Ivanhoe Mines releases positive results of independent
January 8, 2015
Ivanhoe Mines releases positive results of independent pre-feasibility study for planned first phase of its Platreef platinum-group elements, nickel, copper and gold mine in South Africa
First phase of development envisages an annual production rate of 433,000 ounces of platinum, palladium, rhodium and gold, plus 31 million pounds of nickel and copper
Platreef mine is projected to be Africa’s lowest-cost producer of platinum-group metals
Estimated 150,000 local residents to participate in Platreef’s development as equity partners in broad-based, black economic empowerment structure
Initial mineral reserve of 15.5 million ounces of platinum, palladium, rhodium and gold
Optimization study underway by Whittle Consulting
MOKOPANE, SOUTH AFRICA – 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 of the planned initial four million tonnes per annum (Mtpa) mine and concentrator in the first phase of development of the company’s Platreef platinum, palladium, rhodium, gold, nickel and copper mine.
The Platreef Project is a Tier One discovery by Ivanhoe Mines’ geologists – which contains the Flatreef deposit – on the Northern Limb of South Africa’s Bushveld Igneous Complex, the world’s premier platinum producing region.
Ivanhoe Mines plans to develop the Platreef Mine in three phases: an initial annual rate of four Mtpa to establish an operating platform to support future expansions; followed by a doubling of production to eight Mtpa; and then a third expansion phase to a steady-state 12 Mtpa. At a projected production rate of 12 Mtpa, Platreef would be among the largest platinum-group metals mines in the world.
Mr. Friedland said that the pre-feasibility study validates the results of Phase 1 of the independent preliminary economic assessment (PEA) released in March 2014, which outlined the phased approach to Platreef’s development. A feasibility study of the four Mtpa first phase and a pre-feasibility study of the eight Mtpa second phase are scheduled to begin in the near future.
“The completion of the pre-feasibility study for the first phase of production is another important milestone in Ivanhoe’s planned transformation of the Platreef discovery into one of the pre-eminent South African platinum-group metals producers,” said Mr. Friedland.
“The results demonstrate the robust nature of the project, which was first highlighted in the March 2014 PEA. Now this latest study has confirmed the excellent economics and technical viability of what is expected to be Africa’s lowest-cost producer of platinum-group metals.
“We are proud to have shared our 14 years of exploration and development achievements at Platreef with supportive stakeholders who see international investment and professionally managed development of natural resources as keys to unlock opportunities and prosperity that will be widely shared among Mokopane area residents,” Mr. Friedland added.
“With the support of our partners – including our local Mokopane empowerment beneficiaries, our employees, local South African entrepreneurs and our Japanese investors – Ivanhoe’s Platreef team is committed to building Africa’s safest, large-scale, mechanized, underground platinum-group and base metals mine.”
The recently completed pre-feasibility study (PFS) covers the first phase of development that would include construction of a state-of-the-art underground mine, concentrator and other associated infrastructure to support initial concentrate production by 2019. As Phase 1 is being developed and commissioned, there would be opportunities to refine the timing and scope of subsequent phases of expanded production.
Key features of the Platreef PFS include:
- Development of a large, mechanized, underground mine with an initial four-million-tonne per
year concentrator and associated infrastructure.
- Planned initial average annual production rate of 433,000 ounces (oz) of platinum, palladium,
rhodium and gold (3PE+Au), plus 19 million pounds of nickel and 12 million pounds of copper per year.
- Estimated pre-production capital requirement of approximately US$1.2 billion, including
US$114 million in contingencies, at a ZAR:USD exchange rate of 11 to 1.
- Platreef would rank at the bottom of the cash-cost curve, at an estimated US$322 per ounce
of 3PE+Au, net of by-products.
- After-tax Net Present Value (NPV) of US$972 million, at an 8% discount rate.
- After-tax Internal Rate of Return (IRR) of 13%.
Ivanhoe Mines owns 64% of the Platreef Project through its subsidiary, Ivanplats, and is directing all mine development work. The South African beneficiaries of the approved broad- based, black economic empowerment structure have a 26% stake in the Platreef Project and the remaining 10% is owned by a Japanese consortium of ITOCHU Corporation; Japan Oil, Gas and Metals National Corporation; ITC Platinum Development Ltd., an ITOCHU affiliate; and Japan Gas Corporation.
The Platreef PFS was prepared for Ivanhoe Mines by OreWin Pty. Ltd.; Amec Foster Wheeler E&C Services Inc.; SRK Consulting Inc.; Stantec Consulting International LLC; and DRA Projects (Pty.) Ltd. The full 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.
