Ivanhoe Mines issues 2018 third-quarter financial results and review of exploration and development activities CITIC Metal and Zijin Mining invested more than C$800 million to advance Ivanhoe’s three world-scale mine projects
November 8, 2018
Ivanhoe Mines issues 2018 third-quarter financial results
and review of exploration and development activities
CITIC Metal and Zijin Mining invested more than C$800 million
to advance Ivanhoe’s three world-scale mine projects
in Southern Africa
Ivanhoe announced the Makoko Discovery on its 100%-owned
Western Foreland exploration licences near Kamoa-Kakula –
the company’s third major copper discovery in the DRC
TORONTO, CANADA ‒ Ivanhoe Mines (TSX: IVN; OTCQX: IVPAF) today announced its financial
results for the third quarter ended September 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 September 19, 2018, China-based CITIC Metal Co., Ltd. (CITIC Metal) completed a long-
term, strategic cooperation and investment agreement that saw its direct subsidiary, CITIC
Metal Africa Investments Limited (CITIC Metal Africa), invest C$723 million ($555 million) to
advance Ivanhoe’s three projects in Southern Africa. Under the terms of the investment
agreement, CITIC Metal Africa acquired a 19.5% stake in Ivanhoe Mines through a private
placement at a price of C$3.68 per share.
• Also on September 19, 2018, Zijin Mining Group Co., Ltd. (Zijin Mining), Ivanhoe’s joint-
venture partner at the Kamoa-Kakula Project, exercised its anti-dilution rights at a price of
C$3.68 per share, generating additional proceeds for Ivanhoe of C$78 million
(approximately US$60 million). This resulted in Zijin retaining a 9.7% ownership stake in
Ivanhoe Mines – its level of ownership prior to the completion of CITIC Metal Africa’s
strategic investment.
• Pursuant to the terms of the strategic cooperation and investment agreement with CITIC
Metal, Yufeng “Miles” Sun, President of CITIC Metal Group Limited, and Tadeu Carneiro,
former Chief Executive Officer of Brazil-based Companhia Brasileira de Metalurgia e
Mineração (CBMM), have joined the Ivanhoe Mines Board of Directors. Mr. Sun and Mr.
Carneiro were nominated by CITIC Metal. Mr. Carneiro is an independent director of Ivanhoe
Mines.
• On October 1, 2018, Ivanhoe announced the Makoko Copper Discovery on its 100%-owned
Western Foreland exploration licences, near Kamoa-Kakula in the DRC. Makoko, Ivanhoe’s
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third major copper discovery in the DRC, shows geological characteristics identical to the
tier-one Kamoa-Kakula Discoveries. Drilling is continuing on other Western Foreland
targets.
• 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 1,000 metres through
underground development work. The 3,535-metre decline development contract is
scheduled to be completed by the end of 2018.
• A pre-feasibility study (PFS) for phase 1 of the Kamoa-Kakula Project is underway and is
expected to be completed early in 2019. The planned initial, six-million-tonne-per-annum
(Mtpa) mine and concentrator at Kakula is estimated to have an initial capital cost of $1.2
billion. Subsequent expansions and a smelter can be funded from cash flows or project
finance. Ivanhoe and 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 25,298 metres of drilling was completed at Kakula, Kakula West and Kamoa North
and surrounding areas during Q3 2018, increasing the total drilling completed during the
first nine months of 2018 to 62,224 metres.
• On July 30, 2018, Ivanhoe announced a new Mineral Resource estimate for the Kipushi Mine
in the DRC 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 early in 2019. The DFS will update and refine the
findings of the PFS issued last December. Similar to the PFS, the DFS will focus on the
initial mining of Kipushi’s Big Zinc Zone.
• 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.
• On October 8, 2018, Ivanhoe announced that the sinking of Shaft 1 at the Platreef platinum-
palladium-nickel-copper-gold discovery in South Africa reached the top of the Flatreef
orebody, at a depth of approximately 780 metres. Sinking has reached a depth of 809
metres and will continue to its planned final depth of 982 metres. The Platreef mining team
delivered the first ore from the underground mine development to surface stockpiles for
metallurgical sampling.
