Ivanhoe Mines announces results of an independent NI 43-101 preliminary economic assessment (PEA) for expanded production options for its world-scale Kakula and Kamoa copper discoveries in the Democratic Republic of Congo
November 28, 2017
Ivanhoe Mines announces results of an independent NI 43-101 preliminary
economic assessment (PEA) for expanded production options
for its world-scale Kakula and Kamoa copper discoveries
in the Democratic Republic of Congo
Based on current copper resources, the PEA analyzes an initial, two-stage,
modular, 12 million-tonne-per-annum operation – supplied by two adjacent
six million-tonne-per-annum mines and a direct-to-blister smelter
– yielding an after-tax NPV8% of US$7.2 billion and an IRR of 33%
over a 44-year mine life
An initial six million-tonne-per-annum copper mine at Kakula can
be developed for an estimated US$1.2 billion; subsequent expansions
and smelter can be funded from cash flows or project finance
Combined production of 12 Mtpa would rank Kamoa-Kakula among
the world’s five largest copper mines, with projected annual production
of more than 500,000 tonnes of copper
Ivanhoe to explore acceleration options for building the first two mines
at Kamoa-Kakula concurrently, and the potential for expanding production
to 18 Mtpa and beyond
Development of Kakula being fast-tracked with twin declines now underway;
pre-feasibility study in progress
Kakula’s ultra-high copper grade expected to average 6.4%
over the first 10 years, with mine-site copper cash costs of US$0.51/lb
Ongoing drilling expanding and upgrading high-grade copper resources,
particularly at the Kakula West Discovery
KOLWEZI, DEMOCRATIC REPUBLIC OF CONGO – Ivanhoe Mines (TSX: IVN; OTCQX:
IVPAF) Executive Chairman Robert Friedland and Chief Executive Officer Lars-Eric
Johansson today welcomed the positive findings of an expanded, independent
preliminary economic assessment (PEA) for the development of the Kakula Discovery at
the Kamoa-Kakula Project on the Central African Copperbelt, in the Democratic Republic
of Congo (DRC).
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Given the dramatic expansion and upgrading of the copper resources delineated at
Kamoa-Kakula during the past year, the new PEA incorporates potential increased mining
rates that are 50% higher than the rates used in the December 2016 PEA.
The Kamoa-Kakula Project – a joint venture between Ivanhoe Mines, Zijin Mining Group
and the DRC government – has been independently ranked as the world’s largest high-
grade, major copper discovery by international mining consultant Wood Mackenzie.
The three potential development scenarios examined include:
1. Initial mine development scenario. The Kakula 2017 PEA evaluates the development of
a six million-tonne-per-annum (Mtpa) underground mine and surface processing
complex at the Kakula Deposit – a discovery announced in early 2016 – as the
project’s first phase of development.
2. Expanded, two-mine development scenario. The Kakula 2017 PEA also includes an
option for an integrated, 12 Mtpa, two-stage development, beginning with initial
production from the Kakula Mine, to be followed by a subsequent, separate
underground mining operation at the nearby Kansoko Mine, along with the
construction of a smelter.
3. Kamoa 2017 pre-feasibility study (PFS). The Kamoa 2017 PFS evaluates the
development of the Kansoko Mine as a stand-alone six Mtpa underground mine and
surface processing complex that would be supplied with ore from the planned
development of the Kansoko Sud and Kansoko Centrale areas of the Kamoa Deposit,
which were discovered in 2008. The PFS refines the findings of the Kamoa March 2016
PFS, which envisaged a production rate of three Mtpa.
The Kakula 2017 PEA and Kamoa 2017 PFS were independently prepared by OreWin Pty.
Ltd., Amec Foster Wheeler E&C Services Inc., SRK Consulting Inc., Stantec Consulting
LLC, Golder Associates Ltd., KGHM Cuprum R&D Centre Ltd. and DRA Global.