Major investment in skills training for mining and other jobs
The planned Platreef mine is projected to require a workforce of approximately 2,200 within four years of the start of production.
Ivanhoe Mines intends to invest a total of R160 million (C$14.5 million) in its social and labour plan for Platreef during the next five years. The plan includes R67.2 million (C$6.1 million) for the development of job skills among local residents and R87.7 million (C$8.0 million) for local economic development projects.
“In establishing our social and labour plan, Ivanhoe has been mindful of the South African government’s National Development Plan and its priority of securing undertakings that create jobs and advance socio-economic development to alleviate poverty and unemployment,” said Dr. Patricia Makhesha, Managing Director of the Platreef Project.
“The programs, which we will be rolling out during the development schedule, demonstrate Ivanhoe’s commitment to ensuring that people in our host communities benefit from our operations, directly and indirectly, in ways that contribute to improving their quality of life and expanding their opportunities.
“We will run training programs to prepare young people to qualify for jobs in what will be a world-scale, mechanized mine. Our plan commits to giving priority to local people from Platreef’s host communities for enrolment in training programs and in hiring to fill available jobs. We have created a comprehensive database, in partnership with the Department of Labour, to be used in selecting candidates for employment and skills training,” Dr. Makhesha added.
Dedicated training centre to be built in Mokopane area
Ivanhoe Mines also has committed to building a community skills development and training facility in the Mokopane area at a cost of R26 million (C$2.4 million), within five years, as part of the company’s objective of helping to establish a base of qualified, local candidates for jobs at the mine and its associated minerals processing plant. The facility would be accredited by the Mining Qualifications Authority of South Africa.
Other goals include equipping people with portable skills to help enable them to become self- employed or to be productively employed in sectors other than mining, such as construction or agriculture.
In addition, Platreef plans to launch five local economic development projects under the social and labour plan that will result in the creation of at least 820 jobs, including 660 positions that will be created for unskilled and semi-skilled candidates.
Table 1.0: Platreef PFS results.
| Item | Units | Total / Average Life of Mine |
| Mined and Processed Mineral Reserves Platinum Palladium Gold Rhodium 3PE+Au Copper Nickel | Mt g/t g/t g/t g/t g/t % % | 120 1.76 1.87 0.26 0.13 4.02 0.15 0.32 |
| Concentrate Produced Concentrate Platinum Palladium Gold Rhodium 3PE+Au Copper Nickel | kt g/t g/t g/t g/t g/t % % | 4,915 37.5 39.8 4.8 2.8 85.0 3.3 5.4 |
| Saleable Metal Platinum Palladium Gold Rhodium 3PE+Au Copper Nickel | koz koz koz koz koz Mlb Mlb | 5,927 6,295 761 448 13,431 358 588 |
| Key financial results Life of Mine Pre-production capital Mine site cash cost Total cash costs after credits Site operating costs After tax NPV 8 After tax IRR Project payback period | years US$M US$/oz 3PE+Au US$/oz 3PE+Au US$/t milled US$M % years | 31 1,168 401 322 44.86 972 13 7 |
1. The economic analysis is based on probable mineral reserves only.
2. 3PE + Au = Pt + Pd + Rh + Au.
3. Metal prices used in the mineral reserve estimate are as follows.US$1,699/oz Pt, US$667/oz Pd, US$1,315/oz Au, US$1,250/oz Rh, US$8.81/lb Ni, US$2.73/lb Cu.
4. A declining Net Smelter Return (NSR) cut-off of US$100/t–$80/t was used in the mineral reserve estimate.
5. Metal price assumptions used for the PFS economic analysis are: US$1,630/oz Pt, US$815/oz Pd, US$1,300/oz Au, US$2,000/oz Rh, US$8.90/lb Ni, US$3.00/lb Cu.
Summary of Financial Results
The PFS economic analysis used life-of-mine (LoM) price assumptions of US$1,630/oz platinum, US$815/oz palladium, US$1,300/oz gold, US$2,000/oz rhodium, US$8.90/lb nickel, and US$3.00/lb copper. The prices were based on a review of consensus price forecasts from financial institutions and similar studies that had been recently published. The tax and legal framework of the mine used in the analysis is Republic of South Africa legislation.
The results of the financial analysis show an after tax NPV8 of US$972M, an after tax IRR of approximately 13% and a payback period of less than seven years. The cash flow estimates have been prepared on a real basis, as at January 1, 2015, and using mid-year discounting to calculate the NPV. A summary of the financial results is shown in Table 1.1.
