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

Good morning, everyone. On behalf of the Board of Directors and management team, I welcome you to this Annual General Meeting of the Shareholders of Ivanhoe Mines Ltd. My name is Peter Meredith. I'm a Director of the company, and I will be chairing today's meeting. With me at the head table is Mary Vincelli, our Vice President, Compliance and Corporate Secretary. Mary will act as Recording Secretary of today's meeting. And further, I would ask that Leslie McFarland of Odyssey Trust Company act as scrutineer. Mary, would you please introduce our other colleagues joining us today.

Certainly, Peter, I am pleased to advise that participating in the call today by prerecorded video is Marna Cloete, President; and either virtually or in person is David Van Heerden, Chief Financial Officer; Alex Pickard, Vice President, Corporate Development; Matthew Keevil, Director of Investor Relations and Communications; and Victor Gerchikov of Stikeman Elliott, our external counsel.

Thank you, Mary. Whether you're joining us today virtually using the Lumi platform, or joining us in person we thank you for being shareholders and participating in our meeting. We will proceed with the formal business portion of the meeting first, and then we will -- a period set aside for Marna's presentation on the company and its projects. You will then have the opportunity to submit questions, and we'll do our best to answer them. If we don't get to your question today, you are welcome to contact Matthew Keevil once the meeting is concluded. I will now ask Mary to explain certain administrative points that are key to this meeting.

Only registered shareholders who held shares in their name as of May 3, 2022, the record date of this meeting or their validly appointed proxy holders are entitled to vote at this meeting. If you logged in as a guest, you will not be able to vote in the virtual Lumi platform. The vast majority of shareholders have chosen to submit their votes by proxy in advance of this meeting. If you are one of those shareholders and do not wish to change your vote, no further action is required from you for the duration of the meeting. Voting during this meeting can be conducted through the Lumi platform or in person today. We will conduct the votes on all matters before us by a poll. On a poll, every shareholder entitled to vote on the matter has 1 vote in respect of each share entitled to be voted on the matter and held by that shareholder. Through the Lumi platform, the poll will be open for all resolutions at the same time. You will then choose to vote on individual agenda items at the time they are presented or you can cast your vote on all agenda items immediately. Once discussion on all items of business has concluded, we will give you 1 additional minute to finish entering your votes, following which, we will declare voting close on all resolutions. We will then confirm with the scrutineer whether sufficient votes have been cast in respect of all items of business that are presented today. There will be an opportunity to ask questions on each resolution in turn. We will address questions with respect to individual agenda items in turn, while such items are formally brought before the meeting, and we'll address more general questions during the question-and-answer session following the completion of the formal part of the meeting. Questions in respect of a motion can be submitted by any registered shareholder or a validly appointed proxy holder using the instant messaging service of the virtual platform. Please note that there will be a slight delay in the publication of the communications received. When submitting questions, please identify whether it is related to a motion being considered as part of the formal business of the meeting or whether it is general in nature. Please also indicate your name, which entity you represent, if any, and confirm that you are a registered shareholder or a validly appointed proxy holder. Again, we will address questions directly related to a particular motion at the appropriate time of the meeting and then save questions until after the formal business has been completed. Questions with common themes may be grouped together for efficiency. The final results of the meeting will be filed on SEDAR later today and will also be available on our website. Thank you for your time, and Peter will now begin the meeting.

Thank you, Mary. I now table proof that the mailing of the notice calling this meeting. The form of proxy in the management proxy circular as well as the audited consolidated financial statements, auditor's report and management's discussion and analysis each for the financial year ending December 31, 2021, to those shareholders that requested them, has been completed in accordance with the company's articles and in accordance with applicable securities law. I direct that a copy of the confirmation of mailing be kept by the secretary with the records of this meeting. I now move that unless specifically requested that the meeting -- the reading of the notice calling this meeting be dispensed with. May I have a seconder?

Peter, this is Matthew Keevil, and I second the motion.

