Ivanhoe Mines Ltd. warned Monday that if a deal to import power from China for its Oyu Tolgoi copper and gold mine in Mongolia falls through, the company may have to construct a coal-fired power plant ahead of schedule.
Building the power plant would delay commercial production and add to the initial costs of building the mine which is currently expected to achieve commercial production in 2013, the company said.
“Although construction of a power plant is expected as part of the Oyu Tolgoi project's future development, there is no provision for a plant in the current capital cost estimates for 2011 and 2012 and the financing that would be required is not contemplated as part of the company's current financing plan,” Ivanhoe said in a statement.
Ivanhoe has held talks with the Mongolian and Chinese governments regarding securing the power from China by the third quarter of next year. However, if that is not possible, a study of alternative arrangements has found that advancing the construction of the coal-fired power plant in Mongolia would be the best option.
The Toronto-listed company said Monday overall construction was 54.4-per-cent complete by the end of the third quarter and expected to be about 70-per-cent finished this year.
The company reported a third-quarter profit of $7.3-million (U.S.) or 1 cent per share in the third quarter, compared with a loss of $24.9-million or 5 cents a share a year earlier.
The copper and gold mine isn't yet producing revenue. But the company, which reports in U.S. currency, had $60.5-million in coal sales revenue from its stake in SouthGobi Resources and the Ovoot Tolgoi mine in southern Mongolia. That was up from $6.6-million a year earlier.
Ivanhoe owns 66 per cent of Oyu Tolgoi, one of the biggest copper developments in the world, while the Mongolian government owns 34 per cent.
Anglo-Australian mining firm Rio Tinto PLC owns 49 per cent of Ivanhoe, with the right to increase that after a standstill agreement expires on Jan. 18.
Ivanhoe received a letter from a representative of the Mongolian cabinet late in the third quarter asking the company and Rio Tinto to discuss potential changes to the investment agreement.
However, the government later backed away from the request and reaffirmed its continued support for the original investment agreement signed two years ago.
Oyu Tolgoi is expected to produce 1.2 billion pounds of copper and 650,000 ounces of gold per year in the first decade of operation.
In addition to its stake in Oyu Tolgoi, Ivanhoe holds a 57-per-cent interest in Mongolian coal miner SouthGobi Resources, a 54-per-cent stake in Ivanhoe Australia and a 50-per-cent interest in Altynalmas Gold Ltd., a private company developing a gold project in Kazakhstan.
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