Ivanhoe says most locals support Platreef

Should Ivanhoe Mines (TSX: IVN; US-OTC: IVPAF) cranks out its estimated 785,000 oz. platinum, palladium, rhodium and gold from the Platreef project in South Africa, the underground operation 280 km northeast of Johannesburg would be Africa’s lowest-cost producer of platinum-group metals, the company says.

Based on the findings of a preliminary economic assessment completed in March, the project — in the Northern Limb of South Africa’s Bushveld igneous complex — would rank at the bottom of the cash-cost curve at US$341 per oz. platinum, palladium, rhodium and gold, net of by-product base-metal credits of nickel and copper. (Platreef has the highest concentration of base metals among Africa’s platinum group metal producers, according to the company.)

Since releasing the PEA, Ivanhoe has pushed ahead with the project, and in September signed off on an agreement giving a combined 26% of Platreef’s ownership to 20 host communities plus employees and local entrepreneurs, under a broad-based economic empowerment structure.

Out of the 26% ownership stake, 20% will be held by a trust to benefit the 20 local host communities near the project; 3% held by a trust for historically disadvantaged, non-managerial South African employees at Platreef; and 3% held by a consortium of local entrepreneurs and managerial employees. While the mine is developed, the trust for the 20 host communities would receive an annual fixed contribution of $1.1 million.

At the time the agreement was completed and made public on Sept. 4, Ivanhoe’s executive chairman Robert Friedland said the agreement meets the policy objectives of South Africa’s mining laws and described it as “one of the broadest empowerment transactions seen in the mining sector.”

That’s one of the reasons why Ivanhoe lashed out at Bloomberg when its reporters wrote a story stating that three activists from Mokopane, near the project site, “were unhappy because the company sold the community a 20% stake in the $1.6-billion Platreef project to fulfill government demands for black shareholding without all of the residents being part of the negotiations over the terms of the deal.”

“While the stake will be paid from future proceeds of the mine,” the Bloomberg article stated that “residents don’t know what the interest rate on those repayments are and how long they will have to wait before seeing any dividends from the project.”

In a press release soon after the Bloomberg report was published, Ivanhoe said the Bloomberg story “did not accurately and fairly” represent the circumstances, and said that most of the communities in the Mokopane area supported the project.

Ivanhoe also noted that the agreement conforms to the country’s mining laws, and that Bloomberg “chose to give prominence to unsupported allegations by three area activists” and “failed to factually report that, despite organized, aggressive obstruction by activists, fifteen of the twenty benefitting communities did participate in the election of representatives to the Trust Advisory Council, which in turn appoints trustees to the new Community Trust that will be responsible for the distribution of all money received by the trust.”

The company said the communities would not incur debt obligations and that “based on more than 150 stakeholder meetings held in Mokopane during the past eighteen months, we can confidently state that the overwhelming majority of residents in the Platreef project’s host communities are supportive of the planned development.”

Ivanhoe argued that Bloomberg “failed to acknowledge the extensive criminal past of its apparent principal source of information, Aubrey Langa, whom Bloomberg identified simply as a community advisor.”

In fact, Ivanhoe charged, Lang “previously was convicted of furnishing false information, robbery and attempted murder.”

“[Langa’s] disruption of certain Platreef Trust Advisory Council elections earlier this year prompted Ivanhoe Mines to warn him that it would seek a court injunction against his actions,” Ivanhoe said in a statement issued by president and CEO Lars-Eric Johansson and Patricia Makhesha, the managing director of the Platreef project.

Ivanhoe holds a 64% ownership stake in the project. The remaining 10% is owned by a Japanese consortium of Itochu Corp.; ITC Platinum Development Ltd., an Itochu affiliate; Japan Oil, Gas and Metals National Corp.; and Japan Gas Corp. (The Japanese companies acquired their 10% in two tranches in 2010 and 2011, for a total investment of US$290 million, and the remaining proceeds are funding development work on the project.)

The Platreef project contains the Flatreef underground deposit on the Northern Limb of the Bushveld Complex. The PEA contemplated a multi-phased development and examined three run-of-mine production scenarios: 4 million tonnes per year; 8 million tonnes per year, which is the base case; and 12 million tonnes per year.

Pre-production capital requirements are estimated to run to US$1.7 billion, including a US$381 contingency, and the PEA concludes that the project’s after-tax internal rate of return would be 14.3%, with an after-tax net present value at an 8% discount rate of US$1.6 billion.