Ivanhoe Mines Issues Third Quarter Financial Results and Review of Mine Development and Exploration Activities
DGAP-News: Ivanhoe Mines Ltd.
/ Key word(s): Miscellaneous
Ivanhoe Mines Issues Third Quarter Financial Results and Review of Mine Development and Exploration Activities
08.11.2019 / 06:01
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Note: Kamoa-Kakula 2019 PEA production based on projected peak copper production (which occurs in year 12) of the 18 Mtpa alternative development option. Source: Wood Mackenzie (based on public disclosure; the Kakula 2019 PFS has not been reviewed by Wood Mackenzie).
Kakula's initial processing plant capacity increased by 26% from 3.0 Mtpa to 3.8 Mtpa, boosting projected early-stage copper production
An independent definitive feasibility study (DFS) for the Kakula Mine is underway with an expected completion date of mid-2020. At the same time, Ivanhoe expects to issue an updated preliminary economic assessment for the expanded Kamoa-Kakula combined production scenario that will include an updated Mineral Resource estimate for Kamoa North, including the initial Mineral Resource estimate for the Kamoa North Bonanza Zone.
The forthcoming Kakula DFS will incorporate detailed design, engineering and procurement, which is largely complete, with plans to increase the initial processing plant ore capacity by approximately 26% from 3.0 Mtpa to 3.8 Mtpa.
Based on the results of the February 2019 PFS, Kakula's average feed grade over the first five years of operations is projected to be 6.8% copper, and 5.5% copper on average over a 25-year mine life. An increase in the initial processing plant throughput is expected to result in improved cash flows, which may be used to accelerate subsequent expansions.
Additional mining crews to be added at Kakula to increase pre-production ore stockpiles and to position the mine to accelerate commencement of the second phase of development
The expansion in initial plant capacity from 3.0 Mtpa to 3.8 Mtpa would require increasing the underground mining crews in 2020 from 11 to 14 to ensure sufficient mining operations to feed the expanded plant throughput. This would have the benefit of producing a larger surface stockpile of ore prior to the scheduled commissioning of the processing plant, as well as accelerating the mine development schedule, providing the opportunity to bring forward the commencement of the second phase of development at Kakula. The second 3.8 Mtpa plant module will be fed from the Kakula mine at a planned full production rate of 6 Mtpa. Further study work will determine the amount of tonnes to be sourced from the Kansoko Mine, or elsewhere, to maximize the full milling capacity of 7.6 Mtpa. Any plans to accelerate the second module of Kakula's processing plant would be subject to securing the necessary project-level financing.
Kakula's original 3.0 Mtpa first processing plant module has already been redesigned during the basic engineering phase to a nameplate capacity of 3.8 Mtpa. Purchase orders have been placed for all major long-lead time mechanical equipment, plant earthworks are well advanced, and plant civil works have started. The contract for the SMPP (structural, mechanical, piping and platework) supply and erection portion of the plant construction recently has been awarded. The capital cost estimate related to the construction of the processing plant has been estimated to a basic engineering level of accuracy and is thus well defined.
The current updated estimate of the project's initial capital costs is approximately $1.3 billion as of January 1, 2019, which assumes commissioning of the first processing plant module in Q3 2021 and includes expanded plant capacity and pre-production ore stockpiles.
The capital costs incurred by the Kamoa-Kakula joint venture during the first nine months of 2019 were $182.5 million, of which $60.5 million was spent on the Kakula declines and mine development.
Ivanhoe will fund its share of approximately 40% of the initial capital costs, plus it will fund its share of capital associated with the 20% carried interest owned by the Government of the DRC, a portion which will be repaid through future cash flows from the project. Ivanhoe expects that it will continue to have sufficient cash resources or project-related financing options available to cover its share of the potential increase in initial capital costs.
More than five kilometres of underground development was completed in the first nine months of 2019 as the project tracks towards first production in Q3 2021
The underground development work at Kakula is being performed by mining crews operating large-capacity, semi-autonomous mining equipment, such as jumbo drilling rigs and 50-tonne trucks. More than five kilometres of underground development was completed in the nine months ended September 30, 2019.