• The estimated thickness of the mineralized reef (T1 & T2 mineralized zones) at Shaft 1 is 26
metres, with grades of platinum-group metals ranging up to 11 grams per tonne (g/t) 3PE
(platinum, palladium and rhodium) plus gold, as well as significant quantities of nickel and
copper. The 26-metre intersection will yield approximately 3,000 tonnes of ore, estimated to
contain more than 400 ounces of platinum-group metals.
• 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. Construction of a
concrete hitch for the headframe is expected to be completed early in 2019.
• Based on the findings of an independent, DFS 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
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$351 per ounce of platinum, palladium, rhodium and gold, net of by-products, including
sustaining capital costs.
• At the end of Q3 2018, Kamoa-Kakula had recorded 11.27 million work hours free of lost-
time injuries, Kipushi 1.72 million work hours, and Platreef 666,009 work hours.
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 (Ivanplats), 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 in 2010 and 2011 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 Q3 2018, the Platreef Project reached a total of 666,009 lost-time, injury-free hours
worked in terms of South Africa’s Mine Health and Safety Act and Occupational Health and Safety Act.
It has been four months since the last lost-time injury occurred at the Platreef Project, which continues
to strive toward its workplace objective of an environment that causes zero harm to employees,
contractors, sub-contractors and consultants.
Shaft 1 now extends to a depth of 800 metres below surface
Shaft 1 reached the top of the high-grade Flatreef Deposit (T1 mineralized zone) at a depth of 780.2
metres below surface in September 2018. The Platreef mining team has delivered the first ore from the
underground mine development to surface stockpiles for metallurgical sampling. The estimated
thickness of the mineralized reef (T1 & T2 mineralized zones) at Shaft 1 is 26 metres, with grades of
platinum-group metals ranging up to 11 grams per tonne (g/t) 3PE (platinum, palladium and rhodium)
plus gold, as well as significant quantities of nickel and copper. The 26-metre intersection will yield
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approximately 3,000 tonnes of ore, estimated to contain more than 400 ounces of platinum-group
metals.
Current shaft depth is 809 metres and sinking is continuing through the mineralized reef. The 750-
metre-level station was successfully developed, with steelwork and concrete construction ongoing. The
station will provide initial, underground access to the high-grade orebody, enabling mine development
to proceed during the construction of Shaft 2. With a hoisting capacity of six million tonnes a year, Shaft
2 will become the mine’s main production shaft and will allow access for the first raise-bore shaft that
will provide ventilation to the underground workings during the mine’s ramp-up phase.
As shaft sinking advances, two additional 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 early 2020. Shaft 1 ultimately will become the primary ventilation intake shaft during the
project’s initial, four-Mtpa production case.
Photo: Members of the Platreef Project team and its South African sinking contractor,
Aveng Mining, in Shaft 1 at the intersection of the Flatreef Deposit.
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. It 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 seven blasts for Shaft 2’s box cut were successfully completed, with the last two
remaining blasts expected to take place before the end of 2018. 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 in early 2019, enabling the beginning of the pre-sink
that will extend 84 metres below surface.
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Photo: Shaft 2 box-cut excavation in progress.
Underground mining to incorporate highly productive, mechanized methods
Ivanhoe plans to develop the Platreef Mine in phases. The initial annual production rate of four 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.
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 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.
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Platreef project financing continuing to advance
Ivanhoe continues to advance the arrangement of project financing for the development of the Platreef
Project. Negotiation of a term sheet is progressing well with the Initial Mandated Lead Arrangers
(IMLAs), which are KfW IPEX-Bank, a 100% subsidiary of the German promotional bank KfW; Swedish
Export Credit Corporation; Nedbank Limited (acting through its Nedbank Corporate and Investment
Banking division); and Societe Generale Corporate & Investment Banking.
In October 2018, Export Development Canada (EDC) advised Ivanhoe that it would not renew its IMLA
mandate, as it is currently reviewing its market position for South Africa. EDC informed Ivanhoe that its
decision was not, based on the due diligence completed to date, related to any specific concern it had
with the company or the Platreef Project. In addition preliminary discussions are underway with leading
South African financial institutions regarding the financing of the black economic empowerment
partners’ contribution to the development capital which would thereby reduce the amount that would
otherwise have to be contributed by Ivanhoe on their behalf.
