Ivanhoe Mines issues financial results and review of operations for the second quarter of 2017 Updated Mineral Resource estimate in May boosts tonnage of the Kakula Discovery’s Indicated Resources by 75% to 116 million tonnes at 6.09% copper,
August 9, 2017
Ivanhoe Mines issues financial results
and review of operations for the second quarter of 2017
Updated Mineral Resource estimate in May boosts tonnage
of the Kakula Discovery’s Indicated Resources
by 75% to 116 million tonnes at 6.09% copper,
and combined Indicated Resources at Kamoa-Kakula
to approximately one billion tonnes at 3.02% copper
Start of mine development work at Kakula Discovery
highlights another busy quarter at Ivanhoe’s
three mine development projects in Southern Africa
TORONTO, CANADA ‒ Ivanhoe Mines (TSX: IVN; OTCQX: IVPAF) today announced its financial
results for the second quarter ended June 30, 2017. 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-gold-nickel-
copper discovery in South Africa; and the Kamoa-Kakula copper discovery and the Kipushi
zinc-copper-silver-germanium mine in the Democratic Republic of Congo (DRC).
HIGHLIGHTS
On May 17, 2017, Ivanhoe issued an updated resource estimate showing that the Kakula
Discovery at the Kamoa-Kakula Project contains Indicated Mineral Resources of 116 million
tonnes at 6.09% copper, plus Inferred Resources of 12 million tonnes at 4.45% copper, at a
3% cut-off. Kakula’s new estimate boosts combined Indicated Mineral Resources at both the
Kamoa and Kakula discoveries to approximately one billion tonnes at 3.02% copper, plus
another 191 million tonnes of Inferred Resources at 2.37% copper, at a 1.4% cut-off.
The May 2017 Kakula estimate establishes the Kamoa-Kakula Project in the ranks of the five
largest copper deposits in the world. The project’s copper grades are the highest, by a wide
margin, of the world’s top 10 copper deposits. Both the subsequent Kakula Discovery and
the original Kamoa Discovery continue to remain open for significant expansion.
In late June, excavation began on the surface box cut at the Kakula Discovery. The box cut
will be excavated to a depth of approximately 18 metres below surface and is expected to be
completed in October. Construction of twin declines, similar to those at Kamoa’s Kansoko
Mine, will begin once construction of the box cut has been completed.
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Kamoa Copper has retained OreWin Pty. Ltd., of Australia, to prepare a follow-up preliminary
economic assessment (PEA) for the development of the Kakula and Kamoa deposits. It is
expected that the increased resource base at Kakula will support a mine capacity of
approximately six million tonnes per annum (Mtpa). The capacity of the Kansoko Mine also
is expected to be six Mtpa, giving the revised PEA a projected peak mine production of
approximately 12 Mtpa from the presently delineated Kamoa and Kakula deposits. 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
area, the Kamoa-Kakula development plans will be reassessed and amended as the project
moves forward.
Drill intercepts rich in chalcocite and bornite continue to be returned at Kakula West and in
the saddle area between the Kakula Mineral Resource area and the Kakula West discovery
area. Drilling now has extended the strike length of the Kakula West copper-rich mineralized
system to approximately 2.9 kilometres, and the high-grade Kakula mineralized system to
more than 12 kilometres.
Ivanhoe expects to issue a comprehensive drilling update for the Kakula Discovery in early
September, which will include assays received since the May 2017 resource estimate. An
updated Mineral Resource estimate for the entire 12-kilometre-long Kakula mineralized
system defined to date, including the Kakula West Discovery, is expected before the end of
the year.
The Kakula Discovery remains open for significant expansion along trend to the west and
the southeast, while the remainder of the Kakula Exploration Area remains virtually
untested. More than 68,000 metres have been drilled at Kakula since the start of the year. A
total of 14 rigs are drilling at the Kamoa-Kakula Project.
