EXHIBIT 99.7
No securities regulatory authority has expressed an opinion about these
securities and it is an offence to claim otherwise.
These securities have not been, and will not be, registered under the United
States Securities Act of 1933, as amended (the "U.S. Securities Act") or any
state securities laws. Accordingly, the securities may not be offered or sold in
the United States or to U.S. persons unless registered under the U.S. Securities
Act and applicable state securities laws or an exemption from such registration
is available. This short form prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any of the securities offered hereby within
the United States. See "Private Placement and Plan of Distribution".
INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS SHORT FORM PROSPECTUS
FROM DOCUMENTS FILED WITH SECURITIES REGULATORY AUTHORITIES IN CANADA. Copies of
the documents incorporated herein by reference may be obtained on request
without charge from the Secretary of Ivanhoe Mines Ltd. at Suite 654, 999 Canada
Place, Vancouver, B.C. V6C 3E1 (telephone (604) 688-5755).
Short Form Prospectus
New Issue
January 31, 2003
IVANHOE MINES LTD.
$60,000,000
20,000,000 COMMON SHARES TO BE ISSUED UPON
THE EXERCISE OF 20,000,000 SPECIAL WARRANTS
This short form prospectus qualifies for distribution 20,000,000 common shares
("Common Shares") of Ivanhoe Mines Ltd. ("Ivanhoe" or the "Corporation") to be
issued upon the exercise of special warrants (the "Special Warrants") of Ivanhoe
(the "Offering"). The Special Warrants were issued between December 13, 2002 and
January 21, 2003 pursuant to subscription agreements (the "Subscription
Agreements") between Ivanhoe and a number of institutional investors (the
"Purchasers") at a price of Cdn$3.00 per Special Warrant. The price of the
Special Warrants was determined by negotiation between Ivanhoe and the
Purchasers. Ivanhoe sold the Special Warrants directly to the Purchasers
pursuant to registration and prospectus exemptions under applicable securities
legislation. See "Private Placement and Plan of Distribution".
NO UNDERWRITER HAS BEEN INVOLVED IN THE PREPARATION OF, OR HAS REVIEWED THE
CONTENTS OF, THIS SHORT FORM PROSPECTUS
- 2 -
Subject to adjustment, each Special Warrant entitles the holder thereof to
acquire one Common Share, at no additional cost, at any time commencing upon the
later of (a) the date upon which a final receipt for this prospectus has been
issued by the British Columbia Securities Commission and, with respect to
Purchasers resident in Ontario, the Ontario Securities Commission; and (b) the
date upon which a prospectus (the "Australian Prospectus") under Chapter 6D of
the Corporations Act 2001 (Commonwealth of Australia) has been lodged with the
Australian Securities and Investments Commission (the "Qualification Date") and
ending at 5:00 p.m. (Vancouver time) on the fifth business day after the earlier
of: (i) the Qualification Date; and (ii) the four month anniversary of the date
of issuance of the Special Warrants (the "Expiry Time"). Any Special Warrants
not exercised prior to the Expiry Time will be deemed to have been exercised
immediately prior to the Expiry Time without any further action on the part of
the holder.
Ivanhoe will pay no fees or commissions in connection with the issuance of the
Common Shares distributed pursuant to this prospectus. Ivanhoe paid a fee equal
to 4% of the gross proceeds of the Offering derived from Purchasers resident in
Australia to Auzeq Securities Limited ACN 064 721 311 ("Auzeq"), of Melbourne,
Australia in connection with the sale of the Special Warrants. The expenses of
the Offering, including the cost of preparation of this prospectus, will be
borne by Ivanhoe. See "Private Placement and Plan of Distribution".
Each Purchaser has represented and warranted in its Subscription Agreement that
it is acquiring the Special Warrants and the underlying Common Shares to be held
for investment only and not with a view to immediate resale or distribution.
The Common Shares are traded on the Toronto Stock Exchange ("TSX") and the
Australian Stock Exchange under the symbol "IVN". The price of the Common Shares
as reported by the TSX at the close of business on January 31, 2003 was Cdn$3.19
per Common Share.
In this short form prospectus, all references to "Cdn$" refer to Canadian
dollars, all references to "US$" refer to United States dollars and all
references to "Aus$" refer to Australian dollars.
- 3 -
TABLE OF CONTENTS
PAGE
DOCUMENTS INCORPORATED BY REFERENCE.................................... 3
NAME AND INCORPORATION................................................. 4
SUMMARY DESCRIPTION OF THE BUSINESS.................................... 6
CONSOLIDATED CAPITALIZATION............................................ 23
DESCRIPTION OF SHARE CAPITAL........................................... 23
PRIVATE PLACEMENT AND PLAN OF DISTRIBUTION............................. 24
USE OF PROCEEDS........................................................ 25
RISK FACTORS........................................................... 26
AUDITORS, TRANSFER AGENT AND REGISTRAR................................. 26
LEGAL MATTERS.......................................................... 26
PURCHASERS' STATUTORY RIGHTS........................................... 27
CONTRACTUAL RIGHTS OF ACTION FOR RESCISSION............................ 27
CERTIFICATE OF IVANHOE MINES LTD....................................... 28
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of Ivanhoe, filed with the various securities
commissions or similar authorities in all of the provinces of Canada, are
specifically incorporated by reference into, and form an integral part of, this
short form prospectus:
1. Renewal Annual Information Form dated May 16, 2002 (the "AIF")
including management's discussion and analysis of financial condition
and results of operations for the financial year ended December 31,
2001 incorporated therein;
2. Comparative consolidated financial statements of Ivanhoe for the years
ended December 31, 2001 and 2000, together with the notes thereto and
the auditors' report thereon;
3. Comparative unaudited consolidated interim financial statements of
Ivanhoe for the nine month periods ended September 30, 2002 and 2001,
together with management's discussion and analysis of financial
condition and results of operation for such periods; and
4. Management Information Circular dated May 10, 2002 prepared in
connection with Ivanhoe's annual meeting of shareholders held June 25,
2002 (excluding the report on executive compensation, the performance
graph and the statement of corporate governance practices).
Any documents of the type referred to in the preceding paragraph, interim
financial statements and any material change reports (excluding confidential
reports) filed by Ivanhoe with the securities commissions or similar authorities
in the provinces of British Columbia and Ontario subsequent to the date of this
short form prospectus
- 4 -
and prior to the termination of the Offering shall be deemed to be incorporated
by reference in this short form prospectus.
ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED
BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED FOR PURPOSES OF
THIS SHORT FORM PROSPECTUS, TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN OR
IN ANY SUBSEQUENTLY FILED DOCUMENT THAT ALSO IS OR IS DEEMED TO BE INCORPORATED
BY REFERENCE HEREIN MODIFIES OR REPLACES SUCH STATEMENT. THE MODIFYING OR
SUPERSEDING STATEMENT NEED NOT STATE THAT IT HAS MODIFIED OR SUPERSEDED A PRIOR
STATEMENT OR INCLUDE ANY OTHER INFORMATION SET FORTH IN THE DOCUMENT THAT IT
MODIFIES OR SUPERSEDES. THE MAKING OF A MODIFYING OR SUPERSEDING STATEMENT SHALL
NOT BE DEEMED AN ADMISSION FOR ANY PURPOSES THAT THE MODIFIED OR SUPERSEDED
STATEMENT WHEN MADE, CONSTITUTED A MISREPRESENTATION, AN UNTRUE STATEMENT OF A
MATERIAL FACT OR AN OMISSION TO STATE A MATERIAL FACT THAT IS REQUIRED TO BE
STATED OR THAT IS NECESSARY TO MAKE A STATEMENT NOT MISLEADING IN LIGHT OF THE
CIRCUMSTANCES IN WHICH IT WAS MADE. ANY STATEMENT SO MODIFIED OR SUPERSEDED
SHALL NOT BE DEEMED IN ITS UNMODIFIED OR SUPERSEDED FORM TO CONSTITUTE A PART OF
THIS SHORT FORM PROSPECTUS.
INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS SHORT FORM PROSPECTUS
FROM DOCUMENTS FILED WITH THE SECURITIES COMMISSIONS OF THE PROVINCES OF BRITISH
COLUMBIA AND ONTARIO. Copies of the documents incorporated herein by reference
may be obtained on request without charge from the Secretary of Ivanhoe, Suite
654, 999 Canada Place, Vancouver, B.C. V6C 3E1 (telephone (604) 688-5755). This
prospectus along with the four above mentioned documents incorporated by
reference will also be lodged with the Australian Securities and Investments
Commission and will be referred to and included in the Australian Prospectus.
NAME AND INCORPORATION
Ivanhoe was incorporated under the Company Act (British Columbia) on January 25,
1994 under the name 463212 B.C. Ltd. In February 1994, Ivanhoe changed its name
to Indochina Goldfields Ltd. In March 1994, Ivanhoe increased its authorized
capital from 10,000 common shares without par value to 100,000,000 common shares
without par value and created 100,000,000 preferred shares without par value. In
February 1995, Ivanhoe was continued under the Business Corporations Act
(Yukon). In July 1997, Ivanhoe increased its authorized capital to an unlimited
number of common shares without par value and an unlimited number of preferred
shares without par value. In June 1999, Ivanhoe changed its name to Ivanhoe
Mines Ltd. The Corporation has been registered as a foreign company in Australia
since August 1996.
Ivanhoe's North American headquarters are located at Suite 654, 999 Canada
Place, Vancouver, B.C. V6C 3E1. Ivanhoe's Asian headquarters are located at 37th
Floor #2, Millenia Tower, 1 Temasek Avenue, Singapore 039192. The Corporation's
registered office is located at Suite 300, 204 Black Street, Whitehorse, Yukon,
Canada, Y1A 2M9.
SUBSIDIARIES AND MANAGEMENT STRUCTURE
The corporate structure of Ivanhoe, its material subsidiaries, the percentage
ownership in subsidiaries which are not wholly-owned by Ivanhoe and the
jurisdiction of incorporation of such corporations as at December 31, 2002 are
set out in the following chart.
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[IVANHOE MINES LTD. (YUKON) FLOW CHART]
Note: All subsidiaries are wholly-owned unless otherwise indicated
"BVI" means British Virgin Islands
- 6 -
SUMMARY DESCRIPTION OF THE BUSINESS
GENERAL
Ivanhoe is an international mineral exploration and development company. Ivanhoe
holds interests in mineral resource properties in Mongolia, Myanmar, Australia,
South Korea, China, Kazakhstan and Vietnam. For the purposes of Form 44-101F1
under National Instrument 44-101 Short Form Prospectus Distributions ("NI
44-101"), the Oyu Tolgoi gold and copper exploration project in Mongolia (the
"Oyu Tolgoi Project"), the Monywa copper project in Myanmar (the "Monywa Copper
Project") and the Savage River iron ore mine in Tasmania, Australia (the "Savage
River Project") have been identified as the mineral resource properties material
to Ivanhoe. Ivanhoe's interests in Kazakhstan, Mongolia (other than the Oyu
Tolgoi Project), South Korea, China, Myanmar (other than the Monywa Copper
Project) and Vietnam are not considered material for the purposes of Form
44-101F1 under NI 44-101. For a description of these properties see "Item 3 -
General Development of the Business" and "Item 4 - Narrative Description of
Business" on pages 9 through 40 of Ivanhoe's AIF, which is incorporated by
reference in this short form prospectus, as well as "Recent Developments" below.
