VANCOUVER, Nov. 10 /PRNewswire-FirstCall/ -- Ivanhoe Mines today
released its results for the third-quarter of 2005. (All figures
are in US dollars unless otherwise stated). Revenue from mining
operations in the third quarter of 2005 (Q3'05) increased to $15.4
million, up from $9.8 million in the third quarter of 2004 (Q3'04).
The company generated an operating profit of $9.4 million in Q3'05,
up from $5.7 million in Q3'04. Revenue for the first nine months of
2005 totalled $46.2 million, compared to $30.0 million in the first
nine months of 2004. The 54% increase in revenue reflects Ivanhoe's
50% share of the increased copper production from the Monywa Copper
joint-venture mine and significantly higher copper prices. In
Q3'05, copper cathode production from the Monywa Mine totaled 8,497
tonnes (net 4,249 tonnes to Ivanhoe), an 8% increase over the same
period in 2004. During the quarter, Ivanhoe's share of mine
operating profit totaled $9.4 million, compared to $5.7 million in
Q3'04. The average price received for cathode copper sales in Q3'05
was $1.80 a pound, compared to $1.27 a pound in Q3'04. Ivanhoe's
operating profit for the first nine months of 2005 was $29.1
million, up 62% from $18.0 million in the first nine months of
2004. In Q3'05, the company recorded a net loss of $16.4 million
(or $0.05 per share), compared to a net loss of $25.6 million (or
$0.09 per share) in Q3'04. The decrease in net loss between the two
quarters was mainly due to a $3.4 million increase in net income at
the Monywa Mine and $4.0 million in income from discontinued
operations in Q3'05, compared to the same period in 2004. The net
loss for the nine months ended September 30, 2005, was $67.1
million, compared to a net loss of $79.7 million in the first nine
months in 2004. In Q3'05, Ivanhoe continued its conservative
accounting policy of expensing the majority of its exploration and
development costs in the period in which they are incurred.
Exploration and development expenses in Q3'05 totalled $28.9
million, compared to $28.4 million in Q3'04. Mongolian exploration
expenditures in Q3'05 totalled $26.3 million, approximately $21.9
million of which was spent on the Oyu Tolgoi Project and various
coal exploration activities in the south Gobi region of Mongolia.
The balance was spent on various exploration activities, including
the Bronze Fox District, the Kharmagtai Project, regional
reconnaissance, licence-holding fees and general in-country
administrative charges. Total exploration and development
expenditures capitalized in Q3'05 totalled $12.3 million, most of
it related to the capitalization of the surface infrastructure
(headframe, hoisting plant and associated infrastructure) for Shaft
No. 1 at the Oyu Tolgoi Project. Future expenditures related to the
deepening of the exploration shaft and related underground workings
will be expensed. At September 30, 2005, consolidated working
capital was $186.4 million, including cash of $150.9 million,
compared to working capital of $213.1 million and cash of $197.1
million at June 30, 2005, (working capital of $144.8 million and
cash of $122.6 million, respectively, at December 31, 2004). The
company's existing cash resources, together with the proceeds from
the sale of the Savage River Mine, are expected to be sufficient to
fund the company's current and planned activities through Q2'06.
Following completion of an open-pit reserve estimate for the
Southern Oyu deposits, the company expects to be in a position to
seek project financing to implement its initial open-pit
development plans at the Southern Oyu deposits. SELECTED QUARTERLY
DATA ----------------------- (Expressed in millions of U.S.
