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

Good day, and thank you for standing by. Welcome to the Ivanhoe Mines Fourth Quarter and Annual 2022 Financial Results and Review of mine construction and exploration activities conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matthew Keevil, Director of Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator. Hello, everyone. It's my pleasure to welcome you to the Ivanhoe Mines 2022 Fourth Quarter and Annual Financial Results Conference Call. My name is Matthew Keevil. I'm the Director of Investor Relations and Corporate Communications with Ivanhoe Mines. On the line today from the company, we have Founder and Executive Co-Chair, Robert Friedland; President, Marna Cloete; Chief Financial Officer, David Van Heerden; and Senior Vice President, Corporate Development and Investor Relations, Alex Pickard. We will finish today's event with a question-and-answer session. And as mentioned, you can submit a question using the Q&A box on the webcast page as well as through the conference operator via your phone line. Please contact our Investor Relations team directly for any follow-up questions. Before we begin, I'd like to remind everyone that today's events will contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Details of these forward-looking statements are contained in our March 13 news release as well as on SEDAR and at www.ivanhoemines.com. It is now my pleasure to present Ivanhoe Mines Founder and Executive Co-Chair, Robert Friedland. Go ahead, Robert.

Well, to everybody on our 2022 conference results here. I welcome all of you. And I'll start by saying it's great to be in a company producing real things that everybody on this planet needs. Ivanhoe has a very strong balance sheet, huge cash flows, the lowest cost and greenest ore bodies on this little planet in copper, in platinum and palladium, in rhodium, gold, nickel, zinc and germanium. Now while clearly, today, confidence has not been restored by an incompetent Federal Reserve Board, which seemingly just yesterday said inflation was transitory. We now see systemic instability in the banking system with banked everywhere being long-term bonds at very low interest rates. So investors everywhere will be looking for strong cash flows, precious metals exposure yet with minimal leverage and strong ESG performance. I believe that Ivanhoe Mines has priceless assets. We have the best exploration and management team in the mining business. We're operating the best new copper mine in the world, and that's the world -- if there's one metal that the world cannot live without its copper. There will be no energy transition without copper metal and every nation state is going from a just in time to a just-in-case economy. Military budgets are rising globally, and metals like copper, nickel, zinc and germanium are at the top of the shopping list for national security purposes. Platreef is the largest precious metals development on our planet, and I believe that the Mokopane feeder is the most important precious metals exploration project in our industry. So it's getting harder and harder to finance than another Tier 1 copper or precious metals mine. And as a consequence, Ivanhoe was attracting the deepest pocketed investors in the world. And our group's disruptive exploration technology and our new disruptive comminution technology and our related companies have attracted the largest mining companies and some of the leading technology investors in the world. In a flight for safety, Ivanhoe Mines to the support of our host governments, our loyal young labor force and our major institutional investors will lead our industry in mining with a higher purpose. And therefore, I'll turn this over to our great management team, and please enjoy the rest of our presentation. Thank you.

Thank you, Robert. Good afternoon and good morning, everyone. This is Marna Cloete, the President, broadcasting from a cloudy Jersey. Our management team is very excited to present a set of outstanding results for the 2022 financial year. Both our production and cash costs were within our original guidance parameters. An achievement we are very proud of in a year marked by production disruptions across the globe and extraordinary inflationary pressures. David Van Heerden, our CFO, will talk you through our annual results in the next section. Next slide, please. To name a few key metrics. Kamoa-Kakula produced on a 100% basis, over 330,000 tonnes of copper. It sold over 320,000 tonnes of copper resulting in net revenue of $2.15 billion and EBITDA of $1.39 billion and cash cost for the year was $1.39 per pound of copper produced. Our team on-site also successfully completed the debottlenecking project, again, ahead of schedule and this increased production capacity to 450,000 tonnes on an annualized basis. Our Phase 3 expansion is also on track for completion in 2024. This will increase copper production up to 650,000 tonnes. My colleague, Alex will give you a more fulsome update on our Phase 3 progress later in this call. Earlier this year, we published an updated PFS and PEA, which includes Phase 3 and Phase 4. This resulted in an after-tax NPV at a discount rate of 8% of USD 20 billion. But as we all know, NPV models simply cannot capture the value of a multi-generational mining complex such as Kamoa-Kakula, but probably our most impressive statistic to date is our Zero lost time injuries recorded on the construction of the Phase 3 expansion. The smelter and refurbishment at turbine 5 at Inga II which is the hydroelectric dam. Next slide. We frequently get asked what contributed to our success. And in my view, this slide captures the secret ingredient to the successful execution of the operation of Kamoa-Kakula. Our host government is a 20% equity shareholder at this multi-generational mining complex. Sharing and equal, if not a slightly largest life of the pie, in the benefits to be derived from the mine's cash flow. To date, the DRC government received in excess of $500 million in taxes and royalties. We