for personal use only - asx · 28-10-2011 · analysis does not include any carbon tax...

Merlin Pre-feasibility Study Completed Highlighting a Robust Molybdenum and Rhenium Project

Initial Feasibility Study work underway

Decline Mining progressing on track

Merlin Production to start in Q1 2014

MELBOURNE, AUSTRALIA – Peter Reeve, Chief Executive Officer, and Robert Friedland, Chairman of Ivanhoe Australia Limited (IAL) (IVA:ASX/TSX), are pleased to announce the completion of the Merlin Pre-Feasibility Study1 (PFS); a further milestone in the development of the company’s molybdenum and rhenium project in north-western Queensland.

“The study shows that the Merlin Project will provide strong long-term cashflows with potential for significant upside given the discovery of other high grade molybdenum/rhenium mineralisation in the region.” Mr Reeve said.

“We are particularly pleased that the Pre-Feasibility Study has largely confirmed the overall findings of the Scoping Study.”

“The high-grade nature of the Merlin deposit is exceptional; the project has a grade approximately seven times greater than the highest-grade molybdenum mine currently operating, when our rhenium credits are included. In addition, exploration of the mineral belt that contains the Merlin deposit has identified several high-grade intercepts of molybdenum and rhenium that potentially could prove to be repeats of Merlin-style mineralisation.”

Merlin, the world’s highest grade molybdenum and rhenium deposit, was discovered by Ivanhoe Australia in late 2008 and an initial Mineral Resource was declared in mid-2009. The results of the PFS confirm that the Merlin Project is a key part of Ivanhoe Australia’s integrated plans for the development of its four major projects in the Cloncurry region during the next five years, with the cashflow from these projects to be used for further exploration and development of the company’s tenements.

1 The Merlin Pre-Feasibility Study forms the basis of the independent technical report compliant with Canadian NI 43-101 standards compiled by AMC Consultants.

Market Release October 28 2011

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Importantly, Merlin provides Ivanhoe Australia with the benefit of commodity diversification, giving exposure to an additional metals complex to the copper and copper-gold projects at Osborne, Mount Dore and Mount Elliott.

The PFS indicates that key features of the Merlin Project include:

Operational highlights

• An initial mine life of more than ten years.

• A production rate of 500,000 tonnes per year (steady state) using drift-and-fill (DAF) and long-hole-open-stoping (LHOS) mining methods.

• Average steady state production of approximately 5,030 tonnes of molybdenum and 7.2 tonnes of rhenium per year.

• Ore to be crushed at Merlin and trucked 53 kilometres to a dedicated processing plant at the company’s Osborne complex.

• A roaster to produce separate molybdenum, as molybdenum trioxide (MoO3), and rhenium, as ammonium perrhenate (“APR”) (NH4ReO4), products.

• Overall molybdenum metal recoveries of approximately 84.5% and rhenium 80.9%.

• First saleable production in Q1 2014, following concentrate production from Q3 2013.

Financial highlights

• A project IRR of approximately 32%, total after-tax cashflow of A$1,563 million, annual steady-state after-tax cashflows of approximately A$170 million and an NPV8 of A$690 million2,3.

• Average life-of-mine operating cash costs of US$6.78 per pound of molybdenum in MoO3, after by-product credits and including royalties.

• A payback period (from date of first production) of approximately four years. • An initial capital cost to first production of A$337 million, which includes a $56

million contingency

The sensitivities matrices in the attached Appendix provide a range of results for the Merlin project for after-tax cashflow and discounted cashflow at NPV8 analysis.

The current Mineral Resource estimate, released in 2010 and used as the basis for the PFS, consists of an Indicated Mineral Resource of 6.5 million tonnes at 1.3% molybdenum and 23 grams per tonne of rhenium and an Inferred Mineral Resource 0.2 million tonnes at 0.9% molybdenum and 15 grams per tonne of rhenium. In September 2011, a Mineral Reserve of 6.7 million tonnes at 1.1% molybdenum and 19.1 grams per tonne of rhenium

2 Roskill have been appointed as independent consultants to provide Ivanhoe Australia an expert opinion on Mo and Re pricing and forecasts. Roskill forecasts molybdenum prices to increase from US$16.50/lb in 2011 to US$27.00/lb (US$23.77/lb in real terms) in 2016. The mid-point of Roskill’s forecasts for rhenium metal is US$4,350/kg in 2011 increasing to US$5,700/kg (US$5,018/kg) in 2016. 3 Analysis is based on Roskill’s molybdenum and rhenium price forecasts (real terms) to 2016. Ivanhoe has held 2016 prices constant thereafter and has selected an AUDUSD exchange rate of 1.00 for 2012-2013 and 0.83 thereafter. NPV8 means the net present value calculated with an 8% discount rate. Analysis does not include any carbon tax implications.

