Ivanhoe Mines issues 2018 second quarter financial results and review of exploration and development activities CITIC Metal and Zijin Mining to invest more than C$800 million to help advance Ivanhoe’s three world-scale mine projects
August 13, 2018
Ivanhoe Mines issues 2018 second quarter financial results
and review of exploration and development activities
CITIC Metal and Zijin Mining to invest more than C$800 million
to help advance Ivanhoe’s three world-scale mine projects
in Southern Africa
TORONTO, CANADA ‒ Ivanhoe Mines (TSX: IVN; OTCQX: IVPAF) today announced its financial
results for the second quarter ended June 30, 2018. All figures are in U.S. dollars unless
otherwise stated. Ivanhoe Mines is a Canadian mining company focused on advancing its three
principal projects in Southern Africa: the development of new mines at the Kamoa-Kakula
copper discovery in the Democratic Republic of Congo (DRC) and the Platreef platinum-
palladium-nickel-copper-gold discovery in South Africa; and the extensive redevelopment and
upgrading of the historic Kipushi zinc-copper-germanium-lead mine, also in the DRC.
Highlights
• On June 11, 2018, Ivanhoe Mines and China’s CITIC Metal Co., Ltd. signed a long-term
strategic cooperation and investment agreement that will see CITIC Metal invest
approximately C$723 million ($557 million) to help advance Ivanhoe’s three projects in
Southern Africa. Under the terms of the investment agreement, CITIC Metal will acquire a
significant 19.5% stake in Ivanhoe Mines through a private placement at a price of C$3.68
per share. The transaction is expected to close in September 2018.
• On August 8, 2018, CITIC Metal Group Limited provided Ivanhoe Mines with an interim
loan of $100 million in accordance with a term loan facility that is an integral part of the
long-term strategic cooperation and investment agreement. Having drawn the $100
million facility, Ivanhoe has cash and cash equivalents of approximately $165 million.
The interim funds will be repaid from the proceeds of the C$723 million strategic
investment by CITIC Metal.
• Under the terms of the agreement, CITIC Metal has the right to nominate two directors to
Ivanhoe’s expanded 11-member board. Ivanhoe Mines has accepted CITIC Metal’s
nomination of Yufeng “Miles” Sun, President of CITIC Metal Group Limited, who will join
the board at closing. Mr. Sun will become Co-Chairman of Ivanhoe Mines at that time – a
position he will share with Robert Friedland, currently Executive Chairman of Ivanhoe
Mines. The second CITIC Metal nominee, who also will join the board at that time, will be
announced prior to closing.
• Zijin Mining Group Co., Ltd., which acquired a 9.9% stake in Ivanhoe Mines in 2015
through a wholly-owned subsidiary, will exercise its existing anti-dilution rights through
a concurrent private placement, which will result in additional proceeds of C$78 million
($60 million).
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• On July 30, 2018, Ivanhoe announced a new Mineral Resource estimate for the Kipushi
Mine that increased zinc-rich Measured and Indicated Mineral Resources by 16%, from
10.2 million tonnes to 11.8 million tonnes.
• The new estimate also increased Kipushi’s zinc grade from 34.89% to 35.34%. In addition,
the mine’s copper-rich Measured and Indicated Resources have increased by 40% from
1.6 million tonnes to 2.3 million tonnes, with a slight increase in the copper grade from
4.01% to 4.03%.
• The updated Mineral Resource will be used in the preparation of the Kipushi definitive
feasibility study (DFS), which is expected to be finalized later this year or early in 2019.
The DFS will update and refine the findings of the pre-feasibility study (PFS) issued last
December. Similar to the PFS, the DFS will focus on the initial mining of Kipushi’s Big
Zinc Zone. The new resource estimate is very positive for mine planning purposes,
adding another 1.6 million tonnes of zinc-rich Measured and Indicated Resources and, at
the same time, improving the overall zinc grade of the resources.
• The December 2017 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. The planned return to
production would establish Kipushi as the world’s highest-grade, major zinc mine.
• 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 600 metres
through underground development work. The 3,535-metre decline development contract
is scheduled to be completed by the end of 2018.
