Ivanhoe Mines releases positive results of independent
February 23, 2016
Ivanhoe Mines releases positive results of independent pre-feasibility study for planned first phase of mine development at the Kamoa Copper Project in the Democratic Republic of Congo
First phase of development envisages an annual production rate of 100,000 tonnes of copper at a mine-site cash cost of US$0.75/lb copper
KGHM developed controlled convergence room-and-pillar mining method potentially could provide significant cost savings
KOLWEZI, DEMOCRATIC REPUBLIC OF CONGO — Ivanhoe Mines (TSX: IVN) Executive Chairman Robert Friedland and Chief Executive Officer Lars-Eric Johansson today welcomed the positive findings of an independent pre-feasibility study (PFS) for the first phase of development of the Kamoa Copper Project in the Democratic Republic of Congo (DRC).
The Kamoa Copper Project — a joint venture between Ivanhoe Mines and Zijin Mining Group Co., Ltd. — has been independently ranked as the world’s largest, undeveloped, high-grade copper discovery by international mining consultant Wood Mackenzie.
The Kamoa 2016 PFS was independently prepared by OreWin Pty Ltd., Amec Foster Wheeler E&C Services Inc. and SRK Consulting Inc. The report reflects the initial phase of project development and describes the construction and operation of a three-million-tonne-per-annum (Mtpa) underground mine, concentrator processing facility and associated infrastructure. The first phase of mining would target high-grade copper mineralization from shallow, underground resources to yield a high-value concentrate. The planned second phase would entail a major expansion of the mine and mill, and construction of a smelter to produce blister copper.
The Kamoa 2016 PFS includes an economic analysis that is based on Probable Mineral Reserves. 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.
Highlights of the Kamoa 2016 PFS:
- Annual mine production of 3 Mtpa at an average grade of 3.86% copper over a 24-year mine
life, resulting in annual copper production of approximately 100,000 tonnes.
- Initial capital cost, including contingency, is US$1.2 billion, approximately US$200 million
lower than estimated in the Kamoa 2013 PEA.
- Life-of-mine average mine-site cash cost is US$0.75/lb of copper.
- After-tax net present value (NPV) at an 8% discount rate of US$986 million.
- After-tax internal rate of return (IRR) of 17.2% and a payback period of 4.6 years.
- High-grade copper concentrate with an average grade of 39.2% copper and very low arsenic
levels.
- Improvements to the mining method have the potential to reduce average mine site cash
cost during the first phase to US$0.61/lb of copper, and improve the after-tax NPV at an 8% discount rate to US$1.182 billion, the IRR to 18.9% and the payback period to 4.3 years.
“The results of this independent pre-feasibility study confirm the robustness of the Kamoa Copper Project over a wide range of copper prices, with the potential for significant improvement in the results as we move forward on the Feasibility Study,” said Mr. Friedland.
“We know of no other copper project in the world that offers the potential of multi-decade, large- scale, mechanized production from a near surface, stratiform deposit grading nearly 4% copper, with the demonstrated potential for further high-grade discoveries nearby, and located close to a major mining centre.
“With the support of our partners –– including our joint-venture partner, Zijin Mining, our employees, local entrepreneurs and community members, and the DRC government –– we are looking forward to building a major new, safe, mechanized copper mine on the western edge of the DRC’s famous Copperbelt.”
The Kamoa 2016 PFS has identified several areas for further evaluation to optimize the project’s economics, including:
- The use of controlled convergence room-and-pillar mining, which has been successfully
used by KGHM Polska Miedź S.A. (KGHM) at its copper-mining operations in Poland for the past 20 years. Based on detailed analysis by KGHM Cuprum R&D Centre Ltd., this mining method appears to be well suited to the Kamoa deposit and, if implemented, potentially could provide significant cost savings as there would be no requirement for cemented backfill and ore extraction ratios would increase.
- Increased production up to 4 Mtpa from the proposed initial mining area, with only limited
adjustments to the ore-handling and ventilation systems, thereby resulting in a more efficient use of capital.
Kamoa 2016 PFS Results
The base case described in the PFS is the construction and operation of an underground mine, concentrator processing facility and associated infrastructure. The base-case mining rate and concentrator feed capacity is 3 Mtpa. The life-of-mine production scenario schedules 71.9 million tonnes at an average grade of 3.86% copper over 24 years, producing 6.1 million tonnes of copper concentrate, containing approximately 5.3 billion pounds of copper.
