IVN.TO · 2017-12-13 12:00:00

Ivanhoe Mines announces an outstanding pre-feasibility study for the rebirth of the historic Kipushi zinc-copper-silver-germanium mine in the Democratic Republic of Congo Redevelopment plan to bring Kipushi’s Big Zinc Zone into production

Corporate Updates

December 13, 2017

Ivanhoe Mines announces an outstanding pre-feasibility study for the rebirth

of the historic Kipushi zinc-copper-silver-germanium mine

in the Democratic Republic of Congo

Redevelopment plan to bring Kipushi’s Big Zinc Zone into production

in less than two years, with life-of-mine average annual production rate

of 225,000 tonnes of zinc and cash costs of US$0.48/lb of zinc

Big Zinc Zone has estimated 10.2 million tonnes

of Measured and Indicated Mineral Resources grading 34.9% zinc

Successful restoration of production to establish Kipushi

as the world’s highest-grade major zinc mine

After-tax NPV of US$683 million and 35% IRR,

based on long-term zinc price of US$1.10/lb, with pre-production capital

of US$337 million

Kipushi has after-tax NPV of US$1.2 billion and IRR of 51%

at current zinc price of approximately US$1.40/lb

Memorandum of understanding signed with leading mining contractor Byrnecut

Memorandum of understanding to rebuild railway spur line

signed with DRC national railway to facilitate exports of concentrate

KIPUSHI, DEMOCRATIC REPUBLIC OF CONGO — Robert Friedland, Executive Chairman of Ivanhoe

Mines (TSX: IVN; OTCQX: IVPAF), and Lars-Eric Johansson, Chief Executive Officer, today announced

the positive findings of an independent, pre-feasibility study (PFS) for the planned redevelopment of

the company’s historic, high-grade, Kipushi zinc-copper-silver-germanium mine.

The study anticipates annual production of an average of 381,000 tonnes of zinc concentrate over an

11-year initial mine life at a total cash cost of approximately US$0.48 per pound of zinc.

The PFS focuses on the initial mining of Kipushi’s Big Zinc Zone, which has an estimated 10.2 million

tonnes of Measured and Indicated Mineral Resources grading 34.9% zinc. The planned return to

production would establish Kipushi as the world’s highest-grade major zinc mine. Its exceptional zinc

grade is more than twice as high as the Measured and Indicated Mineral Resources of the world’s next-

highest-grade zinc project, according to Wood Mackenzie, a leading, international industry research

and consulting group (see Figure 2).

Independent research by Wood Mackenzie concludes that the Kipushi Project could rank among the

world’s largest zinc mines.

Figure 1: World’s 10 largest zinc mines, showing estimated annual zinc production

and zinc head grades (ranked by forecasted production by 2020).

Source: Wood Mackenzie

Note: Independent research by Wood Mackenzie concludes that at the forecast production and head grade, the Kipushi

Project, once in production, will rank among the world’s largest zinc mines. Wood Mackenzie compared the Kipushi

Project’s life-of-mine average annual zinc production and zinc head grade of 225,000 tonnes and 32%, respectively,

against production and zinc head grade forecasts for 2020.

Given the significant, very-high-grade zinc resource at Kipushi, which is rich in potential by-product credits

including copper, silver and germanium and the ongoing exploration campaign at Kipushi, Ivanhoe and the

Gécamines technical team are continuing to investigate additional downstream processing options.

“The pre-feasibility study is the latest validation that Kipushi has the resources to become one of the

world’s largest and lowest-cost zinc producers, plus the potential to also produce significant

quantities of copper, silver and germanium,” said Mr. Friedland.

“Discussions are continuing with potential strategic partners and lenders to support our continuing

advance toward a new era of production at Kipushi. We’ve made significant progress in upgrading the

mine’s underground infrastructure and now we have a much clearer path to a resumption of

production from this incredibly rich orebody.”

Mr. Johansson said that a definitive feasibility study, to further refine and optimize the project’s

economics, is underway and is expected to be completed in the second half of 2018.

“Since acquiring our 68% interest in the Kipushi Project in 2011, our team has worked closely with our

partner, Gécamines, to move the project forward,” he added.

