Funding not a concern for Oyu Tolgoi development, Ivanhoe's Friedland says

VANCOUVER, B.C. — Ivanhoe Mines Ltd. (TSX:IVN) executive chairman Robert Friedland says financing the Oyu Tolgoi project in Mongolia is "the least of our concerns," promising no funding delays between now and when the copper-gold mine reaches commercial production in 2013.

Friedland made the vow during in an investor conference call to discuss the recently signed investment agreement between his Vancouver-based company, London-based partner Rio Tinto (NYSE:RTP) and the Mongolian government to develop Oyu Tolgoi.

"The door to our future is now opened wide," Friedland said of the long-awaited deal signed last week.

Oyu Tolgoi is expected to cost about US$4 billion to build. Friedland said the company has about $2.8 billion in equity so far.

"Financing is the least of our concerns," Friedland said. "We don't expect this project to be delayed by a single day for going out and finding money."

Friedland told investors the company has been approached by "numerous" international investors and sovereign wealth funds to invest in the project.

He said the investment interest was unsolicited and that the company is "considering thinking about it."

"We don't feel capital constraint at this time," he said.

Ivanhoe said earlier this week it has postponed a plan to sell a 9.9 per cent interest in the company to another strategic investor.

That statement came alongside news that Rio Tinto plans to increase its stake in Ivanhoe to 19.7 per cent later this month, up from 9.9 per cent.

Ivanhoe will receive US$388 million from the Anglo-Australian miner, funds it will use towards building and commissioning the open-pit mine at Oyu Tolgoi and to advance development of an underground mine.

The private placement funding is for about 46 million Ivanhoe shares at US$8.38 per share. Ivanhoe said the latest investment will increase its cash position to approximately US$725 million.

The investment represents the second investment phase of deal the two companies announced in 2006 to develop Oyu Tolgoi, which is located in the south Gobi region of Mongolia 80 kilometres north of the Chinese-Mongolian border.

The agreement allows Rio Tinto to become the largest shareholder in Ivanhoe through investments made in stages totalling about US$2.4 billion and a maximum stake of 46.65 per cent.

That deal states that Rio Tinto could own about 43 per cent of Ivanhoe if the company maximizes its credit facility, along with other conditions. As well, Rio Tinto could buy more Ivanhoe stock to make up the balance of the 46.65 per cent allowed under the agreement.

Ivanhoe has also agreed to use no less than 90 per cent of the proceeds from the credit facility exclusively on the Oyu Tolgoi project.

The two companies will jointly engineer, construct and operate Oyu Tolgoi, which is said to be the world's largest copper-gold development project.

Production was last estimated in 2005 at 70,000 tonnes of ore per day or 25.5 million tonnes annually. New production estimates are expected in the coming weeks.

"We believe our operating margins per tonne will improve from 2005 and our tonnage will be higher at an annual life of mine basis," Ivanhoe president and chief executive John Macken said.

The investment agreement between Ivanhoe, Rio Tinto and the Mongolian government was officially signed last week at a special ceremony in the country.

The agreement on the Oyu Tolgoi has been renegotiated repeatedly after opponents complained it shortchanged Mongolia. Parliament had to repeal a windfall profits tax in August before the companies agreed to go ahead.

Mongolia will own 34 per cent interest in the project, while Ivanhoe will retain a controlling 66 per cent interest.

Mongolia also has the option to purchase an additional 16 per cent interest, under certain conditions and time frames.

Ivanhoe would continue to hold management rights over the project and a deciding vote at board and shareholder meetings.

Friedland also boasted about the Mongolian workforce as being young, educated and Internet savvy. He also cited wrestling as their national sport.

"I don't advise any Westerner to challenge a Mongolian to a wrestling match," Friedland said. "They make phenomenal miners and construction people. They live through a very tough winter. This is a warrior race, a very proud people... . I would put the Mongolian up against any labour force in the world."

Ivanhoe said it will employ about 10,000 people, including international contractors, during the construction phase. It expects to employ up to 4,000 people when the mine is operating. Mongolian has a population of about 2.7 million people.

Ivanhoe shares were down two cents at $12.79 in early trading on the Toronto Stock Exchange Thursday, with a 52-week range between $2.06 and $14.45.

By Brenda Bouw of Canadian Press
Source:Canadian Press
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