VANCOUVER — Years ago, he called Voisey’s Bay a game-changer for the global nickel game. After that he labelled Oyu Tolgoi a world-class copper project. Only a few weeks ago he called a high-grade platinum, palladium, rhodium and gold intercept from the Flatreef project “unprecedented.”
Now Robert Friedland, founder and chairman of Ivanhoe Mines (US-OTC: IVPAF), says a preliminary economic assessment (PEA) shows Ivanhoe’s Kamoa project in the Democratic Republic of the Congo (DRC) belongs to the same category as those other premium assets.
“The assessment confirms that Kamoa truly is in a class by itself in terms of the world’s known, undeveloped copper deposits,” Friedland said in a news release. “Kamoa has the rare combination of a high copper grade and large tonnage — qualities that position Kamoa to become a substantial copper producer, with one of the lowest cash costs anywhere in the world.”
Kamoa undoubtedly offers a world-class resource in terms of copper grade and tonnage. What the costly project may still need, however, is a better internal rate of return (IRR).
Kamoa is a stratiform copper deposit near Kolwezi, at the western end of the Central African copper belt. Ivanhoe discovered mineralization at Kamoa in 2008, and has since outlined a resource totalling 739 million indicated tonnes grading 2.67% copper, plus 227 million inferred tonnes averaging 1.96% copper.
By focusing on the higher-grade parts of the resource, the PEA outlines a mine at Kamoa that churns through 326 million tonnes of ore grading 3% copper over a 30-year mine life.
The mine would be developed in two stages. The first phase would involve an underground room-and-pillar mine targeting some of the highest copper grades at Kamoa, feeding a conventional mill and flotation facility to produce a copper concentrate. The operation would process 3 million tonnes of ore annually.
An expansion in year five would see the underground mining rate rise to 8 million tonnes per year. In deeper areas the mining method would change over to drift-and-fill. An on-site smelter would also be built, enabling Kamoa to produce 306,000 tonnes of blister copper annually. The output would position Kamoa as one of the world’s largest copper mines.
The copper-smelting process would also generate 1,600 tonnes of sulphuric acid each day, which would be sold to nearby copper-oxide mines. Incorporating that credit, the operation should be able to produce a pound of copper for a life-of-mine average of US$1.18.
However, the costs to reach production are significant. Capital for phase one is estimated at US$1.4 billion. Phase two would then cost another US$3.5 billion. Meanwhile, life-of-mine sustaining costs total US$2.6 million, bringing total costs to US$7.6 billion.
Using a copper price of US$3 per lb. and an 8% discount rate, and assuming a sulphuric acid sales price of US$250 per tonne, Kamoa returns an after-tax net present value (NPV) of US$2.6 billion. The mine as planned would generate a 15.2% after-tax IRR, which means it would take more than eight years to repay its capital costs.
Ivanhoe pegs 2022 as the year Kamoa transitions from phase one to phase two, which suggests the company foresees commissioning the operation in 2017. The company plans to drive one of three eventual mine-access portals next year. This first portal will access Kansoko Sud, one of the higher-grade areas within the deposit.
Mining would progress to Kansoko Centrale, followed by Kansoko Nord. At least, that is the current plan. The Kamoa property still has exploration potential and Ivanhoe plans to continue exploring in the area, so other resources may slot into the schedule in the future.
Metallurgically, Kamoa is straightforward. The recovery circuit will use a traditional mill–float–mill–float approach to create a concentrate. This process recovered 86.7% of the copper in Kamoa hypogene samples and 82.9% of the copper from supergene samples.
The smelter planned for phase two is based on Direct-to-Blister flash smelting, wherein copper concentrates are flash smelted to produce blister copper in a single stage.
The SO2 and SO3 gases produced in that process would be collected and turned into sulphuric acid. The copper belt is a net acid-consuming area, as most of the copper and cobalt produced comes from oxidized mineralization, and recovered via solvent extraction. Some mines generate their own acid using sulphur-burning facilities, but most buy acid from Zambia or overseas. After a marketing study, Ivanhoe is confident it could sell Kamoa’s sulphuric acid for at least US$250 per tonne.
Ivanhoe owns 95% of Kamoa. The other 5% was transferred to the DRC government in September 2012 for no consideration, pursuant to the DRC Mining Code. Ivanhoe has also offered to sell another 15% to the DRC on commercial terms.
Kamoa is road accessible. Power and rail lines pass within 10 km of the property. Ivanhoe has already negotiated a deal with the DRC’s national power company to jointly rehabilitate three hydro-power plants, which would power a Kamoa mine and smelter. Until those sites are rehabilitated, the mine will be powered from existing grid power and diesel generation.
High-grade resources are a common theme among Ivanhoe projects. Alongside Kamoa the company is advancing Platreef, a platinum–palladium–nickel–copper–gold–rhodium discovery on the North Limb of the Bushveld complex in South Africa and Kipushi, a historic high-grade zinc–copper–germanium mine that is also in the DRC.
Kipushi is being dewatered and upgraded in anticipation of a future return to production, after being on care and maintenance since 1993. It offers a historic resource (not complaint with National Instrument 43-101 regulations) of 16.9 million indicated tonnes grading 16.8% zinc and 2.3% copper, including a high-grade zone of 4.7 million tonnes grading 38.6% zinc.
At Platreef Ivanhoe has defined an indicated resource of 214 million tonnes grading 4.1 grams platinum, palladium, gold and rhodium per tonne, 0.34% nickel and 0.17% copper, plus 415 inferred tonnes of slightly lower grade. In October the company’s drills returned the longest mineralized intercept from the region to date, its 90.6-metre length far beyond anything previous seen in the Bushveld.
Also common to Ivanhoe’s projects, however, is cost. Platreef is being planned as an underground operation, with construction of an US$80-million shaft about to get underway to enable collection of a bulk sample. No matter how it is designed, a Platreef mine will be a costly endeavour.
Kamoa, too, is costly. Phase one alone is pegged at US$1.4 billion, a sizable number that Ivanhoe described as “low” in its news release. Cash flow from phase one would contribute towards the cost of phase two, but would not come close to covering the extra US$3.5 billion needed. However, Friedland was faced with similar costs when contemplating Oyu Tolgoi, and the first phase of that mine is now in operation.
A positive market reaction to the Kamoa PEA suggests investors don’t see high costs as a problem, at least for now. In the two days following release of the PEA Ivanhoe’s share price gained 17¢, or 8%, to close at $2.29. The company has a 52-week trading range of $1.94 to $2.70, and has 569 million shares outstanding.
Kamoa is definitely a monster, even in the region where monster stratiform copper deposits, like Mufulira, have existed for a long time
Maybe one should consider the former name Ivanplats when looking at the 52 week trading range. After all, there was no material change except the name. The share price in 2013 has seen about a negative 60% drop. I would hardly look at this as a “positive market reaction”. Who writes this stuff?
That being said the share price does look very-very interesting at present levels for a long term hold.
No doubt it is a big deposit but how much sense does it make to put all those billions in a place like the DRC?