Nothing Like it on Planet Earth - Robert Friedland's Tour d' Tolgoi

TAMPA (ResourceInvestor.com) -- Ladies and gentleman, it's very painful being last! It's probably the last year - four years in a row being last at this conference. It feels like we're some kind of desert when we really should be the main course.

Ivanhoe Mines recently listed on the New York Stock Exchange and trades in Toronto. We want to remind you that we really are an international mining company. We produce copper in Myanmar, we're the lowest cost primary copper mine in the world according to Brook-Hunt.

We are also developing our Oyu Tolgoi copper-gold project which I am going to be telling you about in Mongolia, and we are still own a very large gold asset in Kazakhstan which we are going to be daylighting.

Our project in Myanmar is a very simple SXEW heap leach mine. It produces LME grade A cathode, it's ISO14001 certified and it's throwing off about $7m a month in free cash, and it's being expanded with this 11bn pound reserve. This is LME grade A cathode, so when you see the Nymex price today, at $1.48, we're getting about $1.58 for this copper about 10c a pound premium.

We recently discovered what we believe is the richest copper discovery in the world.

The discovery hole was 42m true thickness at 31% copper all as calcocite. This is leachable material. You see that black stuff on that bench? Now the trucks couldn't climb out of the pit because the material was too heavy.

So a lot of people are asking why we haven't been in a hurry to sell this mine and it's because we think there's extremely important geologic potential. Nonetheless, we've retained investment bankers and we have received a series of proposals for a partial resale of this asset to further strengthen our balance sheet.

The mine is a leader in environmental health and safety management, it's got every conceivable environmental award, and the important thing to say is that we engineered, designed and financed this mine with Asian money, and we intend to do this again in a much bigger way with the Oyu Tolgoi mine. By the way, the mine is virtually debt free.

Now I'm going to tell you a little about Oyu Tolgoi in the south Gobi region. This is in fact at this conference, the only world class development project. As have been saying year in and year out, the real wealth in this industry is generated by developing a new resource; the real money for shareholders.

Mongolia is three times the size of France, twice the size of Texas, 2.6 million people, and our lands there in yellow are about the same size as Japan, or Italy, about 135,000 square kilometres, the largest land position in the mining industry. When we staked it for copper and we had copper on the brain, we never dreamed that we wound find metallurgical and steam coal. But we are now an energy company as well as a mining company. We own the coal rights, the nickel rights, the zinc rights, the copper and the gold rights throughout this highly mineralised region rich.

If you go east of us or west of us or south of us, you would be in China. But we're not in China, we're in the independent country of Mongolia. So we're of China, but not in China. Mongolia is big, our land holdings, as I've told you last year, are about the same size as Arnold Schwarzenegger land. It's about a two hour flight east to west over our land position, and we remain astonished at the mineral potential of this region.

[Ivanhoe is] starting to percolate through popular consciousness now - remember, we were about 80c a share; the last speaker four years ago, and the next year at $2.50 a share. Last speaker, every year and we wait for BMO Nesbitt Burns to initiate coverage. It hasn't happed yet, but we are hearing promises.

But the New York times has noticed us, prominently discussed in the New York Times :"Finding a Mother Lode in Mongolia" that resulted in the New York stock exchange listing. And the FT "Ivanhoe puts Mongolia on the Mining Map."

That's a bit of a profound understatement, English understatement. Mongolia is now the hottest exploration venue on Planet Earth. BHP, Rio Tinto, Western Mining, Barrick, many others are circling around our established offices in Mongolia.

Now the reason I like this choo-choo train in this picture is that the Guggenheim family opened up Chile in the turn of the century. They built trains, they built railroads, they built smelters for the old American smelting and robbing company, ASARCO, and made a huge amount of money which resulted in that art museum, the Gurgenheim Museum of modern art in New York, on Fifth Avenue.

This is exactly what we are doing in Mongolia, we are developing the railroad infrastructure, we are developing the smelters, the refineries, the water, the infrastructure. And we are not building a mine, ladies and gentlemen, we are building a mining country like Chile. We are working very closely in partnership with the Mongolian government, and this is definitely the place to be.

We've been trying to talk to people about China, and it's importance to the metal markets for many many years. We've been somewhat bemused that people have started to discover China.

Recently Don Rumsfeld, the American Secretary of State, actually gave a press conference last week and he said, we hope that when China enters the civilised world, they do it in an orderly way. I gave a speech in Bejing about 48 hours ago, and I pointed out that the Chinese had identified Haley's comet 1,000 years before Western societies, and 1,000 years before Pericles they were making sophisticated bronze artefacts and exquisite silks.