QUALIFIED PERSONS
Charles Forster, P.Geo., an employee of Ivanhoe and a qualified person for the
purposes of National Instrument 43-101 Standards of Disclosure for Mineral
Projects ("NI 43-101"), has supervised the preparation of all disclosure of a
scientific or technical nature for the Oyu Tolgoi Project other than the
Southwest Oyu Resource Estimate. All disclosure of a scientific or technical
nature in respect of the Southwest Oyu Resource Estimate has been summarized
from a June 5, 2002 supplement (the "RPA Supplement") to a technical report
prepared in January 2002 and supplemented in March 2002 (the "RPA Technical
Report") of Roscoe Postle Associates Inc. ("RPA"), prepared by Gildar J.
Arseneau, Ph.D., P.Geo, an employee of RPA. Mr. Arseneau is an independent
qualified person for the purposes of NI 43-101.
Chris Wilson, Ph.D, MAusIMM, Ivanhoe's Exploration Manager for Mongolia and a
qualified person for the purposes of NI 43-101, has prepared or supervised the
preparation of all disclosure of a scientific or technical nature in respect of
all of Ivanhoe's Mongolian exploration projects other than the Oyu Tolgoi
Project.
All disclosure of a scientific or technical nature respecting the Savage River
Project was prepared under the supervision of Anson Griffith, MAusIMM, an
employee of Ivanhoe's indirect wholly-owned subsidiary Goldamere Pty Ltd.
("Goldamere"). Mr. Griffith is a qualified person for the purposes of NI 43-101.
Paul Chare, MAusIMM, an employee of Ivanhoe and a qualified person for the
purposes of NI 43-101, prepared or supervised the preparation of all disclosure
of a scientific or technical nature in respect of all mineral resource projects
other than the Savage River Project, the Oyu Tolgoi Project and Ivanhoe's other
Mongolian mineral resource projects.
RECENT DEVELOPMENTS
OYU TOLGOI PROJECT, MONGOLIA
Ivanhoe continues to conduct a substantial exploration program on the Oyu Tolgoi
Project. During 2002, Ivanhoe concentrated its drilling on the Central Oyu,
Southwest Oyu, South Oyu and Far North Oyu mineralized zones. Ivanhoe contracted
with a subsidiary of Major Drilling of Canada to supply drill rigs, and now has
10 drill rigs working on the property. A summary of the results of the drill
program in each mineralized zone, including the results of several drill hole
intercepts is set out below.
In December 2002, Ivanhoe completed an induced polarization ("IP") survey that
covered areas in the Southwest Oyu, Central Oyu and the Far North Oyu zones.
Results of the IP survey show that a continuous geophysical anomaly that extends
approximately 4.5 kilometres in length and encompasses the Southwest,
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Central and Far North Oyu zones and continues north of Far North Oyu for
approximately one kilometre. This anomaly supports the proposition that all
three zones are geologically connected by a north northeast trending controlling
structure. Further exploration work will be required before the connection can
be established with a high level of confidence.
Ivanhoe has been studying a number of aspects of the Oyu Tolgoi Project with a
view to its further development and establishment of infrastructure at the
project site, including a conceptual engineering study on design parameters
affecting underground mining, geotechnical reconnaissance to assess foundation
conditions and local availability of construction materials, a desktop study of
potential suppliers, contractors and independent power producers, an
archaeological survey and baseline environmental studies.
Ivanhoe has shipped metallurgical samples from the Oyu Tolgoi Project to a
research laboratory in Canada for metallurgical testing, which began in January
2003. The core samples consist of half PQ core from the Southwest Oyu and
Central Oyu zones, and the testing is intended to provide the basis for the
process design criteria of a pre-feasibility study.
Resource Estimate - Southwest Oyu
In May 2002, AMEC E & C Services Ltd. ("AMEC") completed an updated estimate of
inferred resources in the Southwest Oyu zone based on six new drill holes. RPA
reviewed and verified the resource estimate in the RPA Supplement. The RPA
Supplement replaces the disclosure respecting the Southwest Oyu resource
estimate in the RPA Technical Report.
In the RPA Supplement, RPA reported inferred mineral resources to a depth of 600
metres ("m") in the Southwest Oyu zone as follows:
CUTOFF GRADE COPPER
COPPER EQUIVALENT (1) (%) TONNES (%) GOLD (g/t)
0.70 148,800,000 0.66 1.10
0.60 252,400,000 0.55 0.83
0.50 392,600,000 0.48 0.66
0.40 552,800,000 0.42 0.56
0.30 684,100,000 0.38 0.50
0.20 757,300,000 0.36 0.46
Note (1) Based on US$300 per ounce gold and US$0.80 per pound copper at
100% metal recovery
RPA also reported inferred mineral resources below 600 m in the Southwest Oyu
zone as follows:
CUTOFF GRADE COPPER
COPPER EQUIVALENT (1) (%) TONNES (%) GOLD (g/t)
2.0 4,000,000 0.80 2.60
1.8 8,000,000 0.76 2.40
1.6 13,000,000 0.72 2.20
1.4 17,000,000 0.68 2.10
1.2 21,000,000 0.65 1.90
1.0 26,000,000 0.61 1.80
Note (1) Based on US$300 per ounce gold and US$0.80 per pound copper at
100% metal recovery
RPA believes that additional drilling and evaluation is required before the
mineralization below 600 m can be classified as a mineral resource at cut-off
grades of less than 1% copper equivalent.
- 8 -
The revised Southwest Oyu mineral resource estimate reported in the RPA
Supplement is based on the same assumptions, parameters and methods as those
disclosed in the AIF, except that the drill hole database now consists of 37
diamond drill holes totalling 21,050 m.
Resource Estimate - 2003 Update
In January 2003, Ivanhoe engaged AMEC to prepare an independent resource
estimate to quantify the size and grade of the Central, Southwest, South and Far
North Oyu mineralized zones. Ivanhoe anticipates that the resource estimate will
be completed by the end of January 2003. Ivanhoe has completed 55 drill holes at
Central Oyu, an additional 38 holes at Southwest Oyu since the last resource
estimate in May, 2002 and is awaiting assays from 8 diamond core holes at Far
North Oyu. Ivanhoe believes that sufficient data will be available to establish
inferred mineral resources at Far North Oyu and Central Oyu and to upgrade some
or all of the inferred mineral resources at Southwest Oyu to the indicated
category.
Central Oyu Zone - Recent Drill Results
In 2002, Ivanhoe began drilling at the Central Oyu zone of the Oyu Tolgoi
Project to test an 800 m by 600 m anomaly identified by an IP survey.
In May 2002 three holes, OTD196, OTD202 and OTD207, drilled in the Central Oyu
zone, encountered intrusive and volcanic-hosted hypogene, gold-rich,
chalcopyrite mineralization similar to mineralization encountered in the
Southwest Oyu zone, adjacent to and beneath a thick blanket of strong, secondary
chalcocite and covellite mineralization. These three holes were drilled
following two holes, OTD159 and OTD187 that discovered thick covellite
mineralization and strong chalcopyrite gold mineralization, respectively, in the
Central Oyu zone.
Ivanhoe subsequently drilled 39 holes on approximately 100 m intervals over the
Central Oyu zone to delineate the underlying mineralization for future resource
estimation. The holes were primarily drilled on 100 m spaced, north-south lines,
inclined at 60 to 70 degrees south. Several additional holes were drilled on
305-degree and 125-degree azimuths to confirm continuity of the mineralization
between drill sections. Other holes were drilled vertically to further delineate
a near surface, flat lying zone of secondary enriched copper mineralization.
Results of this drilling indicate that there is a main zone of mineralization
consisting of a deposit of covellite mineralization and a peripheral deposit of
chalcopyrite mineralization. The flat-lying top of the chalcocite blanket ranges
from 30 m to 60 m below the surface with a true thickness of approximately 30 m
to 60 m. The top of the covellite zone tends to be 100 m to 150 m below the
surface, extending down to a maximum depth of 450 m below the surface. The
chalcopyrite gold zone lies generally below the covellite zone extending up the
southern flank to within 200 m below surface, with a maximum depth of between
450 m to 550 m below surface. Ivanhoe has drilled three cross holes to verify
the continuity of mineralization. Assays are pending on these cross holes, and
Ivanhoe will not be able to confirm the continuity of mineralization between
sections at Central Oyu until the assay results from these holes are received.
Ivanhoe has divided the Central Oyu zone into six 100 m spaced, north - south
sections, each approximately 600 m wide and 400 to 600 m deep, numbered from
west to east. Ivanhoe has encountered gold and copper mineralization in all of
the sections. Material results of drilling in each section are discussed below.
Section 1: Drill holes OTD187 and 207 encountered 160 m grading 0.59% copper and
0.4 grams per tonne ("g/t") gold and 144 m grading 0.78 % copper and 0.66 g/t
gold, respectively. Holes OTD210, 280 and 256 intersected copper and gold
mineralization comparable to that of OTD187 and 207. These intersections are a
mixture of covellite, chalcopyrite and gold, and form two "bands" of
mineralization, each up to 100 m in thickness coalescing into one, 200 m thick
band on the northern side of Section 1. The drill intersections indicate that
the total width of the mineralized zone is approximately 400 m and that it
reaches a maximum below surface depth of 400 m. The zone is open to the north.
- 9 -
Section 2: Ivanhoe originally drilled OTD196 in Section 2 in early 2002 to test
the down dip extent of mineralization, and intersected 118 m grading 0.95%
copper and 0.47 g/t gold. Ivanhoe has since drilled three holes in this section
of Central Oyu. OTD211 and 262 were drilled as 100 m step outs to the north from
OTD196. OTD211 intersected 264 m grading 0.89% copper and 0.08 g/t gold. OTD262
intersected 203 m grading 0.92% copper and 0.31 g/t gold. The third hole,
OTD226, intersected 58 m grading 1.90% copper and 0.24 g/t gold in the upper
zone and 58 m grading 1.02% copper and 1.32 g/t gold in a lower zone. The
results indicate that two mineralized zones converge into one zone 260 m in
thickness on OTD211. The zone narrows to approximately 50 m in thickness on
OTD226 accounting for the mineralization in the upper intersection of the drill
hole. The lower intersection does not appear to be connected to the main zone of
mineralization. Mineralization is open to the north and is approximately 500 m
in width.
Section 3: Ivanhoe drilled five holes in Section 3 to test the covellite and
chalcopyrite gold zones underlying the chalcocite blanket of Central Oyu.
