Ivanhoe Mines issues third quarter 2022 financial results, and review of mine construction and exploration activities
November 14, 2022
Ivanhoe Mines issues third quarter 2022 financial results, and review of mine construction and exploration activities ■ Kamoa-Kakula Mining Complex in the Democratic Republic of Congo sold a record 93,812 tonnes of payable copper and recognized revenue of $460 million in Q3 2022 ■ Kamoa-Kakula recorded $940 million in EBITDA for the nine months ended September 30 ■ Kamoa-Kakula’s cost of sales total $1.05 per pound of payable copper during the third quarter, with C1 cash costs of $1.43 per pound ■ Over the first nine months of 2022, Kamoa-Kakula milled approximately 5.1 million tonnes of ore at a 5.6% copper grade, to produce 240,736 tonnes of copper ■ During September and October, Kamoa-Kakula’s annualized production rate exceeded 400,000 tonnes of floated and filtered copper ■ Ivanhoe Mines further increases the lower end of Kamoa-Kakula’s 2022 production guidance range to between 325,000 and 340,000 tonnes of copper in concentrate
JOHANNESBURG, SOUTH AFRICA – Ivanhoe Mines’ (TSX: IVN; OTCQX: IVPAF)
President Marna Cloete and Chief Financial Officer David van Heerden are pleased to present the company’s financial results for the nine months ended September 30, 2022. Ivanhoe Mines is a leading Canadian mining company developing and operating its four principal mining and exploration projects in Southern Africa: expanding the operations of the world-class Kamoa-Kakula Mining Complex in the Democratic Republic of Congo (DRC); building the tier-one Platreef palladium, rhodium, nickel, platinum, copper and gold development in South Africa; restarting the historic, ultra-high-grade Kipushi zinc- copper-lead-germanium mine in the DRC; as well as exploring the expansive exploration licences of Ivanhoe’s Western Foreland for copper discoveries adjacent to Kamoa-Kakula. All figures are in U.S. dollars unless otherwise stated.
HIGHLIGHTS
- The Kamoa-Kakula Mining Complex produced 97,820 tonnes of copper in
concentrate during the third quarter of 2022, up from 87,314 tonnes in Q2 2022 and 55,602 tonnes in Q1 2022. Kamoa-Kakula has produced approximately 274,115 tonnes of copper year-to-date as of October 31, 2022.
- During the third quarter, Kamoa-Kakula sold 93,812 tonnes of payable copper and
recognized revenue of $460.5 million, with an operating profit of $222.8 million and an EBITDA of $254.4 million.
- Kamoa-Kakula’s cost of sales per pound (lb.) of payable copper sold was $1.05/lb.
for Q3 2022, compared with $1.15/lb. and $1.08/lb. in Q2 2022 and Q1 2022, respectively. Cash costs (C1) per pound of payable copper produced totalled $1.43/lb., compared to $1.42/lb. and $1.21/lb. in Q2 2022 and Q1 2022, respectively. Cash costs (C1) per pound of payable copper produced for the first nine months of 2022 total $1.38/lb.
- During September and October, Kamoa-Kakula’s annualized production rate was
more than 400,000 tonnes of floated and filtered copper, with this rate periodically exceeded over 24-hour periods during the third quarter.
- Kamoa-Kakula’s previously announced de-bottlenecking program is approximately
70% complete and is tracking ahead of schedule. The program, will increase the combined processing capacity of the Phase 1 and 2 concentrator plants from 7.6 million tonnes per annum to approximately 9.2 million tonnes per annum. Once complete in Q2 2023, the rate of copper production is projected to reach approximately 450,000 tonnes per annum.
- Kamoa-Kakula Mining Complex milled approximately 2.1 million tonnes of ore
during the quarter at an average grade of 5.6% copper, compared to 2.0 million tonnes of ore at an average grade of 5.4% copper in Q2 2022.
- Ivanhoe Mines recorded a profit of $23.9 million for Q3 2022, compared with a profit
of $351.5 million and $85.4 million during Q2 2022 and Q3 2021, respectively. The quarterly profit includes Ivanhoe Mines’ share of profit and finance income from the Kamoa-Kakula joint venture of $74.9 million for Q3 2022.