China is the oldest civilisation in this world, and it's really coming into its own. And the best synthetic proxy to play it is of course copper, the metal with the PhD, the most sensitive leading indicator on economic growth, and a proxy on what's happening in Asia.

Now our discovery has put Mongolia on the mining world stage. When we were last relegated to the end of this conference in 2001 we had about nine little tents out there, and we said we had a discovery. Now we have 1200 people on this site, with an international airport, TV, cellular telephone, we have hot showers, very good food, and Oyu Tolgoi City has become an important centre of economic activity in the Southern Gobi.

There are so many superlatives associated with this project, it's a little difficult to summarise them all in 30 minutes, but this is the largest copper and gold project in the world. The system is now some 6 km long; it's still open in every direction. We can't find the limits of it. We have driven 600,000m, or 325 miles of diamond drill core and the value of this resource is getting in the order of 10 times larger than Voisey's Bay.

So it's very important to understand the magnitude and importance of this country to the government of China, the government of Japan, the government of Korea and other Asian governments.

Grade is everything.

We recently made a rather bold announcement, if you will, that this is the richest copper and gold porphyry, ever found in the world. We thought about it quite carefully, we had a number of the worlds leading experts bolstering that statement - no one has ever challenged that statement from any quarter. So Grasberg included to make the point this is the highest grade gold and copper porphyry ever found on Planet Earth, and grade ladies and gentlemen, is everything!

We've seen a lot of projects, little gold projects that are getting recycled for the second and third, and fourth time in these cycles. You should be very wary about these things. You are looking for millennial projects that will last 30, 40 or 50 years that will make serious money. So as the highest grade copper porphyry in the world, we are still running a dozen drill rigs, giant rigs 24 hours a day, and we are adding something on the order of say 5m ounces of gold equivalent per month, maybe 10m ounces of gold equivalent per month.

And to put this in perspective now, based on our current mineral resource, which Amec is updating mid April, we are pushing 200 or 250m ounces of gold equivalent. So every one of those little section lines represents a couple of {indistinct} mines as we step out 100 metres at a time. When you're drilling copper like this at 3.8% copper and 54 grams of gold, these are unprecedented types of gold grades in a porphyry and you can obviously see that there's more than enough gold to recover the copper at a negative cost, or more than enough copper to recover the gold at a negative cost.

We still believe that we haven't found the guts of the Oyu Tolgoi ore body. There is a danger that subsequent drilling is vectoring in on extremely high grade gold zones. They are supported by this form of mineralization, and we've had geologists from the likes of Phelps Dodge and Rio Tinto hold our core in their hands and said, "never on Plant Earth has anything like this been found!"

We have a lot of proprietary work in our geophysical programmes, they are the largest geophysical programmes that have been entered into by our industry.

We did about 200 line miles per day of induced polarisation, and we are really getting quite good at this sort of graffiti, or fingerprint, to find more of these things. And I can assure you that although Grasberg has been drilling for 35 years and Escondida for 25, we are right in that class of deposit in only 2 years of drilling. We suspect that the Oyu Tolgoi district will grow for another generation.

In our last mine planning resource in August 2004, we had 80 billion dollars of metal in the ground at then current prices. We are going to be updating this resource in mid April. But let's say we have 100bn dollars worth of metal, just to come up with a rough number in the ground. We sold Voisey's Bay for 42% of gross metal value at 4.2bn dollars, it was a bit of a high watermark. But old Julian Baring at Mercury Asset Management used to say, if you've got a world class discovery that's big enough to excite the lust of the majors, and if your revenue per tonne is 3 or 4 times the operating cost per tonne, so there's a delta there to amortise a profit, and amortise the capital, then these things are worth 10% of the gross metal value in the discovery stage. And Julian Baring used to provide the mother's milk of finance to take these new discoveries through the bankable feasibility and he would exit at 20% of gross mineral value.

When Falconbridge bid for our old diamond fields project, they bid about 25 or 30% of gross metal value, we ultimately got 42% gross metal value.

Today our over-valued over promoted Ivanhoe Mines is trading at 2% of gross metal value. If you look at the scale of the resource which is still widely not understood by people that aren't in the industry, you really couldn't find another one. I mean nothing of this scale has been found on Planet Earth in the last 30 years, and it's still growing!

Last week, Capital Group announced that they bought 16.2% of our company, about 48m shares, so since I own about 32%, and Capital Group is almost 17%, if the two of us can agree, we're takeover-proof. And it's very important to be takeover-proof with something like this, because this terrifies the established producers of these metals.

If I found a giant diamond mine De Beers would not be my friend. They market these worthless pieces of glass and they wouldn't want a giant new mine. We have a giant new copper mine that major copper producers, whose pricing power has been increasing with the consolidation of the mining industry, are threatened by a discovery like this.

