Silver found in Oyu Tolgoi copper-gold project

THE massive, undeveloped Oyu Tolgoi copper-gold project in Mongolia also contains substantial amounts of silver.

In addition to producing an estimated 544,000 tonnes of copper and 650,000 ounces of gold a year during its first 10 years, Oyu Tolgoi is also expected to yield three million ounces of silver a year, majority owner Ivanhoe Mines said.

Ivanhoe said it released the silver resource estimate because "the buoyant global silver market has fuelled the interests of investors." The price of silver futures has risen rapidly since September of last year, from below $US20 ounce to just shy of $US35 in recent trading.

The amount of silver Oyu Tolgoi would produce is just a drop in the bucket of world production, which was more than 700 million ounces in 2009, according to The Silver Institute, an industry group.

But the presence of gold, silver and molybdenum - a metal added to steel to strengthen and protect it - in Oyu Tolgoi's copper concentrate helps lower operational costs. Oyu Tolgoi is the world's largest undeveloped copper-gold deposit, but it is located in Mongolia's remote Gobi Desert, so transportation is more costly than for projects located closer to developed areas.

The cost to produce and transport copper from Oyu Tolgoi with copper trading at $US2 a pound, silver at $US13.50 an ounce and gold at $US850 a ounce would be 45 cents per pound of copper, Ivanhoe said - but those price levels are substantially below today's market prices. If the cost of gold were steady at $US1500 an ounce, the cost would drop to 12 cents a pound, the company said.

Copper futures for May delivery settled Thursday ay $US4.475 a pound on the New York Mercantile Exchange; gold futures for April delivery settled at $US1,416 an ounce.

Ivanhoe owns a 66 per cent stake in Oyu Tolgoi, while the Mongolian government owns 34 per cent.

Anglo-Australian mining giant Rio Tinto holds a 48.4 per cent interest in Ivanhoe through shares and warrants.