- Ivanhoe Mines has a strong balance sheet with cash and cash equivalents of
$663.3 million as at September 30, 2022, and expects that Kamoa-Kakula’s operating and expansion capital expenditures on Phase 3 will continue to be funded from copper sales and additional facilities at the Kamoa-Kakula joint venture.
- Ivanhoe Mines further increases the lower end of its 2022 production guidance
range for Kamoa-Kakula to between 325,000 and 340,000 tonnes of copper in concentrate following the early commissioning of the Phase 2 expansion.
- Given ongoing cost pressures experienced during the second and third quarters,
largely related to logistics costs, the company is tightening its full-year C1 cash cost guidance to between $1.35/lb. and $1.40/lb. (previously $1.20/lb. to $1.40/lb.).
- The basic engineering design for Kamoa-Kakula’s Phase 3 expansion is complete,
with the results to be included in the updated technical report that will be released early in the new year.
- Earthworks excavation for the Phase 3 mine, concentrator and direct-to-blister
flash smelter is advancing as planned.
- Lateral underground mine development on Platreef's 950-metre-level, towards the
location of the first ventilation shaft position, progressed well during the quarter. More than 300 metres of lateral development has been completed since work commenced in April 2022.
- Construction of Platreef’s first solar-power plant commenced during the quarter,
with commissioning expected in the second half of 2023. The solar-generated power from the plant will be used for mine development and construction activities, as well as for charging Platreef’s battery-powered underground mining fleet.
- After quarter end, Ivanhoe Mines was granted 80 square kilometres of new, highly
prospective exploration rights, known as the “Mokopane Feeder”, adjacent to the company’s Platreef Project in the Bushveld Complex, South Africa.
- In September 2022, Ivanhoe Mines and Gécamines hosted a breaking-ground
ceremony at the Kipushi mine, marking the start of surface construction activities.
- Early works in preparation for the start of underground mining at Kipushi were
completed in August 2022. This included the refurbishment of key mining excavations, as well as blasting of the truck tip turning bay and truck passing bays on the 1,150-metre-level.
Full-year 2022 production and cost guidance revised
Management anticipates that the early commissioning of the Phase 2 concentrator plant in April 2022, approximately four months ahead of schedule, as well as the strong operating performance to date, has enabled Kamoa-Kakula to further increase the lower end of its full-year 2022 production guidance from a range of between 310,000 to 340,000 tonnes of copper in concentrate, to between 325,000 and 340,000 tonnes.
Given ongoing cost pressures experienced during the second and third quarters, largely related to logistics costs, the company is tightening its full-year C1 cash cost guidance to between $1.35/lb. and $1.40/lb. (previously $1.20/lb. to $1.40/lb.).
Cash costs (C1) is a non-GAAP measure used by management to evaluate operating performance and includes all direct mining, processing, and general and administrative costs. Smelter charges and freight deductions on sales to the final port of destination (typically China), which are recognized as a component of sales revenues, are added to C1 cash cost to arrive at an approximate cost of delivered finished metal.
Ivanhoe Mines’ President Marna Cloete commented:
“This is an incredibly transformational time for Ivanhoe Mines as construction activities advance at Kamoa-Kakula’s Phase 3 expansion and smelter, as well as at Platreef and Kipushi. We aim to build on the impressive track record we’ve developed from Kamoa- Kakula, where both Phase 1 and 2 were constructed on budget and ahead of schedule.
“I am extremely proud of the operating team at Kamoa-Kakula, who have continued to exceed expectations and are on track to meet the upper end of our original full-year production guidance.
"Alongside the majority of the mining industry, we have experienced inflationary pressures throughout this year. These pressures have been mostly logistics-specific, as Kamoa-Kakula’s on-site costs have been well managed and stable. Great progress has been made by the team at Kamoa-Kakula, working with our joint-venture partners, offtake partners and the Democratic Republic of Congo government, in implementing initiatives to remove the logistical bottlenecks experienced during the year. We expect to reap a positive impact from this hard work over the coming quarters.