The economic analysis used 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$986 million. It has an after-tax IRR of 17.2% and a payback period of 4.6 years.
The initial capital cost, including contingency, is US$1.2 billion. The initial capital cost includes a US$104 million advance payment to the DRC state-owned electricity company, SNEL, to upgrade two hydro power plants (Koni and Mwadingusha) to provide Kamoa with access to clean electricity during the initial phase of operations. The upgrading work is being led by Stucky Ltd., of Switzerland, and the advance payment is expected to be recovered through a reduction in the power tariff once Kamoa is in operation. The life-of-mine average mine site cash cost is US$0.75/lb of copper. Key results of the PFS are summarized in Table 1.1.
Table 1.1 PFS Results Summary
| Item | Unit | Total |
|---|---|---|
| Ore Processed (Life of Mine) | ||
| Quantity Ore Treated | kilotonne (kt) | 71,893 |
| Copper Feed Grade | % | 3.86 |
| Concentrate Produced (Life of Mine) | ||
| Copper Concentrate Produced | kt (dry) | 6,106 |
| Copper Recovery | % | 86.36 |
| Copper Concentrate Grade | % | 39.20 |
| Contained Metal in Concentrate | million pounds (Mlb) | 5,277 |
| Contained Metal in Concentrate | kt | 2,394 |
| Key Financial Results | ||
| Initial Capital | US$M | 1,213 |
| Mine-Site Cash Cost | US$/lb Payable Cu | 0.75 |
| Total Cash Cost | US$/lb Payable Cu | 1.48 |
| Site Operating Costs | US$/t ore | 53.22 |
| After-Tax NPV8% | US$M | 986 |
| After-Tax IRR | % | 17.2% |
| Project Payback Period | Years | 4.6 |
Table 1.2 summarizes the financial results and Table 1.3 summarizes mine production and processing statistics.
Table 1.2 Financial Results
| Before Taxation | After Taxation | ||
|---|---|---|---|
| Net Present Value (US$M) | Undiscounted | 5,791 | 4,096 |
| 4.0% | 2,979 | 2,036 | |
| 6.0% | 2,152 | 1,429 | |
| 8.0% | 1,549 | 986 | |
| 10.0% | 1,104 | 657 | |
| 12.0% | 768 | 409 | |
| IRR | – | 20.7% | 17.2% |
| Project Payback (years) | – | 4.1 | 4.6 |
Table 1.3 Mine Production and Processing Statistics
| Item | Unit | Total LOM | Years 1-5 | Years 6-10 | LOM |
|---|---|---|---|---|---|
| Ore Processed | |||||
| Quantity Ore Treated | kt | 71,893 | 2,934 | 3,008 | 2,996 |
| Copper Feed Grade | % | 3.86 | 4.35 | 4.08 | 3.86 |
| Concentrate Produced | |||||
| Copper Concentrate Produced | kt | 6,106 | 283 | 271 | 254 |
| Copper Recovery | % | 86.36 | 87.06 | 86.68 | 86.36 |
| Copper Concentrate Grade | % | 39.20 | 39.20 | 39.20 | 39.20 |
| Contained Metal in Concentrate | |||||
| Copper | kt | 2,394 | 111 | 106 | 100 |
| Copper | Mlb | 5,277 | 245 | 234 | 220 |
| Payable Metal | |||||
| Copper | kt | 2,314 | 107 | 103 | 96 |
| Copper | Mlb | 5,102 | 237 | 227 | 213 |
Figures 1.1 and 1.2 depict the processing, concentrate and metal production, respectively.
Figure 1.1 Processing Production
3,500 7.00
3,000 6.00
2,500 5.00
2,000 4.00
1,500 3.00
1,000 2.00
1.00
- – 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Project Time (Years)
Ore Milled Cu Grade Milled
Figure by OreWin, February 2016.
Figure 1.2 Concentrate and Metal Production
– 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Project Time (Years)
Concentrate Produced (kt) Cu in Concentrate (kt)
Figure by OreWin, February 2016.