Nearly 200 square kilometres of the approximately 400-square-kilometre Kamoa-Kakula
Project area remain untested. The Kamoa-Kakula geology team, with the assistance of
technical advisors, has intensively evaluated the structural and stratigraphic controls on
mineralization of the broader Kamoa-Kakula basin. This work has highlighted at least nine
high-priority targets located in untested portions of the Kamoa-Kakula mining licence. Drill
testing of two of the targets — Kamoa Ouest (West) and Makalu/Kakula NE — is underway.
Ivanhoe holds an extensive, 100%-owned exploration land position in the Western Foreland
region, just to the west of the Kamoa-Kakula mining licence, which is highly prospective for
Kamoa-Kakula-type copper discoveries. Ivanhoe’s DRC exploration team has begun an
initial, $4 million exploration program on the Western Foreland licences.
Underground development at Kamoa’s Kansoko Mine, consisting of service and conveyor
declines, made excellent progress in Q2 and mining of the high-grade copper ore began in
July. Decline development work at Kansoko is expected to be completed by September.
On July 31, Ivanhoe announced the positive results of an independent definitive feasibility
study for the planned first phase of its Platreef platinum-group elements, nickel, copper and
gold mine in South Africa. The study envisages an initial annual throughput rate of four
million tonnes a year, producing 476,000 ounces of platinum, palladium, rhodium and gold
(3PE+Au), plus 33 million pounds of nickel and copper.
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 3PE+Au, net of by-products, including sustaining
capital cost. There is good potential for relatively quick and capital-efficient expansion to six
and eight million tonnes a year, and beyond, using start-up infrastructure.
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Ivanhoe now has appointed five leading mine-financing institutions as Initial Mandated Lead
Arrangers to arrange debt financing for the development of the Platreef Mine. They are: KfW
IPEX-Bank, a German government owned institution; 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. Discussions have begun around the financing of the broad-based, black
economic empowerment structure. Strategic discussions regarding the Platreef Project also
are continuing with significant global mining companies and investors.
Sinking of Platreef’s Shaft 1 has reached a depth of 451 metres below surface and
development of the first of four planned shaft stations – the 450-metre-level substation – is
underway. Shaft 1 is expected to reach the Flatreef Deposit, at a depth of 777 metres below
surface, in the first half of 2018. Sinking will continue to a planned final depth of 980 metres
below surface.
Early-works construction for Platreef’s Shaft 2 began in April 2017. Construction will consist
of excavation of a box cut to a depth of approximately 29 metres below surface and
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.
A 6,500-metre drilling program at Kipushi is underway. The program includes six
metallurgical holes in the Big Zinc Deposit and resource drilling in the Fault Zone, the Nord
Riche and Southern Zinc zones to expand and upgrade Inferred Resources.
A pre-feasibility study for the redevelopment of the Kipushi zinc-copper-germanium-lead-
silver mine is being prepared by OreWin, of Australia. The comprehensive study is
progressing and will refine Ivanhoe’s May 2016 preliminary economic assessment of
Kipushi’s proposed redevelopment.
Ivanhoe Mines’ three projects achieved a combined 12.3 million work hours free of lost-time
injuries (LTIF) by the end of Q2 2017. Ivanhoe had recorded almost 43,000 LTIF hours at
Platreef, 5.5 million hours at Kipushi and more than 6.8 million hours at Kamoa-Kakula to the
end of Q2 2017.
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 January 2017, Ivanplats reconfirmed its Level 3
status in its third 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.
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The Platreef Project hosts an underground deposit of thick, platinum-group metals, nickel, copper and
gold mineralization in the Northern Limb of the Bushveld Igneous Complex, approximately 280
kilometres northeast of Johannesburg and eight kilometres from the town of Mokopane in Limpopo
Province.
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 three contiguous properties: Turfspruit,
Macalacaskop and Rietfontein. 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.
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 elements, nickel, copper
and gold mine in South Africa.
The independent 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
concentrate production 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.
Highlights include:
Indicated Mineral Resources contain 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 – an increase of 13% – 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 (oz) 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 study 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 Inc.