The Kakula 2017 PEA is preliminary in nature and includes an economic analysis that is
based, in part, on Inferred Mineral Resources. Inferred Mineral Resources are considered
too speculative geologically for the application of economic considerations that would
allow them to be categorized as Mineral Reserves – and there is no certainty that the
results will be realized. Mineral Resources do not have demonstrated economic viability
and are not Mineral Reserves.
A NI 43-101 technical report will be filed on SEDAR at www.sedar.com and on the Ivanhoe
Mines website at www.ivanhoemines.com within 45 days of the issuance of this news
release.
While not evaluated in the new PEA, Ivanhoe and Zijin also are exploring potential
options to accelerate future production by building the Kakula and Kansoko mines
concurrently as well as expansions to 18 Mtpa and beyond as exploration progresses at
Kamoa-Kakula and on Ivanhoe’s 100%-owned exploration licences in the Western
Forelands area to the west of Kamoa-Kakula, where drilling recently started.
“Kamoa-Kakula is, without a shadow of a doubt, the most disruptive Tier One copper
project in the world today,” said Mr. Friedland.
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“The 12 million-tonne-per-annum development scenario clearly shows the economic
potential for a phased development plan for Kamoa-Kakula to become one of the largest
copper mines in existence. However, we are confident that there are more high-grade
copper discoveries to be made in the area and the ultimate scale of operations at Kamoa-
Kakula will be much larger.
“The exceptionally high copper grades, thickness and continuity of the Kakula Discovery
really distinguish this project from anything we have seen during our 35-plus years in the
industry. These unique characteristics should allow us to build a world-scale copper
mine with an initial capital cost expected to be far lower than other operations of this
size.”
Mr. Friedland noted that today’s PEA announcement does not factor in the Kakula West
Discovery, which is continuing to be expanded at a remarkable rate. The current study
also does not factor in the ongoing drilling programs on new targets at Kamoa-Kakula or
the company’s 100%-owned Western Forelands exploration area. Additional exploration
success could have a significant influence on the size, value and timing of the overall
development plan; as such, the Kamoa-Kakula development plans will be reassessed and
amended as the project moves forward to reflect ongoing exploration results.
“We remain focused on unlocking the full potential of the Kamoa-Kakula copper district
while expediting the development of the initial Kakula Mine.
“The world’s current top copper mines are aging and their head grades are declining.
Given the projected surge in demand for copper from the electric-vehicle revolution and
renewable energy technologies, Kamoa-Kakula will be of significant strategic importance
for auto makers and clean-energy companies looking to secure a long-term, reliable
supply of high-quality copper,” Mr. Friedland added.
Mr. Johansson said that implementation of community-support initiatives are central to
mine-planning considerations. “We will be working with our partners Zijin Mining and the
DRC government in developing Kamoa-Kakula into the world’s next great copper mine,
generating widely shared economic benefits that will help to uplift local communities,
and providing skills training to help ensure that area residents can qualify for the
thousands of meaningful direct and indirect jobs that will be created.
“It is highly unusual by industry standards that, despite being in the early exploration
and engineering phases of a project, Ivanhoe and Zijin are proud to be leading by
example and have invested heavily in community development initiatives. Our joint
efforts include the “KNOW FOR SURE” anti-malaria campaign utilizing revolutionary
technology developed by Fio Corporation of Toronto, Canada. Other initiatives include
fish and chicken farming, agricultural projects, and the construction of schools, roads
and power infrastructure.
“Everyone at Ivanhoe Mines looks forward to showcasing our three mine development
projects – Kamoa-Kakula, Kipushi and Platreef – to investors from around the world as
the official site visit of the 2018 Mining Indaba conference that will be held in Cape Town,
South Africa, in early February 2018. Those interested in attending our site visit should
apply to our investor relations department as soon as possible.”
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HIGHLIGHTS
Potential initial six Mtpa mine at Kakula
The PEA analyzes the potential development of an initial six Mtpa Kakula Mine at the
Kakula Deposit in the southerly portion of the Kamoa-Kakula Project’s discovery area.
