The Operations Focus article in International Mining’s April issue looks at the magnificant Oyu Tolgoi project in Mongolia’s South Gobi that John Chadwick visited recently. Executive Chairman and CEO of Ivanhoe Mines said “Although Oyu Tolgoi is best known for its large and growing deposits of copper and gold, silver forms a significant proportion of the total Oyu Tolgoi resource and Oyu Tolgoi will rank as a very substantial silver producer when commercial production begins in 2013. While we have not routinely itemised the silver content of Oyu Tolgoi’s porphyry ore in our discovery reports, the buoyant global silver market has fuelled the interests of investors and has prompted us to more widely circulate the projections for silver production that have been prepared as part of our project planning and development studies.”

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 an estimated total of 78 Moz of silver, or 2,400 t, 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. The Reserve Case draws only from the Measured and Indicated resources of Oyu Tolgoi.

During the projected 59-year mine life under the IDP-10’s Life-of-Mine Sensitivity Case, total silver production was estimated to be 180 Moz, or 5,500 t. Part of the ongoing exploration program at Oyu Tolgoi is designed to upgrade Inferred resources to higher classifications, as has been progressively accomplished through the past 10 years of discovery and resource definition at the project.

Friedland said that some investors and analysts may not have fully appreciated the significance of Oyu Tolgoi’s expected production of such byproduct metals as silver and molybdenum. “The reality is that silver and other byproduct revenues will considerably lower the average cash cost to produce a pound of copper or an ounce of gold at Oyu Tolgoi.” Silver currently is trading at more than $34/oz, commanding 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 Oyu Tolgoi will contain significant quantities of byproduct gold and silver that will be recovered during the subsequent smelting and refining processes and sold separately. The average annual production at Oyu Tolgoi during the first 10 years is projected to exceed 544,000 t of copper, 650,000 oz of gold and 3 Moz of silver.

The mine also is expected to produce 160 Mlb of molybdenum during the 59-year Life-of-Mine Sensitivity Case. Most of the molybdenum at Oyu Tolgoi is contained in the Heruga Deposit, which will be brought into production in later stages of development. Molybdenum currently is trading at approximately $18/lb.

Using a copper price of $2.00/lb, a gold price of $850/oz and a silver price of $13.50/oz, the IDP-10 Reserve Case estimated that Oyu Tolgoi’s total cash costs in the first 10 years of production would be $0.45/lb of payable copper produced, after gold credits, during the first 10 years. Total cash costs include mine site costs and all treatment, refining, transport and royalty costs arising from product sales. Calculated on potentially higher gold prices, the IDP-10 estimated that total cash costs at Oyu Tolgoi in the first 10 years of production could be as low as $0.25/lb of payable copper at a gold price of $1,250/oz and $0.12/lb at a gold price of $1,500/oz.