(Amec Foster Wheeler), Stantec Consulting, Murray & Roberts Cementation, SRK Consulting, Golder
Associates and Digby Wells Environmental.
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Construction of first shaft station now underway in Shaft 1
Shaft 1, with an internal diameter of 7.25 metres, will provide access to the Flatreef Deposit and enable
the initial, underground capital 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-million-tonne-per-
annum production case. An average sinking rate of 45 metres per month is expected during the main
sinking phase. The shaft includes a 300-millimetre-thick, concrete-lined shaft wall. The main sinking
phase is expected to reach its projected, final depth of 980 metres below surface in 2018. Shaft stations
to provide access to horizontal mine workings for personnel, materials, pump stations and services will
be developed at depths of 450 metres, 750 metres, 850 metres and 950 metres below surface. The
permanent sinking phase, which started in July 2016, had reached a depth of 451 metres below surface
on July 31, 2017. The first off-shaft lateral development is underway at the 450-metre level, which will
serve as an intermediate water-pumping and shaft cable-termination station.
Figure 1: Platreef’s Shaft 1 headgear.
Health and safety at Platreef
By the end of June 2017, the Platreef Project reached a total of 7,544,626 million hours and 42,817
lost-time, injury-free hours worked in terms of the Mines Health and Safety Act and the Occupational
Health and Safety Act of South Africa. Four lost-time accidents occurred during Q2 2017. The Platreef
Project continues to strive toward its workplace objective of an environment that causes zero harm to
employees, contractors, sub-contractors and consultants.
Shaft 2 early-works construction underway
Shaft 2 will be located approximately 100 metres northeast of Shaft 1. Shaft 2, with an internal diameter
of 10 metres, will be lined with concrete and sunk to a planned, final depth of more than 1,100 metres
below surface. It will be equipped with two 40-tonne rock-hoisting skips with a capacity to hoist a total of
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six million tonnes of ore per year – which will be 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 early-works for Shaft 2 include the excavation of a surface 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. The early-works commenced in June 2017 and will take
approximately 12 months to complete.
Underground mining to use highly productive mechanized methods
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
and secondary access to the mine 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 over 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 life. This strategy has increased the grade profile by 23% on a 3PE+Au basis in the first 10 years
of operation and 10% over the life of the mine.
Shaft 2 engineered to allow for future expansion options
Given the size and potential of the Platreef Mineral Resource, Shaft 2 has been engineered with a
crushing and hoisting capacity of six Mtpa.
This allows for a relatively quick and capital-efficient first expansion of the Platreef Project to six Mtpa
by increasing underground development and commissioning a third, two-Mtpa processing module and
associated surface infrastructure as required.
A further expansion to more than eight Mtpa would entail converting Shaft 1 from a ventilation shaft into
a hoisting shaft. This would require additional ventilation exhaust raises, as well as a further increase of
underground development, commissioning of a fourth, two-Mtpa processing module and associated
surface infrastructure, as described in the Platreef preliminary economic assessment as Phase 2 of the
project.
Preliminary expressions of interest have been received for approximately
$900 million of the targeted $1 billion Platreef project financing
On July 19, 2017, Ivanhoe Mines announced the appointment of another two leading mine-financing
institutions – KfW IPEX-Bank, a German government owned institution, and the Swedish Export Credit
Corporation (SEK) – as Initial Mandated Lead Arrangers (IMLAs) to arrange debt financing for the
ongoing development of the Platreef Mine.
KfW IPEX-Bank and SEK joined the three initial IMLAs – Export Development Canada, Nedbank Limited
(acting through its Corporate and Investment Banking division) and Societe Generale Corporate &
Investment Banking – that were appointed earlier this year.
The five 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 now have
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been received for approximately $900 million of the targeted $1 billion project financing. Negotiation of
a term sheet is ongoing. In addition, preliminary discussions have commenced with leading financial
institutions around the financing of the contribution by the black economic empowerment partners to the
development capital.
Figure 2: Representatives of the five banking institutions appointed to arrange
debt financing for the Platreef Mine visited the site in July.