“During that time, we’ve seen zinc prices rally from less than US$1.00 per pound to well over US$1.40.

We’re confident that the long-term supply and demand fundamentals should support a strong zinc

price for a long time to come.”

The Kipushi Project is operated by Kipushi Corporation (KICO), a joint venture between Ivanhoe Mines

(68%) and Gécamines (32%), the DRC’s state-owned mining company.

Highlights of the PFS, based on a long-term zinc price of US$1.10/lb, include:

 After-tax net present value (NPV) at an 8% real discount rate of US$683 million.

 After-tax real internal rate of return (IRR) of 35.3%.

 After-tax project payback period of 2.2 years.

 Pre-production capital costs, including contingency, estimated at US$337 million.

 Existing surface and underground infrastructure allows for significantly lower capital costs than

comparable greenfield development projects.

 Life-of-mine average p lanned zinc concentrate production of 381,000 dry tonnes per annum, with a

concentrate grade of 59% zinc, is expected to rank Kipushi, once in production, among the world’s

largest zinc mines (Figure 1).

 Life-of-mine average cash cost of US$0.48/lb of zinc is expected to rank Kipushi, once in production,

in the bottom quartile of the cash cost curve for zinc producers globally (Figure 11).

The PFS was prepared by OreWin Pty. Ltd., MSA Group (Pty.) Ltd., SRK Consulting, Murray & Roberts,

Golder Associates and MDM Engineering, a subsidiary of Amec Foster Wheeler. The PFS was prepared

in compliance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects

(NI 43-101).

Details of Mineral Resource Estimates

The Mineral Resource used in the PFS has an effective date of January 23, 2016, and was estimated using

The Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Best Practice Guidelines and is reported in

accordance with the 2014 CIM Definition Standards established by the Canadian Institute of Mining, Metallurgy

and Petroleum. The Mineral Resource is classified into the Measured, Indicated and Inferred categories as

shown in Table 1 for the predominantly zinc-rich bodies and in Table 2 for the predominantly copper-rich

bodies.

The Mineral Resource estimate was based on the results of 84 holes drilled at Kipushi by Ivanhoe Mines and

an additional 107 historical holes drilled by Gécamines. Ivanhoe completed its drilling program for the Mineral

Resource estimate in October 2015. Mineral Resource estimates were completed below the 1,150-metre-level

on the Big Zinc Zone, Southern Zinc Zone, Fault Zone and Série Récurrente Zone. The Mineral Resources

were categorized either as zinc-rich resources or copper-rich resources, depending on the most abundant

metal. The Big Zinc and Southern Zinc zones have been tabulated using zinc cut-offs and are shown in Table

1; the Fault Zone, the Fault Zone Splay and Série Récurrente Zone have been tabulated using copper cut-offs

and are shown in Table 2. For the zinc-rich zones, the Mineral Resource is reported at a base-case cut-off

grade of 7.0% zinc and the copper-rich zones at a base-case cut-off grade of 1.5% copper.

Table 1: Kipushi zinc-rich Mineral Resource at 7% zinc cut-off grade, 23 January 2016

Zone Category Tonnes

(millions)

g/t

ppm

g/t

Big Zinc

Measured 3.59 38.39 0.67 0.36 18 17 54

Indicated 6.60 32.99 0.63 1.29 20 14 50

Inferred 0.98 36.96 0.79 0.14 7 16 62

Southern

Zinc

Indicated 0.00      

Inferred 0.89 18.70 1.61 1.70 13 15 43

Total

Measured 3.59 38.39 0.67 0.36 18 17 54

Indicated 6.60 32.99 0.63 1.29 20 14 50

Measured

& Indicated 10.18 34.89 0.65 0.96 19 15 51

Inferred 1.87 28.24 1.18 0.88 10 15 53

Contained metal quantities

Zone Category Tonnes

(millions)

(million

lbs)

(million

lbs)

(million

lbs)

(million

oz)

(million

lbs)

(million

oz)

