Ivanhoe Mines announces results of a positive, independent, preliminary
December 13, 2016
Ivanhoe Mines announces results of a positive, independent, preliminary economic assessment (PEA) of initial options for the start-up of world-scale copper mining on the Kakula and Kamoa deposits in the D.R. Congo
A follow-on PEA now underway will examine a potential doubling of annual production beyond the limited scenarios covered in the initial PEA
The next PEA, expected in Q1 2017, will assess the potential for an 8-million-tonne-per-annum, stand-alone Kakula Mine, plus expanded, combined mining scenarios of 12 and 16 Mtpa from both the Kakula Deposit and the adjacent Kamoa Deposit’s Kansoko Mine
A conference call will be held December 15 to discuss the initial PEA results and the expanded-case PEA now underway
HIGHLIGHTS
Initial option for a single 4 Mtpa mine
- The preliminary economic assessment (PEA) results finalized this week present two
initial scenarios for development of the high-grade copper deposits at the Kamoa- Kakula Project on the Central African Copperbelt, west of the Democratic Republic of Congo’s Katanga mining region.
- One initial option analyzed in the PEA is the development of a four-million-tonne-per-
annum (Mtpa) Kakula Phase 1 Mine at the Kakula Deposit, in the southerly portion of the project’s discovery area. For this option, the PEA envisages an average annual production rate of 216,000 tonnes of copper at a mine-site cash cost of US$0.37/lb copper for the first 10 years of operations (see details Table 4, page 10), and peak copper production of 262,000 tonnes by year three.
- A pre-production capital cost of US$1.0 billion for this option would result in an after-
tax net present value at an 8% discount rate (NPV8%) of US$3.7 billion – an increase of 272% compared to the after-tax NPV8% of US$986 million that was projected in the March 2016 Kamoa pre-feasibility study. The internal rate of return of 38% would be more than double the return that was estimated in the March 2016 Kamoa pre- feasibility study.
Initial option for two mines producing a total of 8 Mtpa
- The PEA also analyzed an alternative initial option that could involve a two-phase
sequential expansion of production to 8 Mtpa from the proposed Kakula Phase 1 Mine at the Kakula Deposit and also the Kansoko Mine at the adjacent Kamoa Deposit.
- Under this alternative, the PEA envisages US$1.0 billion in capital costs and an
average annual production rate of 292,000 tonnes of copper at a mine-site cash cost of US$0.42/lb copper during the first 10 years of operations, (see details Table 8, page 18), and peak production of 370,000 tonnes by year seven.
Under study: New option for one mine producing 8 Mtpa, plus expanded output options of up to 16 Mtpa from two mines
- The follow-on PEA, now underway, is examining an alternative approach that would
see development of a single 8 Mtpa mine on the Kakula Deposit. This option is expected to have substantial advantages over the development of two mines to achieve the same production rate. Planned studies also will assess higher mining rates of up to 16 Mtpa, which would utilize high-grade copper mineralization from both the Kakula Deposit and the Kansoko Sud and Kansoko Centrale areas of the adjacent Kamoa Deposit.
Update on strategic discussions
- In an update today of earlier announcements, Ivanhoe Mines also reported that
strategic discussions are continuing with significant global mining companies and investors.
KOLWEZI, DEMOCRATIC REPUBLIC OF CONGO – Ivanhoe Mines (TSX: IVN; OTCQX: IVPAF) Executive Chairman Robert Friedland and Chief Executive Officer Lars-Eric Johansson today welcomed the positive findings of an independent PEA for the development of the Kakula Deposit at the Kamoa-Kakula Project in the Democratic Republic of Congo.
The Kamoa-Kakula Project – a joint venture between Ivanhoe Mines, Zijin Mining Group and the government of the Democratic Republic of Congo (DRC) – has been independently ranked as the world’s largest high-grade copper discovery by international mining consultant Wood Mackenzie.
The Kakula 2016 PEA was independently prepared by OreWin Pty. Ltd., Amec Foster Wheeler E&C Services Inc. and SRK Consulting Inc. (The same team of consulting engineers was involved in planning the development of the Oyu Tolgoi Project in Mongolia.)
The Kakula 2016 PEA assesses the planned first phase of development of the Kakula Deposit – a discovery that was announced in January this year – as a 4 Mtpa underground mining and processing complex that would be known as the Kakula Phase 1 Mine at the Kamoa-Kakula Project.
Incorporated within the Kakula 2016 PEA is an option for an integrated, 8 Mtpa, two-stage development scenario involving an initial mining operation at the Kakula Deposit and a subsequent, separate mining operation at the Kansoko Sud and Kansoko Centrale areas of the adjacent Kamoa Deposit, discovered in 2008, which would be known as the Kansoko Mine.
