Ivanhoe Mines Ltd. (IVN) Earnings Call Transcript & Summary

Good afternoon and good evening. This is Bill Trenaman phoning you from Vancouver, Canada. Joining me on today's webcast is Robert Friedland, from his home in Singapore. We also have Marna Cloete and members of our corporate development and project team from our office in Johannesburg, South Africa. Welcome to our second virtual webcast. Today's call is going to be focused on the outstanding economic and engineering studies that we released earlier this week on November 30, details of which are in a comprehensive press release posted to our website. So we have 4 outstanding projects in Ivanhoe Mines, any one of which is a company maker on its own accord. So we could spend easily 4 hours talking about all of them. So today's call is limited primarily on the Platreef project, which we consider to be an outstanding and undervalued asset within the Ivanhoe Group. We're going to have a number of different segments of today's call. We'll start out with a PowerPoint presentation by members of our corporate management team. We will then move into a site video, which in my opinion, will be the most uplifting and unique investor mine tour that you'll ever have seen. Then we'll turn over to a Q&A session where Robert Friedland, Marna Cloete and other members of our management team will provide answers to any questions that you submit. We have a number received already. And if you'd like to submit a question, please do so. It's the bottom left hand corner of the web browser. Please feel free to submit questions anytime. We'll do our best to answer all questions we receive, but if we don't by any chance, please feel free to e-mail me any time. I'm [email protected], and I'll be happy to answer any questions that we receive over the e-mail. It's also my job today to remind you that today's presentation will consist of forward-looking statements. Those are on our website. They were also on our news release on November 30. Please take a moment to read them, and you've been forewarned. So without any further ado, I'd like to turn over to Marna Cloete, our President, CFO, who's based in our Johannesburg office, to give a brief corporate overview. Marna, over to you.

Thank you, Bill. And apologies for starting a little late. We were planning on starting today's showcase with our video, but we're experiencing a bit of technical difficulties. But we think you will be thrilled with what you see is happening at our Platreef Project in Mokopane. Once you see the video, you will understand why today, I say, I am proudly South African, and not just proudly South African, I'm proudly African. So why Ivanhoe Mines? We have 3 disruptive world-class project. And we have unparalleled resources at all 3 of our projects. We are well-funded, we've got a strong balance sheet, and we have exceptional partners in both CITIC and Zijin. And we formed a number of other strategic partnerships over the past couple of years. We have a very passionate, experienced management team. And we don't just do a job, this is our calling. So if you look at this map in front of you, a map of Africa, as all of you know, I would like to highlight our footprint where we operate: in South Africa and the Democratic Republic of Congo. And I think of significance on this slide is that 2 of the mega-scale projects that we are developing, both Platreef and Kamoa-Kakula, are greenfield discoveries. Not many greenfield discoveries gets [ built ] and we are fortunate that we have 2 greenfield discoveries in 1 group of companies, and as Bill mentioned earlier, each and every one of these projects could make a stand-alone company on its own. They say, it takes a village to raise a child. I say it takes supportive governments and strategic partners to develop great projects. And to this end, I would like to thank our partners at Platreef, the Japanese consortium led by ITOCHU; our BEE partners, the South African Government. I would also like to thank our partners at Kamoa-Kakula, Zijin Mining. CITIC made a significant investment that assisted us in developing that world-class asset. And then also Gécamines at Kipushi. And last, but surely not least, the Government of the Democratic Republic of Congo. So what makes Ivanhoe Mines different? We will be producing green metals. If you look at our operations in the Congo, we will be using hydro-powered electricity. At Platreef, we will be using gray water, and we will be very efficient in terms of our water use. We have underground mines, a small tiny surface footprint, and we will be returning our tailings underground. We also have -- will have very low carbon emissions, which brings me to the [ store ] company of today. When you drive into the little town of Mokopane, there's a big billboard outside reading, Welcome to Mokopane, The Home of Ivanplats. I've been in this company for 14 years, and I started out at Platreef. I've spent many hours and days with the communities, with the staff members, and we are a very close-knit group of people. We are extremely excited today to announce a clear path forward for the development of this exceptional mine. I'm not going to take you through the detailed slides here today on Platreef because my colleague, Alex Pickard, will be taking you through the updated feasibility study as well as the phase development plan. But all I would like to say is that, it's truly an honor to be part of this monumental moment in this development in my backyard, which brings us to Kamoa-Kakula. So we've had a very busy week. I'm sure most of our investors have seen all our press releases since Monday. And yesterday, we gave you a fulsome update on what we've been up to at our Kamoa-Kakula project. I've been fortunate to visit it 2 weeks ago, and it was the first time I've been to site since the beginning of March. And I can only describe it with one word and that is, wow. I couldn't believe what I was seeing with my own eyes. In the past, when you used to drive to Kamoa-Kakula, you knew you were getting close when you saw the cellphone tower. When I visited 2 weeks ago, it was as if I was driving on a 4-lane highway, and I was entering a new town that was built overnight. I can only give a shout-out to our team at Kamoa. They have done an exceptional job. And somebody like Mark Farren deserves all the recognition in the world. He's not just the CEO; he's also a mayor, looking after and caring for over 6,000 people at our site. Kamoa-Kakula is well on track for first production in July of 2021, on budget, on schedule. This is no small task. And to this end, we have decided to accelerate our development at Kamoa-Kakula. On Tuesday, we've announced a financing package for the Kamoa-Kakula project of just over USD 400 million. Firstly, a $200 million facility for equipment financing, backed by the Swedish Export Credit Agency, SEK, and Standard Bank. This will be used to acquire equipment for both Phase 1 and Phase 2 from Sandvik, Normet and Epiroc. We also secured a line of credit from Zijin, and this will assist us in developing the second 3.8 million tonne per annum plant. Zijin's been very supportive through the development and Ivanhoe can draw on this facility and repay this facility at any point in time. This facility is secured by current stockpiles on surface, which is well worth over $300 million at current prices. And then last but not least, I recently read a piece by Jim Rutherford from Anglo, shout-out to Anglo, and it dealt with what investors wanted to know about companies and management, and what companies would like to know about investors. And the one item in this piece that struck a chord was how, even if management do not talk about something often, it doesn't mean they're not working in the background to make our dreams come true for the projects that we are about to build. If you've been following the zinc price, and we're giving you a little visual cue on our slide here today. You can imagine what we are up to in the background. We're in advanced talks with our joint venture partners. And we hope to host an Investor Day, similar to today, around Kipushi in the near future. With that as an introduction to the greater Ivanhoe, I would now like to hand over to my colleague, Dr. Patricia Makhesha, to take you through our sustainability efforts at Platreef. Over to you, Pat.

