Ivanhoe Mines announces a positive preliminary economic assessment
May 2, 2016
Ivanhoe Mines announces a positive preliminary economic assessment for the redevelopment of the Kipushi Zinc-Copper Project in the Democratic Republic of Congo
Preliminary mine redevelopment plan focuses on Kipushi’s Big Zinc Zone and includes a two-year construction period and life-of-mine average annual production rate of 530,000 tonnes of zinc concentrate
Kipushi’s Big Zinc Zone has an estimated 10.2 million tonnes of Measured and Indicated Mineral Resources grading 34.9% zinc
Post-tax NPV of US$533 million and 31% IRR
Successful planned restoration of production would make Kipushi the world’s highest grade major zinc mine
KIPUSHI, DEMOCRATIC REPUBLIC OF CONGO — Robert Friedland, Executive Chairman of Ivanhoe Mines (TSX: IVN), and Lars-Eric Johansson, Chief Executive Officer, today announced the receipt of an independent, preliminary economic assessment (PEA) for the planned redevelopment of the company’s historic, high-grade, Kipushi zinc-copper mine. The PEA plan covers the redevelopment of Kipushi as an underground mine, producing an average of 530,000 tonnes of zinc concentrate annually over a 10-year mine life at a total cash cost, including copper by-product credits, of approximately US$0.54 per pound of zinc.
The Kipushi Project is operated by Kipushi Corporation (KICO), a joint venture between Ivanhoe Mines (68%) and Gécamines (32%), the state-owned mining company. The PEA plan focuses on the mining of Kipushi’s Big Zinc Zone, which has an estimated 10.2 million tonnes of Measured and Indicated Mineral Resources grading 34.9% zinc. This grade is more than twice as high as the Measured and Indicated Mineral Resources of the world’s next-highest-grade zinc project, according to Wood Mackenzie, a leading, international industry research and consulting group (see Figure 2, page 6).
The PEA for Kipushi’s redevelopment was prepared by OreWin Pty. Ltd., of Adelaide, Australia, and the MSA Group (Pty.) Ltd., of Johannesburg, South Africa. All monetary figures subsequently stated in this news release are US dollars (US$), unless otherwise stated. The PEA was prepared in compliance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (NI 43-101).
Highlights of the PEA include:
- After-tax net present value (NPV) at an 8% real discount rate is $533 million.
- After-tax real internal rate of return (IRR) is 30.9%.
- After-tax project payback period is 2.2 years.
- Leveraging existing surface and underground infrastructure significantly lowers the redevelopment
capital compared to a greenfield development project, as well as the time required to reinstate production.
- Life-of-mine average planned zinc concentrate production of 530,000 dry tonnes per annum (tpa),
with a concentrate grade of 53% zinc, is expected to rank Kipushi, once in production, among the world’s major zinc mines (see Figure 1, below).
- Life-of-mine average cash cost of US$0.54/lb of zinc is expected to rank Kipushi, once in
production, in the bottom quartile of the cash cost curve for zinc producers globally.
“This preliminary mine redevelopment plan supports our view that Kipushi is the best brownfield zinc project in the world,” said Mr. Friedland. “Kipushi’s zinc grade of almost 35% puts the project into a class of its own.”
Independent research by Wood Mackenzie concludes that the Kipushi Project could be expected to rank among the world’s major zinc mines.
Figure 1: World’s major zinc mines(1), showing estimated annual zinc production and zinc head grades.
(1) World’s major zinc mines defined as the world’s 10 largest zinc mines ranked by forecasted production by 2018.
Source: Wood Mackenzie. Note: Independent research by Wood Mackenzie concludes that at the forecast production and head grade, the Kipushi Project, once in production, will rank among the world’s major zinc mines. Wood Mackenzie compared the Kipushi Project’s life-of-mine average annual zinc production and zinc head grade of 281,000 tonnes and 32%, respectively, against production and zinc head grade forecasts for 2018.
“Most of Kipushi’s underground development and infrastructure already is in place and it is expected to be a straightforward, underground mining and milling operation,” said Mr. Friedland.
“The combination of extremely high zinc grades, low capital requirements and low operating costs makes this a compelling development project.