have invested in excess of $40 million in our host communities, building schools, clinics, churches, and implementing live led and enterprise development initiatives. Please bear in mind that we have only been producing for 1.5 years. Our payroll to local employees amounted to $250 million, and our permanent staff is over 97% Congolese. If you go underground at Kamoa-Kakula, it is Congolese personnel operating all our machinery, and here is an astonishing fact in our first full year of production, we contributed 4% to the GDP of the country. Next slide. What sets the DRC apart is the people. The median age of the population is just below 17 years of age. It's a very young generation, eager to learn and be part of something great. To this end, we have embarked on building the Kamoa Center of Excellence that will be completed later this year. This center will serve as a tertiary education center, providing access to a world-class education to young students from our host communities. We currently also have a state-of-the-art technical training facility on site, where all our Congolese operators are trained to the highest operating standards. The DRC is blessed with an abundance of minerals and a great climate and Robert will provide some color on our exploration efforts late in the call. But most importantly, the DRC is placed to hydropower which means all our copper at Kamoa-Kakula are green copper with a low carbon footprint. And of course, the grade at the Kamoa-Kakula also significantly contribute towards the mine's low-carbon intensity. With a shared value with our communities and governments, all parties involved work towards a common goal. We are immensely proud that in 2022, the DRC tied with Peru as the second largest producer of copper. With that as an introduction, I will now hand over to David Van Heerden, our CFO, to take you through our 2022 annual results.

Thank you, Marna, and good day to everyone joining the call today. I'm very pleased to present our record annual and quarterly results, which is, of course, only a high level summary of our results and today's presentation should be viewed in conjunction with our audited annual financial results and the MD&A for the 3 and 12 months ended December 2015. Can we move over to the next slide, please. Kamoa-Kakula's Phase 1 and Phase 2 concentrators continue to operate above design capacity in the fourth quarter with copper sales remaining stable quarter-on-quarter. The record revenue in the fourth quarter was up from Q3 due to the higher average copper price and included a mark-to-market of provisionally priced sales at $3.79 per ounce. Cash costs remained stable, and the higher revenue with consistent costs resulted in a record EBITDA $451 million [indiscernible]. On the next slide, we move into Kamoa-Kakula's revenue and EBITDA margin. And from this slide, it's abundantly clear that significant upside can be expected with higher copper prices in Q1 2023 and beyond. When considering 2022 as a whole, this is just all the more impressive when remembering that Kamoa-Kakula only commenced commercial production in July 2021. And Phase 2, only commenced in April 2022, the annual revenue of $2.1 billion with an EBITDA of $1.4 billion for 2022 period and an EBITDA margin of 65% is really just the start for this impressive asset and equally impressive year. Copper sales realized in the fourth quarter was done so at the weighted average price of $3.56 per pound, while 58,000 tonnes of payable copper remained provisionally priced at the end of December and was remeasured at $3.79 per pound [indiscernible]. With the price of copper being elevated well above the $3.79 per pound in early 2023 to date, we do expect to see the remeasurement of the 58,000 per [indiscernible] tonnes, having additional positive impact in our Q1 2023 results. Next slide, please. Operating cash flow generated by Kamoa-Kakula during the year was allocated to growing this exceptional asset. On completion of Phase 2, we move straight into Phase 3 with a joint venture well placed with a very healthy cash balance of $366 million in hand at the end of December '22. And we'll go into how that and additional cash flow from operations will be spent in our capital guidance on the next slide. Next slide. This slide does present our normal zoom into Kamoa-Kakula joint ventures accounts to illustrate how Ivanhoe's often share of profit flows from the Kamoa-Kakula result into Ivanhoe's profit using the joint venture accounting. Having already discussed Kamoa-Kakula's revenue and EBITDA, I will further just add that the finance cost recognized by Kamoa-Kakula of $295 million in 2022 is principally the interest on shareholder loans from Ivanhoe and Zijin that was advanced in 2021 and before to fund operations and initial CapEx. I will show the $151 million interest income Ivanhoe recognized on this loan on a later slide where I'll talk through [ Ivanhoe's profits ]. Additionally, I'll just mention that the tax expense is mainly deferred tax and therefore, nontax at present. The noncontrolling interest of $141 million represents the profit attributable to the DRC government's 30% interest in the Kamoa-Kakula Copper Complex, leaving a profit of $513 million attributable to the joint venture partners with Ivanhoe share of that being $254 million for 2022. Next slide. With the current headwinds of the past headwinds of 2022 and behind us, I'm very happy to say that there's no surprises on C1 cash cost -- with C1 cash cost for Q4 being stable. And our cash price benefiting from the global marine freight rates coming down from its elevated levels in the second and third quarters of 2022. Importantly, Ivanhoe was one of the very little, if not the only company -- proper company that came in within its original guidance that was set out in early 2022. So we are something we are very proud of. And our 2023 guidance is slightly up from 2022, but we'll go into that a little bit later in the next slide, which you can move to [ in a minute ]. We are extremely excited to realize the benefits