Ivanhoe Mines issues 2018 first quarter financial results and review of exploration and development activities Mining industry hopeful that D.R. Congo mining-code issues can be resolved
May 8, 2018
Ivanhoe Mines issues 2018 first quarter financial results
and review of exploration and development activities
Mining industry hopeful that D.R. Congo
mining-code issues can be resolved
TORONTO, CANADA ‒ Ivanhoe Mines (TSX: IVN; OTCQX: IVPAF) today announced its financial
results for the first quarter ended March 31, 2018. All figures are in U.S. dollars unless otherwise
stated. Ivanhoe Mines is a Canadian mining company focused on advancing its three mine-
development projects in Southern Africa: The Platreef platinum-palladium-nickel-copper-gold
discovery in South Africa; the Kamoa-Kakula copper discovery in the Democratic Republic of
Congo (DRC); and the extensive upgrading of the historic Kipushi zinc-copper-lead-germanium
mine, also in the DRC.
HIGHLIGHTS
• On March 9, 2018, DRC President Joseph Kabila Kabange signed a new mining code into
effect that revises and updates the country’s 2002 mining code. The international mining
companies that have operations in the DRC, including Glencore, Randgold, China
Molybdenum, MMG, Ivanhoe Mines and Zijin Mining, collectively are negotiating with the
DRC’s national government to resolve corporate concerns about anticipated impacts on
their DRC operations from changes in the new mining code.
• The DRC mining-code negotiations began in late March, following an initial, high-level
meeting in Kinshasa on March 7 during which DRC President Kabila gave an assurance that
the companies’ concerns would be resolved through transitional arrangements, mining
regulations and respect for existing agreements and guarantees.
• The international companies have confirmed their willingness to negotiate royalties and
changes to other taxes as part of this process. The companies expect that the negotiations
will give priority to respecting the legislated guarantee of stability and protection of rights
specified in Article 276 of the 2002 mining code, and other protections afforded under
established mining conventions and bilateral agreements.
• Continuing strategic discussions concerning Ivanhoe Mines and its projects are ongoing
with several significant mining companies and investors across Asia, Europe, Africa and
elsewhere. Several investors that have expressed interest have no material limit on the
provision of capital.
• On February 26, 2018, Ivanhoe announced results of an independently verified, updated
Mineral Resource estimate showing that the ultra-high-grade Kakula Discovery alone now
contains Indicated Mineral Resources of 174 million tonnes at 5.62% copper, at a 3% copper
cut-off grade, and 585 million tonnes at 2.92% copper, at a 1% cut-off.
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• The February 2018 Mineral Resource estimate boosted the combined Kamoa-Kakula
Indicated Mineral Resources to 1.03 billion tonnes at 3.17% copper, containing
approximately 72 billion pounds of copper, plus an additional 183 million tonnes of Inferred
Mineral Resources at 2.31% copper, at a 1.5% cut-off. The new Mineral Resource estimate
established the Kamoa-Kakula Project as the world’s fourth-largest copper discovery.
Kamoa-Kakula’s copper grades are the highest, by a wide margin, of the world’s top 10
copper deposits.
• Kakula’s strike length now extends to more than 13 kilometres and remains open for
significant expansion in multiple directions. A total of 13 rigs are continuing with resource
expansion and delineation drilling at the project, as well as geotechnical, hydrological and
metallurgical drilling. Geophysical surveys were conducted at the Kamoa-Kakula Project to
help identify new, high-priority targets in the untested parts of the 400-square-kilometre
mining licence.
• Ivanhoe’s DRC exploration team is continuing with its regional drilling program targeting
Kamoa-Kakula-style copper mineralization on its 100%-owned exploration licences in the
Western Foreland region, just to the west of the Kamoa-Kakula mining-licence area.
• The planned initial, six-million-tonne-per-annum (Mtpa) mine at Kakula is estimated to cost
$1.2 billion; subsequent expansions and a smelter can be funded from cash flows or project
financing. With the new, expanded February 2018 Mineral Resource estimate, Ivanhoe and
its joint-venture partner, Zijin Mining, are exploring options to accelerate building of the first
two mines at Kamoa-Kakula, and the potential for expanding production to 18 Mtpa and
beyond.
