IVN.TO · 2017-11-28

Ivanhoe Mines announces results of an independent NI 43-101 preliminary economic assessment (PEA) for expanded production options for its world-scale Kakula and Kamoa copper discoveries in the Democratic Republic of Congo

Technical Reports (NI 43-101) Economic Studies Property Options & Staking

November 28, 2017

Based on current copper resources, the PEA analyzes an initial, two-stage, modular, 12 million-tonne-per-annum operation – supplied by two adjacent six million-tonne-per-annum mines and a direct-to-blister smelter

yielding an after-tax NPV8% of US$7.2 billion and an IRR of 33% over a 44-year mine life

An initial six million-tonne-per-annum copper mine at Kakula can be developed for an estimated US$1.2 billion; subsequent expansions and smelter can be funded from cash flows or project finance

Combined production of 12 Mtpa would rank Kamoa-Kakula among the world’s five largest copper mines, with projected annual production of more than 500,000 tonnes of copper

Ivanhoe to explore acceleration options for building the first two mines at Kamoa-Kakula concurrently, and the potential for expanding production to 18 Mtpa and beyond

Development of Kakula being fast-tracked with twin declines now underway; pre-feasibility study in progress

Kakula’s ultra-high copper grade expected to average 6.4% over the first 10 years, with mine-site copper cash costs of US$0.51/lb

Ongoing drilling expanding and upgrading high-grade copper resources, particularly at the Kakula West Discovery

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 expanded, independent preliminary economic assessment (PEA) for the development of the Kakula Discovery at the Kamoa-Kakula Project on the Central African Copperbelt, in the Democratic Republic of Congo (DRC).

Given the dramatic expansion and upgrading of the copper resources delineated at Kamoa-Kakula during the past year, the new PEA incorporates potential increased mining rates that are 50% higher than the rates used in the December 2016 PEA.

The Kamoa-Kakula Project – a joint venture between Ivanhoe Mines, Zijin Mining Group and the DRC government – has been independently ranked as the world’s largest high- grade, major copper discovery by international mining consultant Wood Mackenzie.

The three potential development scenarios examined include:

1. Initial mine development scenario. The Kakula 2017 PEA evaluates the development of a six million-tonne-per-annum (Mtpa) underground mine and surface processing complex at the Kakula Deposit – a discovery announced in early 2016 – as the project’s first phase of development.

2. Expanded, two-mine development scenario. The Kakula 2017 PEA also includes an option for an integrated, 12 Mtpa, two-stage development, beginning with initial production from the Kakula Mine, to be followed by a subsequent, separate underground mining operation at the nearby Kansoko Mine, along with the construction of a smelter.

3. Kamoa 2017 pre-feasibility study (PFS). The Kamoa 2017 PFS evaluates the development of the Kansoko Mine as a stand-alone six Mtpa underground mine and surface processing complex that would be supplied with ore from the planned development of the Kansoko Sud and Kansoko Centrale areas of the Kamoa Deposit, which were discovered in 2008. The PFS refines the findings of the Kamoa March 2016 PFS, which envisaged a production rate of three Mtpa.

The Kakula 2017 PEA and Kamoa 2017 PFS were independently prepared by OreWin Pty. Ltd., Amec Foster Wheeler E&C Services Inc., SRK Consulting Inc., Stantec Consulting LLC, Golder Associates Ltd., KGHM Cuprum R&D Centre Ltd. and DRA Global.

The Kakula 2017 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 for the application of economic considerations 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.

A NI 43-101 technical report will be filed on SEDAR at www.sedar.com and on the Ivanhoe Mines website at www.ivanhoemines.com within 45 days of the issuance of this news release.

While not evaluated in the new PEA, Ivanhoe and Zijin also are exploring potential options to accelerate future production by building the Kakula and Kansoko mines concurrently as well as expansions to 18 Mtpa and beyond as exploration progresses at Kamoa-Kakula and on Ivanhoe’s 100%-owned exploration licences in the Western Forelands area to the west of Kamoa-Kakula, where drilling recently started.

“Kamoa-Kakula is, without a shadow of a doubt, the most disruptive Tier One copper project in the world today,” said Mr. Friedland.