Ivanhoe also drilled two short vertical holes to provide large diameter core for
metallurgical and leach testing on the chalcocite zone. OTD285, the most
southerly hole, intersected 200 m of covellite mineralization grading 0.49%
copper and 0.06 g/t gold starting at 46 m down hole immediately below the
chalcocite blanket. Below the covellite zone, chalcopyrite and covellite
mineralization grading 0.62% copper and 0.13 g/t gold over an interval of 158 m
was encountered at 246 m down hole. OTD217 intersected 124 m of covellite-rich
mineralization grading 1.20% copper and 0.07g/t gold starting at 160m down hole
which underlies a 110 m interval of 0.49% copper and 0.05 g/t copper. OTD217
also encountered a 182 m lower zone of chalcopyrite mineralization starting at
312 m grading 0.60% copper and 0.18 g/t gold including a 14 m interval of barren
rhyolite dyke. OTD216 encountered the covellite zone starting at 142 m down hole
and intercepted 268 m grading 0.70% copper and 0.07 g/t gold. The lower
chalcopyrite zone is 94 m grading 0.58% copper and 0.15 g/t gold. OTD258 was
drilled to define the northern limit of the mineralization, and encountered
significantly stronger covellite mineralization with gold. At 204 m the hole
intersected 440 m grading 0.96% copper and 0.21g/t gold. Overlying the zone, a
lower grade 58 m interval was encountered averaging 0.51% copper and 0.15 g/t
gold. The final and most northerly hole in the section, OTD284, intersected 136
m grading 1.19% copper and 0.49 g/t gold starting at 258 m down hole. Ivanhoe
believes that mineralization is open but decreasing in thickness to the north
and that the overall dimension of mineralization in the section consists of a
horizontal width of approximately 500 m and a thickness of up to 400 m. The
maximum depth of mineralization is believed to be 550 m below surface.
Section 4: OTD159, drilled vertically, encountered 379 m grading 0.69% copper
and 0.14 g/t gold. OTD224, 271, 275, 290 and 302 were subsequently drilled south
inclined at approximately minus 65 degrees. Underlying the near surface
chalcocite blanket, the drill holes intersected both a covellite zone and a
lower zone of chalcopyrite. Ivanhoe believes the covellite zone is approximately
400 m in width and between 275 m to 300 m thick lying approximately 300 m below
the surface, while the chalcopyrite zone is approximately 300 m in width and
varying in thickness to approximately 100 m, lying up to 600 m below the
surface. OTD302 intersected 52 m averaging 0.74% copper and 0.06 g/t gold
through the covellite zone, starting at 100 m down hole. OTD275 intersected 206
m of mineralization in the covellite zone grading 0.74% copper and 0.09 g/t gold
starting at 104 m and 86 m grading 0.49% copper and 0.97 g/t gold in the
chalcopyrite zone starting at 550 m. OTD224 intersected 270 m averaging 0.50%
copper and 0.06 g/t gold in the covellite zone starting at 66 m down hole and
0.62% copper and 0.06 g/t gold for 86 m in the chalcopyrite zone starting at 482
m. OTD271 and 290 also intersected comparable levels of copper and gold
mineralization in both the covellite zone and chalcopyrite zone.
Section 5: Ivanhoe drilled three holes on Section 5 in 100 m intervals at minus
60 degrees. OTD332 is currently in progress and has no assays available but has
intersected visible covellite mineralization. OTD247, 100 m north, intersected
132 m of covellite at 48 m depth, averaging 0.66% copper and 0.07 g/t gold,
followed by 206 m grading 0.43% copper and 0.06 g/t gold. At 472 m, a 24m
interval of chalcopyrite mineralization was intersected averaging 0.86% copper
and 0.17 g/t gold. OTD299 is the most northerly hole in the section and
intersected 34 m grading 1.04% copper and 0.14 g/t gold at 194 m. At 306 m the
hole encountered 94 m of chalcocite and enargite grading 0.48% copper and 0.31
g/t gold. Subject to assay results from hole OTD332, Ivanhoe believes that the
mineralized zone is 200 m wide and up to 250 m thick.
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Section 6: Ivanhoe has completed four drill holes on the most easterly section
in Central Oyu. All of the holes have been drilled south at minus 60 degrees.
Ivanhoe has encountered varying degrees of mineralization in the holes, with
intervals ranging from 26 m to 118 m. In general, the intervals encountered
strong copper mineralization of between 0.81% to 1.56% copper but weak gold
mineralization.
Ivanhoe has also drilled two holes east of Central Oyu, OTD198 and 225. OTD198
failed to penetrate the thick sedimentary cover rocks overlying the possible
easterly strike extension of the Central Oyu mineralization due to bad ground.
OTD225 was collared at the same location and intersected a wide post mineral
dyke and clay altered, pyrite-rich rocks carrying only low copper and gold
values.
Four additional holes have been drilled across Central Oyu to verify continuity
of the mineralization between sections and to test for possible vertical, barren
dykes lying between the sections. The first hole, OTD249 was collared on Section
2 and drilled west on an azimuth of 270 degrees. The hole intersected 92 m of
covellite starting at 36 m. Below 128 m, the hole entered a late quartz
monzonite dyke that defines the western limits of the Central Oyu mineralized
zone. On the southeast side of Central Oyu, OTD312 was collared on an azimuth of
305 degrees to cross at right angles to the suspected northeasterly controlling
structures identified by geophysics. The hole collared in quartz monzodiorite
grading 0.45% copper and 0.04 g/t gold from 46 m down hole before encountering
the high grade covellite zone at 358 m where a 168 m interval grading 1.24%
copper and 0.28 g/t gold was intersected. Ivanhoe encountered one barren zone on
OTD312 66 m in length starting at 222 m. OTD321 was collared west of Section 1
and drilled on a 125-degree azimuth as a "scissor" hole 100 m southwest and
parallel to OTD312. The hole intersected 190 m of mixed covellite and
chalcopyrite mineralization starting at 66 m down hole grading 0.81% copper and
0.49 g/t gold. Finally, OTD335 was drilled at 305-degree azimuth, 100 m
northeast of OTD312, but assays are not complete.
Southwest Oyu Zone - Recent Drill Results
Since the completion of the revised Southwest Oyu zone inferred mineral resource
estimate, Ivanhoe has concentrated diamond drilling in Southwest Oyu on infill
drilling the inferred resource. Holes were drilled from northwest to southeast
on 100 m spaced sections between existing holes to provide 50 m to 100 m spaced
holes across the zone. Southeast oriented drill holes were selected to provide
the best definition of the barren quartz monzodiorite intrusive rocks that form
the hanging wall and footwall to the mineralization. The objective of this
drilling is to provide sufficient control on the mineralization to increase the
confidence level of some or all of the inferred resource to that of indicated
for use in a future pre-feasibility study. A total of 38 drill holes on 650 m of
strike length have been completed.
The holes drilled to date have encountered intervals of copper and gold
mineralization consistent with previous drill results. Based on these drill
holes Ivanhoe believes that gold and copper mineralization continues to plunge
in a southwesterly direction and has a finite depth extent on the drill
sections. The deep extension of the mineralization encountered at Southwest Oyu
has now been extended to at least 400 m on strike and more than 900 m below the
surface.
South Oyu Zone - Recent Drill Results
Recent diamond drilling in South Oyu followed up on earlier reverse circulation
("RC") drilling during 2001 undertaken to delineate near surface oxide
resources. Ivanhoe also drilled several core holes in 2001, with limited
success, to expand the high-grade bornite mineralization first encountered in
drill hole OTD004. OTRCD149, drilled to scissor OTD004 intersected 52 m grading
1.73% copper and 0.23 g/t gold underlying a 63 m interval starting at surface of
a malachite-rich oxide zone grading 1.08% copper and 0.28 g/t gold. OTD164
drilled 100 m down dip from OTRCD149, encountered lower grade mineralization
indicating the bornite-rich quartz sheeted quartz veining did not continue
vertically to depth.
- 11 -
The RC holes drilled by Ivanhoe at South Oyu encountered moderate copper grades,
but with generally low gold values, lowering the overall exploration priority of
the area. Ivanhoe has resumed drilling at South Oyu with a view to defining a
"starter" pit zone of mineralization within 250 m of surface and has drilled
four holes on a section 50 m to 100 m southeast of OTRCD149 and OTD164. OTD279,
drilled at an azimuth of 215 degrees at -60 degrees intersected 204 m of 0.73%
copper and 0.22 g/t gold starting at 42 m down hole. Step back hole OTD266, 100
m northeast intersected 64 m at 0.51% copper and 0.11 g/t gold from 98 m and an
interval of 37 m grading 0.67% copper and 0.12 g/t gold starting 208 m through
to the bottom of the hole at 245 m. OTD261 was collared 150 m northeast across a
50 m thick rhyolite dyke. The hole intersected 98 m grading 0.55% copper and
0.03 g/t gold starting at 42 m. The hole bottomed in a rhyolite dyke. The final
hole, OTD281, stepped back a further 160 m northeast and encountered 246 m of
weak mineralization grading 0.26% copper and 0.04 g/t gold starting at 78 m. The
bottom of the hole intersected 112 m grading 0.66% copper and 0.16 g/t gold at
394 m.
Two additional holes were drilled on a section 100 m southeast of the previously
described drill hole grouping. OTD269 intersected 60 m grading 0.59% copper and
0.06 g/t gold starting at 58 m followed by 102 m grading 0.78% copper and 0.14
g/t gold at 130 m depth. The grade decreased to the bottom of the hole at 429 m.
Ivanhoe believes that mineralization in excess of 0.7% copper may run
continuously east-west across the 150 m interval between OTD279 through OTD269.
Additional drilling is required to further delineate this zone.
To test the area between the South Oyu zone and Southwest Oyu zone, Ivanhoe
drilled two holes, OTD233 and OTD308, to the northwest along a section line
following OTD004 and OTRCD149. OTD233 encountered 45 m starting at surface
grading 0.82% copper and 0.14 g/t gold, followed 94 m down hole by 46 m grading
0.93% copper and 0.10 g/t gold. A 45 m dyke was then cut followed by an
additional 72 m grading 0.81% copper and 0.08 g/t gold. The hole encountered
additional dykes and weaker mineralization down hole to 322 m. OTD308, collared
140 m west on a parallel section 100 m southwest intersected 130 m grading 0.60%
copper and 0.63 g/t gold starting at 54 m down hole. The mineralization from
these holes is high-sulphidation bornite and chalcocite in advanced argillic
alteration, and demonstrates that there is probably continuity down dip from two
previous RC holes, OTRC105 and OTD136 that intersected chalcocite-rich
mineralization near surface.
Far North Oyu Zone - Recent Drill Results
Ivanhoe initiated drilling in Far North Oyu in mid-2002 to test a broad, north
easterly trending IP chargeability high delineated in 2001. Eleven holes were
drilled on six, 200 m spaced sections progressing northeast. These holes
intersected significant widths of pyrite and lesser amounts of chalcopyrite,
enargite and chalcocite. The best grades included 108 m grading 0.73% copper and
0.04 g/t gold starting at 296 m down hole in OTD244 and 136 m grading 0.58%
copper and 0.05 g/t gold in OTD246. The final hole, OTD270, was drilled as a
final test of the far-east end of the IP target and encountered 638 m of
chalcopyrite, bornite-rich mineralization grading 1.61% copper and 0.07 g/t gold
starting at 220 m down hole.
