Oct. 6 (Bloomberg) -- Ivanhoe Mines Ltd. and Rio Tinto Group signed an agreement today with the government of Mongolia to develop the Oyu Tolgoi copper-gold project, which Rio has called the world¡¯s largest such resource.
Production will start in 2013, London-based Rio said in a statement today. The project may last as long as 30 years and bring in $30 billion to $50 billion of revenue, Mongolian President Tsakhiagiin Elbegdorj said last month.
Ivanhoe, the Vancouver-based developer of the project, has tried for more than six years to reach an agreement to mine the deposit, which is about 80 kilometers (50 miles) north of Mongolia¡¯s border with China, the world¡¯s biggest metals user. Chairman Robert Friedland has staked the prospects for Oyu Tolgoi, which means ¡°turquoise hill¡± in Mongolian, on demand for copper in China, where imports rose threefold in three years.
¡°It is good that they have got the green light to get this up and running,¡± Neil Goodwill, an analyst at Goldman Sachs JBWere Pty, said by phone from Melbourne before the announcement. ¡°It is a good new project with growth potential.¡±
Rio expects to produce 450,000 metric tons of copper and 330,000 ounces of gold a year, according to its statement. The Mongolian government will own 34 percent of Ivanhoe Mines Mongolia Inc., the project¡¯s license holder, the statement said.
The Oyu Tolgoi site contains about 78.9 billion pounds (36 million tons) of copper and 45.2 million ounces of gold, according to company estimates from March 2008. Ivanhoe spent $156 million on exploration and development at Oyu Tolgoi last year and $245.5 million in 2007, the company said in April.
Rio climbed 3 percent to 2,641 pence as of 9:24 a.m. in London. Ivanhoe rose 2.1 percent to C$13.91 in Toronto Stock Exchange trading yesterday, adding to a fourfold gain this year.
Wealth, Prosperity
¡°I¡¯m very happy that this event, which has been debated for so long, has been concluded,¡± Mongolian Prime Minister Sanjaa Bayar said after signing the agreement in Ulaanbaatar today. ¡°This wealth, which has been handed to us by our forefathers, will help bring wealth and prosperity to our descendants.¡±
Today¡¯s signing ceremony was held at the State House, a government building in Ulaanbaatar. Proceedings were led by a military brass band, and ended with a performance by 15 tenors and sopranos.
¡°It¡¯s been a long road,¡± said Ivanhoe¡¯s Deputy Chairman Peter Meredith, who has made 37 trips to Mongolia. ¡°We¡¯re honored to have discovered the Oyu Tolgoi deposits and we¡¯re honored to have helped pioneered this development.¡±
Rio Stake
Rio Tinto agreed to buy 9.95 percent of Ivanhoe in October 2006. The company has the option to increase its stake to 43.1 percent in stages as development progresses, and can further raise the holding to 46.65 percent through stock purchases in the market, the statement said.
¡°This is a significant milestone, and we look forward to developing what I consider to be the best copper deposit in the world,¡± Bret Clayton, head of Rio¡¯s copper and diamonds group, said at a news conference in Ulaanbaatar today.
Ivanhoe¡¯s efforts to get the project into production had been stymied by disagreements between Mongolia¡¯s parliament, ministers and the mining companies over how much ownership the government should take in its mineral wealth. Protests over benefits for overseas miners led to the collapse of a coalition government in 2006.
Oyu Tolgoi will ¡°make Ivanhoe a major producer of copper,¡± said Ray Goldie, an analyst at Salman Partners Inc. who has a ¡°buy¡± rating on Ivanhoe since April 2008, according to data collected by Bloomberg.
Ivanhoe would likely profit from output at Oyu Tolgoi if copper prices were trading as low as $1.50 a pound, Goldie said.
Copper imports into China rose more than threefold to 213,399 tons at the end of last year from three years earlier, according to the country¡¯s customs data.
Copper for December delivery on the Comex division of the New York Mercantile Exchange rose as much as 1 percent to $2.755 a pound. The metal hasn¡¯t traded below $1.50 since February.
IVA Price at posting:
$3.52 Sentiment: None Disclosure: Not Held
