Friedland says new Kamoa-Kakula PEA ‘already obsolete’

VANCOUVER — Ivanhoe Mines’ (TSX: IVN; US-OTC: IVPAF) executive chairman Robert Friedland says a preliminary economic study (PEA) released on the company’s impressive Kamoa-Kakula copper discovery in the Democratic Republic of the Congo (DRC) is “already obsolete.”

Friedland was speaking on a Dec. 15 conference call, and, though he conceded the comment was somewhat tongue in cheek, added that engineers are struggling to keep up with Kakula’s growth rate over the past six months of drilling. The company’s goal is now to “double or triple” the size of the proposed operation.

Ivanhoe has outlined two “initial options for the start-up” at Kamoa and nearby Kakula, which lies 5 km southeast. The first model involves a 4-million-tonne-per-year mine at Kakula that would generate 216,000 lb. copper annually at “mine-site” cash costs of US37¢ per lb. over a 10-year mine life. Preproduction capital for the stand-alone Kakula operation is estimated at US$1 billion.

A drill sample of chalcocite-rich mineralization (nearly 80% copper by weight) intersected at 619 metres in the Kakula discovery zone. Credit: Ivanhoe Mines.

 “We knew from drilling in 2014 that we had high-grade mineralization at Kakula,” CEO Lars-Eric  Johansson said during the conference call. “But we didn’t know until we started our drilling earlier this year that Kamoa-Kakula would become the largest copper discovery ever made on the African continent. And it’s still growing.”

The company says that the near-surface, stratiform copper discoveries indicate a new district along a sedimentary rock belt that straddles the border between Zambia and the DRC.

The Kakula mine design would feature an after-tax net present value (NPV) of US$3.7 billion at an 8% discount rate, which marks a 272% increase from the NPV reported in a March 2016 prefeasibility study on a 3-million-tonne-per-annum operation focused on Kamoa. The internal rate of return (IRR) for the Kakula option is 38%.

Friedland said that the plan at Kamoa was designed to be fundable under “tough market conditions,” but finding Kakula “completely changed the game.”

Ivanhoe’s second development scenario involves the phased construction of two mines to a combined 8-million-tonne production rate per year. The company would build the previously outlined operation at Kakula, while developing the Kansoko mine at Kamoa.

Under this alternative, the PEA envisages US$1 billion in capital costs and an average annual production rate of 292,000 tonnes copper at a mine-site cash cost of US42¢ per lb. during the first 10 years of operations. The phased scenario results in a US$4.75-billion after-tax NPV and 35% IRR.

A drill site on Ivanhoe Mines’ Kakula copper prospect in the Democratic Republic of the Congo. Credit: Ivanhoe Mines.

Combined resources for both deposits total 944 million indicated tonnes grading 2.8% copper for 58.9 billion contained lb. copper.

“We moved our thoughts on the mine plan down to Kakula and found the result was lower capital requirements because of thickness and consistency, higher metallurgical recoveries and a higher-grade concentrate that lowers shipping and realization costs. In short, it’s a real-world beater,” Friedland said.

“We stepped back and thought: ‘Hey, what about building the Kamoa design alongside the new Kakula model?’ Now that sentiment in the mining business has turned, there are suddenly enormous capital flows available. We’re in a position to look at the full potential of this discovery and just how large it can get,” he added.

Ivanhoe said another PEA is underway to more than double the initial build size to between 8 million and 10 million tonnes per year, with results expected in early 2017.

A box cut that will provide access to the planned Kansoko copper mine on Ivanhoe Mines’ Kamoa deposit in the Democratic Republic of the Congo. Credit: Ivanhoe Mines.

IVN also announced that the shareholder agreement with Chinese partner Zijin Mining Group on Kamoa-Kakula has been amended, wherein Zijin could hold majority control of the project by arranging financing for 65% of the project capital, or US$650 million. Zijin had committed to arrange financing on a best-efforts basis, which remains a fallback option.

“The goal is to surpass this initial economic study. We’d like to double or triple it, and we’re talking to interesting companies to team up with us and achieve this task,” Friedland said. “We’re talking to sources of capital all over the world that quite literally have no limitations. The questions we get now include: ‘How big can you make this thing, and how fast can you get there?’ The mineralization is a blanket that stretches 27 km north. It’s just a question of how much we want to spend on drilling.”

Ivanhoe has traded within a 52-week range of 53¢ to $2.98 per share, and closed at $2.25 at press time. The company has 779 million shares outstanding for a $1.7-billion market capitalization, along with a US$400-million cash balance.