Kamoa-Kakula deal ‘pivotal,’ Friedland says

Ivanhoe Mines’ (TSX: IVN; US-OTC: IVPAF) executive chairman Robert Friedland and CEO Lars-Eric Johansson held a conference call on Nov. 28 to share details on progress at the company’s three African projects, including Kamoa-Kakula, where Ivanhoe recently signed a landmark agreement with the Congolese government.

Earlier that month, Ivanhoe and project partner, China’s Zijin Mining Group, transferred another 15% of the Kamoa-Kakula copper project to the government of the Democratic Republic of the Congo (DRC). The Congolese government now has a direct 20% stake in Kamoa-Kakula, while Ivanhoe and Zijin each hold an indirect 39.6% interest. Hong Kong-based Crystal River Global holds the remaining 0.8% interest.  

Johansson reminded callers that  the decision to provide another 15% stake to the DRC government dated back to 2012, when Ivanhoe received the mining right for the project. “We believe the fair and long-term ownership structure for the project was 80% for Ivanhoe and 20% for the DRC government,” he said.

Friedland, who joined the call from Hong Kong, describes the deal as “pivotal” and a “win-win situation” for all parties.

Under the Sino-Congolese cooperation, qualifying Chinese-Congolese partnerships — such as at Kamoa-Kakula — will receive “significant tax advantages,” which includes “complete freedom from income taxes until all of the investment has been recovered,” Friedland said.

He added that despite the anticipated two-year delay in DRC’s presidential elections, “we don’t see any impact … on our project at this time with the election.”

Under Ivanhoe’s 2015 partnership contract, Zijin has agreed to use its best efforts to arrange 65% of the capital required for developing the first phase of Kamoa-Kakula, Johansson notes.

A 2016 prefeasibility study (PFS) estimates initial capital costs at Kamoa of US$1.2 billion. The deposit alone could support a 24-year mine life, producing 100,000 tonnes copper (in concentrate) a year.

Ivanhoe expects to table a preliminary economic assessment (PEA) for Kakula before the end of 2016, followed by a resource update in early 2017.

Ivanhoe describes Kamoa-Kakula, located within the Central African Copperbelt, as “the world’s largest, undeveloped, high-grade copper discovery.” As of October, the two deposits contained 58.9 billion lb. copper in indicated (944 million tonnes grading 2.8% copper) and 14.6 billion lb. in inferred (286 million tonnes at 2.3% copper), at a 1% copper cut-off grade.

Elsewhere in the DRC, Ivanhoe is putting the high-grade Kipushi zinc deposit back into production. It is upgrading the existing shafts, pumping stations and underground infrastructure. Ivanhoe plans to complete a PFS in the second quarter of 2017, which should refine the project’s 2016 PEA costs and mine schedule.

The PEA on Kipushi’s Big Zinc zone pegs total costs at US$528 million, including US$119 million in sustaining capital. The underground mine could produce 530,000 tonnes of zinc concentrate a year over a 10-year mine life. Total cash costs, including copper by-product credits, are projected at US54¢ per lb. zinc.

Friedland, who calls Kipushi “the richest crack in the earth,” says there are several ways to fund the project, including taking Kipushi public as a pure zinc play — with or without Ivanhoe’s 32% partner Gecamines — or even selling its stake in Kipushi.

In South Africa, Ivanhoe is advancing the Platreef platinum-palladium-gold-nickel-copper project on the Northern Limb of the Bushveld complex. It should complete a feasibility study in early 2017.

Friedland says Ivanhoe’s projects are generating buzz among investors. “We have been approached by numerous, primarily financial investors, as well as international industry participants for all of our assets,” he says.

“We’ve never felt as though we’ve had as many suitors that would like to marry us as we have this evening.”