dollars, except per share amounts) Quarter ended
--------------------------------- Sept 30 Jun 30 Mar 31 Dec 31 2005
2005 2005 2004(1)
-------------------------------------------------------------------------
Revenue 15.4 15.6 15.1 14.1 Operating profit 9.4 10.3 9.5 8.7 Total
exploration 28.9 33.8 24.4 24.3 Foreign exchange gain (loss) 7.2
1.7 (0.7) 3.4 Net (loss) from continuing operations (20.4) (31.1)
(24.1) (26.6) Gain from discontinued operations 4.0 0.0 4.5 8.8
-------------------------------------------------------------------------
Net (loss) (16.4) (31.1) (19.6) (17.8) Net profit (loss) per share
Continuing operation (0.06) (0.10) (0.09) (0.09) Discontinued
operations 0.01 0.00 0.02 0.03
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Total (0.05) (0.10) (0.07) (0.06)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sept 30 Jun 30 Mar 31 Dec 31 2004(1) 2004(1) 2004(1) 2003(1)
-------------------------------------------------------------------------
Revenue 9.8 10.8 9.4 6.8 Operating profit 5.7 6.7 5.6 1.0 Total
exploration 28.4 24.8 20.7 21.2 Foreign exchange gain (loss) 4.2
(1.4) (1.8) 5.1 Net (loss) from continuing operations (25.5) (23.2)
(23.8) (13.0) Gain (loss) from discontinued operations (0.1) 1.4
(8.6) (1.8)
-------------------------------------------------------------------------
Net (loss) from continuing operations (25.6) (21.8) (32.4) (14.8)
Net profit (loss) per share Continuing operation (0.09) (0.09)
(0.09) (0.05) Discontinued operations 0.00 0.01 (0.03) (0.01)
-------------------------------------------------------------------------
Total (0.09) (0.08) (0.12) (0.06)
-------------------------------------------------------------------------
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(1) Certain numbers have been restated due to a change in
accounting policy. Refer to Note 1 of the financial statements.
Summary of key points --------------------- Oyu Tolgoi Copper-Gold
Project, Mongolia - On September 29, 2005, Ivanhoe announced the
release of an independent Integrated Development Plan (IDP) for the
Oyu Tolgoi Project. The IDP proposes the development of a combined
open pit/underground block cave operation that would have a total
mine life exceeding 40 years. Two phases are being proposed to
produce a copper/gold concentrate. The first phase is expected to
yield a throughput rate of 70,000 tonnes per day. In year 3 of
phase one, a decision is envisaged to proceed to a second-phase
expansion to 140,000 tonnes per day. Total production from the
project is expected to make the Oyu Tolgoi Project one of the
world's next major copper and gold mines, with average production
of more than one billion pounds of copper and 330,000 ounces of
gold for at least 35 years. Peak annual production is estimated to
yield more than 1.6 billion pounds of copper and 900,000 ounces of
gold. Based on current timing estimates, the starting date for
commercial production at the Oyu Tolgoi Project is mid-2008. Phase
one is expected to reach a full production capacity of 70,000
tonnes per day at the beginning of 2009. Full production capacity
of 140,000 tonnes per day is expected by year 7. Assuming the
implementation of phase two, the net present value for the Oyu
Tolgoi Project, using an 8% discount rate, is estimated at
approximately $3.44 billion before tax and $2.71 billion after tax.
Using a 10% discount rate, the net present value is estimated at
$2.4 billion before tax and $1.85 billion after tax. These
financial models were based on the Company's interpretation of
existing tax, mining and other relevant Mongolian laws and the
terms of the draft Special Stability Agreement currently being
negotiated with the Mongolian government. Accessing, as soon as
possible, the deep potential of the Hugo North deposit is currently
viewed by Ivanhoe's management as being critical to the financial
success of the development of the Oyu Tolgoi Project. Therefore the
construction of Shaft No. 1, a 6.7-metre-diameter exploration
shaft, along with headframe, hoisting plant, associated
infrastructure and pre-sinking excavation, was undertaken in Q3'05.
Shaft No. 1 is being constructed 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 Dummett
deposits and enable the completion of detailed feasibility studies,
further resource delineation drilling and rock characterization
work. The sinking of Shaft No. 1 is scheduled to be completed by
the third quarter of 2007 and will be followed by underground
drifting and diamond drilling. Design engineering work also is
underway for the project's second shaft, a 10-metre-diameter
production and service shaft. Financing alternatives for Oyu Tolgoi
- Ivanhoe is continuing to assess strategic alternatives for the
development and financing of the Oyu Tolgoi Project. Ivanhoe's
current plan is to aggressively advance the development of the
project while continuing to discuss financing options with various
parties. During Q3'05, Ivanhoe continued its discussions with a
number of major international mining industry participants capable
of financing the project, with a view to selecting suitable
strategic partners to develop the Oyu Tolgoi Project and associated
infrastructure. The company believes that significant advantages
could be realized from the participation of strategic partners and
continues to assess opportunities, as they arise, to extend to one
or more such partners a participating interest in the project.