“Our team remains focused on the strong value-creation opportunities in our project pipeline and I believe we'll emerge stronger than ever following this period of global volatility. We are extremely confident in copper's mid- to long-term fundamentals as the world navigates the transition to clean energy.”
Ivanhoe Mines to host a conference call for investors on November 14
The company will hold an investor conference call to discuss the Q3 2022 financial results at 10:30 a.m. Eastern time / 7:30 a.m. Pacific time on November 14. The conference call dial-in is +1-416-764-8650 or toll-free 1-888-664-6383, quote “Ivanhoe Mines Q3 2022 Financial Results” if requested. Media are invited to attend on a listen- only basis.
Link to join the live audio webcast: https://app.webinar.net/YvWzpn3maEn
An audio webcast recording of the conference call, together with supporting presentation slides, will be available on Ivanhoe Mines’ website at www.ivanhoemines.com.
After issuance, the Financial Statements and Management’s Discussion and Analysis will be available at www.ivanhoemines.com and www.sedar.com.
Principal projects and review of activities
1. Kamoa-Kakula Mining Complex
39.6%-owned by Ivanhoe Mines Democratic Republic of Congo
The Kamoa-Kakula Mining Complex, operated as the Kamoa Holding joint venture between Ivanhoe Mines and Zijin Mining, has been independently ranked as the world’s fourth-largest copper deposit by international mining consultant Wood Mackenzie. The project is approximately 25 kilometres west of the town of Kolwezi and about 270 kilometres west of Lubumbashi. Kamoa-Kakula Mining Complex’s Phase 1 concentrator began producing copper in May 2021 and achieved commercial production on July 1, 2021. The Phase 2 concentrator, which doubled nameplate production capacity, was commissioned in April 2022.
Ivanhoe sold a 49.5% share interest in Kamoa Holding Limited (Kamoa Holding) to Zijin Mining and a 1% share interest in Kamoa Holding to privately-owned Crystal River in December 2015. Kamoa Holding holds an 80% interest in the project. Since the conclusion of the Zijin transaction, each shareholder has been required to fund expenditures at Kamoa-Kakula in an amount equivalent to its proportionate shareholding interest. Ivanhoe and Zijin Mining each hold an indirect 39.6% interest in Kamoa-Kakula, Crystal River holds an indirect 0.8% interest, and the DRC government holds a direct 20% interest.
Kamoa-Kakula took delivery of new large-scale underground equipment (MT65 haul truck and ST18 Scooptram) from Epiroc of Norsborg, Sweden. The new equipment aims to assist in improving underground productivity.
Health and safety at Kamoa-Kakula
At the end of September 2022, Kamoa-Kakula reached 2.46 million work hours free of a losttime injury and had a Total Recordable Injury Frequency Rate (TRIFR) (total injuries recorded per 1,000,000 hours worked) of 1.73 for the nine months ended September 30, 2022.
Kamoa-Kakula regretfully reported a fatal accident in September 2022. The fatal accident occurred in a development area at the underground Kansoko Mine when a fall of ground struck a Kamoa-Kakula employee. Kamoa-Kakula is undertaking a comprehensive internal investigation into the accident and is working with the DRC authorities to facilitate their investigation of the accident. Kamoa-Kakula continues to strive toward its workplace objective of zero harm to all employees and contractors.
The projects construction team at Kamoa-Kakula conducted in-depth, onsite training on advanced risk assessment techniques through an accredited training institution. A group of 120 managers, supervisors and safety officers participated in the training program.