For this option, the PEA envisages an average annual production rate of 246,000
tonnes of copper at a mine site cash cost of US$0.45/lb copper and total cash cost of
US$1.08/lb copper for the first five years of operations, and copper annual production
of up to 385,000 tonnes by year four.
An initial capital cost of US$1.2 billion for this option would result in an after-tax net
present value at an 8% discount rate (NPV8%) of US$4.2 billion. The internal rate of
return of 36.2% and project payback period of 3.1 years confirm the compelling
economics for Kamoa-Kakula’s initial phase of production.
Kakula benefits from an ultra-high, average feed grade of 6.4% copper over the first 10
years of operations, and 5.5% copper on average over a 24-year mine life.
A six Mtpa Kakula PFS is underway, with completion targeted for the second half of
2018. Kakula’s surface box cut was completed on October 26 this year. Development
of twin underground declines, similar to those at the nearby Kansoko Mine, has begun
and is expected to take about a year to complete. The first blast for the declines was
completed on November 16.
Modular, integrated potential development of Kakula and Kamoa deposits,
mining a combined total of 12 Mtpa
The PEA also presents the development of a two-phase, sequential operation on
Kamoa-Kakula’s high-grade copper deposits.
Initial production would occur at a rate of six Mtpa from the Kakula Mine, before
increasing to 12 Mtpa with ore from the Kansoko Mine. As resources at Kakula and
Kansoko are mined, the PEA envisages that production would begin at Kamoa North
to maintain 12 Mtpa throughput over a 44-year mine life.
For the two-phase sequential operation, the PEA envisages US$1.2 billion in initial
capital costs. Future expansion at the Kansoko Mine and subsequent extensions
could be funded by cash flows from the Kakula Mine, resulting in an after-tax net
present value at an 8% discount rate (NPV8%) of US$7.2 billion and an internal rate of
return of 33%.
Under this approach, the PEA also includes the construction of a direct-to-blister flash
copper smelter with a capacity of 690,000 tonnes of copper concentrate per annum to
be funded from internal cash flows. This would be completed in year five of
operations, achieving significant savings in treatment charges and transportation
costs.
The 12 Mtpa scenario delivers average annual production of 370,000 tonnes of copper
at a total cash cost of US$1.02/lb copper during the first 10 years of operations and
production of 542,000 tonnes by year nine. At this future production rate, Kamoa-
Kakula would rank among the world’s five largest copper mines.
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A pre-feasibility study for a six Mtpa mine at Kansoko also has been examined
In addition to the Kakula PEA, a PFS also has been completed for the development of
a six Mtpa Kansoko Mine at the Kamoa Deposit, the project’s original discovery area.
For this option, the PFS envisages an average annual production rate of 178,000
tonnes of copper for the first 10 years of operations, and annual copper production of
245,000 tonnes by year seven.
The initial capital cost of US$1.0 billion to develop this mine would result in an after-
tax NPV8% of US$2.1 billion – an increase of 109% compared to the after-tax NPV8% of
US$986 million that was projected in the March 2016 Kamoa PFS. The internal rate of
return is 24%, with a project payback period of five years.
Potential phased mine developments to 18 Mtpa and beyond currently
under evaluation for Kamoa-Kakula
Ivanhoe is continuing to explore options to increase Kamoa-Kakula production to 18
Mtpa and beyond. In light of the successful step-out drilling at Kakula West, as well as
the potential to find additional resources in high-priority targets located in the
untested parts of the Kamoa-Kakula Project, development plans will be reassessed
and amended as the project moves forward.
Figure 1 describes the potential development scenarios and Figure 2 shows an overview
of deposits included within Kakula 2017 PEA (six Mtpa and 12 Mtpa case) and Kamoa
2017 PFS (six Mtpa).
Figure 1. Kamoa-Kakula PEA long-term development plan.
Figure by OreWin 2017.
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Figure 2. Overview of deposits included within Kakula 2017 PEA
(six Mtpa and 12 Mtpa case) and Kamoa 2017 PFS (six Mtpa).