• Underground development at the planned initial mine at Kakula is making steady progress
and is expected to reach the high-grade copper mineralization later this year. The service
and conveyor declines each have been advanced more than 460 metres through
underground development work.
• In January 2018, Ivanhoe announced that ongoing upgrading work at the Mwadingusha
hydropower plant in the DRC – the first of three existing, state-owned hydroelectric plants
that Ivanhoe and Zijin Mining plan to modernize to supply power to Kamoa-Kakula – has
increased power output to 32 megawatts (MW). Upgrading of the other two hydroelectric
plants – Koni and Nzilo 1 – is expected to begin once Mwadingusha has been fully restored
to its installed capacity of 71 MW. Kamoa-Kakula has been conducting project development
activities with clean, hydroelectric power drawn from the national grid since late 2016.
• The Ivanhoe-sponsored Fionet program to improve malaria diagnostics and treatment was
expanded in 2017 to 300 Deki Readers installed in 252 medical-service providers in Haut-
Katanga and Lualaba provinces in southern DRC, which host Ivanhoe’s Kipushi and Kamoa-
Kakula projects. Deki hand-held devices provide automated readings of rapid diagnostic
tests to remove the human-error factor and avoid prescription of unnecessary medication.
• On December 13, 2017, Ivanhoe announced the findings of an independent, pre-feasibility
study (PFS) for the redevelopment of the Kipushi zinc-copper-germanium-lead-silver mine in
the DRC. The PFS analyzed the plan to bring Kipushi’s Big Zinc Zone into production in less
than two years, with a life-of-mine, average annual production rate of 225,000 tonnes of zinc
and cash costs of $0.48 per pound of zinc.
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• Based on the findings of an independent, pre-feasibility study (PFS) issued in December
2017, Kipushi is expected to have average annual production of 381,000 tonnes of zinc
concentrate over an 11-year, initial mine life at a total cash cost of approximately $0.48 per
pound of zinc. The PFS focuses on the initial mining of Kipushi’s Big Zinc orebody, which
has an estimated 10.2 million tonnes of Measured and Indicated Mineral Resources grading
34.9% zinc. Ivanhoe has made significant progress in upgrading the mine’s underground
infrastructure and the planned return to production would establish Kipushi as the world’s
highest-grade, major zinc mine.
• At the Platreef platinum-palladium-nickel-copper-gold discovery in South Africa, sinking of
Shaft 1 reached a depth of 750 metres below surface on April 23, 2018. Development of the
second of four planned shaft stations – the 750-metre-level station – has begun. Shaft 1 is
expected to reach the top of the Flatreef orebody, at a depth of approximately 783 metres, in
the third quarter of this year. Sinking of the shaft will continue to a planned final depth of 980
metres.
• Surface construction for Platreef’s Shaft 2 is progressing. Blasting and excavation of a box
cut to a depth of approximately 29 metres below surface is underway, and construction of a
concrete hitch for the headframe is expected to be completed by the end of this year.
• On May 7, 2018, Ivanhoe announced the signing of an agreement to provide local, treated
bulk water for the first phase of production at Platreef. The agreement is for the supply of a
minimum of five million litres of treated water a day for 32 years, beginning in 2022, from the
town of Mokopane’s new Masodi treatment plant. Platreef expects to begin receiving a small
quantity of treated water this year, which will be used in ongoing underground mine
development and surface infrastructure construction.
• Based on the findings of an independent, definitive feasibility study issued in July 2017, the
Platreef Mine is projected to be Africa’s lowest-cost producer of platinum-group metals, with
a cash cost of $351 per ounce of platinum, palladium, rhodium and gold (3PE+Au), net of by-
products, including sustaining capital cost.