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was announced for Merlin4. An updated Mineral Resource will be released in Q1 2012 that will include results from recent additional surface drill holes.

The co-locating of the Merlin processing plant with the Osborne facilities will provide substantial benefits through the sharing of the existing infrastructure, such as the ROM pad, power, water, offices, warehouse, maintenance facility and village. These benefits will provide savings from upfront capital and ongoing operating costs.

Feasibility Study and Optimisation Work

Initial work for the Merlin Feasibility Study has commenced with the identification of potential optimisation opportunities that have the potential to significantly enhance the project’s economics. The Feasibility Study is scheduled to be completed in Q1 2012.

Key opportunities being investigated as part of the Feasibility Study include:

1) Optimisation of the height of the sub-levels in the underground mine and the ratio of drift-and-fill versus long-hole-open-stoping mining methods and their associated cost profiles.

2) Further metallurgical testwork to optimise metallurgical recovery and processing characteristics utilised in the PFS.

3) Potential to produce higher value product streams for molybdenum output, such as ferro-molybdenum.

4) Optimisation of the capital costs for the processing plant and roaster.

5) Confirmation of the roaster location; the PFS assumes the roaster will be located at the Osborne complex however potential offshore locations have been identified that may significantly reduce the capital and operating cost profile of the roaster facility.

Approval / Permitting Process & Workforce

Planning and preparation of the information required to be submitted for the relevant government approvals has commenced. Approval of the required permits to construct the processing plant and roaster are planned to be received by Q3 2012. Importantly, Merlin lies on a granted Mining Lease (see Figure 1), which is expected to greatly reduce the time required for permitting of the project.

Ivanhoe Australia is firmly committed to establishing its operating base in north-west Queensland. The Merlin Project will create approximately 300 jobs during the construction phase and approximately 250 permanent positions when the project is operational. As part of its community consultation process, Ivanhoe Australia meets with local stakeholders on a regular basis and also holds an annual Local’s Day forum to discuss project changes. Ivanhoe Australia also has a strong relationship with the Traditional Owners in the area, providing training, education, and business opportunities as operations expand.

4 The Mineral Reserve for Merlin consists entirely of Probable Mineral Reserves.

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Merlin Decline Progress & Little Wizard

Construction of the Merlin decline is on schedule and no technical issues have been encountered since construction of the decline began in late 2010. The decline face is currently at greater than 1,400 metres and an access drive to the Little Wizard ore body has been substantially completed (see Figure 5). This decline will allow further metallurgical and geotechnical testwork to be undertaken and enable geological confirmation of the Merlin ore body.

Little Wizard is a small, very high-grade domain and represents the uppermost portion of the Merlin mineralisation. The Little Wizard domain now is included within the Merlin Mineral Resource. Development of the Little Wizard deposit will be undertaken concurrently with the Merlin deposit with ore being treated through the proposed Osborne plant.

Ongoing Exploration Potential

Potential remains for additions to be made to the existing Merlin Mineral Resource. Merlin is a high-grade shear-hosted molybdenum lens, within the larger Mount Dore polymetallic5 system, which remains open along-strike and down-dip from the current Merlin Mineral Resource.

Ivanhoe Australia believes there is excellent potential for further repeats of high-grade molybdenum-mineralisation within the Mount Dore system, along-strike and down-dip of the Merlin ore body, and potentially as parallel lenses hosted within the Merlin footwall (see Figure 3). An underground drilling program will commence in January 2012 and a surface drilling program will be conducted during 2012 to test for extensions to the known mineralisation.

Ivanhoe Australia also believes that Merlin has the potential to represent only part of the molybdenum / rhenium inventory on its tenements. There are at least five prospects along a 65-kilometre trend where high-grade molybdenum and rhenium have been identified, extending from Victoria, 15 kilometres to the south of Merlin, to Lanham’s Shaft 50 kilometres to the north of Merlin (see Figure 1). For example, at Lanham’s Shaft hole LAD0003 intersected 18 metres @ 2.15% molybdenum and 3 grams per tonne of rhenium.

Recent geophysical surveys also have located a significant under-cover extension of this belt extending at least 25 kilometres southward from the Victoria mine past Ivanhoe Australia’s Houdini Project and continuing towards Ivanhoe Australia’s Osborne tenements, located 45 kilometres to the south of Merlin. Ivanhoe Australia is conducting a co-ordinated exploration campaign along the full length of this belt.

Offtake and Funding Discussions

Funding for the Merlin development, and other Ivanhoe Australia projects, is to be sourced from existing cash balances and a range other options that are being considered. Options for offtake funding for molybdenum and / or rhenium production are being investigated, as

5 Merlin Polymetallic system contains : Copper-Molybdenum-Rhenium-Lead-Zinc-Silver-Gold-Cobalt

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is the potential for the sale, to strategic partners, of project interests or equity investments at the Ivanhoe Australia corporate level.