Ivanhoe performed follow-up drilling by stepping north and south on 100 m
intervals followed by a parallel section of three holes 100 m east.
Re-interpretation of the geophysics indicates that a possible controlling
structure trending north northeast through OTD270 might result in the strike
being oblique to the two north-south drilling sections. Subsequent holes were
then drilled southeast and scissored northwest to cut perpendicular to the
interpreted trend of the body. The body is now interpreted to be north
northeasterly trending, generally tabular in nature, dipping moderately to
steeply southeast. Ivanhoe has identified a zone of mineralization grading in
excess of 1% copper that lies 150 m to 300 m below the surface and reaches
depths of 700 m to 800 m below surface. The results of drilling to date indicate
that the zone is approximately one kilometre long and 400 m wide, but it is
still open in all directions. Ivanhoe has estimated the true thickness of this
mineralized zone is between 200 m to 300 m.
OTD286, a 100 m step back from OTD270, intersected 532 m grading 1.63% copper
and 0.05 g/t gold, including 208 m grading 2.41% copper and 0.07 g/t gold.
OTD298 stepped back an additional 100 m intersecting 86 m grading 1.18% copper
and 0.02 g/t gold and 102 m grading 1.26% copper and 0.02 g/t gold. One hundred
metres north of OTD270, OTD273 intersected 444 m grading 1.37% copper and 0.04
g/t gold and, 100 m north of this hole, OTD282 intersected 304 m grading 1.28%
copper and 0.05 g/t gold. These five holes
- 12 -
define a zone at least 600 m in north-south strike extent and 500m in vertical
depth extent. The high-grade, advanced argillic-altered, siliceous core consists
of bornite, chalcocite and chalcopyrite grading upward into chalcopyrite and
bornite and at the top of the zone, pyrite, chalcopyrite and enargite. The base
of the zone is hematite, bornite, chalcopyrite in an intensely chlorite altered
basalt. The mineralization is capped by an ignimbritic unit of variable
thickness and overlain by siltstone and basalt. The mineralization appears to be
structurally controlled within a favourable, porous host rock.
Approximately 100 m east of the OTD270 drill hole grouping, Ivanhoe drilled
holes OTD305, 303 and 313 from south to north at 100 m intervals. All three
holes intersected significant intervals of copper with a marked increase in gold
content in the higher grade intervals. OTD305 intersected 280 m grading 1.73%
copper and 0.07 g/t gold, OTD303 intersected 344 m grading 1.77% copper and 0.11
g/t gold and OTD313 intersected 490 m grading 1.57% copper and 0.14 g/t gold.
The mineralization appears to be continuous from the OTD270 drill hole grouping
as a flat lying, tabular body 600 m in strike length and 300 m in thickness.
Ivanhoe collared three drill holes on the northwest side of Far North Oyu and
drilled south easterly believing the body could be steeply dipping to near
vertical in cross section. The first of these holes, OTD289, intersected 367 m
grading 1.91% copper and 0.09 g/t gold including 170 m grading 2.41% copper and
0.15 g/t gold. The hole was bottomed in high-grade copper mineralization when
abandoned due to bad ground. Two hundred metres southwest, OTD304 was drilled
parallel to OTD289 and intersected 432 m grading 1.33% copper and 0.04 g/t gold.
One hundred fifty metres northeast of OTD289, OTD310 intersected 368 m grading
2.41% copper and 0.23 g/t gold and included a 172 m zone of 3.43% copper and
0.40 g/t gold.
The results of the three southeasterly drill holes indicate that the body is
more tabular in shape and dips moderately to steeply easterly, meaning that the
holes may have been drilled down the dip of the body. Ivanhoe has now collared
holes on the southeast side of Far North Oyu, and is drilling north westerly to
trace the down dip of the mineralized zone.
Ivanhoe has also recently completed drilling three holes, OTD319, 327 and 344,
to test the north northeast strike extent of Far North Oyu and three holes,
OTD334, 346 and 338, to test the south southwest extension of Far North Oyu
toward the Central Oyu zone. Assays on the north northeast extension drill holes
disclosed an interval at OTD319 of 456 m grading 1.58% copper and 0.12 g/t gold
starting at 324 m below surface and an interval of 368 m grading 1.50% copper
and 0.08 g/t gold starting at 358 m on OTD327, while assays on OTD344 are
pending. The results support the extension of the mineralized zone to encompass
the drilling area and provide confirmation as to the shape of the mineralized
body. Assays on the south southwest extension holes are pending.
Drilling Plans for First Quarter of 2003
Ivanhoe plans to continue diamond drilling to test the north-south trending IP
chargeability anomaly extending north from Central Oyu. The presence of
chalcopyrite, bornite and chalcocite on the eastern margin of the central axis
of the IP anomaly opens up a significant strike length of poorly or untested
sulphides. Holes will be drilled in approximately 200 m intervals along the
strike extent with OTD334, 338 and 341 already in progress. To the south of
Central Oyu, the high sulphidation system continues under the
sedimentary/volcanic rocks. OTD219 and 240 intersected very similar
mineralization to the Far North and east side of Central Oyu, albeit at depths
that would likely require underground development to extract.
Ivanhoe plans to commence test drill holes over an IP zone of high chargeability
and high resistivity that was traced northerly over five 100 m spaced IP
sections on the western edge of its recent IP survey. Chip samples from a vein
located on this zone returned anomalous base and precious metal values, but the
chargeability and resistivity anomaly defined on the vertical IP sections
suggests there is the potential for increased thickness at depths below 200 m.
MONYWA COPPER PROJECT, MYANMAR
During 2002, Myanmar Ivanhoe Copper Company Limited ("MICCL"), the joint venture
company operating the Monywa Copper Project, produced copper at an annualized
rate of approximately 28,700 tonnes. The rate of production was higher than in
2001, reflecting increased processing capacity from a program to expand
- 13 -
electrowinning capacity. The expansion program continues, with the ultimate
planned capacity expected to be 33,000 tonnes per annum by April 2003. MICCL has
increased the leach pad area of the mine to maintain the increased cathode
production and has used run of mine dumps to supplement crusher capacity.
MICCL has relocated some of its mining and ore production from the Sabetaung
deposit to the Sabetaung South deposit and reallocated some of the production at
the Sabetaung pit from Stage 2 to the Stage 3 area of the pit. Ore grade from
Stage 2 of the Sabetaung pit is declining in line with design. The decline
should be offset by higher-grade ore recovered from Sabetaung South and Stage 3
of the Sabetaung pit.
MICCL has encountered ore zones with a high proportion of clay. The clay
material increases the proportion of fine material in processing, which reduces
the efficiency of leach kinetics and copper extraction. During 2002, MICCL
constructed and operated a pilot fines material removal plant. Based on the
success of the pilot plant, a fines removal plant will be added to the crushing
circuit during 2003 and is expected to remove a sufficient amount of fines to
permit optimum copper leach extraction.
Ivanhoe is still negotiating with potential project finance lenders in respect
of the possible future development of the Letpadaung deposit.
SAVAGE RIVER PROJECT, TASMANIA
Mining Developments
Ivanhoe's indirect wholly-owned subsidiary Goldamere has entered into a
five-year supply contract with BHP Steel (AIS) Pty. Ltd. to supply between one
million and one and a quarter million dry metric tonnes of iron ore pellets and
concentrate per year. Goldamere's supply contract with Posco Australia Pty. Ltd.
("POSCO") ends on March 31, 2003. To date, Goldamere has not been able to
confirm the requirements of POSCO after expiration of the contract, but based on
current discussions anticipates that the contract will be extended at reduced
purchases of 700,000 tonnes per year. Goldamere has increased its focus on the
Chinese market, and has established a sales target of 300,000 tonnes of pellet
and concentrate into the Chinese market for 2003.
In 2002 Goldamere temporarily ceased mining operations at Extension 3 of the
North Pit deposit because of a slope failure at Extension 2. Accordingly, all
mining in recent months has taken place at the South Deposit. This development,
combined with poor reconciliation of high grade ore in the upper benches of the
South Deposit reduced ore supply and weight recoveries in the mill. Goldamere
has been processing low-grade ore stockpiles to compensate for the reduced
supply. Recent upgrades to the mill circuit have increased ore throughout,
resulting in slightly better than planned concentrate production.
During the first quarter of 2003 a majority of the ore feed for the Savage River
Project is expected to come from the eastern ore lens of the South Deposit. The
eastern ore lens consists primarily of high-grade soft ore, with high nickel
impurities. Goldamere has instituted quality improvement measures in order to
control the level of nickel impurities until the South Deposit cutback exposes
the western ore lens of the South Deposit.
Mining at Extension 3 of the North Pit resumed at the end of January 2003 with
the establishment of access behind the Extension 2 slope failure. Goldamere
expects that mining of Extension 3 combined with continued mining of the South
Deposit will enable Goldamere to maintain a continuity of supply to its
customers.
The Savage River Project's mine plan has now been revised to incorporate slope
design changes in the North Pit, and a new mining sequence to reduce the
probability and impact of a similar slope failure in Extension 3. In addition, a
new design at the southern end of the Center Pit has been included in the
schedule, adding a year to the life of mine and taking end of mine life out to
May 2008.
In January 2003 Goldamere began operating its first gas-powered furnace at the
Port Latta pellet plant. Goldamere is in the process of converting all of its
oil fired furnaces to gas.
- 14 -
Financial Developments
In 1998, Goldamere entered into a Project Facility Agreement with UBS Australia
Limited ("UBS"), pursuant to which UBS granted to Goldamere an Aus$43 million
(US$23.6 million) credit facility (the "Credit Facility"). As a condition of the
Credit Facility, Goldamere was required to implement a risk management program
which involved, among other things, hedging currency risk in respect of the US
dollar proceeds of the sale of iron ore from the Savage River Project (the
"Hedging Arrangements"). Under the Hedging Arrangements, Goldamere was required
to deliver to the hedge counterparty US$5 million of currency per month at an
exchange rate of US$0.6817:Aus$1.
Pursuant to a December 1996 asset purchase agreement (the "Asset Purchase
Agreement"), Goldamere agreed to purchase from the Crown in Right of the State
of Tasmania (the "State"), the assets of the Savage River Project in
consideration for a deferred payment of Aus$13 million (US$7.1 million) (the
"Asset Purchase Price"). Under the terms of the Asset Purchase Agreement, the
Asset Purchase Price was to be satisfied by way of expenditures by Goldamere to
remediate environmental damage on the Savage River Project property caused by
the previous owner. The Asset Purchase Price was originally secured by a bank
guarantee and then by the State becoming a beneficiary of charges and mortgages
granted over the assets of the Savage River Project and certain other assets.