Our natural allies are the end users of this copper metal, like the Japanese, like the Chinese, like the Koreans.

Once it becomes inevitable, however, that this puppy is going to fly, then these major mining companies are very anxious to own us, and we have to protect ourselves with standstill and confidentiality agreements that prevent them from just trying to eat us, because we are just a little - well actually ladies and gentlemen, we are the largest junior mining company in the world. Or we are the world's smallest major mining company. I'll leave that for you to decide.

We've been sinking a shaft here, and bulk sampling for the open pit - and now I'm going to give all of you a quick tour of the site, because we don't have time to teleport there, other than with this new technology. Now take a look at where all the people live on Planet Earth. There's Singapore where I live, at night, and the attractive night life of Bangkok, and Hong Kong, Taiwan. Look at all the people in China and India, and look at Japan, look at only one light in North Korea. And there's nobody in Mongolia. Because if you want to mine, you want to be near where all the people live. Right? You want to be near the market, but you don't want people around your mine because people near your mining project are a real nightmare.

So if you think about what mining has succeeded, you think about Nevada, you think about Chile, you think about the Australian Outback. Now Ivanhoe again, for the fourth year, at the end of this conference, gives you the Gobi Desert.

This is where you want to be to mine metal, and sell it to the Chinese. So we're coming in from outer space and landing at Oyu Tolgoi in this version in the G5. And the nice thing about this, there's no people around, the land is flat, there's no tropical jungle, there's no NGOs, we're only 70 km from the Chinese border. It does not snow here. You've got lots of room for waste dumps without disrupting the populations and we are building the biggest new mine in the world.

Chuck Leggit, who is the chief mill design architect, designed the mill for Rio Tinto and BHP at Escondida, the biggest copper mine in the world. John Macken, our new president, built Grasberg, he was general manager there for 14 years.

This particular mill you are seeing is designed for 90,000 tons a day, phase one. And then designed to be doubled, to 180,000 tons a day. We have a coarse ore stockpile that will hold say 3 or 4 days of ore supply and it's covered, it's not affected by winds in the spring time to generate any dust - fugitive dust being the only environmental sensitivity in the Gobi. This mill building is almost 200m wide and 350m long and will be the highest technology mining processing facility yet built in our industry, with a very large 40 ft diameter side mill, very powerful motors, a 28 megawatt motor built by Siemens or ABB, equal to the largest electrical motors in the world. It is an extremely efficient mill design predicated on all of the results from Collahuasi, from Escondida and from Grasberg.

People that know mills kind of gape at this thing, and look at it as the real BMW or Mercedes Benz of mills. The idea here is to really have a very, very, very great efficiency scale. So very few moving parts, very large mills, very large flotation cells, and ladies and gentlemen, what we are looking at here is a copper factory. But the interesting thing about it is, in order to build our copper factory, we need steel from China, and in order to build the steel, we need iron ore and in order to make the iron ore, we need metallurgical coal. And we just had a 71.5% increase in iron ore prices. Now this is a very boring commodity, iron, but in the last two years it's up 100%. Iron has out-performed gold.

Virtually everything has out-performed gold. Gold has been a real dog. It isn't that the price of gold has gone up, it's just that the dollar has shrunk against everything real. The dollar has shrunk against lead, zinc, copper, coal, metallurgical coal. Anything in the steel cycle has out-performed gold.

Thinking people want exposure to stuff the world needs like cooper, and of course, it's often said, real men mine copper, not gold. Gold is you know, it's okay, it's okay, it's okay as a byproduct, but what you really want is this commodity, copper, which has far out-performed gold.

And the great gold mines - like Wheaton River has exposure to buy at Alumbrera or Newmont was rescued by its Btu Hijau holding; they're really just copper mines in disguise. So I still would want to tell you that I would much rather own a copper mine than a gold mine. We don't mind the fact that we have 25 or 30m ounces here, as a sweetener.

But it's copper that the Chinese need, because in order to build this plant, we need copper in order to make the electricity, to make the iron and steel, we need copper. And it's everything related to the skills cycle that really gets us excited, especially coal. And especially metallurgical coal. I will be coming to that shortly.

Our resource upgrade is still on schedule for April 15. Dr Harry Parker is coming out there to look at the numbers. He audits Escondida, he audits Rio Tinto, he audits BHP, he audits Freeport. He's the man. So when he puts his signature on our numbers, you can take them to the bank as being conservative and real.

That open pit mine you see there with the golden color, the value of the gold is more than sufficient to recover the copper at zero cost. It will throw off a lot of gold in the early years. One of the Canadian gold producers actually made us a proposal to mine that gold and then just give us the mill for free, but we told them to take a hike.