Figure 1.3 Copper Equivalent Production for Highly-Probable Copper Projects Currently Under Construction
Target Annual Copper Copper Head Grade Eq. Production (ktpa) (% Cu) 350 6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
- -
Figure based on data from Wood Mackenzie, February 2016. Note: All greenfield development projects classified as “highly probable” by Wood Mackenzie. Source: Wood Mackenzie (based on public disclosure and information gathered in the process of routine research. The Kamoa 2016 PFS has not been reviewed by Wood Mackenzie).
Table 1.4 summarizes unit operating costs and Table 1.5 provides a breakdown of revenue and operating costs. The capital costs for the project are detailed in Table 1.6.
Table 1.4 Unit Operating Costs
| US$/lb Payable Copper | |||
|---|---|---|---|
| LOM AVG | Years 15 | Years 610 | |
| Mine Site Transport Treatment & Refining Charges Royalties & Export Tax | 0.75 0.41 0.18 0.15 | 0.55 0.43 0.18 0.11 | 0.75 0.40 0.18 0.16 |
| Total C1 Cash Cost | 1.48 | 1.27 | 1.48 |
Table 1.5 Revenue and Operating Costs
| Description | TOTAL LOM | YEARS 1-5 | YEARS 6-10 | LOM AVG |
|---|---|---|---|---|
| US$M | US$/t Ore Milled | |||
| REVENUE Copper in Concentrate REALIZATION COSTS Transport Treatment & Refining Royalties & Export Tax Total Realization Costs | 15,305 2,082 911 748 3,741 | 242 35 14 9 58 | 226 30 13 12 56 | 213 29 13 10 52 |
| Net Sales Revenue | 11,565 | 184 | 170 | 161 |
| SITE OPERATING COSTS Underground Mining Processing Tailings General & Administration SNEL Discount Customs Total Site Operating Costs | 2,453 886 25 511 -109 60 3,826 | 25 12 0 8 -2 1 45 | 37 12 0 7 -2 1 56 | 34 12 0 7 -2 1 53 |
| Operating Margin Operating Margin | 7,738 66.9% | 140 75.8% | 114 67.0% | 108 66.9% |
Table 1.6 Capital Investment Summary
| Description | Initial Capital | Sustaining | Total |
|---|---|---|---|
| US$M | US$M | US$M | |
| MINING Underground Mining Subtotal | 508 508 | 499 499 | 1,007 1,007 |
| POWER Power Infrastructure On Site Power Supply Off Site Subtotal | 19 104 160 | 4 – 4 | 23 141 164 |
| CONCENTRATE & TAILINGS Process Plant Tailings Subtotal | 160 23 182 | 8 62 69 | 167 84 252 |
| INFRASTRUCTURE Plant Infrastructure Other Infrastructure Owners Camp Contractors Camp Subtotal | 18 8 10 23 59 | 4 2 2 5 14 | 23 10 12 28 73 |
| INDIRECTS Engineering, Procurement and Construction Management Subtotal | 58 58 | – – | 58 58 |
| OWNERS COST Owners Cost Closure Subtotal | 95 – 95 | – 67 67 | 95 67 162 |
| Capital Expenditure before Contingency | 1,025 | 655 | 1,679 |
| Contingency | 189 | 44 | 233 |
| Capital Expenditure after Contingency | 1,213 | 699 | 1,912 |
Figure 1.4 Capital Intensity for Highly-Probable Copper Projects Currently Under Construction
Capital Intensity (US$ / tpa Copper Eq. Production)
$30,000
$25,000
$20,000 Average: $16,184 $15,000
$10,000
$5,000
-
Figure based on data from Wood Mackenzie, February 2016. Note: All greenfield development projects classified as “highly probable” by Wood Mackenzie. Source: Wood Mackenzie (based on public disclosure and information gathered in the process of routine research. The Kamoa 2016 PFS has not been reviewed by Wood Mackenzie).
The cash flow sensitivity to metal price variation is shown in Table 1.7 for copper prices from US$2.00/lb to US$4.00/lb.
The sensitivity of after-tax NPV to initial capital cost, direct operating costs, transport and copper feed grade is shown in Table 1.8. The table shows the impact on the base case after-tax NPV8% of US$986M.
