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Oyu Tolgoi, Mongolia




Key Data


The Oyu Tolgoi gold and copper project, also known as Turquoise Hill, is situated in the south Gobi region of Mongolia, around 80km north of the Chinese-Mongolian border and 550km south of Ulaanbaatar.

The mine is jointly owned by multinational resources company Turquoise Hill Resources (previously Ivanhoe Mines) and Rio Tinto, which has a 19.9% stake in Turquoise Hill Resources, with provisions to increase its interest to 46.65%.

"Oyu Tolgoi is expected to contribute around 34% of Mongolia’s GDP."

A recent integrated development plan (IDP) prepared for the companies suggests that the Oyu Tolgoi Mine will be capable of average annual production in excess of one billion pounds (lb) of copper and 330,000oz of gold for at least 35 years. Peak annual production in excess of 1.6 billion pounds of copper and 900,000oz of gold is projected to be reached six years after initial production begins in 2013.

On 31 March 2010, Turquoise Hill Resources announced that the conditions required to develop and operate the mine were successfully completed.

The development phase of the project began following approval by the Mongolian Government in April 2010. Approximately $758m has been approved by a joint committee between Turquoise Hill Resources and Rio-Tinto.

Political unrest in the country is a concern, however. Accusations of vote rigging from the opposition led to riots in the Mongolian capital Ulaanbaatar in June 2008, leaving five people dead and hundreds injured. Mongolia's electoral commission denied there was any rigging and declared the former communist Mongolian People's Revolutionary Party (MPRP) the winner in July.

Investment agreement

In 2009, an investment agreement between Turquoise Hill Resources, Rio Tinto and the Mongolian Government was presented in parliament after getting approval from the Cabinet and the National Security Council.

During the same period, Turquoise Hill Resources entered into an agreement with GoviEx Gold to introduce proprietary Zeus technology at Oyu Tolgoi in an expanded induced polarisation survey. The survey will test Oyu Tolgoi's copper and gold mineralised trend.

Oyu Tolgoi LLC signed a project finance agreement with global financial institutions and export credit agencies from the US, Canada and Australia, as well as 15 commercial banks, in December 2015.

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Geology and reserves

The South Gobi area lies near the boundary of the South Mongolian and the South Gobi tectonic units. Mainly Palaeozoic volcanic, sedimentary and intrusive rocks and Mesozoic sedimentary cover underlie the region.

The series of deposits discovered by Turquoise Hill Resources at Oyu Tolgoi and on the adjoining Shivee Tolgoi joint-venture property during the past six years stretch over 6.6km, and have a measured and indicated resource of 2.25 billion tons graded at 0.94% Cu, 0.35g/t Au and 1.15% CuEq as of September 2014. Inferred resources stood at 4.2 billion tonnes graded at 0.56% Cu, 0.27g/t Au, 75ppm Mo and 0.73% CuEq.

Mining

Iurquoise Hill is developing a stage one open pit mine on the near-surface Southern Oyu deposits and a stage two underground block-caving mine at the Hugo Dummett North and South deposits. The initial development programme for the Hugo North underground block-cave mine is currently under-way with a 1,385m shaft no.1 completed in 2009. In the same year, the lateral development continued. Preliminary works for the development of a raise-bore ventilation shaft was also carried out at shaft one. Surface works for constructing shaft two were also undertaken in 2009.

"The Expanded Case envisions the ramping up of production from the underground block-cave mines."

The first phase, the Base Case, consists of a concentrator with a single SAG (semi-autogenous grinding) circuit with an initial throughput rate of 100,000 tons per day (tpd). In March 2010, the key mining equipment was purchased. It included the major components for the 100,000tpd phase one copper gold concentrator.

Production at Hugo North is expected to commence after year three, with it becoming the predominant source of mill feed for the concentrator by year five. The softer, underground mill feed is expected to support a higher throughput rate of 85,000tpd by year six in the single SAG circuit concentrator.

Phase two of the IDP, the Expanded Case, will start with a decision in year three to develop a block-cave mine at the Hugo South Deposit and proceed with the stripping of stages three and four 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 140,000tpd by year seven.

Production and costs

Iurquoise Hill believes the project has the potential to achieve a mill throughput of 170,000tpd.

"Turquoise Hill believes the project has the potential to achieve a mill throughput of 170,000tpd."

Provided that the expansion is undertaken as scheduled, the IDP indicates that Oyu Tolgoi could produce 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.

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.

It states that at $1.10 copper and $400 gold, the after-tax IRR increases to 22.08%; the after-tax NPV increases to $3.39bn at an 8% discount rate and $2.39bn at a 10% discount rate.

The first shipment of copper concentrate was delivered in July 2013 and the mine delivered one million tonne shipments by February 2015.

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