Kamoa-Kakula summary of operating and financial data
| Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | |
|---|---|---|---|---|
| Ore tonnes milled (000’s tonnes) | 2,082 | 1,950 | 1,083 | 1,059 |
| Copper ore grade processed (%) | 5.60% | 5.44% | 5.91% | 5.96% |
| Copper recovery (%) | 85.9% | 84.0% | 87.1% | 86.4% |
| Copper in concentrate produced (tonnes) | 97,820 | 87,314 | 55,602 | 54,481 |
| Payable Copper sold (tonnes) | 93,812 | 85,794 | 51,919 | 53,165 |
| Cost of sales per pound ($ per lb.) | 1.05 | 1.15 | 1.08 | 1.12 |
| Cash cost (C1) ($ per lb.) | 1.43 | 1.42 | 1.21 | 1.28 |
| Sales revenue before remeasurement ($'000) | 570,504 | 699,381 | 467,453 | 458,880 |
| Remeasurement of contract receivables ($'000) (110,031) (205,248) | 52,142 | 29,656 |
Sales revenue after
460,473 494,133 519,595 488,536
remeasurement ($'000)
EBITDA ($'000) 254,423 286,313 399,391 357,619
EBITDA margin (% of sales revenue) 55% 58% 77% 73%
All figures in the above tables are on a 100%-project basis. Metal reported in concentrate is before refining losses or deductions associated with smelter terms. This release includes EBITDA, “EBITDA margin” and "Cash costs (C1) per pound" which are non-GAAP financial performance measures. For a detailed description of each of the non-GAAP financial performance measures used herein and a detailed reconciliation to the most directly comparable measure under IFRS, please refer to the non-GAAP Financial Performance Measures section of the Q3 2022 MD&A.
C1 cash cost per pound of payable copper produced can be further broken down as follows:
| Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | ||
|---|---|---|---|---|---|
| Mining | ($ per lb.) | 0.41 | 0.39 | 0.30 | 0.27 |
| Processing | ($ per lb.) | 0.12 | 0.14 | 0.15 | 0.17 |
Logistics charges ($ per lb.) 0.56 0.51 0.36 0.37 (delivered to China)
Treatment, refining ($ per lb.) 0.21 0.21 0.20 0.24 and smelter charges General and ($ per lb.) 0.13 0.17 0.20 0.23 administrative expenditure
C1 cash cost per pound of ($ per lb.) 1.43 1.42 1.21 1.28 payable copper produced
C1 cash costs are prepared on a basis consistent with the industry standard definitions by Wood Mackenzie cost guidelines but are not measures recognized under IFRS. In calculating the C1 cash cost, the costs are measured on the same basis as the company's share of profit from the Kamoa Holding joint venture that is contained in the financial statements. C1 cash costs are used by management to evaluate operating performance and include all direct mining, processing, and general and administrative costs. Smelter charges and freight deductions on sales to the final port of destination, which are recognized as a component of sales revenues, are added to C1 cash cost to arrive at an approximate cost of delivered, finished metal. C1 cash costs exclude royalties and production taxes and non-routine charges as they are not direct production costs.
Copper C1 cash costs per pound of payable copper for the second and third quarters of 2022 remain elevated by approximately 17% and 18% respectively compared with the first quarter. This is mostly due to an increase in logistics charges experienced in transporting Kamoa- Kakula’s copper concentrate. The site costs, however, have been much less affected by inflation year-to-date. The cost of sales for the quarter were $1.05/lb., compared with US$1.15/lb. and US$1.08/lb. in Q2 2022 and Q1 2022, respectively.
Kamoa-Kakula undertaking optimization of logistics costs
Kamoa-Kakula and other regional operators have experienced delays and increased logistics costs due to a shortage of available trucks, border congestion and occasional work action by truck drivers. Kamoa-Kakula is working alongside its offtake partners, Zijin Mining, CITIC Metal and Trafigura, as well as the government of the DRC, to undertake initiatives to optimize the transportation of Kamoa-Kakula’s products.
These initiatives include working with Kamoa-Kakula’s offtake partners, logistics service providers and local entrepreneurs to increase regional trucking capacity, improve processes for clearing products for export and the opening of new border crossings between the DRC and Zambia. Kamoa-Kakula is also continuing to explore the optionality of using a greater number of ports for exporting concentrate. These include Durban in South Africa, Dar es Salaam in Tanzania, Walvis Bay in Namibia and Beira in Mozambique, and longer-term the port of Lobito in Angola.