A NI 43-101 technical report will be filed on SEDAR at www.sedar.com and on Ivanhoe Mines’ website at www.ivanhoemines.com within 45 days of the issuance of this news release.
The Kakula 2016 PEA 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.
Ivanhoe Mines and Zijin Mining are continuing with the drilling program in and around the Kakula Deposit area, using six drill rigs, to expand the extent of the known mineralization and support potential upgrades in resource confidence categories. Ivanhoe Mines expects an updated resource estimate for the Kakula Deposit will be issued in the first quarter of 2017. In addition, a pre-feasibility study also is underway to enhance the findings of the Kakula 2016 PEA and to advance the project toward production.
Conference call will be held Thursday, December 15
A conference call to discuss the Kakula 2016 PEA results will be held on Thursday, December 15, 2016, at 9:00AM EST (6:00AM PST / 2:00PM GMT).
The conference call may be accessed by dialling +1-416-340-2216 or 1-866-223-7781 (Canada and U.S. toll-free number). Callers outside North America may check their country-specific, toll-free dial-in number at https://www.confsolutions.ca/ILT?oss=1P29R8662237781.
The conference call will be archived for later playback until January 18, 2017, and may be accessed by dialling +1-905-694-9451 or 1-800-408-3053 and entering the passcode 6300478.
Summary of the PEA’s key results for an initial Kakula Phase 1 Mine
1. Very high-grade initial phase of production is projected to have a grade of 8.1% copper in year two and an average grade of 7.52% copper over the initial five years of operations, resulting in estimated average annual copper production of 209,000 tonnes.
2. Peak annual copper production is estimated at 262,000 tonnes in year three.
3. Initial capital cost, including contingency, is estimated at US$1.0 billion, approximately US$200 million lower than previously estimated in the March 2016 Kamoa pre-feasibility study.
4. Average mine-site cash cost of US$0.37/lb of copper during the first 10 years (see details Table 4, page 10).
5. After-tax NPV, at an 8% discount rate, of US$3.7 billion, an increase of 272% compared to the after-tax NPV, at an 8% discount rate, of US$986 million estimated in the March 2016 Kamoa pre-feasibility study.
6. After-tax internal rate of return (IRR) of 38.0%, which is more than double the IRR of the 2016 Kamoa pre-feasibility study, and a payback period of 2.3 years.
7. Kakula is expected to produce a very-high-grade copper concentrate in excess of 50% copper, with extremely low arsenic levels.
Greatly expanded production scenario now under study as part of a new PEA could double the mining rate and is expected to further improve net present value
A subsequent PEA now is underway to examine a doubling of the proposed mining rate at the Kakula Phase 1 Mine to 8 Mtpa. This next PEA is expected to be released in early 2017. Michael Gray, Ivanhoe Mines’ senior mining advisor and former President and co-founder of McIntosh Engineering, will assist with the expansion studies for the Kamoa-Kakula Project. Mr. Gray has extensive experience in underground mine development and previously has worked on major projects such as San Manuel (BHP), Grasberg (Freeport Indonesia), Bingham Canyon (Rio Tinto), El Teniente (Codelco), Olympic Dam (BHP Billiton) and Oyu Tolgoi (the original Ivanhoe Mines).
Given the extremely high copper grades and bottom-loaded nature of the mineralization at the Kakula Deposit, Ivanhoe Mines expects that the results of having a single, 8 Mtpa mine at the Kakula Deposit will be even better than the results of an integrated, 8 Mtpa, two-stage, two-mine development scenario. The project engineering team is targeting a life-of-mine average annual copper production scenario for a single 8 Mtpa mine at Kakula in excess of 400,000 tonnes per annum. Given that the initial capital costs for the two options examined in the Kakula 2016 PEA are the same at US$1.0 billion, it can be expected that an expansion to 8 Mtpa also will have essentially unchanged initial capital costs and, in particular, given that the expansion then could be funded from future cash flows.
Based on initial metallurgical test work, the chalcocite-rich nature of the copper mineralization at the Kakula Deposit is expected to yield higher metallurgical recoveries and higher concentrate grades, which in turn are expected to reduce unit transportation costs and therefore improve financial returns.
Additional expansion studies are planned for 2017 in which the project engineering team will assess higher mining rates of up to 16 Mtpa, incorporating high-grade copper mineralization from both the Kakula Deposit and the Kansoko Sud and Kansoko Centrale areas of the Kamoa Deposit.
Strategic discussions continuing with potential partners
Continuing strategic discussions concerning Ivanhoe Mines and its projects are intensifying with several significant mining companies and investors across Asia, Europe, Africa and elsewhere. Several investors that have expressed interest have no material limit on the provision of capital.