Thank you, Matthew. I declare the motion carried. I've been advised by the scrutineer based on the attendance record that there is a quorum present at this meeting being 2 persons present who are or represented by proxy shareholders who, in aggregate, hold at least 5% of the issued shares entitled to vote at this meeting. I now call on Mary to read the scrutineer's report on attendance.

We are pleased to report that there are 84 shareholders holding 165,325,932 Class A common shares represented in person or by proxy at this meeting. This represents 87.94% of the 121,140,953 issued and outstanding Class A common shares as of the record date.

Thank you, Mary. I asked that Mary append the scrutineer's report as a schedule to the minutes of this meeting. I declare that this meeting is now regularly called and properly constituted for the transaction of business. Voting is now open for those who have logged in with their control number on the Lumi platform. The first matter of business is the presentation of the audited consolidated financial statements of the company and the auditor's report thereon for the financial year ended December 31, 2021, copies of which have been mailed to all shareholders who have requested to receive them in accordance with the requirements of applicable Canadian securities legislation. The financial statements have been reviewed and approved by the company's Audit Committee and Board of Directors and unless specifically objected to by this meeting will be taken as read. I will now pause to allow Mary to check whether or not we have any online questions on this item.

Peter, there are no questions on this item.

Since there is no discussion regarding the audited consolidated financial statements or auditor's report, I shall consider them taken as read and submitted to the meeting. The next item of business is to set the number of directors for the ensuing year. I now move to set the number of directors of the company at 11 for the ensuing year. May I have a seconder?

Peter, this is Mary, and I second the motion to set the number of directors at 11 for the ensuing year.

I will now pause to allow Mary to check whether or not there's any online questions.

Peter, there are no questions on this item.

Thank you, Mary. If you are a shareholder or a proxy holder is using Lumi to vote on this matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. I will pause briefly to allow for voting. [Voting]

Thank you. We will now proceed with the election of directors. I will ask Mary to explain this item.

As set out on Page 8 of the management proxy circular of the company, management has nominated the following 11 individuals to hold office as directors of the company until close of business of the next Annual General Meeting of the company or until their successors are elected or appointed: Robert M. Friedland, Yufeng Miles Sun; Tadeu Carneiro; Jinghe Chen; William B. Hayden; Martie Janse Van Rensburg; Manfu Ma; Peter G. Meredith; Kgalema P. Motlanthe; Nunu Ntshingila-Njeke and Guy de Selliers. To be passed, the resolutions to elect each director require the approval of a simple majority of the votes cast at this meeting. As set out in the company's majority voting policy, each director who receives a greater number of votes withheld, then for must submit their resignation promptly after the meeting for the nominating and Corporate Governance Committee's consideration. The Board of Directors will determine based on the recommendation of such committee whether or not to accept such directors offer to resign. Pursuant to the advanced -- excuse me, pursuant to the advanced notice provision contained in Section 14.12 of the company's articles only individuals nominated in accordance with the procedures set out in the advanced notice provision are eligible for election as directors of the company. Such procedures include providing timely notice of such nomination.

As no notice of such nominations was received by the company, there are no further nominations, and I declare the nominations to be closed. I move that the management nominees has presented the elected directors of the company to hold office until close of business at the next Annual General Meeting or until their successors are elected or appointed. Do I have a seconder?

Peter, this is Matthew, and I second the motion that all 11 management nominees be elected directors of the company.

Thank you, Matt. In accordance with the company's majority voting policy, we will now vote individually for each of the director nominees. I will now pause to allow Mary to check whether or not we have any online questions on this item.

Thank you, Peter, and there are no questions on this item. If you are a shareholder or a proxy holder who is using Lumi to vote on this matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. We will pause briefly to allow for voting. [Voting]

Thank you. We'll now move to the next matter. It is time for the meeting to appoint auditors to hold office for the ensuing year and to authorize the directors to fix their remuneration. I move that PricewaterhouseCoopers Inc. Chartered Accountants, be appointed the auditors of the company to hold office for the ensuing year and that the directors be authorized to fix their remuneration. Do I have a seconder?