“The 12 million-tonne-per-annum development scenario clearly shows the economic potential for a phased development plan for Kamoa-Kakula to become one of the largest copper mines in existence. However, we are confident that there are more high-grade copper discoveries to be made in the area and the ultimate scale of operations at Kamoa- Kakula will be much larger.

“The exceptionally high copper grades, thickness and continuity of the Kakula Discovery really distinguish this project from anything we have seen during our 35-plus years in the industry. These unique characteristics should allow us to build a world-scale copper mine with an initial capital cost expected to be far lower than other operations of this size.”

Mr. Friedland noted that today’s PEA announcement does not factor in the Kakula West Discovery, which is continuing to be expanded at a remarkable rate. The current study also does not factor in the ongoing drilling programs on new targets at Kamoa-Kakula or the company’s 100%-owned Western Forelands exploration area. Additional exploration success could have a significant influence on the size, value and timing of the overall development plan; as such, the Kamoa-Kakula development plans will be reassessed and amended as the project moves forward to reflect ongoing exploration results.

“We remain focused on unlocking the full potential of the Kamoa-Kakula copper district while expediting the development of the initial Kakula Mine.

“The world’s current top copper mines are aging and their head grades are declining. Given the projected surge in demand for copper from the electric-vehicle revolution and renewable energy technologies, Kamoa-Kakula will be of significant strategic importance for auto makers and clean-energy companies looking to secure a long-term, reliable supply of high-quality copper,” Mr. Friedland added.

Mr. Johansson said that implementation of community-support initiatives are central to mine-planning considerations. “We will be working with our partners Zijin Mining and the DRC government in developing Kamoa-Kakula into the world’s next great copper mine, generating widely shared economic benefits that will help to uplift local communities, and providing skills training to help ensure that area residents can qualify for the thousands of meaningful direct and indirect jobs that will be created.

“It is highly unusual by industry standards that, despite being in the early exploration and engineering phases of a project, Ivanhoe and Zijin are proud to be leading by example and have invested heavily in community development initiatives. Our joint efforts include the “KNOW FOR SURE” anti-malaria campaign utilizing revolutionary technology developed by Fio Corporation of Toronto, Canada. Other initiatives include fish and chicken farming, agricultural projects, and the construction of schools, roads and power infrastructure.

“Everyone at Ivanhoe Mines looks forward to showcasing our three mine development projects – Kamoa-Kakula, Kipushi and Platreef – to investors from around the world as the official site visit of the 2018 Mining Indaba conference that will be held in Cape Town, South Africa, in early February 2018. Those interested in attending our site visit should apply to our investor relations department as soon as possible.”

HIGHLIGHTS

Potential initial six Mtpa mine at Kakula

The PEA analyzes the potential development of an initial six Mtpa Kakula Mine at the

Kakula Deposit in the southerly portion of the Kamoa-Kakula Project’s discovery area. For this option, the PEA envisages an average annual production rate of 246,000 tonnes of copper at a mine site cash cost of US$0.45/lb copper and total cash cost of US$1.08/lb copper for the first five years of operations, and copper annual production of up to 385,000 tonnes by year four.

An initial capital cost of US$1.2 billion for this option would result in an after-tax net

present value at an 8% discount rate (NPV8%) of US$4.2 billion. The internal rate of return of 36.2% and project payback period of 3.1 years confirm the compelling economics for Kamoa-Kakula’s initial phase of production.

Kakula benefits from an ultra-high, average feed grade of 6.4% copper over the first 10

years of operations, and 5.5% copper on average over a 24-year mine life.

A six Mtpa Kakula PFS is underway, with completion targeted for the second half of

2018. Kakula’s surface box cut was completed on October 26 this year. Development of twin underground declines, similar to those at the nearby Kansoko Mine, has begun and is expected to take about a year to complete. The first blast for the declines was completed on November 16.

Modular, integrated potential development of Kakula and Kamoa deposits, mining a combined total of 12 Mtpa

The PEA also presents the development of a two-phase, sequential operation on

Kamoa-Kakula’s high-grade copper deposits.

Initial production would occur at a rate of six Mtpa from the Kakula Mine, before

increasing to 12 Mtpa with ore from the Kansoko Mine. As resources at Kakula and Kansoko are mined, the PEA envisages that production would begin at Kamoa North to maintain 12 Mtpa throughput over a 44-year mine life.