“In April of this year, zinc inventories dropped to the lowest levels since August 2009, providing a great deal of optimism for significantly higher zinc prices in the next few years. As such, we believe that market conditions are ideal as we evaluate the available options to return Kipushi to production,” Mr. Friedland added.
Mr. Johansson said that since beginning operations almost a century ago, Kipushi has written a long and storied history of mining achievement in the Democratic Republic of Congo.
“We are optimistic that the release of this independent, preliminary mine redevelopment plan is a key first step toward redeveloping the mine and beginning the realization of significant benefits for all of the Kipushi Project’s stakeholders, including the Congolese people and our joint-venture partner, Gécamines. As required by our joint venture agreement, we have shared this study with our partner, Gécamines, for its review and approval, and we look forward to working with Gécamines’ experts to further improve the preliminary mine redevelopment plan, where possible," Mr. Johansson added.
The PEA for the redevelopment of the Kipushi Mine 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 to have the economic considerations applied to them 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. The Kipushi 2016 PEA recommends that the Kipushi Project is advanced to a pre-feasibility study level in order to increase confidence in the estimates.
Details of Mineral Resource estimates
The Mineral Resource used in the PEA has an effective date of January 23, 2016 and was estimated using The Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Best Practice Guidelines and is reported in accordance with the 2014 CIM Definition Standards, which have been incorporated by reference into NI 43- 101. The Mineral Resource is classified into the Measured, Indicated and Inferred categories as shown in Table 1 for the predominantly zinc-rich bodies and in Table 2 for the predominantly copper-rich bodies.
The Mineral Resource estimate was based on the results of 84 holes drilled at Kipushi by Ivanhoe Mines and an additional 107 historical holes drilled by Gécamines. Ivanhoe completed its drilling program for the Mineral Resource estimate in October 2015. Mineral Resource estimates were completed below the -1,150-metre-level on the Big Zinc Zone, Southern Zinc Zone, Fault Zone and Série Récurrente Zone. The Mineral Resources were categorized either as zinc-rich resources or copper-rich resources, depending on the most abundant metal. The Big Zinc and Southern Zinc zones have been tabulated using zinc cut-offs and are shown in Table 1; the Fault Zone, the Fault Zone Splay and Série Récurrente Zone have been tabulated using copper cut-offs and are shown in Table 2. For the zinc-rich zones, the Mineral Resource is reported at a base-case cut-off grade of 7.0% zinc and the copper-rich zones at a base-case cut-off grade of 1.5% copper.
Table 1: Kipushi zinc-rich Mineral Resource at 7% zinc cut-off grade, 23 January 2016
| Zone | Category | Tonnes (millions) | Zn % | Cu % | Pb % | Ag g/t | Co ppm | Ge g/t | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Big Zinc | Measured | 3.59 | 38.39 | 0.67 | 0.36 | 18 | 17 | 54 | |||||
| Indicated | 6.60 | 32.99 | 0.63 | 1.29 | 20 | 14 | 50 | ||||||
| Inferred | 0.98 | 36.96 | 0.79 | 0.14 | 7 | 16 | 62 | ||||||
| Southern Zinc | Indicated | 0.00 | | | | | | | |||||
| Inferred | 0.89 | 18.70 | 1.61 | 1.70 | 13 | 15 | 43 | ||||||
| Total | Measured | 3.59 | 38.39 | 0.67 | 0.36 | 18 | 17 | 54 | |||||
| Indicated | 6.60 | 32.99 | 0.63 | 1.29 | 20 | 14 | 50 | ||||||
| Measured & Indicated | 10.18 | 34.89 | 0.65 | 0.96 | 19 | 15 | 51 | ||||||
| Inferred | 1.87 | 28.24 | 1.18 | 0.88 | 10 | 15 | 53 | ||||||
| Contained metal quantities | |||||||||||||
| Zone | Category | Tonnes (millions) | Zn (million lbs) | Cu (million lbs) | Pb (million lbs) | Ag (million oz) | Co (million lbs) | Ge (million oz) | |||||
| Big Zinc | Measured | 3.59 | 3,035.8 | 53.1 | 28.7 | 2.08 | 0.13 | 6.18 | |||||
| Indicated | 6.60 | 4,797.4 | 91.9 | 187.7 | 4.15 | 0.20 | 10.54 | ||||||
| Inferred | 0.98 | 797.2 | 17.1 | 3.0 | 0.23 | 0.03 | 1.96 | ||||||
| Southern Zinc | Indicated | 0.00 | 0.0 | 0.0 | 0.0 | 0.00 | 0.00 | 0.00 | |||||
| Inferred | 0.89 | 368.6 | 31.8 | 33.5 | 0.38 | 0.03 | 1.23 | ||||||
| Total | Measured | 3.59 | 3,035.8 | 53.1 | 28.7 | 2.08 | 0.13 | 6.18 | |||||
| Indicated | 6.60 | 4,797.4 | 91.9 | 187.7 | 4.15 | 0.20 | 10.54 | ||||||
| Measured & Indicated | 10.18 | 7,833.3 | 144.9 | 216.4 | 6.22 | 0.33 | 16.71 | ||||||
| Inferred | 1.87 | 1,168.7 | 49.6 | 36.8 | 0.61 | 0.06 | 3.21 |
Notes:
1. All tabulated data has been rounded and as a result minor computational errors may occur.
2. Mineral Resources that are not Mineral Reserves have no demonstrated economic viability.
3. The Mineral Resource is reported as the total in-situ Mineral Resource.
4. Metal quantities are reported in multiples of Troy Ounces or Avoirdupois Pounds.
5. The cut-off grade calculation was based on the following assumptions: zinc price of $1.02 /lb, mining cost of $50 /tonne, processing cost of $10 /tonne, G&A and holding cost of $10 /tonne, transport of 55% Zn concentrate at $375 /tonne, 90% zinc recovery and 85% payable zinc.
Table 2: Kipushi Copper-Rich Mineral Resource at 1.5% Copper cut-off grade, 23 January 2016
| Zone | Category | Tonnes (millions) | Cu % | Zn % | Pb % | Ag g/t | Co ppm | Ge g/t | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fault Zone | Measured | 0.14 | 2.78 | 1.25 | 0.05 | 19 | 107 | 20 | |||||
| Indicated | 1.01 | 4.17 | 2.64 | 0.09 | 23 | 216 | 20 | ||||||
| Inferred | 0.94 | 2.94 | 5.81 | 0.18 | 22 | 112 | 26 | ||||||
| Série Récurrenté | Indicated | 0.48 | 4.01 | 3.82 | 0.02 | 21 | 56 | 6 | |||||
| Inferred | 0.34 | 2.57 | 1.02 | 0.06 | 8 | 29 | 1 | ||||||
| Fault Zone Splay | Inferred | 0.35 | 4.99 | 15.81 | 0.005 | 20 | 127 | 81 | |||||
| Total | Measured | 0.14 | 2.78 | 1.25 | 0.05 | 19 | 107 | 20 | |||||
| Indicated | 1.49 | 4.12 | 3.02 | 0.07 | 22 | 165 | 15 | ||||||
| Measured & Indicated | 1.63 | 4.01 | 2.87 | 0.06 | 22 | 160 | 16 | ||||||
| Inferred | 1.64 | 3.30 | 6.97 | 0.12 | 19 | 98 | 33 | ||||||
| Contained metal quantities | |||||||||||||
| Zone | Category | Tonnes (millions) | Cu lbs (millions) | Zn lbs (millions) | Pb lbs (millions) | Ag oz (millions) | Co lbs (millions) | Ge oz (millions) | |||||
| Fault Zone | Measured | 0.14 | 8.5 | 3.8 | 0.2 | 0.09 | 0.03 | 0.09 | |||||
| Indicated | 1.01 | 93.2 | 59.1 | 1.9 | 0.75 | 0.48 | 0.64 | ||||||
| Inferred | 0.94 | 61.1 | 120.9 | 3.8 | 0.68 | 0.23 | 0.79 | ||||||
| Série Récurrenté | Indicated | 0.48 | 42.4 | 40.5 | 0.2 | 0.32 | 0.06 | 0.09 | |||||
| Inferred | 0.34 | 19.4 | 7.7 | 0.4 | 0.09 | 0.02 | 0.01 | ||||||
| Fault Zone Splay | Inferred | 0.35 | 38.9 | 123.3 | 0.0 | 0.23 | 0.10 | 0.92 | |||||
| Total | Measured | 0.14 | 8.5 | 3.8 | 0.2 | 0.09 | 0.03 | 0.09 | |||||
| Indicated | 1.49 | 135.7 | 99.6 | 2.1 | 1.08 | 0.54 | 0.73 | ||||||
| Measured & Indicated | 1.63 | 144.1 | 103.4 | 2.3 | 1.16 | 0.58 | 0.82 | ||||||
| Inferred | 1.64 | 119.4 | 251.8 | 4.3 | 1.00 | 0.35 | 1.73 |
Notes:
1. All tabulated data has been rounded and as a result minor computational errors may occur.
2. Mineral Resources that are not Mineral Reserves have no demonstrated economic viability.
3. The Mineral Resource is reported as the total in-situ Mineral Resource.
4. Metal quantities are reported in multiples of Troy Ounces or Avoirdupois Pounds.
5. The cut-off grade calculation was based on the following assumptions: copper price of $2.97 /lb, mining cost of $50/tonne, processing cost of $10/tonne, G&A and holding cost of $10/tonne, 90% copper recovery and 96% payable copper.
Exploration drilling conducted by Ivanhoe Mines in 2015 sucessfully confirmed that both the Big Zinc Zone and Fault Zone remain open at depth and to the south. Additional high-grade copper-zinc-germanium mineralization also was discovered in the Fault Zone and in the Fault Zone Splay in the immediate footwall of the Fault Zone.
Figure 2: Top 20 zinc projects by contained zinc
Source: Wood Mackenzie. Note: All tonnes and metal grades of individual metals used in the equivalency calculation of the above mentioned projects (except for Kipushi) are based on public disclosure and have been compiled by Wood Mackenzie. All metal grades have been converted by Wood Mackenzie to a zinc equivalent grade at price assumptions of $1.01/lb zinc, $2.86/lb copper, $0.91/lb lead, $12.37/lb cobalt, $1,201/oz gold, $17/oz silver and $2,000/kg germanium.
Existing underground infrastructure and mining
Historical mining at Kipushi was carried out from surface to approximately 1,220 metres below surface (mL) and occurred in three contiguous zones: The North and South zones of the Fault Zone, and the Série Récurrente Zone in the footwall of the fault that is approximately east-west striking and steeply north dipping.
KICO has a significant amount of underground infrastructure at the Kipushi Project, including a series of vertical mine shafts, with associated head frames, to various depths, as well as underground mine excavations. A schematic layout of the existing development is shown in Figure 3.
The newest shaft, # 5 (labeled as P5 in Figure 3 below), is eight metres in diameter and 1,240 metres deep. It is expected to be recommissioned as the main production shaft. It has a maximum hoisting capacity of 1.8 million tonnes a year (Mtpa) and provides the primary access to the lower levels of the mine, including the Big Zinc Zone, through the 1,150mL haulage level. Shaft 5 is located approximately 1.5 kilometres from the main mining area. A series of crosscuts and ventilation infrastructure still are in working condition. The underground infrastructure also includes a series of pumps to manage the influx of water into the mine.
Figure 3: Schematic section of Kipushi Mine
The planned mining method is a combination of Sublevel Open Stoping (SLOS), Pillar Retreat and Cut and Fill methods at a steady-state mining rate of 1.1 Mtpa. The existing and planned development is shown in Figure 4.
The primary mining method for the Big Zinc Zone in the PEA is expected to be SLOS, with cemented rock backfill. The crown pillars are expected to be mined once adjacent stopes are backfilled using a Pillar Retreat mining method. The Big Zinc Zone is expected to be accessed via the existing decline and without significant new development. The main levels are planned to be at 60-metre vertical intervals, with sublevels at 30-metre intervals.
The Cut and Fill mining method has been identified to be used to extract the copper zone outside the Big Zinc Zone. In this method, mining occurs in horizontal slices, with the blasted copper material removed from the stopes, then crushed underground and sold at the mine gate.
