Ivanhoe trims budget; stays course at Kakula

Ivanhoe Mines (TSX: IVN; US-OTC: IVPAF) has completed 13.5 km of underground development — 4.2 km ahead of plan — at its Kakula copper project in the Democratic Republic of Congo (DRC), and says it will bring the deposit into production on time and budget by the third quarter of 2021.

Another 29.5 km of underground development must be completed before first concentrate production in 2021, and Ivanhoe noted that almost all of the underground development is in mineralized material, with each blast producing about 550 tonnes of ore.

Ivanhoe expects the stockpiled ore, which has an average grade of more than 8% copper, will total about 1.5 million tonnes prior to production.

The mining company also announced cost-saving measures that should cut costs by US$75 million, including lower expenditures at its Platreef palladium-platinum-nickel-copper-gold-rhodium project in South Africa and at its Kipushi zinc-copper-lead-germanium mine in the DRC.

Equipment at Ivanhoe Mines’ Platreef platinum project in South Africa. Credit: Ivanhoe Mines

Work on Platreef’s first shaft will continue, but the company has reduced the project’s 2020 budget to US$41.7 million, down from US$60 million, and trimmed its budget for Kipushi to US$28.7 million, down from US$40 million.

The company also announced voluntary salary reductions by senior management of up to 35% for a six-month period, and the suspension of all short-term incentive award payments for 2020.

In addition, Ivanhoe has trimmed its corporate and senior management headcount and reduced its footprint of global offices. The company’s head office will remain in South Africa and be supported by satellite offices in Beijing and London. In terms of management changes, Egizio Bianchini, Ivanhoe’s executive vice chairman, will relinquish his executive role but remain as vice chairman and a director.

The initiatives “are designed to further build on our robust cash and cash equivalents of approximately US$600 million and essentially no debt,” Marna Cloete, the company’s president and chief financial officer, said in a statement. “Through this current period of temporary uncertainty, we are acting now to protect this position all while continuing to act in the best interests of our shareholders, our employees, and our broad range of stakeholders across society.”

Andrew Mikitchook of BMO Capital Markets has an outperform rating on the stock and a price target of $9.00 per share. At press time in Toronto, the company’s shares were trading at $2.69 apiece within a 52-week trading range of $1.80 and $4.54.

“The company is in a strong financial position with US$603 million at the end of March with today’s press release highlighting ~$75 million in cost savings through 2021 including the reduction of activities at Platreef and Kipushi, deferral of exploration activities, and voluntary management salary reductions,” Mikitchook wrote in a research note.

“The company continues to prioritize focus towards developing Kakula on time and on budget.”