If we now cruise across this undertaking, we're going to go underground and get you an updated view of the scale of Hugo. Of course, Hugo Dummet was the worldwide head of exploration for BHP. He joined Ivanhoe before he died in a tragic car crash a couple of years ago. We have elected to name this largest new mine in the world, the Hugo Mine, in honour of Hugo Dummett.

The engineering is being done at Macintosh in Tucson, Arizona. Macintosh is the go-to-it name that does all the engineering work for Phelps Dodge, for BHP, for Rio Tinto, for Freeport and [indistinct] is in charge of the study down there.

So you've got the Eiffel Tower again for scale, it's as tall as a 100 story building, the open pits are up there in the ceiling, and Hugo is now 3km long, and you know, Hugo is containing an astronomic amount of copper and gold. But just to give you a general idea, the total contained metal in that Hugo deposit is about equal to the contained metal of Newmont and Barrick combined. And there's still no end in sight. And of course it's much better to have all this metal in one place. Because you don't need 30 management teams and 38 environmental closures. It's just infinitely better to have a huge amount of metal in one place.

Hugo is now being designed as about an 80-90,000 ton per day block cave mine. Not the biggest in the world. El Teniente is about 130-140,000 tons a day, but the grade dwarfs anything.

Now a lot of people don't understand block caving, so we're going to explain it to you in this movie, it's going to take 4 or 5 minutes. But let's just imagine that we're about a kilometre underground, maybe a kilometre and a half underground. We're going to make an egg carton and fill it with sand and we are going to poke holes in the bottom of the dimples and let gravity drain out the material that we want to mine. Another way of thinking would be if you go to a movie theatre and see that big popcorn box full of popcorn, and we are going to crack the rock up above us to popcorn and let a very reliable principle called gravity bring it down at very low cost. This is open pit underground mining, if you will.

So a lot of people have trouble visualising how you can use gravity to bring rock down underground without getting crushed. A lot of people are nervous about block caving because they don't understand it, but Freeport at Grasberg is evolving into nothing but block cave mines. And most of the molybdenum from Henderson at Phelps Dodge is a block cave. There are 20 major block cave mines in the world and industry experience in block caving is very great and the engineers are telling us that Oyu Tolgoi is ideal as the world's greatest block cave mine.

So first we have to build these egg carton shapes. You see that golden egg colour shape, that little hand, this is called a drop point, and the hard part of this process is we are building hundreds of these drop points upfront. This is what is going to control the ore and this is showing you how these drop points are actually built. Once you understand how one drop point is built, you can understand how the mine works. If you can't understand how these drop points work, it's difficult to mentally conceptualise what a block cave mine is. So our mine is designed as an open pit mine for the first 10 or 12 years, and during that period of time, we are developing two world class underground mines, to carry the mine life of Oyu Tolgoi into generations.

We expect the open pit mine to come into production in 2007. We are now in 2005 and we expect the block cave to be in production towards the end of 2009 with the initial production and heavier production, and perhaps full production by 2011 or 2012. The amount of money that this block cave can draw off is terrifying. I am going to give you an idea of the numbers because I can't announce them until they've been done, but those draw bells, those are your dimples in the egg carton. To make one of those dimples in the egg carton, you've got to raise bore a shaft because when you blast, the rock has to collapse into an opening. So first the men in there are raise boring that shaft, and then they stick in the first charge to cut a slot in the draw bell, here it goes. And once you knock out that slot and have an opening, you can develop more of these things until you actually get a draw bell. Another one, and again, you've got to remove the materials so there's room for the next blast. OK, so there's two more now and we are going to have a draw bell.

Now one of the advantages of our mine according to the engineers, is that our draw bells can be large and they can be completely automated. So each one of those things is a draw bell and you get to a stage where it starts to look very much like an ant farm. There's about a two or three year period where these draw bells are developed. These draw bells are about the size of this room. We make several hundred of them underground and eventually the rock up above us is going to think about coming down or caving. Here's the ant farm. Now, the beauty of block caving is that this gravity brings the rock down for free.

El Teniente is mining for 80c a ton underground and a typical operating cost for a block cave would be a dollar or two a tonne. And about 3 or 4 dollars a tonne to mill it say 5 or 6 bucks a tonne, all in. What's amazing is this 3%, 4% copper is 100 dollar rock.

So you're in the T-shirt business, you're making T-shirts for 5 bucks and selling them for 100 dollars. That is a robust margin.

What you don't want to do is go mining near the cut off grades, and now you see, we're starting to cave. Now people still don't understand why aren't we getting crushed in this cave - until we go to the next picture, here are your draw bells. Once in a while you get rock in there that's stuck up, you've got to go do a little dental work, and once you do that, you can now watch it cave.