As a result of a significant weakening of the Australian dollar in relation to
the U.S. dollar, the Hedging Arrangements required Goldamere to incur
substantial ongoing currency exchange losses. As an interim relief measure,
commencing in the end of June 2001 UBS agreed to allow Goldamere to make the
monthly United States dollar payments required pursuant to the Hedging
Arrangements at the then prevailing Aus$:US$ exchange rate rather than at the
specified contract rate. An amount equal to the difference between the amount
otherwise payable at the specified contract rate and the amount actually paid at
the then prevailing exchange rate was then added to the outstanding principal
amount of the Credit Facility.
Faced with a deteriorating international market for iron ore and continuing
weakness in the Australian dollar, the management of Goldamere concluded that
the economic viability of the Savage River Project could not be sustained under
the burden of the Credit Facility and UBS Hedging Arrangement obligations and,
in August 2001, approached UBS to discuss alternatives for restructuring the
mine plan and financial arrangements of the Savage River Project.
In September 2002, Arbutus Holdings Ltd. ("Arbutus"), a wholly-owned subsidiary
of Ivanhoe, acquired all of UBS' rights in respect of the Credit Facility and
assumed all of UBS' liabilities and obligations under the Project Facility
Agreement. In connection with, and as part of, these transactions, Arbutus
replaced UBS as the hedge counterparty under the Hedging Arrangements and all
remaining currency exchange transactions and obligations under the Hedging
Arrangements were closed out. As consideration for UBS' rights under the Credit
Facility and acquiring the residual liabilities resulting from the closing out
of the Hedging Arrangement transactions and obligations (the "Close Out
Amounts"), Arbutus paid to UBS cash in the amount of Aus$15 million (US$8.2
million). Including the Close Out Amounts, the total Goldamere indebtedness
acquired by Arbutus from UBS was approximately Aus$74.9 million (US$41 million).
In connection with Arbutus' acquisition from UBS of the Credit Facility
indebtedness and related security, the State agreed to relinquish its security
in the Savage River Project. As consideration for the relinquishment, Goldamere
agreed to lodge with the State a bank guarantee in the amount of Aus$2.8 million
(US$1.5 million) as substitute security for Goldamere's obligations under the
Asset Purchase Agreement to either pay the deferred Asset Purchase Price in cash
or to incur environmental remediation expenditures in respect of the Savage
River Project in an aggregate amount equal to the deferred Asset Purchase Price
plus accrued interest. Goldamere and the State also agreed upon a variation of
the time for, and manner of payment of, interest in respect of the Asset
Purchase Price.
The transaction reduced current and long-term liabilities on Ivanhoe's
consolidated balance sheet by approximately Aus$74.9 million (US$41 million).
Goldamere management has advised Ivanhoe that Goldamere will likely need to
supplement anticipated cash flow from project operations with additional capital
from external sources in order to cover budgeted operating
- 15 -
costs. The funding shortfall will be largely dependent upon fluctuations in
currency exchange rates and Goldamere's ability to attract new customers.
Goldamere's management has advised Ivanhoe that a number of options are being
considered in order to meet cash flow shortfalls and mitigate currency risks.
These include arranging a credit facility with a third party lender and new
currency hedging arrangements. Goldamere has advised Ivanhoe that new third
party credit facilities may be contingent upon, among other things, Arbutus
subordinating its existing loans to and security in the Savage River Project to
a new lender. There can be no assurance that Goldamere will be able to make
suitable external financing arrangements. A failure to do so will have an
adverse impact on Goldamere's ability to continue as a going concern.
SILVER HILL GOLD AND SILVER PROJECT, SOUTH KOREA
Ivanhoe commenced trial commercial production at the Silver Hill Gold and Silver
Project in April 2002. In 2002 Ivanhoe processed 17,648 tonnes of ore and mined,
produced and sold 5,532 ounces of gold and 212,232 ounces of silver. Although
the open-pit mining project was producing gold and silver at commercially viable
rates, information about the property's underground mineral structure sufficient
to develop a comprehensive mine plan is not currently available. In October 2002
Ivanhoe suspended mining in order to complete infill drilling of the eastern
half of the deposit and develop a mine plan. The infill drill program commenced
in July 2002 and was completed in early December 2002. Ivanhoe continued to
process oxide ore stockpiled at the Eunsan mill until early December 2002. The
mining contractor ceased operations while trial mining was halted except for a
small maintenance crew which remained on site preparing for a possible
underground trial mining program.
Ivanhoe has also been preparing an updated resource block model and is analyzing
the infill drilling data in order to develop a mine plan. Ivanhoe recommenced
trial mining following completion of the infill drilling program in the eastern
half of the defined underground zone in order to compare actual mining results
with those of the updated block model. Shortly after trial mining recommenced,
Ivanhoe encountered a cavity with an estimated strike length of approximately 50
m filled with mud and other unconsolidated material in the vein system being
mined. Ivanhoe has not been able to mine through or bypass this cavity.
Accordingly, in the end of January 2003, Ivanhoe halted trial mining operations.
Ivanhoe is incorporating these developments into its block model and is
examining methods to continue cost-effectively mining the vein system. Until
such time as Ivanhoe can devise a method of either bypassing or mining through
the cavity all mining operations will remain halted.
High-grade oxide ore from the open pit was processed at the Eunsan mill until
the high-grade stockpile was depleted in December 2002. Thereafter, low-grade
oxide ore from stockpiles was processed until the tailings impoundment was
filled. Approximately 2,000 tonnes of sulphide ore remains in the surface
stockpile.
Although complete information is not yet available, Ivanhoe anticipates that
gold and silver production results for the first quarter of 2003 will be
significantly lower based on the grades in the surface stockpile now available
for processing and because resumption of full production may be delayed
indefinitely.
Ivanhoe is also running flotation and refining tests on stockpiled sulphide ore
and tailings filtration with ultimate disposal by dry stacking. Cyanidation, as
a means of retreating high grade oxide tailings currently stored on surface, is
currently being investigated.
OTHER MONGOLIAN PROJECTS
In 2002, Ivanhoe increased its landholding throughout southeastern and southern
Mongolia and near Saran Uul in central Mongolia. Ivanhoe now holds eighty
exploration licences covering 7,667,545 hectares (76,674.45 square kilometres
("km2")) and has applied for another 35 exploration licences totaling 3,472,425
hectares (34,724.25 km2). The following is a description of some of Ivanhoe's
more significant exploration activities on these properties.
- 16 -
Kharmagtai/Ovoot Hyar
The Kharmagtai and Ovoot Hyar project area comprises three licences. Ivanhoe
currently owns 100% of two of the licences, but has agreed to convey a 10%
interest in one of the two licences to an arm's length third party in exchange
for an exploration dataset owned by the third party in respect of the property.
Ivanhoe has the right to earn an 80% interest in the third licence upon
completion of a US$500,000 work program over three years. An arm's length third
party holds the remaining 20%. Areas covered by these three licences are
surrounded by large areas subject to exploration licences 100% owned by Ivanhoe.
Detailed geological mapping and rock-chip sampling of the Kharmagtai and Ovoot
Hyar project area commenced in April 2002 and is ongoing. As part of the field
program, 1,160 line kilometres of gradient array IP, 1,750 line kilometres of
field magnetics and 31.2 kilometres of trenching have been completed. A gravity
survey was commenced in October 2002 and is still in progress.
Diamond drilling of two copper-gold porphyry targets known as Copper Hill (Zesen
Uul) and Gold Hill (Altai Tolgoi) commenced in July 2002 and in November 2002,
respectively. Other high priority copper-gold porphyry targets that will be
drilled in the coming months include Duck (Galau), Eagle (Burgit), Wolf (Chun)
and White Vein (Tsagan Sudal). Ivanhoe has also identified a gold target
associated with a series of tourmaline breccia pipes and pervasively silicified
sediments, known as OV3/Falcon (Hartsaga).
Twenty-eight diamond drill holes have been completed at the Copper Hill target.
The drill results define a broadly east-west trending zone of gold and copper
mineralization greater than 250 m in length and up to 120 m wide. High-grade
mineralization occurs within 30 m of surface and extends to a depth greater than
250 m. Initial geologic modelling suggests that mineralization is pipe-like and
is associated with fingers of monzodiorite stock that are intruded into a
volcanoclastic siltstone package. An intense stockwork of quartz-chalcopyrite
veins is developed within the monzodiorite and locally within the siltstone.
Highlights of assays for holes for which assays are available include:
- -------------------------------------------------------
From To Depth Interval Gold Copper
Hole (m) (m) (m) (m) (g/t) (%)
- -------------------------------------------------------
KHD002 72 140 48 74 2.24 1.16
KHD003 40 142 30 102 2.09 1.05
KHD006 108 290 86 183 0.52 0.47
KHD008 22 100 14 78 0.51 0.61
KHD016 140 198 100 58 0.98 0.67
KHD021 36 118 30 82 1.23 0.74
KHD022 100 182 66 82 1.48 0.85
KHD026 118 220 98 102 0.56 0.38
- 17 -
KHD030 104 162 70 58 0.63 0.50
KHD033 168 236 114 70 1.24 0.78
- ------------------
Note: Depth (m) is the depth from surface to the top of the specified
mineralized interval. In the absence of detailed topographical contours it is
considered accurate to within five metres. Although broadly pipe-like, the
plunge of the mineralization is poorly constrained and it is not possible to
give true widths of mineralization.
An initial petrological study of core from Copper Hill indicates that gold
occurs along fractures and voids within chalcopyrite grains and has a similar
habit to the gold in the Southwest Oyu zone at Oyu Tolgoi.
Mineralization does not outcrop at Copper Hill and a RC drill program has
recently been completed to define the zone's strike extensions. RC holes were
drilled off 80 m by 120 m centres at -60 degrees to 100 m in depth. All assay
results from the RC drill program are pending.
The Gold Hill Prospect is located approximately two kilometres due north of
Copper Hill. Mineralization crops out locally as a series of malachite-stained
quartz stockwork zones which trend broadly east-west. Trenching has extended
this zone eastwards under Quaternary cover. The Gold Hill Prospect has a field
magnetic response similar to Copper Hill, characterized by a 1,200 m long
east-west trending zone, which hosts localized, intense, elongate magnetic highs
up to 200 m long. A moderate chargeability anomaly occurs immediately to the
north.
Nine diamond holes have been completed at Gold Hill and most have intersected
well-developed quartz-chalcopyrite stockworks and chalcopyrite-mineralised
breccias. All assays are pending. Mineralization occurs within 50 m of surface,
has a vertical extent of over 300 m and is open in all directions. Two diamond
rigs are presently drilling at Gold Hill.
Ivanhoe has also commenced preliminary exploration work at the Duck and Eagle
prospects.