Cost pressures associated with logistics have occurred since Kamoa-Kakula’s Phase 2 concentrator declared commercial production four months ahead of schedule in early Q2 2022. While concentrate production doubled, this was not met with a sufficient supply of trucking capacity and this led to an increase in trucking contractor market pricing. In addition, the Lualaba Copper Smelter was closed in June for maintenance. This further increased trucking demand.
Under normal operating conditions, the cycle time of trucking concentrate from the mine gate to the port of Durban, and back, is approximately 45 days. Congestion experienced in the past two quarters saw this cycle time increase to as high as 70 days. This, in turn increased trucking demand by an additional 50%, further pushing up trucking contractor market pricing. The cycle time is shorter for the ports of Dar es Salaam, Walvis Bay and Beira.
Two new commercial DRC-Zambia border crossings opened, helping to reduce logistics bottleneck
During September, the operating hours of the Kasumbalesa border, located in Haut-Katanga province, were increased from 6 hours to 12 hours. The extended operating hours are expected to be permanent. Earlier in the quarter, congestion at the Kasumbalesa border crossing saw extended queues, which caused delays in customs clearing. Delays from congestion often incur additional charges.
During the third quarter, two new commercial border crossings opened on the DRC-Zambia border. A border crossing at Sakania, located approximately 150 kilometres by road southeast of Kasumbalesa, opened for commercial exports and imports. In addition, the Mokambo border crossing, located half way between Kasumbalesa and Sakania opened for commercial imports.
Reopening of Lualaba Copper Smelter in September reduces trucking demand
The Lualaba Copper Smelter, located approximately 50 kilometres from the Kamoa-Kakula Mining Complex, completed its scheduled maintenance in early September and the transportation of copper concentrates to the facility recommenced shortly thereafter. While undergoing scheduled maintenance, Kamoa-Kakula’s concentrate production was wholly transported and exported as a copper concentrate (approximately 50% contained copper), without the expected quantity of blister copper (approximately 99% contained copper), thereby temporarily increasing logistics volumes and costs for the quarter. The restart of the Lualaba Copper Smelter will assist in reducing overall shipping volumes, as the export of blister copper incurs lower logistics costs per unit compared to copper concentrate. The Lualaba Copper Smelter is expected to treat approximately 120,000 tonnes of copper concentrates from Kamoa-Kakula in 2022.
The increased opening hours of the Kasumbalesa border crossing, the opening of a new commercial export border crossing at Sakania, the resumption of blister copper shipments from the Lualaba Copper Smelter, as well as increased availability of trucks, is expected to ease congestion over the coming quarters.
A step-change improvement in cash costs of between 10% and 20% is anticipated once the Phase 3, 500,000-tonne-per-annum, direct-to-blister flash smelter is commissioned, expected by the end of 2024. A significant part of the reduction in cash costs, on a per tonne basis, is a result of the trucks hauling ~99% pure blister copper, instead of ~50% contained copper concentrate. Therefore, truck demand for hauling copper products to port is expected to decrease from current levels once the smelter is in operation. In addition, the smelter will generate valuable by-product credits from the sale of sulphuric acid, which is in structural deficit in the DRC Copperbelt.
Kakula Mine optimization work targeting grades towards 6% copper
Ongoing mining optimization work at the Kakula Mine successfully targeted higher head grades during the third quarter, to increase head grades up to 6% copper. Kamoa-Kakula continues to evaluate additional material handling capacity at the Kakula Mine to increase mining rates to feed the de-bottlenecked Phase 1 and 2 processing capacity of 9.2 million tonnes per year. Further details will be incorporated into the Phase 3 expansion pre-feasibility study, scheduled for release early in 2023.
While the near-term expansion of underground infrastructure at Kakula takes place, ore is being drawn from the surface stockpiles to maximize copper production as the Phase 1 and 2 concentrators are currently operating at more than design capacity. As of the end of September 2022, Kamoa-Kakula’s high- and medium-grade ore surface stockpiles totalled approximately 4.2 million tonnes at an estimated grade of 4.15% copper for a total of over 174,000 tonnes of contained copper.