Now you can see how these trucks are just going to come in here and pull money out of the bank. The mining is automatic. It's just like a rock factory. There's no moving parts, it can be totally automated. Kids with joysticks can be running these things from the surface. You don't need any people underground, it's all done by gravity drainage. And when you have a mature block cave like this, it will cave all the way to the surface at about 3 inches per day.

So it's starting to cave and when you set up a couple of these things at 3% copper, you are talking about a huge amount of money, at 90,000 tonnes a day in one mine and 50,000 tonnes, another. These will take your numbers at 130,000 tonnes a day, 50m tonnes a year, you do the math at 2%, 3% or 4% copper.

So these are what the block caves look like. Hugo South is the shallow one. We call that the training block cave. Hugo North is the deeper one. We are still only the half the depth at best of Goldcorp's assets. This is no big deal. There is a lot of room for more. You should all speak to John Macken about the importance of one of these block cave mines. This is why we are so animated.

This is the cash machine we really intend to build.

So the exhaust shafts, you can see the first lift and the second lift. When you exhaust a lift, you go down lower, so remember, you start at the bottom and you bring it down. Then you go deeper, start at the bottom again and bring it down, and you can sort of see it now, looking like it's raining now, see the rock coming down, Hugo South. Hugo North.

Were Hugo Dummett alive today, and I'm quite sure he's looking at us from wherever he went, he's very happy about this development, because while Hugo was the worldwide head of exploration for BHP, he always predicted this would be the greatest mine in the world, and he's right.

Our cash flow engine, at about 80,000, 90,000 tonnes a day will provide over 450,000 ounces of gold and a huge amount of copper; its several million ounces of gold equivalent. Its sort of modest, throwing off, say 400m a year. We are using our numbers at a dollar copper. Of course at today's copper price, things would be obscene. But when you develop the block caving operation, production will be well over a billion pounds a year. And so if you have enough gold to recover that copper at negative cost; you can do the math easily, that billion pounds is a billion and half dollars a year this year.

So the cash flows just from Hugo, let alone the other mines, at a billion and a half dollars a year , nobody, ladies and gentlemen, has a mine like this, on planet earth under development. This is the only one.

This is a major mine in a major world league. John Macken has done it before, having built the world's largest mine. We think we have the best team of consultants and engineers on the planet working on this.

Now we want to talk to you a little bit about the black stuff.

When we staked all this ground, we had no idea that we controlled all this coal. The world's largest undeveloped metallurgical coal deposit is Tavan Tolgoi, you see it there just beyond Oyu Tolgoi, that blue triangle.

Tavan Tolgoi has 1.7bn tonnes of metallurgical coal and 6bn tonnes of high quality steel coal. Ladies and gentlemen, at today's coal prices, that is 500bn dollars worth of coal in the ground. If you want to reduce that to gold equivalent, it's 1.2bn ounces of gold equivalent.

So you know, 1.2bn ounces of gold equivalent in coal is just as much as 1.2bn ounces of gold. After all, a million dollars worth of feathers is worth the same amount as a million ounces of lead.

We found a number of these world class coal basins that runs through coal discovery on our lands which we will show you there on that western red dot , is also attracting a Chinese railroad.

Two Chinese railroads are now under construction, to tie us to the Chinese economy, and we want to remind you that the Mongolian-Chinese border should be thought of as the Canadian US border. The city of Bautau is like Detroit where Mercedes Benz builds cars and trucks, Komatsu builds heavy equipment.

Chalco, China Aluminum, has a big aluminium smelter and now what's happening is that you have coal and cheap power and copper and aluminium and steel all in the same area. So the world's automotive manufacturers want to come to this area to go downstream below our mine and build car parts and cars. So this is becoming like the Detroit just south of the Canadian border. And Ivanhoe Mines is in a unique position to leverage all of this development, to the benefit of our shareholders.

Here's the Nariin Sukhait coal mine and that green line is where they came over our property line inadvertently and stole 5m tons worth of our coal. At 50 to 100 bucks a ton, that was greater than the Great Train Robbery. Say 250 to 500m dollars worth of coal was inadvertantly taken from us by our Mongolian friends. But we surveyed the line and property, and they promised to pay us back with coal from their side of the line.

We surround this mine on all four sides. Ladies and gentlemen, it is absolutely astonishing to find a coal seam anywhere in the world 16m thick, this high quality. No one has ever seen anything like this, this jamais vu, all over again - the overwhelming feeling that none of this has ever happened before.