The funding around the offtake sales in both or either of molybdenum and rhenium has the potential to provide significant finance toward the molybdenum roaster and therefore could reduce Ivanhoe Australia’s direct funding requirements for the Merlin Project. The rhenium offtake interest remains separate to this potential molybdenum roaster funding.

Further details about the NI 43-101 Merlin Pre-Feasibility Study in a NI 43-101 technical report (the Technical Report) filed on Ivanhoe Australia’s profile on Sedar at www.sedar.com.

Ivanhoe Mines (IVN: TSX, NYSE, NASDAQ) is Ivanhoe Australia’s largest shareholder.

For further information, please contact:

Peter Reeve

Managing Director & CEO

Telephone: 61 3 9090 8802

Email: [email protected]

This information is available on our website: www.ivanhoeaustralia.com

Forward-looking statements

Certain statements made herein, including statements relating to matters that are not historical facts and statements of our beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking information and statements are typically identified by words such as “anticipate,” “could,” “should,” “expect,” “seek,” “may,” “intend,” “likely,” “plan,” “estimate,” “will,” “believe” and similar expressions suggesting future outcomes or statements regarding an outlook. These include, but are not limited to the Company’s expectations that the results and outcomes of the Merlin prefeasibility study are achievable.

All such forward-looking information and statements are based on certain assumptions and analyses made by Ivanhoe Australia’s management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements, however, are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information or statements. The reader is cautioned not to place undue reliance on forward-looking information or statements.

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Qualified & Competent Persons Statement

The scientific and technical information in this news release regarding the Merlin Project was approved by:

• Peter McCarthy, FAusIMM (CP) for mine engineering and economic evaluation, who is a full time employee of AMC Consultants Pty Ltd;

• John Horton, FAusIMM,(CP) MAIG for geological resources, who is a full time employee of Golder Associates Pty Ltd; and

• Tom Hunter, FAusIMM (CP) for metallurgy who is a full time employee of Jacobs E&C Pty Ltd.

These individuals, by virtue of their education, experience and professional association, are considered Qualified Persons (QP) as defined in the NI 43-101 standard, for this report. The Qualified Persons have verified the relevant data disclosed herein, as further described in the Technical Report.

Peter McCarthy, John Horton and Tom Hunter are all Fellows of the Australasian Institute of Mining and Metallurgy and each has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they have undertaken to qualify as a 'Competent Person' as defined in the JORC code. Each of Peter McCarthy, John Horton and Tom Hunter consent to the inclusion in the announcement of the matters based on their information in the form and context in which it appears.

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APPENDIX – Financial Sensitivity Analysis

Table 1. Merlin Project After Tax Cashflow - Various Metal Prices (A$ Millions)

After-tax cash flow (A$M) Rhenium price (US$/kg)

Molybdenum price (US$/lb) 4,300 5,000 7,500

25.00 1,732 1,790 1,996

22.00 1,388 1,446 1,652

20.00 1,159 1,217 1,422

18.00 928 986 1,193

16.00 696 754 963

Note: AUD/USD: PFS profile (1.00 to 2013 and 0.83 thereafter)

Table 2. Merlin Project NPV - Various Metal Prices (A$ Millions)

NPV8 (A$M) Rhenium price (US$/kg)

Molybdenum price (US$/lb) 4,300 5,000 7,500

25.00 804 834 944

22.00 616 647 756

20.00 492 522 632

18.00 366 397 507

16.00 241 272 382

Note: AUD/USD: PFS profile (1.00 to 2013 and 0.83 thereafter)

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Figure 1: Regional Location Map Showing Merlin’s Location

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IVA005

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nd Little Wizarrd Mine Design

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Figure 3: Cross Section of Merlin Deposit

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IVA005

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elative to Mount Dore Copper Deposit Lookinng West

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Figure 5: Merlin Overview and Decline Progress – (Current position denoted in red)

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MOUNT DORE SITE OSBORNE SITE

Merlin U/G Mine

Merlin ROMOre Stockpile

Grinding & Flotation Tailings Dams

Mo/Re Concentrate

Waste Disposal

RoastRheniumRecovery

MoO3 for Sale

Gas Cooling & Scrubbing

AmmoniumPerrhenate for

Sale

MoO3

Purification

Clean Emissions & Waste Disposal

Crush, Load & Haul 53km to Osborne

FeMo for SaleThermiteProcess

Grinding & Flotation

Cu/AuOreOsborne/276

Cu/AuConcentrate

Cu/Au Concentrate for

Sale

Cu Concentrate

Option A

Option B

Figure 6: Merlin PFS FlowSheet

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Figure 7: Proposed Merlin Concentrator and Roaster located at the existing Osborne processing complex.

Proposed Merlin Concentrator & Roaster

Existing Osborne Plant

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for personal use only - asx · 28-10-2011 · analysis does not include any carbon tax...

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