Development ore is being stockpiled on surface near the site of the concentrator plant. This ore will be used for plant commissioning as well as supplying any gap in the production build-up once the concentrator is operational.
Kakula's underground development and production five-year plan showing more than five kilometres of development work completed to date (purple with access from the northern declines and yellow with access from the southern decline).
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A 3-D model of Kakula's underground transfer bins that currently are under development. The bins will transfer ore from the 50-tonne haulage dump trucks to the conveyor belt for transportation to surface.
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Mine access drives 1 and 2 (interconnected, parallel tunnels that will provide access to ore zones) continue to progress, with access drive 2 having reached the high-grade zone.
The number of underground mining crews has increased from three at the start of the third quarter, to six now working at Kakula. The project will continue to add additional crews over the next 12 months to further accelerate development. Ventilation Shaft 1 has been fully commissioned and work on ventilation shafts 2 and 3 is well advanced, with underground access for both having been achieved and pilot drilling started. Construction of the underground rock handling system (tips, bins and conveyors) is progressing well and is targeted for completion in Q2 2020. Work on Kakula's main decline dam and pumping station has been completed, and work on the main decline bottom dam is well advanced.
By the end of September 2019, 571 metres of development had been completed at the southern ventilation decline, which will facilitate the acceleration of critical early mine development.
More than five kilometres of underground development have been completed to date at Kakula and the pace will increase as more mining crews are added. Access tunnels measure six metres by six metres, allowing access for large-capacity LHD loaders and 50-tonne haulage trucks.
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Basic engineering and early-works engineering at Kakula now complete
The basic engineering design and costing for the initial five-years has been completed. The cost and design of the plant, infrastructure and mining areas have been reviewed. The basic engineering package also provided a detailed capital cost estimate by which the project costs can be controlled and will be included in the independent definitive feasibility study, which will be completed in 2020.
The processing plant flow diagrams, process control descriptions, processing equipment lists and piping diagrams have been completed. Major long-lead items including cone crushers, ball mills, regrind mills, thickeners, the concentrate filter press, low entrainment cells, flotation cells and high-pressure grinding rolls (HPGR) have been ordered. Plant earthworks are well advanced and plant civil works are underway; concrete pouring for the run-of-mine stockpile has started, and excavation and rebar installation at the HPGR stockpile and ball mill foundations has been completed. To ensure the progression of the detailed plant designs, the contracts have been signed and the vendor certified information has been sent.
The secondary plant procurement packages, specifically the trash screen, concentrate bagging plant, supply of medium voltage motors and variable speed drives, vibrating screens, grizzlies, feeders and cyclones are all in the final stages of the procurement cycle. The design and procurement for the underground rock-handling system also has been completed.
A 3-D model of Kakula's plant crushing and screening area.
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A 3-D model of Kakula's processing plant mill feed end.
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A 3-D model of Kakula's processing plant flotation area.
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A 3-D model of Kakula's processing plant concentrate thickening filtration and bagging plant.
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The current primary construction focus which runs through the project's critical path is the installation of the underground rock handling system, the processing plant and the electrical high-voltage infrastructure installation.
The contract for the 220-kilovolt overhead power line, as well as the contract for the new electrical substation has been awarded. Construction of the new road linking Kamoa-Kakula with the Kolwezi airport is progressing well with three of the six culverts completed. The road is expected to be operational by the end of 2019. Construction of the first 360 beds at the Kakula site accommodation is ongoing, with the first beds having been delivered on time and the remaining units to be completed in early 2020.
Exploration success leads to discovery of shallow thick ultra-high grade Kamoa North Bonanza Zone
Drilling in Q3 2019 focused on the extension and definition of the Kamoa North Bonanza Zone. In total, 18,103 metres were completed in 69 holes.
Ultra-high-grade mineralization previously identified over an approximately 600 metre strike length was further defined in Q3 2019 on 50-metre east-west spaced sections at 20-metre to 25-metre spaced centres, approximately 300 metres east and west of the discovery hole DD1450 (13.05% copper over 22.3 metres (true thickness)).
Beyond the central core of the Bonanza Zone, drilling was done on wider 100-metre spaced section lines to fully define the limits of the system. This drilling constrains the shallow portion of the Central Bonanza Zone. However, the zone remains untested along considerable strike length on the western side of the West Scarp Fault.