Shuteen
The Shuteen licence is located within the Southern Mongolian Mineralised Belt
that also hosts Oyu Tolgoi and Kharmagtai. It is located in the Omnogovi Aimag
(Province) approximately 500 kilometres southeast of Ulaanbataar. The licence is
held as a joint venture with an arm's length third party. Ivanhoe has the right
to earn an 80% interest in the property upon completion of a US$1,500,000 work
program over three years.
The Shuteen licence is characterized by an extensive silica-clay lithocap.
Ivanhoe has conducted 1,800 line kilometres of field magnetics and 1,000 line
kilometres of IP surveying.
Oyut Ulaan
The Oyut Ulaan licence was granted to Ivanhoe in February 2002 and comprises
12,063 hectares. Ivanhoe owns 100% of the licence with no underlying royalties.
The Oyut Ulaan licence comprises a variety of targets which extend over an area
of approximately 12 kilometres by 6 kilometres. These targets include a copper
mineralized tourmaline-breccia pipe complex (Oyut Ulaan), an extensive area of
copper-stained colluvium and quartz vein float (Stariy), several quartz
stockwork zones with highly anomalous gold and copper (Stockwork and
Southeastern), large chargeability anomalies with peripheral magnetic
resistivity highs and occasional gold-copper anomalous porphyry-style veins
(Hulan, Hulan East, Hulan Fareast and Camel) and gold and copper anomalous
skarns (Nowie).
The Stariy area contains abundant copper-stained colluvium and common float and
subcrop of quartz magnetite veins with occasional centreline textures, gossan,
magnetite-bearing hydrothermal breccias and altered
- 18 -
monzodiorite and syenitic intrusives, implying underlying porphyry-type
copper-gold systems. Assays from 35 rock-chip samples were highly anomalous in
copper (18 samples between 1-10%), gold (seven samples between 0.25-16.8 g/t)
and molybdenum (three samples between 200-709 ppm).
Detailed geological mapping and surface rock-chip sampling was completed on the
property in September 2002, which included 890 line kilometres of ground
magnetics and approximately 700 line kilometres of gradient array IP.
Ivanhoe has identified a drilling target at Oyut Ulaan comprising a series of
variably copper-mineralised tourmaline breccia pipes which extend over a strike
length of approximately 1.5 kilometres and are hosted in carboniferous
monzodiorite and granodiorite. Intense secondary copper staining occurs within
and at the southern margin of the most prominent pipe where copper assays in
excess of 5% are common.
Saran Uul
The Saran Uul licence is located in Bayanhongor Aimag and comprises a total of
10,172 hectares. The licence was granted in February 2002 and Ivanhoe owns a
100% interest in the licence with no underlying royalties. Licences to explore
the surrounding areas are either held by Ivanhoe or are under application by
Ivanhoe.
Initial reconnaisance indicates that variably quartz-stockworked, plagioclase
phyric monzonite, monzodiorite and diorite, with common quartz-hematite-iron
oxide alteration and gossan is present. Assays from 54 rock-chip samples were
highly anomalous in copper (11 samples between 0.5-5 %), gold (six samples
between 0.5-4.9 g/t) and molybdenum (14 samples between 100-2000 ppm).
A more extensive geological mapping and sampling program was conducted during
October and November 2002 and included 815 line kilometres of ground magnetics.
Assay results from 122 surface rock-chip and float samples define an area
measuring approximately 900 m by 450 m averaging 0.40 g/t gold, 0.70 % copper,
90 ppm molybdenum and 1.4 g/t silver. Within this zone is a higher grade core
measuring approximately 400 m by 250 m with gold values that average 1.1 g/t.
The area from which the high-grade samples were collected occurs within a broad
zone containing copper oxides in float and outcrop. Occasional centimetre wide
quartz veins containing haematitic and geothitic oxides and rare chalcopyrite
veins to 5 millimetres wide are present. Veins occur individually and as
stockworks. Mineralization is hosted in a phorphyritic monzonite which has
intruded moderately hornfelsed siltstone, sandstone and rhyolite. A zone of
sericite silica pyrite alteration is present in sediments to the south of the
copper oxide zone. Mineralization is open to the southwest where it is covered
by Quaternary gravels.
Ivanhoe intends to commence IP and gravity surveys on the property in January
2003 in conjunction with an extensive trenching program.
Oyut Ovoo
The Oyut Ovoo licence comprises 1,201 hectares and is completely surrounded by
large areas subject to Ivanhoe exploration licences. The licence was granted in
February 2002 and is 100% owned by Ivanhoe with no underlying royalties.
The Oyut Ovoo prospect is centered on a series of prominent hills comprising
copper-bearing magnetite skarns and hydrothermal breccia pipes hosted in Permian
granitoid stocks. The mineralised zone has a surface area of approximately four
square kilometres and is surrounded by Quaternary and recent alluvium. Ivanhoe
has collected forty-three surface rock-chip samples, and assays contained
anomalous values of copper (17 samples between 1-10%), gold (nine samples
between 0.3-0.7 g/t) and molybdenum (16 samples between 100 ppm and 1%).
- 19 -
Detailed geological mapping and rock-chip sampling, in conjunction with an IP,
magnetic and gravity geophysical survey, is planned for early 2003.
CHINA PROJECTS
Pacific Agreement
In May, 2002 Ivanhoe entered into an agreement (the "Pacific Agreement") with
Pacific Minerals Inc. ("Pacific") a company listed on the TSX Venture Exchange.
Pursuant to the Pacific Agreement, Ivanhoe subscribed for 5,100,000 common
shares of Pacific and 5,100,000 share purchase warrants at an aggregate cost of
US$3,000,000. Ivanhoe also received options to participate in two mineral
exploration and development joint ventures between Pacific and Chinese
government controlled agencies, the 217 Gold Project in Inner Mongolia and the
JBS Platinum-Nickel-Palladium Project in Yunnan Province. Ivanhoe has the right
to obtain an initial 60% interest in the 217 Project and a 35% interest in the
JBS Project, increasing to up to 76.5% and 75%, respectively, upon completion of
project financing. Ivanhoe has until June 2004 to exercise its option to
participate in one or both joint ventures. If Ivanhoe exercises its option, it
will be obligated to provide or arrange all exploration and development funding
for the project until commencement of commercial production.
The Pacific Agreement also gives Ivanhoe the right to participate in any new
project identified by Pacific anywhere in China except Anhui Province. To date,
Pacific has identified four new projects ("New Projects"): the Huize-Xuanwei
Copper Project in Southern Yunnan Province, the Zhaotong Copper Project in
Northern Yunnan Province, the Guizhou Copper Project in Guizhou Province and the
Dandong Gold Project in Liaoning Province. Ivanhoe has elected to participate in
all of the New Projects. Accordingly, Ivanhoe is entitled to an initial 50%
interest in each of the New Projects, which may increase to up to 80% if Ivanhoe
funds and completes a feasibility study and arranges project financing. For each
New Project, Ivanhoe and Pacific will equally fund the first US$1,000,000 of
exploration expenses. Thereafter, Ivanhoe will be solely responsible for funding
exploration and development expenses, completing a feasibility study and
arranging project financing in order to increase its interest in a New Project
to 80%.
In October 2002, Ivanhoe acquired an additional 8,597,112 common shares of
Pacific and 2,000,000 share purchase warrants. Ivanhoe purchased 6,597,112
common shares from five existing shareholders at a price of Cdn$1.17 per common
share, and purchased the remaining 2,000,000 common shares and the warrants of
Pacific as units consisting of one common share and one warrant at a price of
Cdn$1.00 per unit. Ivanhoe now holds approximately 38.4% of Pacific's issued and
outstanding share capital on an undiluted basis.
217 Project and the JBS Project
The 217 Project is located near the border with Mongolia, near the Oyu Tolgoi
Project. The 217 Project hosts a mineralized zone that has been traced along
strike by surface trenches over a distance of 4.8 kilometres, ranging in width
from 40 m to 150 m and open to the west and to depth. The zone has been tested
by ten widely spaced diamond drill holes, all of which intersected gold
mineralization. The best hole graded 1.28 g/t gold over 273 m from the surface.
The joint venture has also commenced preliminary metallurgical testing of core
samples of both an oxide and a sulphide zone on the deposit.
The JBS Project is still in the initial stages of exploration and development,
with some preliminary underground mapping, sampling and drilling conducted in
the second half of 2002. A substantial database of exploration is already
available from work conducted by the government of Yunnan Province between 1975
to 2000. Pacific and its Chinese joint venture partner are using this database
and the results of its preliminary exploration work to develop an exploration
plan for the JBS Project.
New Projects
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The Huize-Xuanwei Copper Project and the Zhaotong Copper Project are the most
advanced of the four New Projects. In both cases, Pacific is negotiating a
co-operative joint venture agreement with the Yunnan Geological and Mining Co.
Limited, a geological exploration company owned by the government of Yunnan
Province.
Exploration activities on each of the New Projects remain in the early stages.
Ivanhoe anticipates that a detailed exploration plan will be devised and
implemented upon finalization of joint venture negotiations with the applicable
Chinese party for each New Project.
Framework Agreement
Ivanhoe has entered into a Framework Agreement with a Chinese government agency
which contemplates the negotiation of definitive joint venture agreements
between the parties with respect to several properties in Inner Mongolia. To
date, no agreements have been finalized.
The most advanced of the properties covered by the Framework Agreement are the
Ba Ri Tu Nam property and the Siwmuchange property. In both cases, the Framework
Agreement contemplates Ivanhoe earning up to an 80% interest in the property in
consideration for conducting an exploration program on the property. Both
properties have been subject to reconnaissance level exploration.
SOUTH KOREAN EXPLORATION PROJECTS
Gasado
Detailed mapping, channel and rock-chip sampling program of the
Lighthouse-Lighthouse East vein area, carried out between April and May 2002
identified a high-grade shoot zone, at least three metres wide, along the
southern Lighthouse vein headland. The vein has been traced 77 m in plan
distance over a vertical interval of 37 m up slope. It has a minimum estimated
width and calculated composite grade over this strike extent of three m at 7.91
parts per million ("ppm") gold and 278.3 ppm silver. Ivanhoe has identified high
grade channel intercepts from the Lighthouse East vein section including 1 m at
5.57 ppm gold and 231.7 ppm silver, 1.4 m at 16.93 ppm gold and 824 ppm silver
and 0.6 m at 4.77 ppm gold and 333.2 ppm silver.
The results of recent exploration activities coupled with gold and silver
intercepts obtained during previous scout drilling indicate that these vein
sections have down-dip potential. The current drilling program is aimed at
delineating economically exploitable sections of the Lighthouse vein and its
Lighthouse East vein extension, where open cut and underground amenable targets
are present. Ivanhoe is in the process of drilling ten drill holes totalling 730
m to target 25 to 30 m down-dip of the highest-grade vein sections, and intends
to use the drill results to calculate a resource estimate. Ivanhoe is scheduled
to complete the drilling program in the first quarter of 2003.
Moisan
Ivanhoe has completed 28 diamond drill holes, totalling 4,804 m at Moisan. The
drilling has identified gold and silver mineralization. The form of
mineralization is mixed, and occurs as low sulphidation, high sulphidation and
mixed low sulphidation-high sulphidation systems.
