Ivanhoe Mines announces an outstanding pre-feasibility study for the rebirth of the historic Kipushi zinc-copper-silver-germanium mine in the Democratic Republic of Congo Redevelopment plan to bring Kipushi’s Big Zinc Zone into production
December 13, 2017
Ivanhoe Mines announces an outstanding pre-feasibility study for the rebirth of the historic Kipushi zinc-copper-silver-germanium mine in the Democratic Republic of Congo
Redevelopment plan to bring Kipushi’s Big Zinc Zone into production in less than two years, with life-of-mine average annual production rate of 225,000 tonnes of zinc and cash costs of US$0.48/lb of zinc
Big Zinc Zone has estimated 10.2 million tonnes of Measured and Indicated Mineral Resources grading 34.9% zinc
Successful restoration of production to establish Kipushi as the world’s highest-grade major zinc mine
After-tax NPV of US$683 million and 35% IRR, based on long-term zinc price of US$1.10/lb, with pre-production capital of US$337 million
Kipushi has after-tax NPV of US$1.2 billion and IRR of 51% at current zinc price of approximately US$1.40/lb
Memorandum of understanding signed with leading mining contractor Byrnecut
Memorandum of understanding to rebuild railway spur line signed with DRC national railway to facilitate exports of concentrate
KIPUSHI, DEMOCRATIC REPUBLIC OF CONGO — Robert Friedland, Executive Chairman of Ivanhoe Mines (TSX: IVN; OTCQX: IVPAF), and Lars-Eric Johansson, Chief Executive Officer, today announced the positive findings of an independent, pre-feasibility study (PFS) for the planned redevelopment of the company’s historic, high-grade, Kipushi zinc-copper-silver-germanium mine.
The study anticipates 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 US$0.48 per pound of zinc.
The PFS focuses on the initial 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. The planned return to production would establish Kipushi as the world’s highest-grade major zinc mine. Its exceptional zinc 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).
Independent research by Wood Mackenzie concludes that the Kipushi Project could rank among the world’s largest zinc mines.
Figure 1: World’s 10 largest zinc mines, showing estimated annual zinc production and zinc head grades (ranked by forecasted production by 2020).
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 largest zinc mines. Wood Mackenzie compared the Kipushi Project’s life-of-mine average annual zinc production and zinc head grade of 225,000 tonnes and 32%, respectively, against production and zinc head grade forecasts for 2020.
Given the significant, very-high-grade zinc resource at Kipushi, which is rich in potential by-product credits including copper, silver and germanium and the ongoing exploration campaign at Kipushi, Ivanhoe and the Gécamines technical team are continuing to investigate additional downstream processing options.
“The pre-feasibility study is the latest validation that Kipushi has the resources to become one of the world’s largest and lowest-cost zinc producers, plus the potential to also produce significant quantities of copper, silver and germanium,” said Mr. Friedland.
“Discussions are continuing with potential strategic partners and lenders to support our continuing advance toward a new era of production at Kipushi. We’ve made significant progress in upgrading the mine’s underground infrastructure and now we have a much clearer path to a resumption of production from this incredibly rich orebody.”
Mr. Johansson said that a definitive feasibility study, to further refine and optimize the project’s economics, is underway and is expected to be completed in the second half of 2018.
“Since acquiring our 68% interest in the Kipushi Project in 2011, our team has worked closely with our partner, Gécamines, to move the project forward,” he added.
“During that time, we’ve seen zinc prices rally from less than US$1.00 per pound to well over US$1.40. We’re confident that the long-term supply and demand fundamentals should support a strong zinc price for a long time to come.”
The Kipushi Project is operated by Kipushi Corporation (KICO), a joint venture between Ivanhoe Mines (68%) and Gécamines (32%), the DRC’s state-owned mining company.
Highlights of the PFS, based on a long-term zinc price of US$1.10/lb, include:
- After-tax net present value (NPV) at an 8% real discount rate of US$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 US$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 (Figure 1).
- Life-of-mine average cash cost of US$0.48/lb of zinc is expected to rank Kipushi, once in production,
in the bottom quartile of the cash cost curve for zinc producers globally (Figure 11).
The PFS was prepared by OreWin Pty. Ltd., MSA Group (Pty.) Ltd., SRK Consulting, Murray & Roberts, Golder Associates and MDM Engineering, a subsidiary of Amec Foster Wheeler. The PFS was prepared in compliance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (NI 43-101).
Details of Mineral Resource Estimates
The Mineral Resource used in the PFS 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 established by the Canadian Institute of Mining, Metallurgy and Petroleum. 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 and on a 100% project basis.
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 US$1.02 /lb, mining cost of US$50 /tonne, processing cost of US$10 /tonne, G&A and holding cost of US$10 /tonne, transport of 55% Zn concentrate at US$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 and on a 100% project basis.
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 US$2.97 /lb, mining cost of US$50/tonne, processing cost of US$10/tonne, G&A and holding cost of US$10/tonne, 90% copper recovery and 96% payable copper.
Exploration drilling conducted by Ivanhoe Mines in 2015 sucessfully confirmed that both the Big Zinc Zone and Fault Zone remain open at depth and to the south. Additional high-grade copper-zinc-germanium mineralization also was discovered in the Fault Zone and in the Fault Zone Splay in the immediate footwall of the Fault Zone.
Figure 2: World’s top 20 zinc projects, by contained zinc.
Source: Wood Mackenzie.
Note: All tonnes and zinc grades of the above-mentioned projects (except for Kipushi) are based on public disclosure and have been compiled by Wood Mackenzie.
Initial Mineral Reserve estimate for the Kipushi 2017 PFS
The Kipushi 2017 PFS Mineral Reserve has been estimated by Qualified Person Bernie Peters, Technical Director – Mining, OreWin Pty. Ltd., using the 2014 CIM Definition Standards. The Mineral Reserve is based on the January 2016 Mineral Resource. The effective date of the Mineral Reserve statement is December 5, 2017.