Big Zinc

Measured 3.59 3,035.8 53.1 28.7 2.08 0.13 6.18

Indicated 6.60 4,797.4 91.9 187.7 4.15 0.20 10.54

Inferred 0.98 797.2 17.1 3.0 0.23 0.03 1.96

Southern

Zinc

Indicated 0.00 0.0 0.0 0.0 0.00 0.00 0.00

Inferred 0.89 368.6 31.8 33.5 0.38 0.03 1.23

Total

Measured 3.59 3,035.8 53.1 28.7 2.08 0.13 6.18

Indicated 6.60 4,797.4 91.9 187.7 4.15 0.20 10.54

Measured

& Indicated 10.18 7,833.3 144.9 216.4 6.22 0.33 16.71

Inferred 1.87 1,168.7 49.6 36.8 0.61 0.06 3.21

Notes:

1. All tabulated data has been rounded and as a result minor computational errors may occur.

2. Mineral Resources that are not Mineral Reserves have no demonstrated economic viability.

3. The Mineral Resource is reported as the total in-situ Mineral Resource and on a 100% project basis.

4. Metal quantities are reported in multiples of Troy Ounces or Avoirdupois Pounds.

5. The cut-off grade calculation was based on the following assumptions: zinc price of US$1.02 /lb, mining cost of

US$50 /tonne, processing cost of US$10 /tonne, G&A and holding cost of US$10 /tonne, transport of 55% Zn

concentrate at US$375 /tonne, 90% zinc recovery and 85% payable zinc.

Table 2: Kipushi copper-rich Mineral Resource at 1.5% copper cut-off grade, 23 January 2016

Zone Category Tonnes

(millions)

g/t

ppm

g/t

Fault Zone

Measured 0.14 2.78 1.25 0.05 19 107 20

Indicated 1.01 4.17 2.64 0.09 23 216 20

Inferred 0.94 2.94 5.81 0.18 22 112 26

Série

Récurrenté

Indicated 0.48 4.01 3.82 0.02 21 56 6

Inferred 0.34 2.57 1.02 0.06 8 29 1

Fault Zone

Splay Inferred 0.35 4.99 15.81 0.005 20 127 81

Total

Measured 0.14 2.78 1.25 0.05 19 107 20

Indicated 1.49 4.12 3.02 0.07 22 165 15

Measured &

Indicated 1.63 4.01 2.87 0.06 22 160 16

Inferred 1.64 3.30 6.97 0.12 19 98 33

Contained metal quantities

Zone Category Tonnes

(millions)

Cu lbs

(millions)

Zn lbs

(millions)

Pb lbs

(millions)

Ag oz

(millions)

Co lbs

(millions)

Ge oz

(millions)

Fault Zone

Measured 0.14 8.5 3.8 0.2 0.09 0.03 0.09

Indicated 1.01 93.2 59.1 1.9 0.75 0.48 0.64

Inferred 0.94 61.1 120.9 3.8 0.68 0.23 0.79

Série

Récurrenté

Indicated 0.48 42.4 40.5 0.2 0.32 0.06 0.09

Inferred 0.34 19.4 7.7 0.4 0.09 0.02 0.01

Fault Zone

Splay Inferred 0.35 38.9 123.3 0.0 0.23 0.10 0.92

Total

Measured 0.14 8.5 3.8 0.2 0.09 0.03 0.09

Indicated 1.49 135.7 99.6 2.1 1.08 0.54 0.73

Measured

Indicated

1.63 144.1 103.4 2.3 1.16 0.58 0.82

Inferred 1.64 119.4 251.8 4.3 1.00 0.35 1.73

Notes:

1. All tabulated data has been rounded and as a result minor computational errors may occur.

2. Mineral Resources that are not Mineral Reserves have no demonstrated economic viability.

3. The Mineral Resource is reported as the total in-situ Mineral Resource and on a 100% project basis.

4. Metal quantities are reported in multiples of Troy Ounces or Avoirdupois Pounds.

5. The cut-off grade calculation was based on the following assumptions: copper price of US$2.97 /lb, mining cost of

US$50/tonne, processing cost of US$10/tonne, G&A and holding cost of US$10/tonne, 90% copper recovery and

96% payable copper.

Exploration drilling conducted by Ivanhoe Mines in 2015 sucessfully confirmed that both the Big Zinc Zone and

Fault Zone remain open at depth and to the south. Additional high-grade copper-zinc-germanium

mineralization also was discovered in the Fault Zone and in the Fault Zone Splay in the immediate footwall of

the Fault Zone.