Ivanhoe is also drilling at the Moisan Extended Prospect, which lies northwest
of the Moisan Prospect. The Moisan Extended Prospect shows strong similarities
in both the geological setting and mineralization styles to the Moisan Prospect.
Ivanhoe has completed nine drill holes totalling 1,381 m. Eight drill holes
intersected narrow veins of gold and silver mineralization.
Keunsan Prospect
- 21 -
Ivanhoe has excavated four trenches 50 to 70 m long to expose the bedrock at
Keunsan. Ivanhoe has also completed seven diamond drill holes, totalling
approximately 1,475 m. Each of the drill holes intercepted local narrow zones of
gold and silver mineralization. Two drill holes are currently in progress, and
further drilling will be based on the results of these two drill holes.
Based on the results of drilling to date, mineralization appears to be confined
along intensely silicified zones hosted in dacitic ash to pumiceous lithic tuffs
and tuffaceous fine sediments, which are cut by narrow crystalline to
chalcedonic quartz veins and veinlets. The geology indicates the potential for
possible supergene enrichment.
Seongsan Clay Mine Prospect
In June 2002, Ivanhoe re-sampled drill cores from previous drill holes within
the clay pit area of the Seongsan clay mine. Ivanhoe plans to conduct follow up
drilling of shallow mineralized intersections with two drill holes at 150 m
depths each, to establish the trend of the mineralized intercepts. Drilling is
scheduled to commence following completion of the current Keunsan drill holes.
Daesan and Ogmaesan Prospects
Ivanhoe has obtained exploration licences over two new properties in the
Seongsan area, the Daesan Prospect, which lies about one kilometre
west-northwest of the Eunsan Mine, and the Ogmaesan Prospect, which is north of
the city of Bongsan. Ivanhoe has commenced initial mapping and rock-chip
sampling on these properties. A three hole scout drilling program for each
prospect is scheduled for 2003.
Chunsan Prospect
The Chunsan low-sulphidation epithermal gold-silver prospect is located
approximately one kilometre to the northeast of the Seongsan clay mine. Ivanhoe
has drilled thirteen diamond drill holes totalling 2,744 m at Chunsan.
Generally, narrow but locally high-grade disseminated and fracture-hosted gold
and silver mineralization correlates with abundant anhedral pyrite in
fractured/sheared zones. There is also fine-grained adularia associated with
dessiminated gold-silver mineralization. However, the patchy and deep
occurrences of the mineralized zones at Chunsan make it a low-priority prospect,
and no further work is planned at this time.
BAKYRCHIK GOLD PROJECT
In April 2002, the Republic of Kazakhstan (the "Republic"), through the local
government authority, the East Kazakhstan Oblast, purported to grant a right of
"trust management" in its 30% interest in Bakyrchik Mining Venture ("BMV") to a
local Kazakh company, Yubileinoye. Ivanhoe's subsidiary Central Asian Mining
Limited ("CAML"), which controls 70% of BMV, objected to this action on the
grounds that its own pre-emptive rights with respect to the disposition of the
30% BMV interest had been violated and that Yubileinoye was not in a position to
assume the "trust management" and related obligations. CAML has been notified
that the purported transfer to Yubileinoye has been rescinded.
In 2001, the Republic issued a decree transferring its interest in BMV to the
East Kazakhstan Oblast. CAML notified the Republic that the transfer was not
compliant with applicable contractual requirements and that CAML did not
recognize the transfer as effective. Based on meetings and correspondence with
various Kazakh authorities, CAML believes that it was not the Republic's
intention to transfer its interest in BMV but instead to appoint the East
Kazakhstan Oblast as its agent to represent its interests in BMV.
In November 2002, BMV received notice from Kazakh governmental authorities
denying the renewal of certain of its exploration rights under a mining licence
for the Bakyrchik project. CAML understands that this notice has been rescinded
following formal objections by both BMV and CAML.
- 22 -
Gold production at the Bakyrchik project during 2002 was approximately 2,664
ounces. Production of gold was halted for a substantial period during 2002
because of limited supplies of cyanide required for the leaching process. CAML
was unable to import cyanide for a period of 3 months due to new anti-terrorist
controls imposed by the Kazakh government on the import of hazardous materials.
New procedures on importation are expected to function smoothly in the future.
Ivanhoe has completed preparation work for the commencement of oxide ore mining,
including the installation of an electrical line to the open pit mining areas
and limited pre-production waste rock removal. Confirmation grade control
drilling is an ongoing process as is the permitting of each stage of the
project. No permitting delays are anticipated.
A mining contractor began stripping waste rock in October 2002 in preparation
for oxide ore mining. This work was halted in the beginning of January 2003 to
allow grade control drilling to catch up so as to allow more accurate mine
scheduling. Gold production was also halted at the same time, and will remain
suspended until the drilling confirmation program has been completed.
Work continued throughout 2002 on process development for the primary sulphide
resources at Bakyrchik. Gold recoveries over 85% are possible with proven
techniques of whole ore and concentrate roasting. Process design using mainly
Russian designed rotary kiln roasters is well advanced. Similarly, work is
progressing on bacterial oxidation and other methods of oxidation of Bakyrchik
concentrates.
MODI TAUNG GOLD PROJECT, BLOCK 10, MYANMAR
At the Modi Taung prospect in central Myanmar, exploration adits on the
mesothermal quartz-gold veins advanced 536 m, and Ivanhoe began diamond core
drilling.
The total length of exploration adits is now approximately 4,800 m on five vein
systems. From early August 2002, aditing has focused on the Shwesin vein system
with advances on adits at the 1000 m and 1050 m reference levels (i.e. m above
sea level), site preparation for reference levels 1025 m and 1150 m and the
start of a raise from the 1000 m reference level. The best assays were in a 50 m
segment of Shwesin level 1050 m, where 96 channel samples had a weighted average
assay of 62 ppm gold over a vein width averaging 54 centimetres ("cm"). The
increased number of levels and short raises will establish the degree of
vertical continuity in higher-grade vein segments of significant widths in the
shear-zone hosted Shwesin vein system.
The first 3,000 m of a planned 4,000 m programme of drilling on the Shwesin vein
were completed. Ivanhoe encountered a 160 cm (apparent width) vein 230 m below
Shwesin level 1000 in hole 4 and a 160 cm (apparent width) compound vein
intercept with visible gold 25m below the 1000 level in hole 5. The hole 4
intercept is 538m below the highest mineralized outcrop (1,315m elevation) on
the Shwesin-Modi Taung vein system.
Ivanhoe has also conducted exploration work at Momi Taung, approximately 600 m
southwest of the Shwesin vein system. Trenching work and eight holes of diamond
drilling have been completed, which has uncovered additional quartz-gold veins.
Additional exploration work will be required in order to quantify the extent of
mineralization in this area.
A preliminary, draft scoping study was completed in December 2002 for an
underground and surface operation at Modi Taung that would process between 70 to
100 tonnes of ore per day. Ivanhoe plans to update the scoping study in the
first quarter of 2003 to include mine processing details, and then use the study
as the basis for an application to enter into a joint venture development and
mining agreement with the Government of Myanmar. Ivanhoe intends to submit the
application to the government of Myanmar in the second quarter of 2003.
EQUITY INVESTMENTS
- 23 -
In January 2003, Ivanhoe disposed of its entire equity interest in Emperor Mines
Ltd. to a third party for cash consideration of approximately Aus$11,500,000
(US$6,700,000).
In November 2002, Ivanhoe reached an agreement with Olympus Pacific Minerals
Inc. ("Olympus") and Zedex Limited, its joint venture partners in the Phuoc Son
project in Vietnam, to sell a 10.18% interest in the joint venture to Olympus in
exchange for 8.5 million common shares of Olympus. The closing is subject to
regulatory approval and Olympus shareholder approval. Upon completion of the
transaction, Ivanhoe will own a direct 22.46% participating interest in the
Phuoc Son joint venture and 21% of the outstanding share capital of Olympus.
CONSOLIDATED CAPITALIZATION
The following table sets forth the consolidated capitalization of Ivanhoe as of
the dates indicated and reflects material changes in Ivanhoe's capitalization
since December 31, 2001, the date of its most recent audited consolidated annual
financial statements, which are incorporated by reference in this short form
prospectus. The following table should be read in conjunction with those
financial statements and the notes that accompany them.
As at As at
December 31, 2001 December 31, 2002
----------------- -----------------
(US$000's) (US$000's)
(unaudited)
Loans Payable to Related Parties $ 4,696 $ 5,493
Long-term Debt (including current portion) 61,970 29,488
Shareholders' Equity
Share Capital
Common Shares 460,389 521,719
Special Warrants - 26,578(1)
Additional Paid-in capital 1,697 1,518
Contributed Surplus (arising from stock-based
compensation) - 3,521
Accumulated Deficit (331,915) (349,597)
------------ ------------
Total Consolidated Capitalization $ 196,837 $ 238,720
============ ============
(1) THE FIGURES FOR SPECIAL WARRANTS REPRESENTS SPECIAL WARRANTS ISSUED UP TO
DECEMBER 31, 2002. AN ADDITIONAL US$10,635,000 WAS RAISED SUBSEQUENT TO DECEMBER
31, 2002 IN CONNECTION WITH THE ISSUE OF SPECIAL WARRANTS PURSUANT TO THE
OFFERING.
DESCRIPTION OF SHARE CAPITAL
The authorized share capital of Ivanhoe consists of an unlimited number of
Common Shares without par value and an unlimited number of preferred shares
without par value ("Preferred Shares"). As of the date of this prospectus, there
are 205,782,748 Common Shares and no Preferred Shares issued and outstanding.
Rights and restrictions in respect of the Common Shares and the Preferred Shares
are set out in Ivanhoe's articles of continuance, Ivanhoe's by-laws and in the
Yukon Business Corporations Act, and its regulations.
The holders of Common Shares are entitled to one vote per Common Share, on a
show of hands and on the taking of a ballot, at all meetings of shareholders.
The holders of Common Shares may appoint a proxy in accordance with Ivanhoe's
by-laws. The holders of Common Shares are entitled to receive dividends as and
- 24 -
when declared by the directors, and to receive a pro rata share of the remaining
property and assets of the Corporation in the event of liquidation, dissolution
or winding up of the Corporation. The Common Shares have no pre-emptive,
redemption, purchase or conversion rights. Neither the Yukon Business
Corporations Act nor the constating documents of the Corporation impose
restrictions on the transfer of Common Shares on the register of the
Corporation, provided that the Corporation receives the certificate representing
the Common Shares to be transferred together with a duly endorsed instrument of
transfer and payment of any fees and taxes which may be prescribed by the Board
of Directors from time to time. There are no sinking fund provisions in relation
to the Common Shares and they are not liable to further calls or to assessment
by the Corporation. The Yukon Business Corporations Act provides that the rights
and provisions attached to any class of shares may not be modified, amended or
varied unless consented to by special resolution passed by a majority of not
less than two-thirds of the votes cast in person or by proxy by holders of
shares of that class.