Figure 4: Planned and existing development at Kipushi
Zinc processing by dense media separation
The planned process plant in the PEA is a dense media separation (DMS) plant, which is expected to include crushing, screening, heavy-liquid separation (HLS) and spirals to produce a high-grade zinc concentrate. DMS is a simple density concentration technique that preliminary testwork has shown yields positive results for the Kipushi material, which has a sufficient density differential between the gangue (predominantly dolomite) and mineralization (sphalerite). DMS washability profiles were evaluated in the laboratory at three feed-crush sizes using a combination of HLS and shaking tables.
Preliminary test work results on three crush sizes indicated that the –20-mm crush size resulted in the highest recovery and concentrate grade. This crush size achieved an overall recovery of 95.4% at a concentrate grade of 55.5% zinc.
Infrastructure
The Kipushi Project includes surface mining and processing infrastructure, concentrator, offices, workshops and a connection to the national power grid. Electricity is supplied by the Democratic of the Congo’s (DRC) state power company, Société Nationale d’Electricité (SNEL), from two transmission lines from Lubumbashi. Pylons are in place for a third line.
The surface infrastructure is owned by Gécamines. KICO has entered into an agreement to use the surface rights on the Kipushi Project to the extent required for its operations.
An abundant supply of process water from the underground dewatering operations is expected to provide adequate water for processing and mining operations.
The overall proposed site layout is shown in Figure 5.
Figure 5: Proposed site layout
The Kipushi Station and connecting rail line from Kipushi to Manama, and through to the Zambian border at Ndola, are owned and operated by La Société Nationale des Chemins de Fer du Congo (SNCC).
The proposed export route is to utilize the SNCC network from Kipushi to Ndola, connecting to the North-South Rail Corridor from Ndola to Durban. The Kipushi to Manama branch line will require a significant refurbishment over 30 kilometres (the required capital is expected to be repaid through the estimated transport cost of $250 per tonne). The North-South Rail Corridor from Sakania to Durban via Zimbabwe is fully operational and has a capacity of 5 Mtpa. Ivanhoe Mines is working with Grindrod Limited, of South Africa, a leading and experienced freight services, shipping and financial services logistics operator in Southern Africa, to advance discussions with SNCC regarding the concession from Kipushi to Manama.
Proposed mine production
Future proposed mine production has been scheduled to maximize the mine output and meet the DMS plant capacity. The mining production forecasts are shown in Table 3. Mine, process and concentrate production are shown in figures 6 to 8.
Table 3: Mining production statistics
| Description | Unit | Total LOM | 5-Year Average | LOM Average |
|---|---|---|---|---|
| Zinc feed – tonnes processed | ||||
| Quantity Zinc Tonnes Treated | kt | 9,394 | 981 | 939 |
| Zinc Feed grade | % | 32.15 | 32.65 | 32.15 |
| Zinc Recovery | % | 92.94 | 93.14 | 92.94 |
| Zinc Concentrate Produced | kt (dry) | 5,296 | 562 | 530 |
| Zinc Concentrate grade | % | 53.00 | 53.00 | 53.00 |
| Copper feed – tonnes processed | ||||
| Quantity Copper Tonnes Treated | kt | 547 | 88 | 55 |
| Copper Feed grade | % | 5.41 | 5.68 | 5.41 |
| Copper Recovery | % | 90.00 | 90.00 | 90.00 |
| Copper Concentrate Produced | kt (dry) | 106 | 18 | 11 |
| Copper Concentrate grade | % | 25.00 | 25.00 | 25.00 |
| Metal produced | ||||
| Zinc | kt | 2,807 | 298 | 281 |
| Copper | kt | 27 | 4 | 3 |
Figure 6: Zinc and copper – tonnes mined
Figure 7: Zinc and copper – tonnes processed
Figure 8: Concentrate and metal production
Economic analysis
The estimates of cash flows have been prepared on a real basis as at January 1, 2016, and a mid-year discounting is used to calculate the NPV.
The projected financial results for undiscounted and discounted cash flows, at a range of discount rates, IRR and payback are shown in Table 4. The key economic assumptions for the discounted cash flow analyses are shown in Table 5. The results of NPV sensitivity analysis to a range of zinc prices and discount rates is shown in Table 6. A chart of the cumulative cash flow is shown in Figure 9.