Figure 2: World’s top 20 zinc projects, by contained zinc.

Source: Wood Mackenzie.

Note: All tonnes and zinc grades of the above-mentioned projects (except for Kipushi) are based on public disclosure and

have been compiled by Wood Mackenzie.

Initial Mineral Reserve estimate for the Kipushi 2017 PFS

The Kipushi 2017 PFS Mineral Reserve has been estimated by Qualified Person Bernie Peters, Technical

Director – Mining, OreWin Pty. Ltd., using the 2014 CIM Definition Standards. The Mineral Reserve is based

on the January 2016 Mineral Resource. The effective date of the Mineral Reserve statement is December 5,

2017.

Table 3. Kipushi 2017 PFS Mineral Reserve Statement

Category Tonnage

(Mt)

Zinc

(%)

Zinc

(Contained kt)

Proven Mineral Reserve 3.10 35.41 1,098

Probable Mineral Reserve 5.48 30.29 1,660

Total Mineral Reserve 8.58 32.14 2,758

Notes:

1. Effective date of the Mineral Reserves is 12 December 2017.

2. Net Smelter Return (NSR) is used to define the Mineral Reserve cut-offs, therefore cut-off is denominated in US$/t.

By definition the cut-off is the point at which the costs are equal to the NSR. An elevated cut-off grade of US$135/t

NSR (14.03% Zn) was used to define the mining shapes. The marginal cut-off grade has been calculated to be

US$51/t NSR (3.43% Zn).

3. Mineral Reserves are based on a zinc price of US$1.01/b Zn and a treatment charge of US$200/t concentrate.

4. Economic analysis to demonstrate the Kipushi 2017 PFS Mineral Reserve used a zinc price of US$1.10/lb Zn and a

treatment charge of US$170/t concentrate.

5. Only Measured Mineral Resources were used to report Proven Mineral Reserves and only Indicated Mineral

Resources were used to report Probable Mineral Reserves.

6. Mineral Reserves reported above were not additive to the Mineral Resources and are quoted on a 100% project

basis.

7. Totals may not match due to rounding.

Upgrading of existing underground infrastructure nearing completion

KICO has completed the refurbishment of a significant amount of underground infrastructure at the Kipushi

Project, including a series of vertical mine shafts, with associated head frames, to various depths, as well as

underground mine excavations. A series of crosscuts and ventilation infrastructure still are in working condition.

The underground infrastructure also includes a series of pumps to manage the influx of water into the mine. A

schematic layout of the existing development is shown in Figure 3.

The main production shaft for the Kipushi Mine, Shaft 5 (labelled as P5 in Figure 3), is eight metres in diameter

and 1,240 metres deep, and has been upgraded and re-commissioned. The main personnel and material

winder has been upgraded and modernized to meet global industry standards and safety criteria. The Shaft 5

rock-hoisting winder, which had an annual hoisting capacity of 1.8 million tonnes, is being upgraded and is

expected to be fully operational early next year.

Underground upgrading work is continuing on the crusher and the rock load-out facilities at the bottom of Shaft

5 and the main haulage way on the 1,150-metre level, between the Big Zinc access decline and Shaft 5. This

work is expected to be completed before the end of the first quarter of 2018.

Figure 3: Schematic section of Kipushi Mine

MOU signed with leading mining contractor Byrnecut

Earlier this month, KICO signed a memorandum of understanding (MOU) with Byrnecut Offshore Proprietary

Limited (Byrnecut), of Perth, Australia. The MOU relates to the potential engagement of Byrnecut to provide

underground mining services at Kipushi, including cost estimation, contractor management, operational

readiness and operational services.

The planned primary mining method for the Big Zinc Deposit in the PFS is sublevel long-hole, open stoping,

with cemented backfill. The crown pillars are expected to be mined once adjacent stopes are backfilled using a

pillar-retreat mining method. The Big Zinc Deposit is expected to be accessed via the existing decline and

without any significant new development. The main levels are planned to be at 60-metre vertical intervals, with

sublevels at 30-metre intervals.

← Back to feed