Ivanhoe is not soliciting bids from potential partners and has not
set a deadline or target date for concluding any such agreement.
Accordingly, there can be no assurance that any ongoing or future
discussions will result in an agreement with a strategic partner or
that Ivanhoe will pursue development of the Oyu Tolgoi Project with
a strategic partner. Stability Agreement for Oyu Tolgoi - During Q3
'05, discussions continued with Mongolian government authorities
aimed at completing a Special Stability Agreement for Ivanhoe
Mines' Oyu Tolgoi Project. In September, 2005, the company
submitted the IDP to the Mongolian government for review and
consultation. The IDP is expected to form the basis for the
company's ongoing discussions with the Mongolian government aimed
at completing the Special Stability Agreement at the earliest
opportunity. Although the negotiations are taking longer than
expected to complete, management remains optimistic that the
Special Stability Agreement can be successfully concluded in the
near term. However, there can be no assurance that a Special
Stability Agreement containing all of the terms sought by the
company can be obtained in the foreseeable future. The completion
of the IDP is an important milestone in the evolution of the Oyu
Tolgoi Project and should provide the context for finalizing a
Special Stability Agreement that will satisfy the interests of the
Mongolian government and the company in the long-term success of
the Oyu Tolgoi Project and that also will serve as a model for
attracting large-scale investment, both domestic and foreign, in
Mongolia's mineral sector. Although amendments to Mongolia's mining
legislation have been proposed, based on its discussions with
Mongolia's President, Prime Minister, members of cabinet and senior
parliamentarians, and on statements issued on July 25, 2005, by the
Mineral Resources and Petroleum Authority of Mongolia, Ivanhoe does
not anticipate material changes in legislation that would
negatively affect the climate for foreign investment in the mining
industry in Mongolia. Ivanhoe/Entree Gold joint-venture, Mongolia -
During the third quarter, drilling results were announced from two
holes, EGC053 and OTD1218, which confirmed the extension of the
Hugo Far North mineralized zone for an additional 150 metres to the
north. The Hugo Far North mineralization now has been extended to
at least 600 metres north of the Ivanhoe/Entree joint venture
property boundary into the Shivee Tolgoi property, which adjoins
the Oyu Tolgoi property, and brings the total length of the
high-grade deposit to over 2.5 kilometres. Step-out and infill
drilling is ongoing, with four deep-hole- capacity drilling rigs.
An updated, independent resource estimate that will incorporate
drilling results from the Ivanhoe/Entree property is expected in
early 2006. The IDP did not include any of the high-grade copper
and gold mineralization discovered on the Shivee Tolgoi property.
In July 2005, Ivanhoe increased its holding in Entree to 10.4
million common shares (15.8 %) by acquiring an additional 1.2
million units of Entree at a cost of $2.2 million. Each unit
consists of one Entree common share and two share purchase
warrants. Ivanhoe/BHP Billiton Exploration joint-venture, Mongolia
- At the end of September 2005, the Falcon airborne gravity
gradiometer survey by BHP Billiton (BHPB) commenced on an area
covering Ivanhoe Mines' non-core exploration licences in southern
Mongolia. The survey is part of a joint- venture agreement with
BHPB allowing BHPB the right to earn up to a 50% interest in the
BHPB Joint Venture Area. The survey is expected to be completed in
early 2006. The BHPB Joint Venture Area, which represents
approximately 40% of Ivanhoe's land holdings in this region,
excludes all coal potential, as well as Ivanhoe's advanced
exploration and development-stage projects, including Oyu Tolgoi,
Kharmagtai and Bronze Fox. Other Mongolian copper/gold exploration
projects - During the quarter, Ivanhoe continued its exploration
efforts on other Mongolian prospects, including the Kharmagtai
project and the Bronze Fox district. Diamond drilling at the
Kharmagtai project tested several previously untested porphyry
prospects. Fifteen diamond drill holes totalling approximately
4,600 metres were completed during the quarter. Further drilling on
this project is expected in Q4'05. Diamond drilling efforts on the
Bronze Fox district were completed in July 2005. Drill data is
being reviewed from the 24 diamond drill holes, totalling
approximately 6,700 metres of core. The drilling completed in Q3'05
targeted four copper-gold prospects that form part of a
14-kilometre-long corridor of alteration and mineralization. Nariin