Peter, this is Matthew, and I second the motion that PricewaterhouseCoopers Inc. Chartered Accountants be appointed the auditors of the company.

Thank you, Matthew. I will now pause to allow Mary to check whether we have any online questions.

I confirm there are no questions on this item.

Thank you, Mary. Again, if you're a shareholder, a proxy holder who is using Lumi to vote on this matter and may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. I will pause briefly to allow for voting. [Voting]

Okay. The next item of business is to consider and if deemed advisable approve with or without variation a special resolution, the full text of which is set forth on Page 12 of the company's management proxy circular, approving proposed amendments to the company's articles of continuance. We will dispense with the reading of the resolution unless specifically requested by any shareholder or proxy holder present. I now move that the special resolution to amend the articles of continuance as described in the management proxy circular be approved. Do I have a seconder?

Peter, this is Matthew. I second the motion that the special resolution to amend the company's articles of continuation to be approved.

Thanks, Matthew. We'll now pause while Mary checks whether we have any online questions.

Thank you, Peter. I confirm there are no questions on this item.

Thank you, Mary. If you're a shareholder or proxy holder who is using Lumi to vote on this matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. I will pause briefly to allow for voting. [Voting]

Okay. The next item of business is to consider and if deemed advisable, approve with or without variation an ordinary resolution, the full text of which is set forth on Page 15 of the company's management proxy circular, approving the company's share unit award plan, formerly its restricted share unit plan, which includes proposed amendments to the plan. We will disburse with the reading of the resolution unless specifically requested by any shareholder or proxy holder present. I now move that the ordinary resolution approving the company's share unit award plan, formerly its restricted share unit plan as described in the management proxy circular be approved. May I have a seconder?

Peter, this is Matthew. I second the motion of the ordinary resolution to approve the company's share unit plan be approved.

I will now pause to allow Mary to check whether or not we have any online questions.

I confirm there are no questions on this item.

Thank you. If you're a shareholder, a proxy holder who is using Lumi to vote on this matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. I will pause for 1 minute and ask all shareholders and proxy holders finish voting on all items presented as we will close voting in 1 minute. [Voting]

Sufficient votes have been cast in favor of all items that were presented today. Mary will then read the preliminary results.

I have received confirmation from the scrutineer that the company has received sufficient votes in favor of each item to carry each motion.

Thank you. Accordingly, I hereby confirm that all motions presented at this meeting were carried. Voting results for the election of directors will be provided in a news release later today and will be available under the company's SEDAR profile along with the comprehensive report on voting results. Is there any other business that anyone present wishes to properly bring to the attention of this meeting? I will now pause to allow Mary to check online whether there's any business to be brought before this meeting.

Peter, there is no other business to be brought forward.

As there is no further business to be brought forward, I will ask for a motion that this meeting be terminated.

Peter, this is Matthew. I move that this meeting be terminated.

Thank you, Matthew. I declare the motion carried. This concludes the former portion -- formal portion of the meeting. I would like to thank our shareholders for participating in today's meeting. We will now begin a brief presentation that will provide an overview of the company. The question-and-answer session will follow immediately thereafter. The presentation will contain some forward-looking statements. The forward-looking statements disclaimer is currently on the screen where it will remain until the presentation begins.