from the planned smelter as for Phase 3, as you would have seen in the [indiscernible] pre-feasibility study released at the end of January. And we -- once the smelter has been commissioned, we expect C1 cash costs of less than $1.20 per pound, placing us comfortably in the lowest quartile. The slide also illustrates our 2021 -- 2022 cash cost of $1.39 for the year and also shows just what was considered when placing our 2023 guidance. Our guidance does take into account increases in power costs and that became affected like last year increased benchmarking on TCs and RCs as well as the impact of impossible condition in the regional trucking capacity and market dynamics. Next slide. So if we move to Ivanhoe's record profit for the year, and the start from the left, Ivanhoe as previously mentioned, recognized $254 million of its share of profit from a joint venture. We also recognized $151 million of interest on the loan to the joint venture, and the other expenditure was really in line quarter-over-quarter. And Kipushi project, an expenditure there was expensed up until the end of June. And when the Ivanhoe and Gecamines approved the budget for commercial production and in line with the feasibility study. And therefore, expenditure at Kipushi was capitalized thereafter and deemed as development cost. The deferred tax recovery of $113 million, we [indiscernible] [ on the growth ] also relates to Kipushi and the decision to develop. And because of the development decision and the approval of that decision, it was deemed probable that there would be sufficient taxable income in which we could utilize the tax asset, and therefore, we recognize the deferred tax recovery earlier in the year Q2 2022. That built up to the ultimate record profit for Ivanhoe of $434 million. We can move to the next slide. We look at our plans for 2023 and 2024. Our development teams and project teams at all 3 projects will be extremely busy as we continue to develop our 3 outstanding assets. And the capital expenditure provided on this slide is as presented on the 31st of January in our CapEx guidance release and the capital cost aligns well with studies we released and particularly considering the inflationary market and pressures we've experienced in the last few years. And I think it's also just important to note that these costs are based largely on uncommitted orders we've got in place. Planned Phase 2 capital expenditure at that we've remained under review as we have commenced an optimization study to eventually accelerate the production from the Phase 3 expansion, which will consider the integration of converting the 5.1-meter diameter ventilation shaft, which we call Shaft 3 [indiscernible] shaft and with the capability to [ hoisting ]. So we'll be on the lookout for possible changes there once the study is completed. We can move to the next one. So I know in this slide deck and in our MD&A, we have presented our adjusted EBITDA at an Ivanhoe level. And this is, I think, important for analysts and investors basically illustrating our view of how adjusted EBITDA should be calculated. And looking at the detailed reconciliation, we've got in the MD&A and you will note that we have not been creative at all and basically just taken obvious adjustments to get to our ultimate adjusted to what we feel is a good proxy for cash flow generated by market or share [indiscernible] as well as the effects our other expenditure on that EBITDA. We've got a breakdown. And as one would expect at this stage, the majority of Ivanhoe's adjusted EBITDA is made up of the share or share of the Kamoa-Kakula which we've obviously [ covered in detail ] in this presentation. So if we move to the next slide. I'll point to the -- on the previous slide, where we indicated Ivanhoe's share of the EBITDA from Kamoa-Kakula. We had a 39.6% interest of Kamoa-Kakula effectively included in our adjusted EBITDA. And similarly, we've got equity ownership percentages at Platreef and Kipushi which does not necessarily -- does not at least initially in line with the proportionate cash that Ivanhoe will be receiving from cash flow generated from our project. And this slide is, once again, just illustrates the loans and funding already advanced to those projects to holding companies held by Ivanhoe. And because of accounting, these shareholder loans would generally cancel out. So it's not seen on a consolidated level. But it's very important to consider the higher proportionate loans advanced by Ivanhoe because it does impact on future cash flow. And the -- what this slide effectively means is that Ivanhoe will receive a much higher portion of distributions once they commence and then only our equity stake would suggest. And the cash flow waterfalls for all our projects -- and as one would expect, would result in cash flow in shareholder loans and other financing to be repaid first or at least a large proportion of that to be repaid first the dividend commence. So therefore, Ivanhoe will receive higher cash flow first. And as we all know, time is money. So effectively, Ivanhoe on the valuation, from a valuation point of view, should receive a by attributable portion of the value of our projects than just our new equity interest. Can we move to the next slide, please. So just to summarize, where Ivanhoe was placed for 2023 and beyond. Ivanhoe has a very strong cash position with cash and cash equivalents of almost $600 million in the bank and a very limited, a very small net debt position and if one considers that the net debt of $132 million at the end of 2022 includes the convertible notes. And I would confirm that Ivanhoe is actually in a net cash position. We've got total assets of $4 billion at the end of the year and total liabilities of $1.1 billion, which includes again the convertible notes as well as a $311 million of deferred revenue, which relates to the blockage stream, which would be in the past once was tracking to see production. And that concludes the financial highlights from me, and I will now hand over to Alex to back the presentation.