The Preferred Shares as a class rank senior to the Common Shares as to the
payment of dividends and the distribution of property and assets on the
liquidation, dissolution or winding-up of the Corporation. Holders of Preferred
Shares are not entitled to any voting rights as a class except as may be
provided under the Yukon Business Corporations Act and except that the directors
of the Corporation are empowered to attach to any series voting rights relating
to the election of directors on a default in payment of dividends.
The Preferred Shares are issuable in one or more series, each consisting of such
number of Preferred Shares as may be fixed by the Corporation's directors. The
Corporation's directors may from time to time, by resolution passed before the
issue of any Preferred Shares of any particular series, alter the constating
documents of the Corporation to determine the designation of the Preferred
Shares of that series and to fix the number of Preferred Shares therein and
alter the constating documents to create, define and attach special rights and
restrictions to the shares of that series, including, without limitation, the
following: (i) the nature, rate or amount of dividends and the dates, places and
currencies of payment thereof; (ii) the consideration for, and the terms and
conditions of, any purchase of the Preferred Shares for cancellation or
redemption; (iii) conversion or exchange rights; (iv) the terms and conditions
of any share purchase plan or sinking fund; (v) voting rights and restrictions;
and (vi) restrictions on transfer.
Registered holders of both the Preferred Shares and Common Shares are entitled,
at their option, to a certificate representing their shares of the Corporation.
PRIVATE PLACEMENT AND PLAN OF DISTRIBUTION
The Special Warrants were issued pursuant to the Offering at a price of Cdn$3.00
per Special Warrant at a series of closings between December 13, 2002 and
January 21, 2003. The price of the Special Warrants was determined by
negotiation between Ivanhoe and each of the Purchasers. Ivanhoe sold the Special
Warrants directly to the Purchasers pursuant to registration and prospectus
exemptions under applicable securities legislation. Ivanhoe paid a fee to Auzeq
in connection with the issuance of the Special Warrants. The fee was equal to 4%
of gross proceeds of the Offering derived from Purchasers resident in Australia.
No fees or commissions will be paid by Ivanhoe in connection with the issuance
of the Common Shares on the exercise of the Special Warrants. The expenses of
the Offering, including the cost of preparation of this prospectus, will be
borne by Ivanhoe.
Each Special Warrant allows the holder to acquire, without any additional
payment, one Common Share.
The Special Warrants may be exchanged or exercised pursuant to the terms and
conditions of a special warrant indenture dated December 12, 2002 between
Ivanhoe and CIBC Mellon Trust Company, as amended by a Special Warrant Indenture
Amendment Agreement between the parties dated January 6, 2003 (the "Special
Warrant Indenture"). According to the Special Warrant Indenture, subject to
adjustment, each Special Warrant entitles the holder thereof to acquire one
Common Share, at no additional cost, at any time after the Qualification Date
until the Expiry Time. Any Special Warrants not exercised prior to the Expiry
Time will be deemed to have been exercised immediately prior to the Expiry Time
without any further action on the part of the holder.
- 25 -
Each Purchaser has represented and warranted in its Subscription Agreement that
it was acquiring the Special Warrants and the underlying Common Shares to be
held for investment only and not with a view to immediate resale or
distribution.
This prospectus is being filed in British Columbia and Ontario to qualify the
distribution of the Common Shares to be issued upon the exercise of the Special
Warrants. Common Shares issued to holders of the Special Warrants in any
province of Canada in which a receipt for this prospectus has not been issued
may be subject to resale restrictions under applicable securities legislation.
The Corporation also intends to lodge the Australian Prospectus under Chapter 6D
of the Corporations Act 2001 (Commonwealth of Australia) to allow the Common
Shares to be issued with disclosure to investors under and as referred to in
Part 6D.2 of that legislation.
The TSX has approved for listing the Common Shares issuable upon the exercise of
the Special Warrants.
The Special Warrants and the Common Shares issuable upon exercise of the Special
Warrants have not been registered under the United States Securities Act of 1933
(the "U.S. Securities Act") or any state securities laws and may not be offered
or sold or otherwise transferred in the United States to any U.S. Person (as
defined in Regulation S under the U.S. Securities Act) and may not be sold in
the United States or to U.S. Persons except in transactions exempt from the
registration requirements of the U.S. Securities Act and applicable state
securities laws. Ivanhoe has no plans to register the Common Shares issuable
upon the exercise of the Special Warrants under the U.S. Securities Act.
USE OF PROCEEDS
The aggregate net proceeds received by Ivanhoe from the sale of the Special
Warrants were approximately US$37.2 million (Cdn$57.8 million), after payment of
expenses of the Offering, estimated to be US$195,000 (Cdn$300,000) and payment
of fees of US$1.2 million (Cdn$1.9 million) to Auzeq in respect of Special
Warrants sold to Australian investors. Ivanhoe plans to allocate the net
proceeds received from the sale of the Special Warrants as follows:
(i) drilling, assaying, exploration and related
activities in respect of the Oyu Tolgoi
Project - US$11.2 million
(ii) engineering, resource estimation and related
pre-feasibility activities in respect of the
Oyu Tolgoi Project - US$3.0 million
(iii) drilling, assaying, exploration and related
activities in respect of Ivanhoe's other
exploration projects in Mongolia - US$4.5 million
(iv) preliminary reconnaissance, exploration and
related activities in respect of Ivanhoe's
exploration projects in China - US$2.2 million
(v) general and administrative costs - US$4.0 million
(vi) working capital - US$12.3 million
---------------
Total: US$37.2 million
===============
- 26 -
Ivanhoe expects to incur the planned expenditures outlined above over a period
of approximately six months. Although an expenditure budget for the second half
of 2003 has not been finalized, management expects that the bulk of the funds
now allocated to working capital will be used primarily for expenditures on the
Oyu Tolgoi Project.
Certain other non-core projects held by the Corporation, including the Bakyrchik
Gold Project in Kazakhstan, the Modi Taung Gold Project in Myanmar and the
Silver Hill Gold and Silver Project in Korea, have been allocated funding in the
aggregate amount of approximately US$4.1 million for the first six months of
2003 from the Corporation's existing financial resources. Continued funding of
these non-core projects beyond mid-2003 will be contingent upon the availability
of financial resources not previously allocated to higher priority expenditures.
Ivanhoe may be required to raise additional equity capital or dispose of other
non-core assets in order to obtain the additional financial resources necessary
to fund ongoing expenditures on these non-core projects through 2003.
If Ivanhoe fails or chooses not to do so, its only alternative may be to
relinquish its interest in one or more of these non-core projects. There is no
assurance that Ivanhoe will recover all or any of its investment in these
non-core projects as part of any relinquishment or disposition nor any assurance
that Ivanhoe will not retain residual environmental or other liabilities in
respect of any such project that it relinquishes.
The proposed expenditure allocations outlined above are estimates only and have
been prepared by management using assumptions which are based on management's
present understanding of the circumstances and prospects of each of Ivanhoe's
existing projects. These allocations do not take into account the possibility
that an unforeseen positive or negative material change in the circumstances or
prospects of a particular project may motivate Ivanhoe to accelerate, delay,
increase or decrease certain previously planned expenditures or that the
emergence of a significant new project opportunity or exploration discovery may
dictate a material change in the Corporation's expenditure priorities. For
example, ongoing drilling and other expenditures on exploration projects are
contingent upon obtaining results which justify continued exploration of the
target properties. In the absence of exploration results justifying ongoing
expenditures on a particular property, Ivanhoe may re-allocate funds previously
allocated for expenditure on that property to other properties now owned or
acquired in the future.
RISK FACTORS
Investment in securities of Ivanhoe involves a significant degree of risk and
should be considered speculative due to the nature of Ivanhoe's business and the
present stage of its development. Investors should give careful consideration to
the risk factors described in "Item 4 - Narrative Description of Business - Risk
Factors" on pages 48 through 56 of Ivanhoe's AIF, which is incorporated by
reference in this short form prospectus.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of Ivanhoe are Deloitte & Touche LLP, Chartered Accountants,
Vancouver, British Columbia. The registrar and transfer agent for the Common
Shares in Canada is CIBC Mellon Trust Company at its principal offices in
Vancouver.
LEGAL MATTERS
Certain Canadian legal matters in connection with this Offering will be passed
upon by Goodmans on behalf of Ivanhoe. As at the date hereof, the partners and
associates of Goodmans, as a group, beneficially own directly or indirectly less
than one percent of the outstanding Common Shares.
- 27 -
PURCHASERS' STATUTORY RIGHTS
Securities legislation in British Columbia and Ontario provides purchasers with
the right to withdraw from an agreement to purchase securities. This right may
be exercised within two business days after receipt or deemed receipt of a
prospectus and any amendment thereto. In British Columbia and Ontario,
securities legislation further provides a purchaser with remedies for rescission
or, in some jurisdictions, damages where the prospectus and any amendment
contains a misrepresentation or is not delivered to the purchaser, provided that
the remedies for rescission or damages are exercised by the purchaser within the
time limit prescribed by the securities legislation of the purchaser's province.
Purchasers should refer to any applicable provisions of the securities
legislation of the purchaser's province for the particulars of these rights or
consult with a legal adviser. Purchasers located in Australia may have statutory
rights to compensation under the Corporations Act 2001 (Commonwealth of
Australia) in relation to the Australian Prospectus.
CONTRACTUAL RIGHTS OF ACTION FOR RESCISSION
In the event that a holder of a Special Warrant who acquires a Common Share upon
the exercise of the Special Warrant as provided for in this prospectus, is or
becomes entitled under applicable legislation to the remedy of rescission by
reason of this prospectus or any amendment thereto containing a
misrepresentation, the holder will be entitled to rescission not only of the
holder's exercise of their Special Warrant but also of the private placement
transaction pursuant to which the Special Warrant was initially acquired and
shall be entitled, in connection with such rescission, to a full refund of all
consideration paid on the acquisition of the Special Warrant. In the event the
holder is a permitted assignee of the interest of the original Special Warrant
subscriber, that permitted assignee shall be entitled to exercise the rights of
rescission and refund granted hereunder as if the permitted assignee was the
original subscriber. The foregoing is in addition to any other right or remedy
available to a holder of a Special Warrant under section 131 of the Securities
Act (British Columbia), or otherwise at law. Australian holders who exercise
Special Warrants may have statutory rights to compensation under the
Corporations Act 2001 (Commonwealth of Australia) in relation to the Australian
Prospectus.
- 28 -
CERTIFICATE OF IVANHOE MINES LTD.
Dated: January 31, 2003
This short form prospectus, together with the documents incorporated
herein by reference, constitutes full, true and plain disclosure of all material
facts relating to the securities being offered by this short form prospectus as
required by the securities laws of the provinces of British Columbia and
Ontario.
"Robert M. Friedland" "Pierre Masse"
Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors
"R. Edward Flood" "Kjeld Thygesen"
Director Director