A warm welcome to all our shareholders joining us here today at our AGM for 2021. Ivanhoe Mines became a significant copper producer during 2021. After almost 2 decades of hard work, our team at Kamoa-Kakula, brought our project into production on time, on budget during pandemic. We are immensely proud of their achievements, but that's not all. During the first year of production, they also exceeded the upper end of production guidance producing in excess of 105,000 tonnes of copper. After the successful commissioning of Phase 1, our team did not stand idly by. They were already working on the implementation of Phase 2, that they commissioned successfully earlier this year in 2022. They also embarked on an efficiency program which we call the debottlenecking. That will increase throughput from 7.6 million tonnes per annum to 9.2 million tonnes per annum resulting in Kamoa copper, producing 450,000 tonnes of copper per year. That is a significant achievement if one takes that we only became a producer in 2021. And by 2023, we will be ranked as 1 of the 4 largest producers in the world. Considering the strong fundamentals for copper, our team will continue on the expansion pathway and have embarked on Phase 3. Phase 3 will consist of a 5 million tonne per annum plant at the Kamoa-Kansoko area. The development of 2 additional mines at Kansoko called Kamoa 1 and Kamoa 2, a smelter complex, the largest in Africa, capable of producing 500 tonnes of copper per annum as well as the refurbishment of turbine 5 at Inga II that will provide clean hydropower. But true to the Ivanhoe Mines spirit, it's not just about the hard way and the hard facts about what copper we will produce and what profits we will mine. It's about touching lives. It's about interacting with our communities in our mines footprint. It's about partnerships, and it's about being environmentally friendly to the areas where we operate in. Earlier this year, in 2022, we produced our 2021 sustainability report and we are immensely proud of this report. I would encourage all our shareholders to go and read this report, cover to cover, to see what we do and why Ivanhoe Mines is truly different. Back to South Africa, where our team is working on the largest precious metal discovery in the world. We have finalized the equipping of Shaft 1 and has commenced with lateral development. We are doing this with our newly acquired electric fleet, and we are happy to be trendsetters in this regard, driving the green economy. We will also embark on a 5-megawatt solar farm on our mining footprint that will be our first source of green power, and we are looking at more alternative power supplies for our Platreef project. At the end of 2021, we concluded a $300 million streaming facility and we are in the process of finalizing a $150 million debt facility that will fund the first phase of our Platreef mine. At the historic Kipushi zinc mine in the Democratic Republic of Congo, our team managed to sign a landmark agreement with Gécamines, the state-owned mining company. This will allow us to bring the project back into production within the next 24 months. Earlier in 2022, we also published an updated feasibility study, and the project economics for Kipushi remains exceptional. Exploration remains at the heart of what we do and our teams currently in the field, adding value through the drill bit. We are also looking at new opportunities. So watch this space. None of this would be possible without you, our shareholders, and the magnificent people we work with. Each contribution counts. We continue to rely on your support on our journey of growth as we become the next new major international mining company. Thank you.

Good morning. My name is Matthew Keevil, and I am Ivanhoe Mines' Director of Investor Relations and Corporate Communications based in Vancouver. And I'll be hosting today's question-and-answer session. With us today to answer your questions are David Van Heerden, our Chief Financial Officer; and Alex Pickard, our Vice President, Corporate Development. I will remind everyone that certain forward-looking statements may be made both through that video presentation and through the Q&A. For a full copy of the forward-looking statements, please refer to the attached investor presentation on the Lumi platform or at our website at www.ivanhoemines.com. Since we have a limited amount of time, we may not have time to answer all of your questions today. If you submit a question, and we do not have time to address it, please contact me directly after the conclusion of today's meetings. And so we'll just gather some questions here from the online platform. There's been a few repeats. So we'll group the questions together and ask them in order that they came in. So first and foremost, David, if you're there, I think the first question will be directed to you. Could you quickly discuss your CapEx expectations over the next 3 years? And how you see Ivanhoe Mine's overall balance sheet over that period?

Thank you, Matthew, and good morning, everyone. As part of the capital expenditure estimates for 2022 presented in our most recent MD&A, the capital expenditure estimates are summarized in our 2022 feasibility studies for each of Kipushi and Platreef. And then at Kamoa-Kakula, the prefeasibility study for Phase 3 expansion is well advanced and contain an update on capital estimates for the full Phase 3 expansion, which is expected to increase total processing capacity to greater than 14 million tonnes per annum and also include the planned and direct-to-blister flash smelter. We have a strong balance sheet and are well positioned for further development of our projects. Cash on hand was $562 million at the end of March this year, and consolidated working capital over $600 million. And we're very light on debt with the most of our liability balance relating to the $575 million, 2.5% convertible notes and with fees only due in 2026. At Kamoa-Kakula all our operating and capital expansion costs are expected to be funded from copper sales and facilities at Kamoa. And we also expect to receive the second prepayment on the Platreef streams later this year, which will add $225 million to our cash position at that time. And as previously disclosed, SocGen and Nedbank were appointed as mandated leader arrangers for the project debt facility for Platreef Phase 1. But the senior debt facility is anticipated to be used only after the onstream facilities are fully drawn. At Kipushi and financing and offtake discussions are advancing with a number of interested parties and more on that will be disclosed when concluded. So all in all, Ivanhoe is in a very strong position with inviable optionality.