It's a big deal in British Colombia to have a 4m thick coal seam, as thick as that wall. But to have a coal seam that is as thick as a 30 story building and to have multiple seams of this quality of coal, virtually no ash, virtually no sulphur, extremely high calorific value, and only 24 miles from the Chinese border. You can mine this coal for a buck a ton.

If it's worth 100 bucks a ton, it's a quarter of an ounce gold equivalent. If it's 50 dollars steam coal, it's still several grams per ton gold equivalent, and you don't have to mill it, you don't have to wash it, you don't have to clean it, you don't have to process it.

All you do is do what the Chinese are doing in these pictures. You load it into trucks and they go across the Gobi Desert, see that dust, heading for China. And you trade it for money. This is what mining is supposed to be.

This coal system is about 120 km long, it's terrifying us. Because how do you put a value on the value of a land holding the size of Italy or California. Everywhere we go, we're finding coal, we're finding copper, we're finding gold. And we're a proxy on the Chinese economy. So this is the kind of thing that really is keeping us awake at night.

We're drilling this coal around the clock and we intend to put this into production as quickly as possible. And when we look at the sections, this is the kind of thing that gives our friends at Teck Cominco in the metallurgical coal business, a heart attack.

When we first told them about it, we had to get them off the floor they were fibrillating. Meanwhile up there in Northern British Colombia, mining a crappy little 2 or 3m wide seam, you've got to haul that 1000 km down to the port of British Columbia. You've got to get it across the Pacific Ocean to get to China. The ports are pretty heavily loaded, the insurance rates have gone crazy. The Baltic Dry Shipping Index has gone crazy. Where do you think the Chinese would rather get their coal?

This is a little stratographic package but the number one seam down there at the bottom, that's another 56m thick seam, the upper one is 56 m thick. As you go deeper in the sequence they are higher and higher ranked. These are astonishingly high quality coals.

They dip, they outcrop, they open pit. China is killing 20,000 people a year in their coal mining industry, compelling people to go deeper underground, and in crappy coal mines, loaded with gas. And they are just dying like flies. There's a certain amount of people that die per kilowatt hour in China.

So this is coal that can be mined in the sunshine, this is clean coal that can now persist with the air pollution problem in China. And this is coal that is of such high bituminous rank that it can that can be gassified or liquified. China is committed to two 7bn dollar coal to liquids plants already with Sasol technology. So think of this as hydrocarbon, think of this as diesel or natural gas. This is energy and this is cheap energy for our copper mine.

Mongolia is the Saudi Arabia of steam and metallurgical coal. The old edict was that only the Bowen basin in New South Wales in Australia was a Permian coal basin, there was no other north of the equator. Well, they were wrong. We have replicated the types of coals that you have in Australia in the Northern Hemisphere. The Permian coals are about 380m years old, the younger coals are not as good a quality. These old coals are really the Beluga caviar of coals.

So I just urge you to do a little more work on this and understand this, because when we were here as the last speaker last year, we didn't know about this coal.

Road and rail links present and future. The Chinese government is building those railroad links to our land position. Look how close we are to where the Olympics are going to be in 2008. Go east or west or south of us, we'd be in China, But we are in a free democratic country, which is the darling of the world bank, the Asian Development Bank, the EBRD.

Here's a picture of Hu Jintao, he's the president of China, he's the big boss, he's Jiang Zemin's successor. He's pledged 300m dollars for highway and railroad links, to tie us to the Chinese economy. Remember, we don't have to pay for any of this stuff. This will be like George Bush building power lines from New York city up to Quebec to get some hydropower so they don't have another power failure in New York. The ultimate beneficiary would be the Quebecois. We're sitting up here in Mongolia getting free railroad lines and free highways and free infrastructure in the worlds largest consumer of everything.

That highway has already been built there on the bottom and all we need is a highway hauler concentrate. This is sort of a detailed picture of where the road goes. I will skip that and just show you what the highways look like. They're just like the highways in Nevada. If we go to the Mongolian Chinese border, we see this, we are looking south into China, and every day, a thousand trucks are heading south, hauling all of this crap from the former Soviet Union.

All of this scrap steel is better than the gold promoted in this conference. With the 71.5% increase in iron ore, that is literally gold.

And it's going to feed an inexorable demand for the Chinese dragon for iron and steel. And you can make more money digging that stuff up, and hauling it south, than you can screwing around with sort of a marginal gold mine anywhere in the world. Now this is another example of jamais vu, the overwhelming feeling that none of this has ever happened before.

Mongolia already has one of the world's largest copper mines, and one of our Canadian brethren at Centerra operate a very successful gold mine in Mongolia, we have a mining culture in the country.

