers was completed in October 2011, and the stringing of power cables is expected to begin during the second quarter of 2012. The transmission line is planned to be extended across the Mongolian border by Chinese contractors to tie into the neighboring Inner Mongolia electrical grid in China.

Capital invested in the Oyu Tolgoi project through the end of the third quarter of 2011 totaled $3.2 billion.

Non-binding concentrate sales memorandums of understandings with two large Chinese smelters and two international trading companies were agreed to during third-quarter 2011. Contracts are expected to be finalized with the smelters and trading companies during the next several months. Most of the concentrate initially produced at Oyu Tolgoi is expected to be delivered to customers in China.

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