Great. Thank you, David. And I'll keep you on the line. I believe the second question is also directed towards you. We have a few shareholders asking for an update on the shareholder loan agreement arrangement. And what we can expect moving forward in the near term on that front?

Yes, happy to answer that, Matthew. As we know, the vast majority of the development expenditure for Phase 1 and Phase 2 of Kamoa-Kakula was funded through shareholder loans from Ivanhoe and Zijin in proportion to their shareholding and Kamoa Holding. And Ivanhoe Mines share of this loan, which generates interest at LIBOR plus 7% was $1.4 billion at the end of March this year. Cash generated from Kamoa-Kakula's operations in excess of operational and expansion requirements would be earmarked for a shareholder loan repayments to Ivanhoe and Zijin. And receipt of these repayments are, therefore, very dependent on the price of copper, which is unfortunately not where it was 3 months ago. But I mean fundamentals remain strong and Kamoa-Kakula remain an exceptional project at current levels.

Great. Thank you, David. And now we'll hop over to Alex for a couple of project-related questions. First and foremost, Alex, we have a few shareholders asking about the decision to invest in the smelter for Phase 3 and what related impacts you might see on logistics and costs at Kamoa-Kakula?

Thanks, Matt, for the question, and good day to everybody on the line. Look, I think we've been sort of fairly upfront with our keenness to invest in the smelter project at Kamoa-Kakula because we see very compelling economics both from the point of view of savings on logistics costs. I think as you can see from our Q1 financials, going from memory, I think the logistics costs were around $0.36 of the overall cash cost of $1.21. And those are the costs of shipping copper concentrate from the DRC copper belt to end destinations in Asia and elsewhere. So clearly, the key advantage of the smelter is to ship a 99% plus pure blister copper product instead of a sort of 50% copper product -- copper concentrate, sorry, which will effectively reduce that cash cost towards logistics by half or possibly more. So that's one of the key advantages of the smelter as well as the fact that we will get more value for the concentrate that we produce at Kamoa-Kakula by way of a sulfuric acid byproduct credit with sulfuric acid being in significant demand in the DRC copper belt. And then as well as that, there is a more beneficial tax treatment as well as the advantages of producing closer to an end copper products that can be deemed to be an extremely green ESG-friendly Kamoa copper product. So we see an advantage from marketing that as well. In terms of the investment, I think we've disclosed previously the direct cost of the smelter are somewhere in the region of $800 million. We are on target for the end of 2024 in terms of the completion of that project, but it will tie in with the upgrades that we're making at the Inga II hydroelectric project. And on the ground today, you can see that we're breaking ground on the smelter. So we're commencing with the earthworks. It will be located right next door to the existing Kakula Phase 1 and Phase 2 concentrators.

Great. Thanks, Alex. And moving over to Platreef. We have a couple of questions on what do you see as the near-term milestones of Platreef? And what do you believe is the timing on financing the Phase 2 expansion?