Table 1.1: Financial results.
| Discount Rate | Before Taxation | After Taxation | |
|---|---|---|---|
| Net Present Value (US$M) | Undiscounted 5.0% 8.0% 10.0% 12.0% | 9,619 3,024 1,491 885 473 | 6,981 2,113 972 519 210 |
| Internal Rate of Return | 15% | 13% | |
| Project Payback Period | (Years) | 7 | 7 |
| Exchange Rate | (ZAR:USD) | 11:1 |
Table 1.2: Cash costs after credits.
| US$/oz Payable 3PE+Au | |||
|---|---|---|---|
| Life-of-Mine Average | First 5-Year Average | First 10-Year Average | |
| Mine Site Cash Cost Realisation | 401 390 | 454 384 | 429 390 |
| Total Cash Costs Before Credits | 792 | 838 | 819 |
| Nickel Credits Copper Credits | 389 80 | 438 90 | 419 86 |
| Total Cash Costs After Credits | 322 | 310 | 314 |
1. Totals may vary due to rounding.
Table 1.3: Production summary of key average annual production results.
| Item | Units | Average LoM |
| Steady State Production Platinum Palladium Gold Rhodium 3PE+Au Copper Nickel | Mtpa g/t g/t g/t g/t g/t % % | 4 1.76 1.87 0.26 0.13 4.02 0.15 0.32 |
| Recoveries Platinum Palladium Gold Rhodium Copper Nickel | % % % % % % | 87.2 86.9 76.7 92.0 87.7 68.8 |
| Concentrate Produced Concentrate Platinum Palladium Gold Rhodium 3PE + Au Copper Nickel | ktpa g/t g/t g/t g/t g/t % % | 159 37.5 39.8 4.8 2.8 85.0 3.3 5.4 |
| Recovered Metal Platinum Palladium Gold Rhodium 3PE + Au Copper Nickel | kozpa kozpa kozpa kozpa kozpa Mlbpa Mlbpa | 191 203 25 14 433 12 19 |
1. 3PE+Au is the sum of the grades for Pt, Pd, Rh, and Au.
2. Production over 31 years LoM for Phase 1, 4 Mtpa steady-state production.
Table 1.4: Total pre-production and sustaining capital costs, including contingency.
| US$M | Pre-Production | Sustaining | Total |
|---|---|---|---|
| Mining Underground Surface Infrastructure Backfill Plant Capitalised Operating Costs | 542 64 21 35 | 956 - 14 - | 1,498 64 34 35 |
| Subtotal | 661 | 970 | 1,631 |
| Processing & Tailings Concentrator Rietfontein TSF | 93 30 | 181 30 | 274 59 |
| Subtotal | 123 | 211 | 334 |
| Infrastructure General Infrastructure Site Pre-Production Closure Costs | 115 8 - | 63 1 18 | 178 9 18 |
| Subtotal | 123 | 83 | 206 |
| Indirects Exploration & Geology Engineering Procurement Contract Management (EPCM) Capitalized G&A & Other Costs | 3 59 15 | 0.4 17 6 | 4 75 21 |
| Subtotal | 77 | 23 | 100 |
| Owners Cost Capex Before Contingency | 71 1,054 | 4 1,291 | 75 2,345 |
| Contingency Capex After Contingency | 114 1,168 | 110 1,401 | 224 2,569 |
1. Sustaining capital expenditure includes capital expenditure for construction in 2019.
2. Totals may vary due to rounding.
The significant nickel and copper grades contribute to lower operating cash costs for operations on the Northern Limb of South Africa’s Bushveld Igneous Complex, as illustrated by Figure 1.0. Among the current and future Northern Limb producers, Platreef‘s estimated cash cost of US$322 per 3PE+Au ounce, net of copper and nickel by-product credits, ranks at the bottom of the cash-cost curve.
Figure 1.0: Net total cash cost (2013 mines in production and selected projects), US$/3PE+Au oz.
Ivanhoe’s Platreef Project:
at the bottom of the cash cost curve
Average
Source: SFA (Oxford). Data for Platreef Project and Waterberg are based on each project’s reported PFS and PEA parameters respectively, and are not representative of SFA's view.
Figure 2.0: Total 2014E platinum equivalent production in Africa.
Source: Production estimates for projects other than Ivanhoe’s Platreef Project have been prepared by SFA (Oxford). Production data for the Platreef Project (platinum, palladium, rhodium, gold, nickel and copper) are based on reported PFS and PEA data and are not representative of SFA's view. All metals have been converted by SFA (Oxford) to platinum equivalent ounces at price assumptions of US$1,384/oz platinum, US$803/oz palladium, US$1,265/oz gold, US$1,173/oz rhodium, US$7.66/lb nickel, and US$3.11/lb copper. Note: As the figures are platinum equivalent ounces of production they will not be equal to 3PE+Au production.