Figure by OreWin 2017.
Summary of the PEA’s key results for an initial Kakula Mine
1. Very-high-grade initial phase of production is projected to have a grade of 7.3%
copper in year four and an average grade of 6.4% copper over the initial 10 years of
operations, resulting in estimated average annual copper production of 284,000
tonnes.
2. Annual copper production is estimated at 385,000 tonnes in year four.
3. Initial capital cost, including contingency, is estimated at US$1.2 billion.
4. Average total cash cost of US$1.14/lb of copper during the first 10 years.
5. After-tax NPV, at an 8% discount rate, of US$4.2 billion.
6. After-tax internal rate of return (IRR) of 36.2%, and a payback period of 3.1 years.
7. Kakula is expected to produce a very-high-grade copper concentrate in excess of 50%
copper, with extremely low arsenic levels.
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Key initial projections from the Kakula 2017 PEA
The study assesses the potential development of the Kakula Deposit as a six Mtpa
mining and processing complex. The Kakula mill would be constructed in two smaller
phases of three Mtpa each as the mining operations ramp-up to full production of six
Mtpa. The life-of-mine production scenario provides for 108.4 million tonnes to be mined
at an average grade of 5.48% copper, producing 9.4 million tonnes of high-grade copper
concentrate, containing approximately 11.4 billion pounds of copper.
The economic analysis uses a long-term price assumption of US$3.00/lb of copper and
returns an after-tax NPV at an 8% discount rate of US$4.2 billion. It has an after-tax IRR of
36.2% and a payback period of 3.1 years.
The estimated initial capital cost, including contingency, is US$1.2 billion. The capital
expenditure for off-site power, which is included in the initial capital cost, includes a
US$71 million advance payment to the DRC state-owned electricity company, SNEL, to
upgrade two hydropower plants (Koni and Mwadingusha) to provide the Kamoa-Kakula
Project with access to clean electricity for its planned operations. Mwadingusha is being
upgraded first. The work is being led by Stucky Ltd., of Switzerland; the advance
payment will be recovered through a reduction in the power tariff.
The Kakula 2017 PEA is preliminary in nature and includes an economic analysis that is
based, in part, on Inferred Mineral Resources. Inferred Mineral Resources are considered
too speculative geologically for the application of economic considerations that would
allow them to be categorized as Mineral Reserves – and there is no certainty that the
results will be realized. Mineral Resources do not have demonstrated economic viability
and are not Mineral Reserves.
Key results of the Kakula 2017 PEA for a single six Mtpa mine are summarized in Table 1.
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Table 1. Kakula Mine results summary for six Mtpa production.
Item Unit Total
Total Processed
Quantity Milled kt 108,422
Copper Feed Grade % 5.48
Total Concentrate Produced
Copper Concentrate Produced kt (dry) 9,400
Copper Recovery % 86.86
Copper Concentrate Grade % 54.94
Contained Metal in Concentrate Mlb 11,385
Contained Metal in Concentrate kt 5,164
Peak Annual Recovered Metal Production kt 385
10-Year Average
Copper Concentrate Produced kt (dry) 517
Contained Metal in Concentrate kt 284
Mine-Site Cash Cost US$/lb 0.51
Total Cash Cost US$/lb 1.14
5-Year Average
Copper Concentrate Produced kt (dry) 448
Contained Metal in Concentrate kt 246
Mine-Site Cash Cost US$/lb 0.45
Total Cash Cost US$/lb 1.08
Key Financial Results
Peak Funding US$M 1,135
Initial Capital Costs US$M 1,231
Expansion Capital Costs US$M 318
LOM Average Mine Site Cash Costs US$/lb Cu 0.60
LOM Average Total Cash Costs US$/lb Cu 1.23
Site Operating Costs US$/t Milled 61.49
After-Tax NPV8% US$M 4,243
After-Tax IRR % 36.2
Project Payback Period Years 3.1
Initial Project Life Years 24