• Ivanhoe has appointed five leading mine-financing institutions as Initial Mandated Lead
Arrangers to arrange debt financing for the Platreef Mine’s development. They are: KfW
IPEX-Bank, a 100% subsidiary of the German promotional bank KfW; Swedish Export Credit
Corporation; Export Development Canada; Nedbank Limited (acting through its Corporate
and Investment Banking division); and Societe Generale Corporate & Investment Banking.
Expressions of interest have been received for approximately $900 million of the targeted $1
billion project financing.
• On April 25, 2018, Ivanhoe issued its initial Sustainability Report. The report provides an
overview of Ivanhoe’s sustainability programs and initiatives conducted in 2017, highlighting
the significant accomplishments achieved and the new goals set for current and future
corporate activities.
• At the end of Q1 2018, Platreef had recorded 562,000 work hours free of lost-time injuries,
Kipushi 905,000 hours and Kamoa-Kakula more than 9.58 million hours.
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Principal projects and review of activities
1. Platreef Project
64%-owned by Ivanhoe Mines
South Africa
The Platreef Project is owned by Ivanplats (Pty) Ltd, which is 64%-owned by Ivanhoe Mines. A 26%
interest is held by Ivanplats’ historically-disadvantaged, broad-based, black economic empowerment
(B-BBEE) partners, which include 20 local host communities with a total of approximately 150,000
people, project employees and local entrepreneurs. In April 2018, Ivanplats reconfirmed its Level 3
status in its fourth verification assessment on a B-BBEE scorecard. A Japanese consortium of ITOCHU
Corporation, Japan Oil, Gas and Metals National Corporation and Japan Gas Corporation owns a 10%
interest in Ivanplats, which it acquired in two tranches for a total investment of $290 million.
The Platreef Project hosts an underground deposit of thick, platinum-group metals, nickel, copper and
gold mineralization on the Northern Limb of the Bushveld Igneous Complex in Limpopo Province,
approximately 280 kilometres northeast of Johannesburg and eight kilometres from the town of
Mokopane.
On the Northern Limb, platinum-group metals mineralization is hosted primarily within the Platreef, a
mineralized sequence that is traced more than 30 kilometres along strike. Ivanhoe’s Platreef Project,
within the Platreef’s southern sector, is comprised of two contiguous properties: Turfspruit and
Macalacaskop. Turfspruit, the northernmost property, is contiguous with, and along strike from, Anglo
Platinum’s Mogalakwena group of mining operations and properties.
Since 2007, Ivanhoe has focused its exploration and development activities on defining and advancing
the down-dip extension of its original discovery at Platreef, now known as the Flatreef Deposit, which is
amenable to highly mechanized, underground mining methods. The Flatreef area lies entirely on the
Turfspruit and Macalacaskop properties, which form part of the company’s mining right.
Health and safety at Platreef
At the end of Q1 2018, the Platreef Project reached a total of 562,276 lost-time, injury-free hours
worked in terms of South Africa’s Mine Health and Safety Act and Occupational Health and Safety Act.
The Platreef Project continues to strive toward its workplace objective of an environment that causes
zero harm to employees, contractors, sub-contractors and consultants.
Positive independent, definitive feasibility study for Platreef’s first-phase development;
Platreef projected to be Africa’s lowest-cost producer of platinum-group metals
On July 31, 2017, Ivanhoe Mines announced the positive results of an independent, definitive feasibility
study (DFS) for the planned first phase of the Platreef Project’s platinum-group metals, nickel, copper
and gold mine in South Africa.
The Platreef DFS covers the first phase of development that would include construction of a state-of-
the-art underground mine, concentrator and other associated infrastructure to support initial production
of concentrate by 2022. As Phase 1 is being developed and commissioned, there would be
opportunities to refine the timing and scope of subsequent phases of expanded production.
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DFS highlights include:
• Indicated Mineral Resources containing an estimated 41.9 million ounces of platinum, palladium,
rhodium and gold, with an additional 52.8 million ounces of platinum, palladium, rhodium and gold
in Inferred Resources.
• Increased Mineral Reserves containing 17.6 million ounces of platinum, palladium, rhodium and
gold, following stope optimization and mine sequencing work.