Ivanhoe Mines will provide further comment only if a specific transaction or process is concluded, or if further disclosure is required or deemed appropriate. There can be no assurance that the company will pursue any transaction or that a transaction, if pursued, will be completed.
“Kamoa-Kakula is an incredibly disruptive, district-scale, Tier-One copper project that is still in its early days of discovery and development,” said Mr. Friedland. “Kakula’s high copper grades and thicknesses establish Kamoa-Kakula as the most remarkable and rapidly-growing mineral discovery with which I’ve been associated during my 30-plus years in the exploration business.
“We’ve already discovered as much copper in Measured and Indicated Resources as we found with the original Ivanhoe Mines at Oyu Tolgoi, in Mongolia’s South Gobi — but this time at much higher grades. Significantly, both the Kamoa and Kakula discoveries are open for future expansions. We remain focused on expediting development of Kamoa and Kakula. The engineering team has been assigned to produce an improved 8- to 10-million-tonne-per-annum study for Kakula, hopefully in time for the Mining Indaba conference in Cape Town in early February next year.”
Mr. Johansson added, “We will be working with our partners Zijin Mining and the DRC government to develop Kamoa-Kakula into the world’s next great copper mine, generating widely shared economic benefits that will help to sustain communities, and deliver jobs and skills training, in conjunction with effective environmental management.”
Figure 1. Planned Kakula 2016 PEA development and infrastructure for Kakula and Kansoko mines.
Figure by Ivanhoe Mines 2016.
Principal initial projections from the Kakula 2016 PEA
The report assesses the potential development of the Kakula Deposit as a 4 Mtpa mining and processing complex. The life-of-mine production scenario schedules 82.6 million tonnes to be mined at an average grade of 5.76% copper, producing 7.5 million tonnes of high-grade copper concentrate, containing approximately 9.1 billion pounds of copper.
Figure 2. Start-up of 4 Mtpa Kakula Phase 1 Mine development scenario.
Phase 1 Kakula Development Scenario
Kakula Expansion Kakula 4 Mtpa
Kakula Plant Kakula 2 Mtpa Rail Commences Kakula Decline Mine Development
-4 -3 -2 -1 1 2 3 4 5 30
Year
Figure by OreWin 2016.
The economic analysis uses a long-term price assumption of US$3.00/lb of copper and returns an aftertax NPV at an 8% discount rate of US$3.7 billion. It has an after-tax IRR of 38.0% and a payback period of 2.3 years.
The estimated initial capital cost, including contingency, is US$1.0 billion. The capital expenditure for offsite power, which is included in the initial capital cost, includes a US$147 million advance payment to the DRC state-owned electricity company, SNEL, to upgrade two hydropower plants (Koni and Mwadingusha) to provide the Kamoa-Kakula Project with access to clean electricity for its planned operations. The upgrading work is being led by Stucky Ltd., of Switzerland, and the advance payment will be recovered through a reduction in the power tariff.
Solar power and high-capacity, grid-scale battery storage of electricity under study
The project team also is evaluating the installation of up to 100 megawatts of solar power and large-scale vanadium redox batteries for high-capacity storage of both solar and hydro-electric power.
“It is our intention to implement new technologies in efficient, eco-friendly power generation and power storage and establish the Kamoa-Kakula Project as one of the ‘greenest’ mines in the world,” said Mr. Friedland.
Key results of the Kakula 2016 PEA for a single 4 Mtpa mine are summarized in Table 1.
Table 1. Kakula Phase 1 Mine results summary for 4 Mtpa steady-state production.
| Item | Unit | Total |
| Total Processed Quantity Milled Copper Feed Grade | kt % | 82,566 5.76 |
| Total Concentrate Produced Copper Concentrate Produced Copper Recovery Copper Concentrate Grade Contained Metal in Concentrate Contained Metal in Concentrate | kt (dry) % % Mlb kt | 7,534 87.01 54.94 9,126 4,139 |
| Key Financial Results Initial Capital After-Tax NPV8% After-Tax IRR Project Payback Period Initial Project Life | US$M US$M % Years Years | 999 3,664 38.0 2.3 23 |
Table 2 summarizes the financial results and Table 3 summarizes planned mine production and processing statistics.