Very importantly we've found a ton of water. These poor camels of course, are looking a little naked in the summer, when their wool is taking off. We have found enormous aquifers of water, there's Oyu Tolgoi in that red circle. We had these subterranean canyons that would dwarf the Grand Canyon, were they not filled with sediment and fresh drinking water. And when we were drilling these damn walls, there are actually Artesian, this is fresh water coming to the surface and we were wondering what we could do in terms of our agricultural potential. In this part of the world we think we could turn the Gobi green. We were very excited about the discovery of this water. This water might be the most valuable thing that we found in the Gobi, it could be even more valuable than the coal.

There are enormous quantities of Asian capital looking to finance Oyu Tolgoi. I'm quoting myself from a conference call we did last August. I'm sorry for our PR department here. I was trying to explain that, and I am going to quote what I said, it was extemporaneous, 'we are playing primarily with the consumers of copper metal, to be financed, rather than the producers, but we are not ignoring some very interesting discussions with major mining companies. Our company believes way too much in the fight that we are under-valued to contemplate selling this company. This represents a very attractive point of entry, to have exposure to this long term cash generative machine.' That was August 16th. The stock's doubled this then. But I think the stock's actually cheaper today than it was August 16 even though the stock has doubled, because of what we now know about the resources we control and the people who want to play.

Now why are the consumers of copper are interested in Oyu Tolgoi? Today as I speak, crude oil is 52 dollars a barrel. If you want to cheat the Arabs on their crude price, you are going to have to buy our copper.

The Toyota Prius, which I just came from Nagoya, I had a tour of this factory with senior management from Toyota, uses 50kg of copper per car. By the way, they don't need any gold to make these cars. 50kg of copper per car is more than twice as much copper intensity per unit car as a conventional car. This is the car that as you hit the breaks it has a big generator, it charges the big battery and there's an electric motor that takes you from 0 to 30 km an hour.

So there's a huge amount of copper required to build these cars. Now Toyota have told me that their entire line of automobiles will be hybrids in the future. Toyota makes more money than General Motors and Ford and Chrysler and Volkswagen combined, with a market cap of 240bn dollars. The Toyota motor company is bigger than the entire mining industry. You can have your BHPs, your Rio Tintos and Anglos. You add them all up, they are not as big as Toyota. Toyota needs our copper.

Copper is the commodity that a thinking person will want exposure to. Not gold. Gold's okay, it's okay. Now Toyota is taking the green car to China. The Chinese are still pissed off with the Japanese from stuff that happened in the past. They've said if you want to build cars in China, we have an air pollution problem, they have to be hybrids. In order to make 10m hybrid cars per year, Toyota needs about 600,000 metric tonnes of copper per year, just about equals to what Oyu Tolgoi could produce.

That yellow car is a Toyota Prius taxi, they did 322,000 km in a year, that's over 200,000 miles in a year. Never missed a beat. This is the technology that the Toyota Motor Company is basing their future on. They've licensed their technology to Nissan. Ford and General Motors have announced Hybrids. Honda has their own hybrid technology.

You can't get these cars without copper metal, and they also need cobalt and nickel. The batteries are nickel and cobalt.

Now Mongolian political leaders have helped us a lot, the president of Mongolia came to Canada. We met with Paul Martin and we've signed a free trade agreement between Canada and Mongolia to avoid double taxation. We have virtually no taxation contemplated on the remittance of dividends and we are in the final stages of a very important long-term agreement with the Mongolian government that will protect our stakeholders on everything we are going to do.

Inco's effective tax rate in the province of Ontario is 58%. Freeport's effective tax rate in Indonesia is around 52%, so if our tax rate was say 5% or 6%, we only have to be half as good as Grasberg to make as much money for our shareholders.

Mongolia is going to have the most attractive fiscal regime in the world to attract the mining industry into becoming the new Chile. And the Canadian industry put 10bn dollars into Chile in a 10 year period. This is Wen Jiabao, this guy runs China. He's the prime minister of the country.

What's interesting about this guy is that he's a PhD expert geologist. He's the only geologist who's running a big brand name country. And as a geologist, he's spent 30 years looking for nickel and copper in China and he knows how incredible Hugo North is. Because obviously if you're a monk, you fall in love with a nun. But if you're guy that's running the biggest country in the world as a geologist, you know how badly this country needs copper.

And one guy runs the biggest company in China, SITEC, it's a $50bn balance sheet. He owns a multi billion dollar joint venture with Nissan to build cars. He owns the fiber optic backbone in China. He's got the second largest cellular telecommunications company, the fifth largest bank, ship building and aircraft manufacturing, real estate development.