Sukhait Coal Project, Mongolia - On September 16, 2005, the company
announced an initial resource estimate for the Nariin Sukhait Coal
Project located in southern Mongolia. The estimate was prepared by
Norwest Corporation ("Norwest"), an independent consulting firm. On
October 13, 2005, Norwest increased their September estimate to
reflect the results of a completed detailed topographic survey,
resulting in much more precise vertical location of drill hole
results. Current estimates of the total coal mineralization
contained in the South, East and West fields, based on drilling to
August 9, 2005, stand at 116 million tonnes of Measured plus
Indicated resources - and an additional Inferred resource of
approximately 42 million tonnes. New independent resource
estimates, based on drilling up to the end of October, 2005, is
expected before the end of 2005. In-Place Coal Resources(x) Summary
for Nariin Sukhait as of August 9, 2005
-------------------------------------------------------------------------
In-Place Resources Area ASTM (Tonnes) Group
------------------------------------------- Measured Indicated
Inferred
-------------------------------------------------------------------------
South Field 9,771,000 8,704,000 9,870,000 ------------ High-
------------------------------------------- East Field Volatile
20,007,000 10,862,000 5,086,000 ------------ Bituminous
------------------------------------------- West Field 33,277,000
33,545,000 26,806,000
-------------------------------------------------------------------------
Total 116,166,000 41,762,000
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(x)Resources that are not reserves do not have demonstrated
economic viability. Drill-core samples are undergoing thermal and
metallurgical laboratory testing in the United States. Following
American Society for Testing and Materials standards, initial
coal-quality testing ranks the Nariin Sukhait coal as high-volatile
bituminous. To date, coal-quality testing has been completed for
approximately 25% of the core samples. Ivanhoe plans to complete a
pre-feasibility-level study on the Nariin Sukhait Project within
the next five months. Ivanhoe Mines is currently involved in
preliminary marketing discussions with potential coal buyers.
Subject to the completion of successful marketing negotiations and
the granting of a mining licence from Mongolian governmental
authorities, initial production from Nariin Sukhait Project
possibly could commence as early as the second half of 2006. On
November 8, 2005, Ivanhoe announced that the company had appointed
Gene Wusaty, P. Eng., as President of its Mongolian Coal Division.
Mr. Wusaty has been given the mandate to lead the company's
development of its coal projects in Mongolia, including the Nariin
Sukhait Mine Development Project. Mr. Wusaty is a professional
mining engineer with 25 years of mining-related operational
experience, with progressively increasing responsibilities in
underground and open-pit coal mining and coal-fired power
generation operations in Alberta and British Columbia, Canada. In
the coal industry, he has worked for Elk Valley Coal Corp., Fording
Coal Limited, Quintette Coal Ltd. and Grande Cache Coal Corp.
Monywa S&K Copper Mine, Myanmar - In Q3'05, copper cathode
production from the S&K mine totalled 8,497 tonnes (net 4,249
to Ivanhoe) representing an 8% increase over the same period in
2004. Copper sale prices for the quarter averaged $1.80 per pound,
compared to $1.27 per pound in Q3'04. Recoverable copper grade for
the quarter averaged 0.51%, compared to 0.54% in Q3'04. During the
quarter, the company's share of the mine's operating profit
totalled $9.5 million, compared to $5.7 million in Q3'04. Approval
from Myanmar governmental authorities for the importation of a new
trucking fleet is still pending. As a result, the timing for the
delivery of this equipment, reported last quarter as expected in
Q4'05, remains uncertain. The additional fleet of equipment is
required to maintain copper cathode production at the mine due to
the need to provide additional tonnages necessary to offset the
gradual decline, experienced since mid-2004, in copper grades from
the oxide ore and the decline in copper recoveries expected from
the processing of sulphide ore. In Q2'05, as a result of delays in
the delivery of the new fleet of trucks, the company forecast an
expected decrease in future cathode production to approximately
32,000 tonnes per year. Mine management, while currently re-
estimating the expected production levels for the 2006 year,
remains hopeful that a final approval for the importation of
equipment will be received soon. In the meantime, to mitigate
further decreases in copper production throughput, other