Table 2. Kakula Phase 1 Mine financial results for 4 Mtpa steady-state production.
| Net Present Value (US$M) | Discount Rate | Before Taxation | After Taxation |
|---|---|---|---|
| Undiscounted 4.0% 6.0% 8.0% 10.0% 12.0% | 15,561 8,876 6,843 5,337 4,203 3,338 | 10,935 6,180 4,735 3,664 2,859 2,245 | |
| Internal Rate of Return Project Payback Period (Years) | – – | 44.9% 2.2 | 38.0% 2.3 |
Table 3. Kakula Phase 1 Mine average estimated production and processing statistics for 4 Mtpa steady-state production.
| Item | Unit | YEARS 1-5 | YEARS 1-10 | LOM AVERAGE |
| Total Processed Quantity Milled Copper Feed Grade | Kt % | 3,163 7.52 | 3,584 6.90 | 3,590 5.76 |
| Total Concentrate Produced Copper Concentrate Produced Copper Recovery Copper Concentrate Grade | kt (dry) % % | 380 87.74 54.94 | 394 87.50 54.94 | 328 87.01 54.94 |
| Contained Metal in Concentrate Copper Copper | Mlb Kt | 460 209 | 477 216 | 397 180 |
| Payable Metal Copper Copper | Mlb kt | 449 204 | 465 211 | 387 176 |
The Kakula concentrator production is shown in Figure 3 and the concentrate and metal production is shown in Figure 4.
Figure 3. Kakula Phase 1 Mine estimated concentrator production for the first 20 years.
4,500 9.00
4,000 8.00
3,500 7.00
3,000 6.00
2,500 5.00
2,000 4.00
1,500 3.00
1,000 2.00
500 1.00
- – 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Time (Years)
Kakula Milled Cu Grade Milled Figure by OreWin 2016.
Figure 4. Kakula Phase 1 Mine estimated concentrate and metal production for the first 20 years.
– 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Time (Years)
Concentrate Produced (kt) Cu in Concentrate (kt)
Figure by OreWin 2016.
Figure 5. World’s projected top 20 largest copper concentrate mines by 2027.
Annual copper production (ktpa) Copper head grade (% Cu)
1,000 6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
- -
Note: Kamoa-Kakula Peak Production based on projected peak copper production (which occurs in year seven) of the 8 Mtpa development plan for the Kamoa-Kakula Project as detailed in the Kamoa 2016 PEA. Source: Wood Mackenzie (based on public disclosure of comparable projects and operations).
Figure 6. Target annual production and head grade for Wood Mackenzie’s “highly probable” and “probable” copper concentrate projects.
Note: 10 largest greenfield copper projects classified by Wood Mackenzie as “highly probable” or "probable" and ranked by nominal copper production. Kakula based on projected average copper production and grade during the first 10 years of production as detailed in the Kakula 2016 PEA. Source: Wood Mackenzie (based on public disclosure of comparable projects).
Table 4 summarizes unit operating costs and Table 5 provides a breakdown of revenue and operating costs. The capital costs for the project are detailed in Table 6.
Table 4. Kakula Phase 1 Mine unit operating costs for 4 Mtpa steady-state production.
| $/lb Payable Copper | |||
|---|---|---|---|
| YEARS 1-5 | YEARS 1-10 | LOM AVERAGE | |
| Mine Site Transport Treatment & Refining Charges Royalties & Export Tax | 0.34 0.31 0.15 0.14 | 0.37 0.31 0.15 0.14 | 0.45 0.31 0.15 0.14 |
| Total Cash Costs | 0.94 | 0.97 | 1.05 |
Figure 7. 2021 estimated mine-site copper cash costs.
2021E mine site cash cost (US$/lb Cu)
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50 Kakula Year 1 to 10 average
- 0% 25% 50% 75% 100%
Note: Represents mine-site cash costs that reflect the direct cash costs of producing paid concentrate or cathode incorporating mining, processing and mine-site G&A costs. Kakula is based on the average mine-site cash cost during the first 10 years as detailed in the Kakula 2016 PEA.
Source: Wood Mackenzie (based on public disclosure of comparable projects and operations).
Table 5. Kakula Phase 1 Mine estimated revenue and operating costs for 4 Mtpa
steady-state production.
| YEARS 1-5 | YEARS 1-10 | TOTAL | |
|---|---|---|---|
| US$/t Milled | US$M | ||
| REVENUE Copper in Concentrate Gross Sales Revenue | 426.00 426.00 | 389.65 389.65 | 26,729 26,729 |
| Less: Realisation Costs Transport Treatment & Refining Royalties & Export Tax Total Realisation Costs | 44.58 21.24 19.32 85.14 | 40.25 19.43 17.68 77.36 | 2,745 1,333 1,213 5,291 |
| Net Sales Revenue | 340.86 | 312.29 | 21,438 |
| SITE OPERATING COSTS UG Mining Processing Tailings General & Administration SNEL Discount Customs Total | 28.46 15.15 0.31 6.81 -2.51 0.55 48.77 | 29.13 14.54 0.28 6.47 -2.46 0.74 48.70 | 2,455 1,178 22 521 -201 61 4,037 |
| Operating Margin Operating Margin | 292.09 85.69% | 263.58 84.40% | 17,401 81.17% |