Thanks, Matt. So I think you saw in the video, we achieved a major milestone back in April with the first blast from underground completed. So that's following the completion of the equipping of Shaft 1. So the sort of near-term milestones we're looking at underground really focused on the development, which we have commenced with the brand new battery electric fleet that we have underground. So there are ore and waste passes some of the infrastructure that we need to expand the mining activities as well as making our way to the bottom of where the first ventilation raise will be, which will allow us to significantly step up our mining underground. And then on surface, I think you're really going to start to see activities at Platreef ramp up during the second half of this year. So we have -- we're underway with the earthworks during this quarter. And then in the second half, we will be placing orders for long lead time items and commencing with civil work. So it will be quite an exciting construction site that we have at Platreef. And we have also been building up the team that we have on the ground there in order to meet our first production deadline of Q3 2024. In terms of the Phase 2, I think you mentioned Phase 2 specifically. Phase 2 really centers around Shaft 2, and we've been clear that we're keeping Shaft going as quickly as possible because it really is -- it's the key to unlocking Phase 2 and beyond in terms of expansions to have that existed -- sorry, that additional hoisting capacity available. So where we are today is that we're building up the foundations of the head frame. That's very nearly complete, and you will actually start to see the head frame go up in the next sort of -- over the next year. In terms of the financing of Phase 2, I think David touched on it, but the priority right now is more around Phase 1 where we're drilling on the stream facility. We're completing a senior debt package that will sort of round off the Phase 1 financing. And in the meantime, the expenditures on Phase 2 are relatively modest. It's really concentrated in terms of the sinking of Shaft 2 and that can be financed from Ivanhoe's own cash resources. But the longer-term plan is definitely to bring in a much larger senior project finance facility that will rank alongside the Phase 1 project finance that we are working on right now. So that will be the plan over the next year or 2 in terms of financing.

Thanks, Alex. And we also have a couple of questions on Kipushi. Mainly, when do you see as the time line for making an investment -- final investment decision on Kipushi? And how do you see the development schedule?

Thanks, Matt. So I mean, in terms of the timing on the final investment decision, it really goes back to the timing of concluding our discussions with Gécamines. So I think we mentioned that we announced the terms of a revised joint venture agreement back in February alongside the feasibility study, which had very, very positive economics. But in order to conclude on the joint venture discussions, part and parcel of that is also the offtake and financing discussions that we're having with a number of different potential partners. Kipushi will produce a significant volume of zinc concentrates, which are in very high demand. So we are having that discussion collectively with our partner, Gécamines currently and we're hopeful to conclude those in the second half of this year. And at that point, we will really be able to push the button on a final investment decision. But I would just add, in the meantime, we're not sort of sitting on our hands. We are building up the Kipushi team. So we're ready for construction. We have started certain early works underground but we will wait for those financing discussions and the partnership to be concluded before we place long lead orders for the concentrator and the other big ticket items. Maybe just to comment on the overall project time line. I think from that point going forward, we strongly believe that we can execute Kipushi in under 24 months. It's a much more straightforward project in many respects than Kamoa or Platreef.

Thanks, Alex. And I think we have time for one more. So we'll pull back to sort of a more broad corporate strategy question. Would Ivanhoe Mines look at M&A opportunities or outside acquisitions at this time?

I can also take this one, Matt, if you'd like.

Yes, that would be great. Thanks, Alex.

Sure. So look, I think as David mentioned, we have a strong balance sheet position, which just doesn't mean that we are in an advantageous position to selectively look at new opportunities. And I think we are seeing potential opportunities out there that sort of sit within our target criteria. But really where we are focused is on projects or opportunities where we can apply the Ivanhoe framework, let's call it, in terms of exploration, adding value through the drill bit and looking at projects differently in terms of development, which I think is has led to great success in terms of what we've done at all of our 3 main projects. So we are being very selective, but we are starting to look at new opportunities to add to the portfolio.

Excellent. Thanks, Alex and David. That's all the time we have for questions today. Thank you for your questions and for joining us. If we did not get around addressing your question, you're welcome to contact me after the meeting. Again, my name is Matthew Keevil. My e-mail is [email protected] and my direct phone line is (604) 558-1034. My contact details are also on our website at www.ivanhoemines.com.

That concludes our meeting for today. I would like to thank everyone once again for participating in this meeting. As Matthew mentioned, you are welcome to e-mail the company should you have any questions in the future. Thank you very much for your time today and stay well.