alternatives, such as contract mining, are being evaluated. Copper
prices on the London Metal Exchange averaged $1.80 per pound in
Q3'05, compared to $1.29 per pound in Q3'04. Cathode production in
Q3'05 totalled 8,497 tonnes, representing an annual throughput rate
of 33,710 tonnes, a decrease of 7% over Q2'05. The delay in
importing the trucking fleet negatively impacted the operating
results during the quarter, resulting in actual tonnages moved in
Q3'05 being 31% below budget. When compared to the third quarter of
2004, however, total material moved in Q3'05 increased by 43%,
while the average copper grade mined decreased by 6%. The mine has
been processing super-high-grade (SHG) copper ore, averaging
approximately 13% to 20% copper, throughout 2005. In Q3'05,
approximately 40% of the material placed on heaps consisted of SHG
ore, compared to less than 10% in H1'05. Unit cost of operations
increased by 40% in Q3'05 compared to Q3'04. Approximately
one-third of the increase is due to a 43% increase in tonnage
moved. The remaining portion of the increase is due to increases in
unit prices and the increased use of chemicals in the treatment
plant. At the end of Q3'05, the S&K Mine had $34.6 million in
cash and the bank loan was completely repaid. Discontinued
Operations - Savage River Iron Ore Mine, Australia - On February
28, 2005, Ivanhoe completed the sale of its total investment in,
and loans to, the Savage River operations for two initial cash
payments totalling $21.5 million, plus a series of contingent,
annual payments based on the annual iron ore pellet price. The
future payments will be made over five years, commencing March
2006. A 71.5% increase in the iron ore price benchmark for the 2005
year was announced at the end of February 2005. Based on this
increase, the company expects to receive, by the end of March 2006,
an initial annual payment of approximately $22.5 million, which
would bring the cumulative sale consideration for the project to
approximately $44.0 million. In addition, if the 2005 pellet price
benchmark and the Savage River pellet production are maintained
over the following five years, the company should receive
additional payments totalling approximately $79 million. Total
pellet production for 2005 is estimated to be approximately 2.2
million tonnes. Using the actual volume of Savage River's pellet
sales during Q3'05, Ivanhoe earned $6.4 million in contingent
payments during the quarter. Consequently the deferred recoverable
balance on the sale of assets was reduced to nil and income from
discontinued operations recognized in the quarter totalled $4.0
million. Ivanhoe's results for the Q3'05 and the first nine months
of 2005 are contained in the unaudited Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations, available on the SEDAR website
at http://www.sedar.com/ and Ivanhoe's website at
http://www.ivanhoemines.com/. Ivanhoe shares are listed on the
Toronto and New York stock exchanges under the symbol IVN.
Information contacts: --------------------- Investors: Bill
Trenaman: +1.604.688.5755/Media: Bob Williamson: +1.604.688.5755
Forward-Looking Statements: This document includes forward-looking
statements. Forward-looking statements include, but are not limited
to, statements concerning estimates of the planned development and
engineering at the Oyu Tolgoi project, statements concerning the
expected date of finalizing the Special Stability Agreement for Oyu
Tolgoi, statements relating to future, contingent payments for the
sale of Savage River mine, statements relating to expected copper
production at the Monywa mine, statements relating to the continued
advancement of Ivanhoe Mines' projects and other statements which
are not historical facts. When used in this document, the words
such as "could," "plan," "estimate," "expect," "intend," "may,"
"potential," "should," and similar expressions are forward-looking
statements. Although Ivanhoe believes that its expectations
reflected in these forward-looking statements are reasonable, such
statements involve risks and uncertainties and no assurance can be
given that actual results will be consistent with these
forward-looking statements. Important factors that could cause
actual results to differ from these forward-looking statements are
disclosed under the heading "Risk Factors" and elsewhere in the
corporation's periodic filings with Canadian and US securities
regulators. DATASOURCE: Ivanhoe Mines Ltd. CONTACT: Investors: Bill
Trenaman: (604) 688-5755, Media: Bob Williamson: (604) 688-5755; To
request a free copy of this organization's annual report, please go
to http://www.newswire.ca/ and click on Tools for Investors.
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