For the two-phase sequential operation, the PEA envisages US$1.2 billion in initial

capital costs. Future expansion at the Kansoko Mine and subsequent extensions could be funded by cash flows from the Kakula Mine, resulting in an after-tax net present value at an 8% discount rate (NPV8%) of US$7.2 billion and an internal rate of return of 33%.

Under this approach, the PEA also includes the construction of a direct-to-blister flash

copper smelter with a capacity of 690,000 tonnes of copper concentrate per annum to be funded from internal cash flows. This would be completed in year five of operations, achieving significant savings in treatment charges and transportation costs.

The 12 Mtpa scenario delivers average annual production of 370,000 tonnes of copper

at a total cash cost of US$1.02/lb copper during the first 10 years of operations and production of 542,000 tonnes by year nine. At this future production rate, Kamoa- Kakula would rank among the world’s five largest copper mines.

A pre-feasibility study for a six Mtpa mine at Kansoko also has been examined

In addition to the Kakula PEA, a PFS also has been completed for the development of

a six Mtpa Kansoko Mine at the Kamoa Deposit, the project’s original discovery area. For this option, the PFS envisages an average annual production rate of 178,000 tonnes of copper for the first 10 years of operations, and annual copper production of 245,000 tonnes by year seven.

The initial capital cost of US$1.0 billion to develop this mine would result in an after-

tax NPV8% of US$2.1 billion – an increase of 109% compared to the after-tax NPV8% of US$986 million that was projected in the March 2016 Kamoa PFS. The internal rate of return is 24%, with a project payback period of five years.

Potential phased mine developments to 18 Mtpa and beyond currently under evaluation for Kamoa-Kakula

Ivanhoe is continuing to explore options to increase Kamoa-Kakula production to 18

Mtpa and beyond. 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, development plans will be reassessed and amended as the project moves forward.

Figure 1 describes the potential development scenarios and Figure 2 shows an overview of deposits included within Kakula 2017 PEA (six Mtpa and 12 Mtpa case) and Kamoa 2017 PFS (six Mtpa).

Figure 1. Kamoa-Kakula PEA long-term development plan.

Figure by OreWin 2017.

Figure 2. Overview of deposits included within Kakula 2017 PEA (six Mtpa and 12 Mtpa case) and Kamoa 2017 PFS (six Mtpa).

Figure by OreWin 2017.

Summary of the PEA’s key results for an initial Kakula Mine

1. Very-high-grade initial phase of production is projected to have a grade of 7.3% copper in year four and an average grade of 6.4% copper over the initial 10 years of operations, resulting in estimated average annual copper production of 284,000 tonnes.

2. Annual copper production is estimated at 385,000 tonnes in year four.

3. Initial capital cost, including contingency, is estimated at US$1.2 billion.

4. Average total cash cost of US$1.14/lb of copper during the first 10 years.

5. After-tax NPV, at an 8% discount rate, of US$4.2 billion.

6. After-tax internal rate of return (IRR) of 36.2%, and a payback period of 3.1 years.

7. Kakula is expected to produce a very-high-grade copper concentrate in excess of 50% copper, with extremely low arsenic levels.

Key initial projections from the Kakula 2017 PEA

The study assesses the potential development of the Kakula Deposit as a six Mtpa mining and processing complex. The Kakula mill would be constructed in two smaller phases of three Mtpa each as the mining operations ramp-up to full production of six Mtpa. The life-of-mine production scenario provides for 108.4 million tonnes to be mined at an average grade of 5.48% copper, producing 9.4 million tonnes of high-grade copper concentrate, containing approximately 11.4 billion pounds of copper.

The economic analysis uses a long-term price assumption of US$3.00/lb of copper and returns an after-tax NPV at an 8% discount rate of US$4.2 billion. It has an after-tax IRR of 36.2% and a payback period of 3.1 years.

The estimated initial capital cost, including contingency, is US$1.2 billion. The capital expenditure for off-site power, which is included in the initial capital cost, includes a US$71 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. Mwadingusha is being upgraded first. The work is being led by Stucky Ltd., of Switzerland; the advance payment will be recovered through a reduction in the power tariff.

Key results of the Kakula 2017 PEA for a single six Mtpa mine are summarized in Table 1.