• Development of a large, safe, mechanized, underground mine, with an initial four-Mtpa concentrator
and associated infrastructure.
• Planned initial average annual production rate of 476,000 ounces of platinum, palladium, rhodium
and gold (3PE+Au), plus 21 million pounds of nickel and 13 million pounds of copper.
• Estimated pre-production capital requirement of approximately $1.5 billion, at a ZAR:USD exchange
rate of 13 to 1.
• Platreef would rank at the bottom of the cash-cost curve, at an estimated $351 per ounce of
3PE+Au produced, net of by-products and including sustaining capital costs, and $326 per ounce
before sustaining capital costs.
• After-tax net present value (NPV) of $916 million, at an 8% discount rate.
• After-tax internal rate of return (IRR) of 14.2%.
The DFS was prepared for Ivanhoe Mines by principal consultant DRA Global, with economic analysis
led by OreWin, and specialized sub-consultants including Amec Foster Wheeler E&C Services (Amec
Foster Wheeler), Stantec Consulting, Murray & Roberts Cementation, SRK Consulting, Golder
Associates and Digby Wells Environmental.
Preliminary expressions of interest received for approximately $900 million
of the targeted $1 billion Platreef project financing
During 2017, Ivanhoe announced the appointment of five leading financial institutions to arrange project
financing for the development of the Platreef Project. The five Initial Mandated Lead Arrangers (IMLAs)
will make best efforts to arrange a total debt financing of up to $1 billion for the development of
Platreef’s first-phase, four Mtpa mine. Preliminary expressions of interest have been received for
approximately $900 million of the targeted $1 billion financing. Negotiation of a term sheet is ongoing.
In addition, preliminary discussions have begun with leading financial institutions around the financing
of the black economic empowerment partners’ contribution to the development capital.
The IMLAs appointed Export Development Canada to direct the technical, environmental and social due
diligence phase of the project. Chlumsky, Armbrust & Meyer and IBIS ESG South Africa Consulting
were appointed as Independent Technical Consultant and Independent Social and Environmental
Consultant, respectively.
Shaft 1 has reached a depth of more than 750 metres below surface;
development of first mine-access station now underway
On April 23, 2018, Ivanhoe announced that Platreef’s Shaft 1 had reached a depth of 750 metres below
surface and lateral development of the first mine-access station now is underway.
The station on Shaft 1’s 750-metre level will provide initial, underground access to the high-grade
orebody, enabling mine development to proceed during the construction of Shaft 2, which will become
the mine’s main production shaft. The mining zones in the current Platreef Mine plan occur at depths
ranging from approximately 700 metres to 1,200 metres below surface. The 750-metre-level station
also will allow access for the first raise-bore shaft that will provide ventilation to the underground
workings during the mine’s ramp-up phase.
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Sinking of Shaft 1 will resume after the station is completed. The shaft is expected to intersect the
upper contact of the Flatreef Deposit (T1 mineralized zone) at an approximate shaft depth of 783
metres. As shaft sinking advances, two additional shaft stations will be developed at mine-working
depths of 850 metres and 950 metres. Shaft 1 is expected to reach its projected, final depth of 980
metres below surface in 2019.
Shaft 1, with an internal diameter of 7.25 metres, will provide access to the Flatreef Deposit and enable
the initial, underground development to take place during the development of Shaft 2. Ultimately, Shaft
1 will become the primary ventilation intake shaft during the project’s four-Mtpa production case.
Jerry Molongama, a contract employee from Aveng Mining, securing the jumbo drilling
rig on surface at Shaft 1. Construction of the station at the 750-metre level now is
underway to provide initial mine development access to the orebody.
Shaft 2 early-works construction progressing
Shaft 2, to be located approximately 100 metres northeast of Shaft 1, will have an internal diameter of
10 metres, will be lined with concrete and sunk to a planned, final depth of more than 1,104 metres
below surface. It will be equipped with two, 40-tonne, rock-hoisting skips capable of hoisting a total of
six million tonnes of ore a year – the single largest hoisting capacity at any mine in Africa.