Table 1.7 Copper Price Sensitivity
| After Tax NPV (US$M) | Copper Price – US$/lb | ||||
|---|---|---|---|---|---|
| Discount Rate | 2.00 | 2.50 | 3.00 | 3.50 | 4.00 |
| Undiscounted 4.0% 6.0% 8.0% 10.0% 12.0% 15.0% | 613 -20 -206 -340 -438 -508 -579 | 2,364 1,020 624 336 123 -36 -206 | 4,096 2,036 1,429 986 657 409 142 | 5,828 3,050 2,230 1,632 1,187 851 486 | 7,560 4,063 3,030 2,276 1,714 1,289 827 |
| IRR | 3.8% | 11.5% | 17.2% | 22.2% | 26.6% |
Table 1.8 Additional Sensitivities
| Change from Base NPV8% (US$M) | |||||||
|---|---|---|---|---|---|---|---|
| Variable | Units | Base Value | -25.0% | -10.0% | – | 10.0% | 25.0% |
| Initial Capital | US$M | 1,213 | 1,252 | 1,092 | 986 | 879 | 720 |
| Direct operating costs per tonne of ore milled | US$/t | 53 | 1,215 | 1,077 | 986 | 894 | 757 |
| Transport costs per tonne of concentrate | US$/t | 356 / 300 | 1,122 | 1,040 | 986 | 931 | 849 |
| Copper feed grade | % Cu | 3.86% | 175 | 662 | 986 | 1,308 | 1,794 |
Figure 1.5 Cumulative Cash Flow
3,500
2,500
1,500
-500
-1,500 -3 -2 -1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Project Time (Years)
Figure by OreWin, February 2016.
Kamoa Copper Project Description
The Kamoa Copper Project is a very large, stratiform copper deposit with adjacent prospective exploration areas within the Central African Copperbelt, approximately 25 kilometres west of the town of Kolwezi and about 270 kilometres west of Lubumbashi. The Kamoa copper deposit was discovered by Ivanhoe Mines in 2008.
In August 2012, the DRC government granted mining licences to Ivanhoe Mines for the Kamoa Copper Project that cover a total of 400 square kilometres. The licences are valid for 30 years and can be renewed at 15-year intervals. Mine development work at the Kamoa Copper Project began in July 2014 with construction of a box cut for the decline ramps that will provide underground access to the initial high-grade mining area in Kansoko Sud.
Ivanhoe Mines owns a 49.5% interest in Kamoa Holding Limited (Kamoa Holding), an Ivanhoe affiliate that presently owns 95%, on an indirect basis, of the Kamoa Copper Project. Zijin Mining owns a 49.5% interest in Kamoa Holding, which it acquired from Ivanhoe in December 2015 for an aggregate cash consideration of US$412 million. The remaining 1% interest in Kamoa Holding is held by privatelyowned Crystal River Global Limited.
A 5%, non-dilutable interest in Kamoa Copper SA, the affiliate that owns the Kamoa Copper Project, was transferred to the DRC government on September 11, 2012, for no consideration, in accordance with the DRC Mining Code. Ivanhoe also has offered to transfer an additional 15% interest to the DRC government on terms to be negotiated. Constructive and cordial negotiations between Ivanhoe Mines, Zijin and senior DRC government officials have been continuing in this regard.
On January 25, 2016, Ivanhoe announced that the Kamoa exploration team made a major new highgrade and flat-lying stratiform copper discovery, named Kakula, located approximately five kilometres southwest of Kamoa’s currently defined resources. The Kakula Discovery is situated within the 400square-kilometre Kamoa Mining Licence area and represents a major extension of the Kamoa copper deposit, which the company discovered in 2008. Two exploration drill holes completed in late 2015 in the Kakula exploration area — DD996 and DD997 — rank among the highest-grade and highest-gradethickness intersections drilled to date within the Kamoa Mining Licence area. The Kakula Discovery is not included in the economic analysis of the Kamoa 2016 PFS. Additional details of the Kakula Discovery can be found in Ivanhoe’s January 25, 2016 news release available at www.ivanhoemines.com.
Box cut (portal) at Kamoa’s initial high-grade mining area — Kansoko Sud
Figure 1.6 Kamoa Project map showing the Indicated and Inferred Resource areas, the initial mining area at Kansoko Sud, and the Kakula exploration area