Table 1. Kakula Mine results summary for six Mtpa production.

Item	Unit	Total
Total Processed Quantity Milled Copper Feed Grade	kt %	108,422 5.48
Total Concentrate Produced Copper Concentrate Produced Copper Recovery Copper Concentrate Grade Contained Metal in Concentrate Contained Metal in Concentrate Peak Annual Recovered Metal Production	kt (dry) % % Mlb kt kt	9,400 86.86 54.94 11,385 5,164 385
10-Year Average Copper Concentrate Produced Contained Metal in Concentrate Mine-Site Cash Cost Total Cash Cost	kt (dry) kt US$/lb US$/lb	517 284 0.51 1.14
5-Year Average Copper Concentrate Produced Contained Metal in Concentrate Mine-Site Cash Cost Total Cash Cost	kt (dry) kt US$/lb US$/lb	448 246 0.45 1.08
Key Financial Results Peak Funding Initial Capital Costs Expansion Capital Costs LOM Average Mine Site Cash Costs LOM Average Total Cash Costs Site Operating Costs After-Tax NPV8% After-Tax IRR Project Payback Period Initial Project Life	US$M US$M US$M US$/lb Cu US$/lb Cu US$/t Milled US$M % Years Years	1,135 1,231 318 0.60 1.23 61.49 4,243 36.2 3.1 24

Table 2 summarizes the financial results and Table 3 summarizes potential mine production and processing statistics.

Table 2. Kakula Mine financial results for six Mtpa production.

Net Present Value (US$M)	Discount Rate	Before Taxation	After Taxation
	Undiscounted 4.0% 6.0% 8.0% 10.0% 12.0%	16,607 9,940 7,816 6,200 4,955 3,984	11,700 6,919 5,398 4,243 3,353 2,660
Internal Rate of Return Project Payback Period (Years)	– –	43.0% 2.9	36.2% 3.1

Table 3. Kakula Mine average estimated production and processing statistics for six Mtpa production.

Item	Unit	YEARS 1-5	YEARS 1-10	LOM AVERAGE
Total Processed Quantity Milled Copper Feed Grade	kt %	4,135 6.80	5,073 6.42	4,518 5.48
Annual Concentrate Produced Copper Concentrate Produced Copper Recovery Copper Concentrate Grade	kt (dry) % %	448 87.46 54.94	517 87.29 54.94	392 86.86 54.94
Contained Metal in Concentrate Copper Copper	Mlb kt	543 246	627 284	474 215
Payable Metal Copper Copper	Mlb kt	530 240	612 277	463 210

The Kakula concentrator production is shown in Figure 3 and the concentrate and metal production is shown in Figure 4.

Figure 3. Kakula Mine estimated tonnes milled and head grade

Figure by OreWin 2017.

Figure 4. Kakula Mine estimated concentrate and metal production

Figure by OreWin 2017.

Table 4 summarizes unit operating costs. Table 5 provides a breakdown of revenue and operating costs. Capital costs for the project are detailed in Table 6.

Table 4. Kakula Mine unit operating costs for six Mtpa production.

	US$/lb Payable Copper
	YEARS 1-5	YEARS 1-10	LOM AVERAGE
Mine Site Transport Treatment & Refining Charges Royalties & Export Tax	0.45 0.31 0.15 0.17	0.51 0.31 0.15 0.17	0.60 0.31 0.15 0.17
Total Cash Costs	1.08	1.14	1.23

Figure 5. 2018 Mine-site cash costs (includes all operational costs at mine site).

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 2017 PEA. Source: Wood Mackenzie (based on public disclosure, the Kakula 2017 PEA has not been reviewed by Wood Mackenzie).

Figure 6. 2018 C1 pro-rata copper cash costs (includes mining, processing, transportation and offsite realization costs).

Note: Represents C1 pro-rata cash costs that reflect the direct cash costs of producing paid metal incorporating mining, processing, mine-site G&A and offsite realization costs, having made appropriate allowance for the costs associated with the co-product revenue streams. Kakula is based on the average total cash cost during the first 10 years as detailed in the Kakula 2017 PEA. Source: Wood Mackenzie (based on public disclosure, the Kakula 2017 PEA has not been reviewed by Wood Mackenzie).

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