Ivanhoe tables prefeasibility study on Platreef PGM project

In Ivanhoe Mines’ (TSX: IVN; US-OTC: IVPAF) first-ever conference call on its massive Platreef project in South Africa, executive chairman and company founder Robert Friedland declared that the orebody “is destined to change the shape of the platinum industry for decades to come.”

A prefeasibility study on the first phase of the three-phase underground mine development project envisages annual production of 433,000 oz. platinum, palladium, rhodium and gold along with 19 million lb. nickel and 12 million lb. copper.  

“It’s taken seventeen years to get to this turning point,” Friedland said about the prefeasibility study. “It has only been nine months since we announced the PEA of this unique orebody. It is flat, thick and very large, and has an unusual amount of nickel and copper.”

The project, 280 km northeast of Johannesburg, would operate at a rate of 4 million tonnes per year during the first phase. Ivanhoe plans to double that to 8 million tonnes per year in phase two and raise it to 12 million tonnes per year in phase three.

In the first phase, Ivanhoe plans to build an underground mine, concentrator and other infrastructure, and produce initial concentrate by 2019. At a production rate of 4 million tonnes per year, Platreef would support an underground mine life of 31 years.

“I can’t think of a larger mechanized precious metal discovery in the world, especially with a high platinum-to-palladium ratio,” Friedland continued.

“This is an orebody with broad shoulders and a long life, and has the underlying strength to make a real difference in the lives of people in Limpopo, which unfortunately has one of the highest unemployment rates in all of South Africa.”

Ivanhoe is working with Whittle Consulting in Australia on an optimization study, but for now the first phase of the Platreef mine is expected to deliver an after-tax net present value of US$972 million at an 8% discount rate, along with an after-tax internal rate of return of 13% and a payback of less than seven years.

Pre-production capital for phase one is estimated at US$1.2 billion, which includes US$114 million in contingencies.

Cash costs are estimated to come in at US$322 per 3PE and gold, net of copper and nickel by-product credits, which Ivanhoe says would put Platreef at the bottom of the cash-cost curve.

The mine plan envisages mining zones at depths between 700 metres and 1,200 metres below surface. Access to the mine would be from four vertical shafts. The first shaft is under development. Long-hole stoping and drift-and-fill mining would be used and ore would be moved from the stopes to the bottom of Shaft 2, where it would be crushed and hoisted to surface.

Ivanhoe owns 64% of the project and is in charge of all development work. South African beneficiaries through the economic empowerment structure hold 26% and a Japanese consortium of Itochu Corp., Japan Oil, Gas and Metals National Corp., ITC Platinum Development Ltd., and Japan Gas Corp. holding the remaining 10% stake.

Over the last 14 years of exploration and development work, Ivanhoe has invested a total of US$241 million. 

Responding to questions from analysts about the prospects of financing the project, Friedland said raising money would not be a problem and noted that Ivanhoe’s Japanese partners have invested close to US$300 million in the project already. “Japan is one of the major buyers of platinum group metals and [Platreef] is going to be the largest and lowest-cost producer in the world, and in my experience we’ve never seen a world-class asset not get advanced.”

“On a debt to equity ratio with bank financing readily available, let alone from international lenders, I have a great level of comfort financing this project,” he added. “We are well financed for sinking the shaft. We are sitting on over US$100 million in cash … when [we get underground and] people see it and touch it, the queue of potential investors will lengthen.”

Friedland also pointed out that Ivanhoe has flexibility because it can mine the highest grades first.

“We’re not mining anywhere near the cut-off grade,” he said. “We have the ability to mine the highest grades first … so I view this as quite doable compared to the challenges we had at Oyu Tolgoi.”

“Compared to the existential dilemma of financing Oyu Tolgoi … [where] there was no water, there was no electricity, there was no trade labour, no 50-year investment agreement with the government … this billion-dollar project will be readily financeable with banks.”

Platreef sits on the northern limb of the Bushveld igneous complex and hosts 214 million indicated tonnes grading 4.1 grams per tonne platinum, palladium, gold and rhodium (4PE), 0.3% nickel and 0.2% copper, and 415 million inferred tonnes averaging 3.54 grams 4PE, 0.3% nickel and 0.2% copper. The resource calculations use a cut-off grade of 2 grams per tonne (4 PE).

“This is probably the world’s best platinum project, and I don’t know of anyone on this [conference] call … who would argue that proposition,” Friedland concluded. “We have the highest platinum-to-palladium ratio, we have the highest endowment of base metals … we are basically flat, high-grade and thick. We have a railroad in our backyard. We have a labour force … we’ve had significant support from the African National Congress and our local community. So looking at the aggregate, maybe we should be in a different business like Facebook, but in the real world, it’s good to be big and thick and flat.”

The project is not without its critics, however, and there have been protests by local activists. As recently as late November 2014, Ivanhoe condemned what it described as “illegal actions by known troublemakers” who had gathered near the project. And in October the company issued a statement that “some individuals and groups continue to refuse to work with the company for the good of the entire community — and have in fact violently disrupted a number of our public meetings.” Ivanhoe stressed, however, that it could “confidently state that the overwhelming majority of residents in the Platreef project’s host communities are supportive of the planned development.”

An article in the Globe and Mail on Jan. 10 described some of the tactics it claims Ivanhoe has used in its “efforts to cultivate government officials” as sometimes seeming “pugnacious” including “court injunctions, ultimatums to government and digging up dirt on opponents.” In an open letter to the newspaper on Jan. 12, Ivanhoe responded that the newspaper story was “blighted by false allegations and misrepresentations, and gratuitous exaggerations.”

Ivanhoe’s shares over the last year have traded in a range of 78¢ to $2.04 apiece. At press time they changed hands at $1.13 per share.