Table 3. Kipushi 2017 PFS Mineral Reserve Statement
| Category | Tonnage (Mt) | Zinc (%) | Zinc (Contained kt) |
|---|---|---|---|
| Proven Mineral Reserve | 3.10 | 35.41 | 1,098 |
| Probable Mineral Reserve | 5.48 | 30.29 | 1,660 |
| Total Mineral Reserve | 8.58 | 32.14 | 2,758 |
Notes:
1. Effective date of the Mineral Reserves is 12 December 2017.
2. Net Smelter Return (NSR) is used to define the Mineral Reserve cut-offs, therefore cut-off is denominated in US$/t. By definition the cut-off is the point at which the costs are equal to the NSR. An elevated cut-off grade of US$135/t NSR (14.03% Zn) was used to define the mining shapes. The marginal cut-off grade has been calculated to be US$51/t NSR (3.43% Zn).
3. Mineral Reserves are based on a zinc price of US$1.01/b Zn and a treatment charge of US$200/t concentrate.
4. Economic analysis to demonstrate the Kipushi 2017 PFS Mineral Reserve used a zinc price of US$1.10/lb Zn and a treatment charge of US$170/t concentrate.
5. Only Measured Mineral Resources were used to report Proven Mineral Reserves and only Indicated Mineral Resources were used to report Probable Mineral Reserves.
6. Mineral Reserves reported above were not additive to the Mineral Resources and are quoted on a 100% project basis.
7. Totals may not match due to rounding.
Upgrading of existing underground infrastructure nearing completion
KICO has completed the refurbishment of 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 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. A schematic layout of the existing development is shown in Figure 3.
The main production shaft for the Kipushi Mine, Shaft 5 (labelled as P5 in Figure 3), is eight metres in diameter and 1,240 metres deep, and has been upgraded and re-commissioned. The main personnel and material winder has been upgraded and modernized to meet global industry standards and safety criteria. The Shaft 5 rock-hoisting winder, which had an annual hoisting capacity of 1.8 million tonnes, is being upgraded and is expected to be fully operational early next year.
Underground upgrading work is continuing on the crusher and the rock load-out facilities at the bottom of Shaft 5 and the main haulage way on the 1,150-metre level, between the Big Zinc access decline and Shaft 5. This work is expected to be completed before the end of the first quarter of 2018.
Figure 3: Schematic section of Kipushi Mine
MOU signed with leading mining contractor Byrnecut
Earlier this month, KICO signed a memorandum of understanding (MOU) with Byrnecut Offshore Proprietary Limited (Byrnecut), of Perth, Australia. The MOU relates to the potential engagement of Byrnecut to provide underground mining services at Kipushi, including cost estimation, contractor management, operational readiness and operational services.
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.
Figure 4: Planned and existing development at Kipushi
Optimized zinc processing methodology for the PFS
Based on additional metallurgical test work and trade-off studies, Ivanhoe revised the planned process-plant design for the PFS. The optimized plant utilizes dense media separation (DMS), followed by milling and a flotation recovery plant. DMS is a simple density-concentration technique that preliminary test work has shown yields positive results for the Kipushi material, which has a sufficient density differential between the waste rock (predominantly dolomite) and mineralization (sphalerite). The addition of milling and a flotation recovery plant resulted in an overall recovery of 89.6%, producing a consistent high-grade concentrate of 58.9% contained zinc. The improved concentrate grade results in lower transportation costs as compared to the Kipushi 2016 PEA.
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 DRC’s 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: Kipushi Project’s proposed site layout
Concentrate exports via newly rebuilt spur line to DRC national railway
On October 30, 2017, Ivanhoe Mines and the DRC’s state-owned railway company, Société Nationale des Chemins de Fer du Congo (SNCC), signed a MOU to rebuild 34 kilometres of track to connect the Kipushi Mine with the DRC national railway at Munama, south of the mining capital of Lubumbashi.
Under the terms of the MOU, Ivanhoe has appointed R&H Rail (Pty) Ltd. to conduct a front-end engineering design study to assess the scope and cost of rebuilding the spur line from the Kipushi Mine to the main Lubumbashi-Sakania railway at Munama. The study has begun and construction on the Kipushi-Munama spur line could start in late 2018. Ivanhoe will finance the estimated US$32 million (plus contingency) capital cost for the rebuilding, which is included within the overall Kipushi 2017 PFS capital cost.
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 North-South Rail Corridor to Durban via Zimbabwe is fully operational and has significant excess capacity.
Key projections from the Kipushi 2017 PFS
Future proposed mine production has been scheduled to maximize the mine output and meet the annual nominal capacity of 800,000 tonnes of the DMS and mill-flotation plant. The mining production forecasts are shown in Table 4. Mine, process and concentrate production are shown in figures 6 to 8.
Table 4: Mining production statistics
| Description | Unit | Total LOM | 5-Year Average | LOM Average |
|---|---|---|---|---|
| Zinc feed – tonnes processed | ||||
| Quantity Zinc Tonnes Treated | kt | 8,581 | 777 | 780 |
| Zinc Feed Grade | % | 32.14 | 30.20 | 32.14 |
| Zinc Recovery | % | 89.61 | 88.76 | 89.61 |
| Zinc Concentrate Produced | kt (dry) | 4,196 | 354 | 381 |
| Zinc Concentrate Grade | % | 58.91 | 58.51 | 58.91 |
| Contained Zinc in Concentrate | kt | 2,472 | 207 | 225 |
Figure 6: Estimated tonnes mined and zinc feed grade
Figure 7: Estimated tonnes processed and zinc feed grade