The completed drill holes currently are being sampled for dispatch to Bureau Veritas and final assay results are expected in Q4 2019. These assay results will be used in an updated Mineral Resource estimate for the Kamoa North area, including the Bonanza Zone.
Figure 6: Conceptual model of the Bonanza Zone.
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Figure 7: Grade profiles plotted on the same scale show the significance of the grades between the different discovery areas on the Kamoa-Kakula Project.
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Development options at Kamoa North being considered; development drilling and test work underway
Given the shallow depth, remarkable thickness and massive copper sulphide mineralization discovered within the Kamoa North Bonanza Zone, Kamoa-Kakula's engineers are evaluating potential options to accelerate the development of this new discovery.
Geotechnical and hydrogeological drilling is underway to provide support for future mining studies. A number of metallurgical composites also have been generated for existing coarse reject material that will be used for flotation test work.
Ongoing upgrading work enables Mwadingusha hydropower station to supply clean electricity to the national grid
Ongoing upgrading work at the Mwadingusha hydropower plant in the DRC has significantly progressed with major equipment being delivered on site. The power station was shut down to replace sections of penstocks that were found to be in an advanced stage of corrosion. The progressive re-commissioning of the turbines, fully refurbished and modernized with state-of-the-art control and instrumentation, is underway and is expected to be completed in Q3 2020. The refurbished plant is projected to deliver approximately 72 megawatts (MW) (72,000 kilovolts) of power to the national power grid.
The work at Mwadingusha, part of a program to eventually overhaul and boost output from three hydropower plants, is being conducted by engineering firm Stucky of Lausanne, Switzerland, under the direction of Ivanhoe Mines and Zijin Mining, in conjunction with the DRC's state-owned power company, La Société Nationale d'Electricité (SNEL). Once fully reconditioned, the three plants will have a combined installed capacity of approximately 200 MW of electricity for the national grid, which is expected to be more than sufficient for the Kamoa-Kakula Project.
The Kansoko Mine, Kakula Mine and Kamoa camp have been connected to the national hydroelectric power grid since the completion of a 12-kilometre, 120-kilovolt, dual-circuit power line between Kansoko and Kakula in December 2017. The design of permanent, 11-kilovolt reticulation to the ventilation shafts and mine has started, which includes substations, overhead lines and surface cables.
Assembling of the new turbines at Mwadingusha in progress.
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Continued focus on community and sustainability
The Kamoa-Kakula Sustainable Livelihoods Program is committed to sustainable development in the communities within the project's footprint. The main objective of the livelihoods program is to enhance food security and living standards of the people who reside within the project's footprint. The program consists primarily of fish farming, poultry production, beekeeping and food crops, including farming of maize (corn), vegetables and bananas. With the increase in development activities at the project, a significant number of employment opportunities have also been made available to residents of the local communities.
Additional non-farming related activities for Q3 2019 included education and literacy programs, the continuation of a community brick-making program, the construction of a school, the construction of housing for teachers, and the supply of fresh water to a number of local communities using solar powered boreholes. Community members also have been trained by community health experts to maintain the sanitation of the water boreholes in their communities.
Adult literacy education is an important part of the Kamoa-Kakula community skills development program.
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4. Western Foreland Exploration Project 100%-owned by Ivanhoe MinesDemocratic Republic of Congo
Drilling on Ivanhoe's 100%-owned Western Foreland licences, immediately north of the Kamoa-Kakula mining licence, has discovered the extension of the Kamoa Far North high-grade shallow copper corridor on Ivanhoe's wholly-owned licences for at least 800 metres
Ivanhoe's DRC exploration group is targeting Kamoa-Kakula-style copper mineralization through a regional drilling program on its 100%-owned Western Foreland exploration licences located to the north, south and west of the Kamoa-Kakula Project.
Drilling on the Kiala licence, PR706, immediately north of the northern border of the Kamoa-Kakula mining licence, has confirmed the extension of the Kamoa Far North high-grade trend onto Ivanhoe's 100%-owned Western Foreland exploration licences for at least 800 metres to date.