• The detailed infrastructure designs for the bottom of the main decline – including rock
tips, conveyor transfers, vent shaft and pump stations – have been completed, enabling
procurement to commence. The design of the conveyor system and truck-tipping station
for the main decline also is well advanced. Tender enquires for the various components
of the conveyor and truck tipping station have been issued.
• A pre-feasibility study for phase 1 of the Kamoa-Kakula Project is underway and is
expected to be completed by the end of 2018. 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 finance. 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.
• A total of 18,633 metres of drilling was completed at Kakula and surrounding areas within
the Kamoa-Kakula mining licence during Q2 2018, increasing the total drilling completed
during the first six months of 2018 to 36,926 metres. The exploration program was
revised during Q2, taking into account results obtained during the Kakula West
expansion campaign. Additional exploration drilling now has been planned to the north
of Kakula West, following a narrow but high-grade continuation of Kakula West
mineralization. Further drilling was directed to infill, and to supply data for metallurgical,
hydrogeological and civil geotechnical studies, as well as a condemnation hole for the
planned tailings storage site.
• 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, located to the north and west of the Kamoa-Kakula mining-
licence area. During Q2 2018, 6,857 metres of drilling in 16 holes was completed at the
high-grade Makoko area. Two rigs are continuing to drill at the Makoko area and one rig
has started drilling at the Kiala area on high-grade copper trends emanating from Kamoa
North. In September, Ivanhoe expects to be in a position to provide an important update
on its Makoko and Kamoa North exploration programs.
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• 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.
• 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 750-metre-level station – the second of four planned shaft stations – is nearing
completion. Shaft 1 is expected to reach the top of the Flatreef orebody, at a depth of
approximately 783 metres, in Q3 2018. Sinking of the shaft will continue to a planned final
depth of 982 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 receive 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.
• 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 inaugural 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 Q2 2018, Platreef had recorded 195,484 work hours free of lost-time injuries,
Kipushi 1.32 million hours and Kamoa-Kakula more than 10.38 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 Q2 2018, the Platreef Project reached a total of 195,484 lost-time, injury-free hours
worked in terms of South Africa’s Mine Health and Safety Act and Occupational Health and Safety Act.
One lost-time injury occurred in Q2 2018. 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 the first phase 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.
Shaft 1 now extends to a depth of 750 metres below surface
On April 23, 2018, Ivanhoe announced that Platreef’s Shaft 1 had reached a depth of 750 metres below
surface. Lateral development of the first mine-access station continued during Q2 2018.
The 750-metre-level station 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, with a hoisting capacity of six million tonnes a year. Shaft 1’s station at the 750-metre
level 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.
Sinking of Shaft 1 will resume after the 750-metre-level 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 in Q3 2018. 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 982 metres below surface in Q4 2019.
Shaft 1 ultimately will become the primary ventilation intake shaft during the project’s initial four-Mtpa
production case.
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An engineer marking the drill-hole pattern for Platreef’s ongoing underground
development at the eastern-end of Shaft 1’s 750-metre station.
An equipment operator with Platreef’s 5.5-tonne, load-haul-dump machine used
for excavating the 750-metre station.
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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, and 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 six blasts for Shaft 2’s box cut were successfully completed, the most recent
conducted in July. The next of two planned additional blasts is expected next month. 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 (shaft collar foundation) for the 103-metre-tall concrete headgear that
will house the shaft’s permanent hoisting facilities and support the shaft collar. Excavation of the box
cut and construction of the hitch foundation is expected to be completed by the end of 2018.
Removing blasted rock from the Shaft 2 box cut.
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 a year (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. Shaft 2 will provide primary access to the mining zones;
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.
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Planned mining methods will use highly productive, mechanized methods, including long-hole stoping
and drift-and-fill mining. 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 earlier projections in the 2015 pre-feasibility study
(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.
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.
Long-term supply of bulk water secured for the Platreef Mine
On May 7, 2018, Ivanhoe announced the signing of a new agreement to receive 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. 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 Ml/day to offset a portion
of the initial capital contributed.