Thank you, Marna. Dumela, good morning, good day, and good evening. Social contact is at the heart of our operations. We make sure that our communities and government are consulted in everything that we do. In normal cases, people tend to believe that corporates know it all and we understand the community needs. But I'd like to make an example of my experience in terms of dealing with the social contact. We sometimes assume that we know what's best for the communities, only to find that's not the case. I remember couple of years ago, there was a project where we looked at the attendance of the girl child at school. And the girls were not actually attending schools in the rural communities. And the question was, what's happening? Why aren't the girls going to school? And we embarked on investigation to follow the girl child in a day of a girl child. And we realized that girls woke up in the morning, they pushed a wheelbarrow, they went to the river to fetch water. And by the time they came back, it was too late. They couldn't go to school. Here we were as corporate thinking, should we be building schools. Whereas that was not the problem. The real challenge was access to water. So I'm glad that our team in Ivanplats we know how to unpack these challenges, and we have found real solutions by engaging with communities in our social contact. I like to take you through our social and labor plan. This is a document of commitments between the government, the communities and the mining houses. It is such an important commitment because it spans over a period of 5 years. And we take it very seriously, because the Department of Mineral and Energy regulates that document and makes sure that the commitments that we made between the communities and the mining houses are fulfilled. We've just completed our first social and labor plan, and we did very well. And this is something to be proud of. But we all know that we cannot be responsible for all the social activities without any finances. And if the financial people think their work is hard and if the technical people think they're going to build this mine, wait a moment, social license is the way to operate. I now would like to hand over to Alex to take us through the finances in terms of Platreef project. Over to you, Alex.