The headgear for the permanent hoisting facility was designed by South Africa-based Murray & Roberts
Cementation. The first three blasts for Shaft 2’s box cut were successfully completed in April; three
additional blasts are planned. The blasting will enable the excavation of the box cut to a depth of
approximately 29 metres below surface and the construction of the concrete hitch (foundation) for the
103-metre-tall concrete headgear (headframe) that will house the shaft’s permanent hoisting facilities
and support the shaft collar. Excavation of the box cut and construction of the tower hitch foundation is
expected to be completed by the end of this year.
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Drilling blast holes for the Shaft 2 box-cut construction.
Removal of broken rock after a blast as part of the box-cut construction for Shaft 2.
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Underground mining to incorporate highly productive, mechanized methods
Ivanhoe plans to develop the Platreef Mine in phases. The initial annual production rate of four million
tonnes per annum (Mtpa) is designed to establish an operating platform to support future expansions.
This is expected to be followed by a potential doubling of production to eight Mtpa, and then a third
expansion phase to a steady-state 12 Mtpa, which would establish Platreef among the largest platinum-
group-metals mines in the world.
The mining zones in the current Platreef mine plan occur at depths ranging from approximately 700
metres to 1,200 metres below surface. Primary access to the mining zones will be by way of Shaft 2;
secondary access will be via Shaft 1. During mine production, both shafts also will serve as ventilation
intakes. Three additional ventilation exhaust raises are planned to achieve steady-state production.
Planned mining methods will use highly productive, mechanized methods, including long-hole stoping
and drift-and-fill. Each method will utilize cemented backfill for maximum ore extraction. The ore will be
hauled from the stopes to a series of internal ore passes and fed to the bottom of Shaft 2, where it will
be crushed and hoisted to surface.
The current mine plan has been improved beyond the earlier projections in the 2015 PFS mine plan by
optimizing stope design, employing a declining Net Smelter Return (NSR) strategy and targeting higher-
grade zones early in the mine’s life. This strategy has increased the grade profile by 23% on a 3PE+Au
basis in the first 10 years of operation and by 10% during the life of the mine.
Long-term bulk water supply secured for the Platreef Mine
On May 7, 2018, Ivanhoe announced the signing of a new agreement to provide local, treated water to
supply most of the bulk water needed for the first phase of production at Platreef. The Mogalakwena
Local Municipality has agreed to supply a minimum of five million litres of treated water a day for 32
years, beginning in 2022, from the town of Mokopane’s new Masodi Treatment Works.
Ivanplats expects to begin receiving a small quantity of processed wastewater this year, after the
Masodi plant has been commissioned. The initial supply will be used in Platreef’s ongoing underground
mine development and surface infrastructure construction.
Under terms of the agreement, which is subject to certain suspensive conditions, Ivanplats will provide
financial assistance to the municipality for certified costs of up to a maximum of R248 million
(approximately $19.6 million) to complete the Masodi treatment plant. Ivanplats will purchase the
treated wastewater at a reduced rate of R5 per thousand litres for the first 10 million litres/day to offset
a portion of the initial capital contributed.
Development of human resources and job skills
Work progressed on the implementation of Ivanhoe’s Social and Labour Plan (SLP). The company has
pledged a total of R160 million ($13 million) during the first five years, culminating in November 2019.
The approved plan includes R67 million ($6 million) for the development of job skills among local
residents and R88 million ($7 million) for local economic development projects.
2. Kipushi Project
68%-owned by Ivanhoe Mines
Democratic Republic of Congo
The Kipushi copper-zinc-germanium-lead mine, in the Democratic Republic of Congo, is adjacent to the
town of Kipushi and approximately 30 kilometres southwest of Lubumbashi. It is located on the Central
African Copperbelt, approximately 250 kilometres southeast of the Kamoa-Kakula Project and less than
one kilometre from the Zambian border. Ivanhoe acquired its 68% interest in the Kipushi Project in
November 2011; the balance of 32% is held by the state-owned mining company, La Générale des
Carrières et des Mines (Gécamines).