Three additional east-west section lines located at 600 metres, 800 metres and 1,000 metres north of the Kamoa-Kakula mining licence have been drill tested at 100-metre intervals during Q3 2019. Visually strong copper mineralization has been intersected in drilling on the first two of these section lines, with drilling ongoing on the third section line. Observed mineralization is consistent in downhole depth and stratigraphic location with that reported previously along this high-grade trend. Sixteen holes have been completed in this new discovery area with pending assays expected to be returned in Q4 2019.
Figure 8: Location of recent drilling results in the Kamoa Far North Exploration Area and the Kamoa Far North extension on Ivanhoe's 100%-owned Western Foreland exploration licences.
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A total of 23 shallow drill holes, with depths of less than 150 metres, were completed on the Makoko, Kisua and Kikuyu licences during Q3 2019 using the project-owned Toyota Land Cruiser mounted drill rigs. This drilling was primarily to confirm stratigraphic contacts identified in the airborne magnetics or to test prospective horizons.
Geophysics to assist with target generation
A high-resolution airborne magnetic survey was completed over the Makoko and Kiala prospects around Kamoa-Kakula, as well as over Ivanhoe's Lufupa South East Blocks (Musinga-Kisua, Kikuyu-Kikando, Kengere-Kasara). The data acquisition has been completed and the team currently is analyzing and interpreting the data for geological and structural interpretation and target delineation (see Figure 9).
Ground-gravity surveys were conducted at the Kengere and Makoko prospects to assist with target generation. In the Kiala area, an extension to the east of the previously completed grid also was undertaken to provide better resolution at the margin of the Nguba basin.
Figure 9: Ivanhoe Mines Exploration Licences in Western Foreland and Lufupa South East shows areas with recently acquired high resolution airborne magnetic data.
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SELECTED QUARTERLY FINANCIAL INFORMATION
The following table summarizes selected financial information for the prior eight quarters. Ivanhoe had no operating revenue in any financial reporting period and did not declare or pay any dividend or distribution in any financial reporting period.
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DISCUSSION OF RESULTS OF OPERATIONS
Review of the three months ended September 30, 2019 vs. September 30, 2018
The company recorded a total comprehensive loss of $16.8 million for Q3 2019 compared to a loss of $7.9 million for the same period in 2018. The majority of the loss in Q3 2019 mainly was due to an exchange loss on translation of foreign operations of $17.7 million resulting from the weakening of the South African Rand by 7% from June 30, 2019, to September 30, 2019. The company recognized an exchange loss on translation of foreign operations in Q3 2018 of $5.2 million.
Finance income for Q3 2019 amounted to $18.9 million, and was $6.8 million more than for the same period in 2018 ($12.1 million). The increase mainly was due to interest earned on loans to the Kamoa Holding joint venture to fund operations as the accumulated loan balance increased. This interest amounted to $13.8 million for Q3 2019, and $10.4 million for the same period in 2018. Interest received on cash and cash equivalents also increased to $3.5 million for Q3 2019 compared to $1.2 million in Q3 2018, due to a higher cash balance during Q3 2019.
Exploration and project expenditure for Q3 2019 amounted to $3.3 million and was $0.9 million more than for the same period in 2018 ($2.4 million). With the focus at the Kipushi and Platreef projects being on development and the Kamoa-Kakula Project being accounted for as a joint venture, all exploration and project expenditure in both periods related to exploration at Ivanhoe's 100%-owned Western Foreland exploration licences.
The company's share of losses from the Kamoa Holding joint venture decreased from $7.8 million in Q3 2018 to $7.1 million in Q3 2019. The following table summarizes the company's share of the losses of Kamoa Holding for the three months ended September 30, 2019, and for the same period in 2018:
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Review of the nine months ended September 30, 2019 vs. September 30, 2018
The company recorded a total comprehensive loss of $5.3 million for the nine months ended September 30, 2019 compared to a loss of $42.0 million for the same period in 2018. The company recognized a loss on translation of foreign operations of $11.9 million for the nine months ended September 30, 2019 and $23.9 million for the same period in 2018, mainly due to the weakening of the South African Rand over these periods.
Finance income for the nine months ended September 30, 2019 amounted to $51.6 million, and was $18.2 million more than for the same period in 2018 ($33.4 million). The increase mainly was due t