Metallurgical test work and processing methods
Metallurgical test work has focused on maximizing recovery of platinum-group elements (PGE) and
base metals, mainly nickel, while producing an acceptably high-grade concentrate suitable for further
processing and/or sale to a third party. The three main geo-metallurgical units and composites tested
produced smelter-grade final concentrates of approximately 85 grams per tonne PGE+Au at acceptable
PGE recoveries. Test work also has shown that the material is amenable to treatment by conventional
flotation without the need for mainstream or concentrate ultrafine re-grinding. Extensive bench-scale
test work comprising open-circuit and locked-cycle flotation testing, comminution testing, mineralogical
characterization, dewatering and rheological characterization was performed at Mintek in South Africa,
which is an internationally accredited metallurgical testing facility and laboratory.
Comminution and flotation test work has indicated that the optimum grind for beneficiation is 80%
passing 75 micrometres. Platreef ore is classified as being ‘hard’ to ‘very hard’ and thus not suitable for
semi-autogenous grinding; a multi-stage crushing and ball-milling circuit has been selected as the
preferred size-reduction route.
Improved flotation performance has been achieved using high-chrome grinding media as opposed to
carbon-steel media. The inclusion of a split-cleaner flotation circuit configuration, in which the fast-
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floating fraction is treated in a cleaner circuit separate from the medium- and slow-floating fractions,
resulted in improved PGE, copper and nickel recoveries and concentrate grades.
As with the pre-feasibility study (PFS), a two-phased development approach was used for the DFS flow-
sheet design. The selected flow sheet comprises a common four-Mtpa, three-stage crushing circuit that
feeds crushed material to two parallel milling-flotation modules, each with a nominal capacity of
two Mtpa. Flotation is followed by a common concentrate thickening, concentrate filtration, tailings
disposal and tailings-handling facility.
Bulk water and electricity supply
The Olifants River Water Resource Development Project (ORWRDP) is designed to deliver water to the
Eastern and Northern limbs of South Africa’s Bushveld Complex. The project consists of the new De
Hoop Dam, the raised wall of the Flag Boshielo Dam and related pipeline infrastructure that ultimately is
expected to deliver water to Pruissen, southeast of the Northern Limb. The Pruissen Pipeline Project is
expected to be developed to deliver water onward from Pruissen to the municipalities, communities and
mining projects on the Northern Limb. Ivanhoe Mines is a member of the ORWRDP’s Joint Water
Forum.
The Platreef Project’s water requirement for the first phase of development is projected to peak at
approximately 7.5 million litres per day, which is expected to be supplied by the water network. Ivanhoe
also is investigating various alternative sources of bulk water, including an allocation of bulk grey-water
from a local source.
The Platreef Project’s electrical power requirement for the phase one, four Mtpa, underground mine,
concentrator and associated infrastructure has been estimated at approximately 100 million volt-
amperes. An agreement has been reached with Eskom, the South African public electricity utility, for
the supply of phase-one power. Ivanhoe chose a self-build option for permanent power that will enable
Ivanhoe to manage the construction of the distribution lines from Eskom’s Burutho sub-station to the
Platreef Mine. The self-build and electrical supply agreements are being formulated.
2. Kipushi Project
68%-owned by Ivanhoe Mines
Democratic Republic of Congo
The Kipushi copper-zinc-germanium-silver 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).
Health, safety and community development
The Kipushi Project achieved a total of 5,506,908 work hours free of lost-time injuries, equivalent to
1,783 days, to the end of June 2017. Malaria remains the most frequently occurring health concern at
Kipushi, which increased after the rainy season to an average of 19 cases per month for project
employees during the quarter.
In an effort to reduce the incidence of malaria in the Kipushi community, a Water Sanitation and Health
(WASH) program has been initiated in cooperation with the Territorial Administrator and the local
community. The main emphasis of the program’s first phase is cleaning storm drains in the municipality
to prevent accumulations of ponded water, where malarial mosquitos breed.