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.
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 DRC, 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).
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Health, safety and community development
At the end of Q3 2018, the Kipushi Project had achieved a total 1,724,816 work hours free of lost-time
injuries. On September 16, 2018, it had been a year since a lost-time injury had occurred at the Kipushi
Project.
The Kipushi Project operates a potable-water station to supply the municipality with water. This
includes power supply, disinfectant chemicals, routine maintenance, security and emergency repair of
leaks to the primary reticulation. The Kipushi Project also installed and commissioned new overhead
powerlines to the pump station. Other community development projects continued during Q3 and
included the Kipushi women’s literacy project.
Kipushi Mineral Resources
The Kipushi Project’s current Mineral Resource estimate was updated with an effective date of June 14,
2018, and was prepared by the MSA Group, of Johannesburg, South Africa, in compliance with 2014
CIM Definition Standards.
Zinc-rich Measured and Indicated Mineral Resources, primarily in the Big Zinc Zone, total 11.78 million
tonnes at grades of 35.34% zinc, 0.80% copper, 23 g/t silver and 64 g/t germanium, at a 7% zinc cut-off
– containing an estimated 9.2 billion pounds of zinc. Zinc-rich Inferred Mineral Resources total an
additional 1.14 million tonnes at grades of 33.77% zinc, 1.24% copper, 12 g/t silver and 62 g/t
germanium. The Inferred Mineral Resources are contained partly in the Big Zinc Zone and partly in the
Southern Zinc Zone.
Copper-rich Measured and Indicated Mineral Resources contained in the adjacent Fault Zone, Fault
Zone Splay and Série Récurrente Zone total an additional 2.29 million tonnes at grades of 4.03%
copper, 2.85% zinc, 21 g/t silver and 19 g/t germanium, at a 1.5% copper cut-off – containing 144
million pounds of copper. Copper-rich Inferred Mineral Resources in these zones total an additional
0.44 million tonnes at grades of 3.89% copper, 10.77% zinc, 19 g/t silver and 55 g/t germanium.
The new Mineral Resource estimate incorporates Ivanhoe’s second phase of underground drilling at
Kipushi that was completed in 2017.
Pre-feasibility study for Kipushi completed in December 2017;
definitive feasibility study underway
The Kipushi Project’s PFS, announced by Ivanhoe Mines on December 13, 2017, anticipated 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 $0.48 per pound of zinc.
Highlights of the PFS, based on a long-term zinc price of $1.10 per pound, include:
• After-tax net present value (NPV) at an 8% real discount rate of $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 $337 million.
• Existing surface and underground infrastructure allows for significantly lower capital costs than
comparable greenfield development projects.
• Life-of-mine average planned 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.
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Estimated life-of-mine average cash cost of $0.48 per pound of zinc is expected to rank Kipushi, once
in production, in the bottom quartile of the cash-cost curve for zinc producers internationally.
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.
Geology and exploration
Work is focused on additional information required for the ongoing feasibility study as well as planning
the geological delineation drilling for the underground mine development. The design criteria targeted
areas along the edge of the Big Zinc, which presently are inaccessible from the historic workings.
Photo: Bukasa Lengesha, a boilermaker at Kipushi, inspecting the recently installed ore-loading
flask at the bottom of Shaft 5.
Project development and infrastructure
Significant progress has been made in modernizing the Kipushi Mine’s underground infrastructure as
part of preparations for the mine to resume commercial production. In Q3 2018, the Kipushi Project
successfully completed initial, pre-production testing as part of the equipment commissioning process
for the new, large-capacity rock crusher that has been installed 1,150 metres below surface. The
Sandvik jaw crusher has a maximum capacity of 1,085 tonnes an hour. The 54-tonne machine was re-
assembled and installed in the crusher chamber after it was disassembled on surface and its pieces
were lowered down Shaft 5, which is the Kipushi Mine’s main production shaft.
Ivanhoe completed the upgrading of a significant amount of underground infrastructure at the Kipushi
Project, including a series of vertical mine shafts to various depths, with associated head frames, as
well as underground mine excavations. A series of crosscuts and ventilation infrastructure still are in