What the hell is he doing shaking my hand two years ago on nation-wide television in China? Because the development of these resources are critical to China's national security. And it's very important to you and the Saudians that the Chinese dragon is well fed and content. You've got a well fed dragon, he's a very friendly dragon, you can just nuzzle right up next to him.

So it's very, very important that China has the resources it needs to raise the living standards of their people. We love China, we love the Chinese people, we work very closely with this government and we think Oyu Tolgoi is big enough to make a very serious difference to this country.

We also have a bunch of other stuff we are not getting paid for. We hold the Bakyrchik gold mine on our books for nothing. 13m Ounces of gold, and we have completed a very detailed study. We intend to daylight of this extremely important and not very well understood gold asset.

The Bakyrchik mine has about 13m ounces of gold. Scoping is virtually finished and we are going ahead with the development. Our second stage development, a couple of hundred thousand ounces of gold a year, we are going to find a home for this. Just like we've just sold our iron mine yesterday, we are going to daylight this.

Now in the exploration business, we are still running the world's largest exploration programme. And the nice thing about the Gobi is, there's no railroad tracks in the way, there are no people in the way, there are no houses in the way. Exploration with the geophysics was very, very effective.

I just want to give you a little preview about something called Bronze Fox. There is a trend there though, you see those circles, that's about a distance of 50 or 60 miles and if we zoom in on Bronze Fox itself, and we've pulled out the slide of Bronze Fox itself. If we have Bronze Fox and Oyu Tolgoi today, and we were just starting the exploration process, it's not at all clear to me that we would screw around with Oyu Tolgoi.

The surface manifestations of gold and copper and the aerial extent of the surface manifestations of gold and copper at Bronze Fox are literally keeping us awake at night. We will begin the drilling of Bronze Fox in early April, and we have very fond hopes of doing it yet again.

We think we are delivering in our commitments, we are delivering world skill long life mining projects and we are going to be a key supplier of metals to China and coal for many decades to come. We have decades of experience in Asia, a lot of exploration know-how and we are focusing on finding the next Oyu Tolgoi.

Here's a picture of the new Chile. We always remind you at the end of every session that the only way you can tell that it's not Chile is not to confuse those Bactrian camels for Llamas. If those were Llamas, we would be in Chile. But they're Bactrian camels, when you see them, you know that we are in the new Chile - ideally posed a sort of an ideal synthetic proxy on the continued growth of Asia. Actually thinking people are predicting that 50% of world GDP will be in this part of the world very shortly. It's just a mind boggling statistics. But the problem for the United States and Canada and especially Europe, is every thing has already been built. It's just a big shnooze. But when you get to Asia, people working for 24 hours a day and they need these metals, and we would ask you again to join us.

By the way our stock is seasonal. Every time it gets warm in Mongolia, all these institutions go on tours and then of course, seeing being believing, they all start buying in April, May, June, July, August, September. So again the tourist season is on, you are all invited to Mongolia. Come take a look at this and try to understand the difference between developing a mineral province and a mere promotion on an individual mineral occurrence.

Thank you for your kind attention.

Q&A:

A: He's asking if there's any political problems on developing the coal. Well if you read your Bloomberg, there's what CVRD called a dog fight to develop Tavan Tolgoi. CVRD, BHP, Xstrata are just freaking out to get involved with Tavan Tolgoi. So what I'm trying to tell you is that the Chinese are very anxious to develop this coal. They'd like to develop it on such a large scale that they bring the price of metallurgical coal down. BHP on the other hand doesn't want to see their metallurgical coal party ruined. When you're mining 60 million tonnes a year if the price drops 10 bucks a ton you lose 60 million bucks. It's similar to what happened in Voisey's's Bay between Inco and Falconbridge. The people that need the coal are desperate to produce as much as possible, that's the Chinese. The guys that are already long the coal, this is their worst nightmare to have something like this get developed. Ivanhoe is in a position to exploit this situation. The guys that have a problem are the other guys; we're the guys that are laughing. We're long the coal (sic). They're no political problems with developing the coal at. It's just that the Japanese want the coal, the Chinese want the coal, the Koreans want the coal, and the Australians either don't want the coal to happen or they want to come to the party and be a part of it. So the problem is for the others, it ain't for us.

A: Some people have asked us if we're taking the coal division public. We had a major investment bank in New York say, 'no don't do that - keep in the company, look like Rio Tinto, look like BHP, make a ton of money on this boring black stuff and tell everybody about the 30 million ounces of gold at OT - or the 300 million ounces of gold equivalent coming at OT.' We're still thinking about it, we're still in the laboratory. Last year we didn't even know about this coal, this year we're drilling it 24 hours a day. Maybe there will be more chapters to the book by next when we're earlier to speak at this conference. Because if I'm last next year I'm not showing up.

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