Thank you, Pat. Unfortunately, somebody does have to bore you with the numbers and today that will be my turn. I'll give you a brief overview of the latest study results we have for Platreef, the integrated development plan, which is a feasibility study and what we call the phased development plan. Starting with the first part of the study, which is the updated feasibility study. This is really an update of the work that we did in 2017, but what we're doing is bringing the schedule up to speed and updating our costs and also the commodity prices and rand exchange rates we're using. The feasibility study is really predicated on the sinking of Shaft 2, which will be one of the largest production shafts in Africa, but while we are sinking that shaft, we will be very busy doing underground development from Shaft 1. This will allow us to ramp up the mine very quickly to its ultimate production rate of 4.4 million tonnes per annum. The initial capital for the updated feasibility study is USD 1.4 billion, which is a modest improvement on what we presented in 2017. It was previously $1.55 billion, which reflects sunk costs as well as some scheduled advancements. Moving into the phased development plan. This is a preliminary economic assessment. And really the philosophy behind the phased development plan is that we want to bring Platreef into production as quickly as possible and for significantly lower initial capital. We can do this by using the existing Shaft 1, where we completed sinking in the middle of this year. And what we need to do there is complete the changeover of Shaft 1, which will be completed by early 2022, at which point we can begin to develop from the bottom of the shaft. Shaft 1 has a total hoisting capacity of 850,000 tonnes, but we allocate 700,000 tonnes of that for ore hoisting, and we will build a 700,000-tonne concentrator module on surface to process that ore. The phased development plan could be in production by 2024, and we have a significantly reduced initial capital of $390 million. There is a separate decision in terms of the expansion by sinking Shaft 2. This can be brought forward at any time to maximize Platreef's exposure to its commodity price basket. And really, the Shaft 2 sinking time frame is around 4 years. So the earliest we could be in production with Shaft 2 is around 2025. In the study, we assume it's 2029, but we hope to be able to bring that forward, subject to financing. This slide gives a visual representation of the mining areas that we're looking at Platreef. Focusing on the blue area, this is the indicated resource, which the feasibility study is based on, and we have a mine life of 30 years based on that indicated resource alone. The red areas that you can see that congregate around Shaft 1 are the initial areas that we'll be mining under the phased development plan. So the plan is to equip Shaft 1 for permanent hoisting by early 2022, after which we can start developing to the nearest and highest grade stopes, which are within a few hundred meters of Shaft 1. What we want to highlight with the gray area is Platreef's huge inferred resource base. In fact, the indicated resource covers only 1/3 of the overall resource of Platreef, and we're very confident that we can add to that when we get access underground to be able to drill out this magnificent ore body. Platreef is blessed with an exceptional basket of metals. We produce palladium, platinum, rhodium, gold as well as nickel and copper, which are critical for electrification. Since 2017, the basket prices basically doubled, and we're looking at a basket price today for Platreef of $2,159 per ounce, which is 20% higher than today's gold price. This can drive significant margins for the project. Just focusing for a second on some of the key numbers from the feasibility study in the phased development plan. Starting with the feasibility study, which is the middle column, we'll be producing at 4.4 million tonnes per annum, which will produce over 500,000 ounces per year of the 3 PGM metals plus gold, in addition to significant amounts of nickel and copper, which can be used in battery and electrical applications. The initial capital is $1.4 billion, which generates a net present value of $1.8 billion at consensus prices and at spot prices generates an unbelievable NPV of $3.7 billion, and in both cases, we have IRRs in excess of 20%, which really is fantastic for a project of this scale and magnitude. Moving to the phased development plan, which is the right hand column. The initial production rate will be 0.7 million tonnes per annum, which produces around 110,000 ounces of PGMs. Then we move up to a production rate of 5.2 million tonnes per annum, producing over 600,000 ounces of PGMs, in addition to nickel and copper. The initial capital, which is one of the key highlights for the phased development plan, is only $390 million. And there is an expansion capital cost of $1.3 billion. This is effectively building the feasibility study scenario on top of the phased development plan. We're also extremely pleased with the economics of the phased development plan. The NPV is $1.6 billion of consensus prices and $3.3 billion at spot prices. And again, we are blessed with an IRR in excess of 20%. Platreef has several key advantages when it comes to mining. We have an average ore body thickness of 19 meters throughout the mine life, which allows us to use highly efficient and mechanized mining methods, but as well as that, we have one of the best endowments of base metals among all the platinum operations, and that drives a cash cost of around $440 per ounce, net of byproducts, which would rank Platreef as the lowest cost PGM mine in the world. Now just looking at Platreef's production scale. And first of all, at the feasibility study level, which is 4.4 million tonnes per annum, we produce over 500,000 tonnes of -- that's 500,000 ounces, sorry, of PGM metals, which would place this as one of the largest mines in the world. Previous studies, which take into account the huge inferred resource base that I mentioned earlier, suggests that Platreef can produce up to 12 million tonnes per annum, which equates to 1.1 million ounces of PGMs and gold. I think there's a lot of excitement in our investor base for the first production of Kamoa-Kakula in July 2021, and we are also very excited. But as a management team, I think we are also looking forward to a fantastic year of milestones for Platreef and moving this project firmly towards production. At Shaft 1, as I mentioned before, we will be preparing for permanent hoisting, which can take place from early 2022. We will also keep Shaft 2 going. We have a minimal capital investment of $10 million this year to construct the headframe to the collar, and this keeps the expansion optionality should this price environment continue to evolve. While we are constructing both Shaft 1 and Shaft 2, we will be doing detailed engineering on the mine design, 700,000 tonne per annum concentrator as well as the surrounding infrastructure. And we will be publishing a feasibility study later on in the year. The 2021 budget is just short of $60 million, which includes the $10 million for Shaft 2. However, we are in advanced discussions for project finance package of up to USD 400 million, and we hope to give the market an update in that respect in early 2021. With that, I thank you for your attention, and I will hand back to Bill Trenaman to handle the Q&A process.

