TORONTO, May 11 (Reuters) - Ivanhoe Mines' (IVN.TO) Oyu Tolgoi project in Mongolia will be one of the world's top three copper-gold mines when it goes into full production, the Canadian exploration company said on Tuesday.

Ivanhoe forecast the mine's average annual production at 1.2 billion pounds of copper (544,000 tonnes) and 650,000 ounces of gold in its first 10 years, with operations set to begin in 2013.

The company is also looking into building a smelter near the site, and will study the economics of doing so.

"We have been in active discussions with a number of groups very much interested in either financing the construction of a smelter and/or being involved in offtake," Ivanhoe Executive Chairman Robert Friedland said on a conference call.

In October, the Mongolian government signed a long awaited deal giving Ivanhoe and its partner, Rio Tinto (RIO.AX)(RIO.L), the final go-ahead to develop the dollar4.6 billion Oyu Tolgoi project.

Most of the world's top copper mines are located in Chile. BHP Billiton (BHP.AX) (BLT.L) and Rio Tinto's(RIO.AX) (RIO.L), Escondida mine is the world's largest copper producer with output of more than 1 million tonnes of copper a year.

Oyu Tolgoi, based on current proven and probable mineral reserves, has a projected mine life of 27 years. However, that would more than double to 59 years if inferred resources at the site are included, Ivanhoe said.

"Given the scale of our discoveries and the outstanding economics of this project, this updated plan gives us the green light we were expecting from this process to continue proceeding straight into construction and operation," CEO John Macken said.

The company said the reserves and resources outlined in the new development plan are based on a price assumption of dollar2.00 per pound for copper and dollar850 an ounce for gold.

Ivanhoe said total cash costs are estimated at 45 cents per pound of payable copper produced, after gold credits, over the first 10 years.

The Mongolian government will be a junior partner in the development of the project. The government, through state-owned resources company Erdenes MGL LLC, will acquire a 34 percent stake in Ivanhoe Mines subsidiary Oyu Tolgoi LLC, which holds the Oyu Tolgoi mining licenses.