Mineral Resources
The resources used as the basis of the PFS were those amenable to underground selective mining.
Information on Platreef Project geology and mineralization is contained in the Platreef Project NI 43-101 Technical Report dated March 25, 2014, filed on SEDAR.
Table 1.5: Mineral Resources Amenable to Underground Selective Mining Methods (base case is highlighted).
| Indicated Mineral Resources Tonnage and Grades | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cut-off 3PE+Au | Mt | Pt (g/t) | Pd (g/t) | Au (g/t) | Rh (g/t) | 3PE+A u (g/t) | Cu (%) | Ni (%) | |||||||||
| 3 g/t | 137 | 2.27 | 2.31 | 0.35 | 0.15 | 5.09 | 0.18 | 0.38 | |||||||||
| 2 g/t | 214 | 1.83 | 1.89 | 0.29 | 0.12 | 4.13 | 0.17 | 0.34 | |||||||||
| 1 g/t | 387 | 1.28 | 1.34 | 0.21 | 0.09 | 2.92 | 0.14 | 0.28 | |||||||||
| Indicated Mineral Resources Contained Metal | |||||||||||||||||
| Cut-off 3PE+Au | Pt (Moz) | Pd Moz) | Au (Moz) | Rh (Moz) | 3PE+A u (Moz) | Cu (Mlb) | Ni (Mlb) | ||||||||||
| 3 g/t | 10.0 | 10.2 | 1.53 | 0.67 | 22.4 | 558 | 1,133 | ||||||||||
| 2 g/t | 12.6 | 13.0 | 2.00 | 0.85 | 28.5 | 794 | 1,610 | ||||||||||
| 1 g/t | 15.9 | 16.7 | 2.67 | 1.09 | 36.3 | 1,189 | 2,408 | ||||||||||
| Inferred Mineral Resources Tonnage and Grades | |||||||||||||||||
| Cut-off 3PE+Au | Mt | Pt (g/t) | Pd (g/t) | Au (g/t) | Rh (g/t) | 3PE+A u (g/t) | Cu (%) | Ni (%) | |||||||||
| 3 g/t | 211 | 2.09 | 2.06 | 0.34 | 0.14 | 4.63 | 0.18 | 0.38 | |||||||||
| 2 g/t | 415 | 1.57 | 1.59 | 0.27 | 0.11 | 3.54 | 0.16 | 0.33 | |||||||||
| 1 g/t | 1,054 | 0.96 | 1.02 | 0.18 | 0.07 | 2.23 | 0.13 | 0.26 | |||||||||
| Inferred Mineral Resources Contained Metal | |||||||||||||||||
| Cut-off 3PE+Au | Pt (Moz) | Pd Moz) | Au (Moz) | Rh (Moz) | 3PE+A u (Moz) | Cu (Mlb) | Ni (Mlb) | ||||||||||
| 3 g/t | 14.2 | 14.0 | 2.29 | 0.97 | 31.5 | 855 | 1,764 | ||||||||||
| 2 g/t | 20.9 | 21.3 | 3.58 | 1.44 | 47.2 | 1,490 | 3,032 | ||||||||||
| 1 g/t | 32.7 | 34.7 | 5.95 | 2.32 | 75.7 | 3,035 | 5,934 |
1. Mineral Resources have an effective date of April 3, 2013. The Qualified Persons for the estimate are Dr. Harry Parker, RM SME, and Mr Timothy Kuhl, RM SME.
2. Mineral Resources are reported inclusive of Mineral Reserves. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
3. Mineral Resources estimated assuming underground selective mining methods. The 2 g/t 3PE+Au cut-off is considered the base case estimate; the rows are not additive.
4. Mineral Resources are reported on a 100% basis. Mineral Resources are stated from approximately -200 m to 650 m elevation (from 500 m to 1,350 m depth). Indicated Mineral Resources are drilled on approximately 100 x 100 m spacing; Inferred Mineral Resources are drilled on 400 x 400 m (locally to 400 x 200 m and 200 x 200 m) spacing.
5. Reasonable prospects for eventual economic extraction were determined using the following assumptions. Assumed commodity prices are Pt: $1,699/oz, Pd: $667/oz, Au: $1,315/oz, Rh: $2,065/oz, Cu: $2.73/lb and Ni: $8.81/lb. It has been assumed that payable metals would be 82% from smelter/refinery and that mining costs (average $38/t) and process, general & administrative costs, and concentrate transport costs (average $12.50/t of mill feed for a 4 Mtpa operation) would be covered. The processing recoveries vary with block grade but typically would be 85%–90% for Pt, Pd and Rh; 75% for Au, 85% for Cu and 70% for Ni.