Great. Thanks very much, Alex, Marna and Patricia. That was extremely well done. We've solved the technical difficulties on our video. And without further ado, I'd like to show our team that's building Platreef. And not only will you get to meet some of them, but you'll get to see their outstanding dance moves. So Q4, if you would mind queuing up the video any time now, please. [Presentation]

Well, thank you. I hope everyone enjoyed the video. It will be on our website later today as part of the overall presentation with the slide deck as well. So without further ado, we're going to move into the Q&A portion of today's session. And a number of the questions are similar in nature, so we'll try and combine them. And I will address them to various members of our management team. And the first one we have, I'm going to direct to Marna, if you don't mind. Marna, in Monday's press release, we mentioned that we received significant interest from a number of finance providers to fund up to USD 400 million. The question is, do you have a sense of timing for concluding these financing discussions? And do you expect the funding to be at the project level?

Thanks, Bill. Yes, to the first part of the question, we do -- or second part, we do expect this funding to be at a project level. We are actually in advanced discussions around the funding package for the full $400 million that we need to raise for the phased development plan. And we are hopeful that we can include something in the first half of 2021. We think the equity spend left for us to advance the phased development plan will be limited, and it will mainly be funded from external sources. And then just in terms of [ prefunding ] around the $390 million required for the phased development plan, that will basically be towards the end of 2022, beginning of 2023.

Great. Great. Thanks. Marna, while I have you, the second question, I'll also direct to you. And it's, could you provide additional detail on the permitting situation at Platreef and the associated time lines involved in moving ahead with development?

Thanks, Bill. We will require an updated environmental authorization. It will mainly be timed to the updated surface layout as well as the changing of the design for the tailings to dry stacking. We don't anticipate this authorization to delay our plans, and we should receive it on schedule to proceed as planned.

Thanks, Marna. Okay. Robert, over to you. I'm going to direct this one to you. It's a question with respect to, what impact, if any, COVID-19 is having on Platreef's development plans?

Well, everybody joining this call, it's about to strike morning here in Singapore in about a minute. It's going to be Friday morning. And I want to apologize for the technical delay. But we just had so many people trying to get online with too many terabits of information coming from South Africa. So next time, we'll try to find a bigger pipe so we can deliver that Jerusalema dance and all of the attendant video with much higher resolution. We'll get that video on our website with high resolution. So tomorrow, you can click on it and really see it and [indiscernible]. COVD-19 has affected -- it's had a very limited impact on our operations because we're very stringent about safety precautions. Where it might affect us is in the supply chain, when we're ordering long lead time items. So we have factored in redundancy on all of those long lead time items and we built a very conservative factor in our time assumptions due to COVID-19. God willing, we'll all get the jobs done and get over this period in the next 3 or 4 months. So I don't think COVID-19 will have an impact at all on the schedule we've announced. Thank you.