Installation of additional underground conveying capacity at the Kakula South decline will increase the output of ultra-high-grade ore to the surface from the Kakula mine.
Record quarterly production of 97,820 tonnes of copper in Q3 2022
Kamoa-Kakula's Phase 1 and 2 concentrator plants milled approximately 2.1 million tonnes of ore during the third quarter at an average feed grade of 5.6% copper, up from 1.95 million tonnes at an average grade of 5.4% copper in the second quarter. This included high-grade, run-ofmine ore from the Kakula Mine, supplemented with ore from the surface stockpiles to meet the throughput over design capacity. In line with design parameters, copper recoveries averaged approximately 86% during the quarter.
The Kamoa-Kakula Mining Complex set a new quarterly production record in the third quarter of 2022, with 97,820 tonnes of copper in concentrate produced, up from 87,314 tonnes produced in the second quarter and 55,602 tonnes produced in the first quarter. Kamoa-Kakula produced a total of 240,736 tonnes of copper in concentrate in the nine months ending September 30, 2022. Subsequent to quarter end, during the month of October Kamoa-Kakula produced a further 33,379 tonnes of copper.
The Phase 1 and 2 milling and flotation circuits continue to operate in excess of design capacity. At the end of October, there was also an additional 5,786 tonnes of floated, but not yet filtered, copper in the circuit. This marks the second month in a row that floated and filtered copper production from the Kamoa-Kakula Mining Complex has exceeded 400,000 tonnes per annum on an annualized basis.
The difference between floated, and subsequently, filtered copper arises from the current bottleneck in concentrate thickening and filter capacity at the tail end of the processing circuit. Excess floated copper is currently being temporarily stored as a slurry in a fully-lined pond adjacent to the Phase 1 and 2 concentrators. The unfiltered copper in inventory will be reclaimed into the concentrate thickener and filter press once capacity is expanded following the installation of a new concentrate thickener and Larox filter press, as part of the ongoing de-bottlenecking program.
All figures are on a 100% project basis and metal reported in concentrate is before refining losses or deductions associated with smelter terms. Guidance involves estimates of known and unknown risks, uncertainties and other factors, which may cause the actual results to be materially different.
Phase 1 and Phase 2 debottlenecking project to boost throughput to 9.2 million tonnes of ore per year is tracking ahead of schedule
Kamoa-Kakula’s previously announced de-bottlenecking program is approximately 70% complete and is tracking ahead of schedule. The program will increase the combined design processing capacity of the Phase 1 and 2 concentrator plants from 7.6 million tonnes per annum to approximately 9.2 million tonnes per annum
The de-bottlenecking program is targeting completion in the second quarter of 2023 and will boost Kamoa-Kakula's annual production to approximately 450,000 tonnes of copper in concentrate by the second quarter of 2023, positioning Kamoa-Kakula as the world’s fourth largest copper producer.
Figure 1: Kamoa-Kakula’s base-case, pro-forma Phase 3 copper production (after de-bottlenecking of Phase 1 and 2 is complete) relative to the world’s projected top 10 producing mines in 2022 by payable copper production.
Source: Wood Mackenzie (April 2022). Note: Kamoa-Kakula production of 600 kt copper in concentrate is based on expected Phase 1, 2 and 3 steady-state production, following the de-bottlenecking of both Phase 1 and 2 concentrators, and commercial ramp-up of the Phase 3 concentrator.
Civil works on site are effectively complete with structural steel and plate work erection ongoing and electrical and mechanical installation well underway.
Planned plant shutdowns to install the new equipment required for the de-bottlenecking program are scheduled to take place between December 2022 and January 2023, with the aim to minimize any negative effects on production. Civil works on site are nearing completion with structural steel and plate work erection ongoing and electrical and mechanical installation now underway.
Aerial view of the additional concentrate thickener at Kamoa-Kakula's Phase 1 and 2 concentrator plants that is under construction as part of the de- bottlenecking program.