6. 3PE+Au = Pt + Pd + Rh + Au.
7. Totals may not sum due to rounding.
Proposed mining methods
Mining zones in the current Platreef mine plan occur at depths ranging from approximately 700 metres to 1,200 metres (below surface). Access to the mine will be via four vertical shafts. Shaft No. 2 will have the main personnel, material and ore handling system, while Shaft Nos. 1, 3 and 4 are designated ventilation shafts. Shaft No. 1 is under development and will be used for initial access, bulk-sample collection and early underground development.
Mining will be performed using highly productive mechanized methods, including long-hole stoping and drift-and-fill mining. The ore will be hauled from the stopes to the bottom of Shaft No. 2, where it will be crushed and hoisted to surface. Figure 3.0 shows an overview of the planned underground mine workings (looking northeast).
Figure 3.0: Elevated view of mining areas by method (isometric view).
DRAFT
Initial Mineral Reserves at Platreef Project
Ivanhoe has declared an initial Probable Mineral Reserve of 15.5 million ounces of platinum, palladium, rhodium and gold, using a declining NSR cut-off of $100-$80. Tables 1.6 and 1.7 show Probable Mineral Reserves for Platreef.
Table 1.6: Platreef Probable Mineral Reserves – tonnage and grades as at January 8, 2015.
| Method | Mt | NSR ($/t) | Pt (g/t) | Pd (g/t) | Au (g/t) | Rh (g/t) | 3PE+Au (g/t) | Cu (%) | Ni (%) |
|---|---|---|---|---|---|---|---|---|---|
| Longhole Stopes | 106 | 133.5 | 1.73 | 1.86 | 0.25 | 0.12 | 3.97 | 0.16 | 0.32 |
| Drift-and-Fill | 10 | 144.3 | 1.99 | 1.95 | 0.29 | 0.13 | 4.36 | 0.14 | 0.30 |
| Drift-and-Bench | 5 | 146.4 | 1.95 | 2.01 | 0.28 | 0.14 | 4.38 | 0.15 | 0.32 |
| Total | 120 | 134.9 | 1.76 | 1.87 | 0.26 | 0.13 | 4.01 | 0.15 | 0.32 |
Table 1.7: Platreef Probable Mineral Reserves – contained metal as at January 8, 2015.
| Method | Mt | Pt (Moz) | Pd (Moz) | Au (Moz) | Rh (Moz) | 3PE+A u (Moz) | Cu (Mlb) | Ni (Mlb) |
|---|---|---|---|---|---|---|---|---|
| Longhole Stopes | 106 | 5.88 | 6.33 | 0.86 | 0.42 | 13.49 | 362 | 758 |
| Drift-and-Fill | 10 | 0.63 | 0.62 | 0.09 | 0.04 | 1.39 | 30 | 65 |
| Drift-and-Bench | 5 | 0.28 | 0.29 | 0.04 DRAFT | 0.02 | 0.64 | 15 | 32 |
| Total | 120 | 6.80 | 7.24 | 0.99 | 0.49 | 15.51 | 408 | 855 |
1. Mineral Reserves have an effective date of January 8, 2015. The Qualified Person for the estimate is Mel Lawson, RM SME.
2. Metal prices used in the reserve estimate are as follows: Pt: $1,699/oz, Pd: $667/oz, Au: $1,315/oz, Rh: $1,250/oz, Cu: 2.73/lb, and Ni: $8.81/lb.
3. Tonnage and grade estimates include dilution and mining recovery allowances.
4. A declining NSR cut-off of $100/t - $80/t was used in the mineral reserve estimates.
5. Total may not add due to rounding.
6. 3PE+Au = (Pt + Pd + Rh) + Au (g/t).
Based on the cut-off grade and mining criteria applied to the Platreef resource model, the Probable Mineral Reserve will support a 31-year mine life at a steady state production rate of 4 Mtpa.
Metallurgy and Processing Methods
Metallurgical test work has focused on maximizing recovery of platinum-group elements (PGE) and base metals, mainly nickel, while producing an acceptably high-grade concentrate suitable for further processing and/or sale to a third party. The three main geo-metallurgical units and composites tested produced smelter-grade final concentrates of approximately 85 g/t PGE + Au at acceptable PGE recoveries. Testwork has also shown that the material is amenable to treatment by conventional flotation without the need for re-grinding. Batch open-circuit flotation testwork was performed as well as locked-cycle flotation testwork.