Great. Robert, while I've got you, I'm going to ask you to answer this question as well. Our news release mentioned the move to fund Platreef expansion to steady production of 5.2 million tonnes per annum would be discretionary. Could you talk a little bit about the potential timing for this? And what factors would contribute to the decision to move forward towards a larger scale mine?

Well, the time frames that we announced in the feasibility study are conservative. They are 2 separate projects with 700,000 tonne per year Phase 1 project. And then the second 4.4 million tonne per year module, which will be followed by 2 more modules of that scale eventually, getting north of 12 million tonnes a year. Now that second module is really dependent on funding. 9 months ago or so, we announced that we are cutting everybody's wages and cutting our overhead cost to completely focus on getting Kamoa-Kakula into production. Recently, metals prices are really getting quite perky, and we're getting inward calls from financial institutions all over the world. So we're [ working ] up our plants to speed up this extremely large and long-life precious metals development. Given potential events that may unfold next year, we may actually accelerate the #2 Shaft. It's ready to go. As you can see, we've got it ready -- we've got it opened up and ready to put up the headframe. So we might very well accelerate it faster as we've said in the feasibility study. It all depends on funding, and we'll be talking to you about that in the new year. But the first phase of the project, the quick high-grade phase. Is well underway, and I'm highly confident that we'll be able to announce stand-alone funding without recourse to our parent in the very near future. And I think we'll be able to do that on the second phase as well given the interest in the automobile industry in platinum and palladium and nickel, which is really driving an enormous resurgence in interest out of the automobile industry.

Great. Thank you. I'll ask you to answer this one, too, similar vein. There is obviously a lot of mining and development activity on the Bushveld. Do you see any potential synergies or opportunities with other operators, mills and/or projects?

Absolutely. We're in touch with a lot of our industry participants, downstream in smelting and refining. We've had a global dialogue not only from South African companies but also a lot of companies in Asia. And we're also talking with neighboring operators about development work for local communities. The government would like to see us combine our efforts with some of the other operators in South Africa to develop a more beneficial infrastructure for the local communities. So we're certainly very anxious to work together with the rest of the South African mining industry to develop long-term sustainable development for our communities because if our communities are stable, our communities are well off, our mines which are part of that community also benefit accordingly.

Perfect. Okay. Alex, if you're there, I'm going to pass this one along to you, to start out with anyway. The question is, aside from the abundance of precious metals, could you please discuss the copper and nickel component of the mines in terms of copper -- sorry, in terms of concentrate production and potential revenue?

Yes. Thanks, Bill. So the nickel and the copper reports to the PGM concentrates and obviously offers a fantastic diversification in terms of the overall basket. In terms of a revenue contribution, it's probably somewhere between 20% to 25% of the overall revenue of Platreef is from nickel and copper, the bulk of which is actually nickel.

Great. Thanks. While I have you, Alex, I have another question that just came in. And it's, can you comment on when we expect peak drawdown of the $390 million CapEx outlined in the PEA?

Yes. So the way I think about it, Bill, is, so $390 million from the start of next year. And as we mentioned, we'll be spending about $50 million next year. So that leaves $340 million to be spent in 2022, 2023 and the first half of 2024. In terms of scheduling, I would think about half of that would be in the year 2023 when you're actually putting up the concentrator. But we will obviously have a lot more detail on that in the updated feasibility study, which will come out next year.

Okay. Thanks, Alex. And while I've got you on the -- I've got a similar question. The phased development plans calls for 7,000 -- sorry, 700,000-tonne initial mine. Can you explain why this tonnage was chosen?

Yes. It's driven basically by the hoisting capacity of Shaft #1. So Shaft #1, if it's hoisting 24 hours a day, it can actually hoist up to 2 million tonnes per annum. But in this initial phase, we have to have an arrangement where we're able to put men and materials down the shaft as well as hoisting or out of the shaft. So that would limit Shaft 1 to 850,000 tonnes. And then we've made an allowance in there 150,000 tonnes for development. So you've got 700,000 tonnes of ore, although hopefully in some years you could be putting more ore than development rock of the shaft.

Okay...

So it gives an opportunity to -- once we have Shaft 2 producing, you could actually quickly convert Shaft 1 into a full production shaft at 2 million tonnes per annum. So it gives a lot of flexibility for future expansions.

Thanks. Okay. Turning over to Marna maybe, answer this one. Marna, do you expect our BEE and Japanese partners to fund their share of the development costs?

So currently Ivanhoe funds on behalf of our empowerment partners and we've done so in the past as well. We do expect our future capital contributions to come from outside sources, through our financing, that we're planning for early next year. So we don't envision that any of the partners will have to contribute further capital for the phased development plan.

Okay, good. Robert, while you're still awake, and I know it's late, I've got a couple exploration questions that have come in, and they've been addressed to you. So first, can you provide additional details on the Platreef project's exploration opportunities mentioned in the news release? And secondly, another question, can you talk briefly on the plans for the Western Foreland exploration project in the new year?

The Platreef section of the Bushveld, which is the North-South section, is the most fantastic endowment of platinum and palladium on the planet. It's orders of magnitude larger than the eastern or western limb in terms of the thickness and continuity of the Merensky Reef. The Turfspruit and Macalacaskop farms have about 9 kilometers of strike on the best part of that reef. And we have barely scratched the surface, looking at hundreds of millions of ounces of precious metals in inventory. There are areas on the project that we're looking at now that present very near surface, very shallow, very large tonnages of nickel, copper, platinum and palladium, right on our existing mining licenses, right within the areas where we're working now. And so it's complicated in that if we have, say, 500 million tonnes of ore, if we're going to mine that at 5 million tonnes a year, that's 100 million tons of mining. It's 100 years of mining, based on what we've drilled off. But there's no limit to the number of shafts you can put down. When we've done previous studies, we go to 1 shaft, 2 shaft, 3 shafts, 4 shafts, you need ventilation, you need access. But ultimately there's no reason why our portion of the Platreef could have 10 shafts or 20 shafts. You have to walk before you run. Your first baby gets all the baby pictures. Your second baby doesn't get as many pictures as the first baby. So we try to remind everybody that Platreef is reasonably described as the largest precious metals development in the world. And we want to remind you that we're going to build it. And we're really determined to do it. And it's going to get a lot bigger. And now that we have rhodium today at $15,500 an ounce, platinum screaming above $1,000 an ounce, palladium at $2,400 an ounce and gold not doing too bad at $1,830 an ounce. We have a basket of $2,150 an ounce rock that is subsidized by nickel and copper, which are also going up in price enormously. If the copper price gets to $10,000 a tonne and nickel gets to $20,000 a tonne, which I think is a foregone conclusion in the next few years, the nickel and the copper can basically cover all of the operating costs for the precious metals. So Platreef has a very bright future, and we're here to let you know that we're really doing it. Wish I could take you there today -- a COVID-19-driven world, but we wanted to show you the music and the dance, the people and the spirit of what we're doing and actually could see [indiscernible] tomorrow. I am [email protected]. If you want to understand mineral exploration, that's something we're going to save for tomorrow. The Western Forelands in the Congo is an unparalleled treasure box of additional Kamoa-Kakula. We'll talk to you about that at a later date. And there's a lot more platinum and palladium and gold and rhodium and nickel and copper to find at Platreef. There's an incredible lot more. But we have to work before we can get this baby up on its feet and toddling around the room. And we're here to let you know that we're really doing it and we all, all of us speak to you on that specifically in our company. We deeply appreciate your interest and support. Next time, I hope we can figure out a better internet pipe where we can get so many people getting on board here trying to see what we're trying to show you. We had technical difficulties today. We couldn't even get the sound track, webcast. So many people logged on. But I promise you that next time we'll try to figure out what the state-of-the-art is to get a few thousand participants who're listening into a high resolution video broadcast all over the world. The Internet is going to have to catch up for the demand. So with that, thank you very much. We'll catch you next time.

Okay. Thank you, Robert. So that brings our webcast today to a conclusion. Again, I'm Bill Trenaman, I'm [email protected]. If we did not have a chance to address your question today, please e-mail it to me, or we will reach out to you, to the ones that we know, and answer them via phone call. Again, as Robert said, the presentation and the video will be posted to the website as soon as possible, a high-res version. And we look forward to bringing you a new Investor Day in the new year either on Western Foreland or perhaps Kipushi. So thank you for joining us, and we wish you all a very good evening. Thank you.