Okay. Thank you, David. It's Alex Pickard here speaking from London. I'll just say in advance apologies, if I sound a little bit hoarse, I'm recovering from 2 weeks of marketing and conferences in North America. So in this section, we will take you through a review of all of our operations, Kamoa, Kipushi and Platreef and also Robert will be giving a bit of a flavor of the exploration that we're doing in the Western Foreland and at the Mokopane Feeder in South Africa. But first, I will take you through some of the highlights at Kamoa-Kakula, of which there are many on the next slide. So it's quite incredible to believe really that this was Kamoa-Kakula's first full year of production given that we only started Phase 1 operations in July of 2021. So for the full year 2022, we're very pleased to report that we delivered the upper end of our initial production guidance, which was 290,000 tonnes to 340,000 tonnes of copper for the year, and we came in at just around 333,500 tonnes, so just below the top end. This was really a reflection of the outstanding ramp-up of the Phase 2 mill, which began in April, but we were already at full capacity within a matter of weeks. And where you can really see that is on the right-hand side, we managed to mill 7.1 million tonnes, which is a fantastic achievement given that we only had 3 quarters of production from the full Phase 1 and Phase 2 at a rate of 7.6 million tonnes per annum. We recently announced that we completed our $50 million debottlenecking program ahead of schedule and on budget, which is a recurring theme for Kamoa-Kakula. So this debottlenecking allows us to increase nominal throughput by 20% to 9.2 million tonnes per annum, and we finished the very final piece which was the commissioning of the fourth and final filter press, that was completed last week. And then since then, we are very pleased to report that we've hit daily records for both throughput and copper production -- copper production being in the region of 1,500 tonnes daily, which shows the true capability of what this plant can hopefully do given a good run. So now as we reach steady state, one of our major target is to improve our metallurgical recoveries across the board. So the original design parameter was 86%. We have been achieving from 1 day to the next recoveries of 88% and above, and we are looking to lock these recoveries in for the long run and ultimately be sending a lot less copper to our tailings. Finally, we reiterate our 2023 production guidance of 390,000 to 430,000 tonnes of copper in concentrate. Next slide, please. So moving on to the Phase 3 expansion. The Phase 3 expansion project is continuing to advance on schedule in all facets. So that includes the 3 major initiatives that we've spoken about before. The first being a 5 million tonne per annum expansion of our mine and new concentrator located at Kamoa, which you can see towards the center of that map on the right-hand side. The second part is building the largest copper smelter in Africa, which will produce 500,000 tonnes of 99.7% copper [indiscernible] and brings with it significant cost improvements that David already mentioned. And then the third part and a very, very important part is the hydropower turbine refurbishment to provide 178 megawatts of clean energy for all of these expansion projects. There is no change in terms of our target. We're still aiming to tie all of these initiatives in by the end of 2024. And one major area in our favor, in fact, a couple of major areas. One is that we are using the same team, the same contractors that delivered so successfully through Phase 1 and Phase 2 and the second is that all of the major equipment, I think David already mentioned, has been ordered is undergoing fabrication. So we're expecting deliveries to start arriving in the later part of this year, and then that will be the really exciting part of the build as all of that starts to come together. But because all of these orders have been placed and committed, it also gives us a very high degree of confidence in our capital budget of $2.5 billion for the next 2 years. Next slide, please. And finally, on Kamoa-Kakula, we would just like to reiterate that we published our life-of-mine multigenerational plan for the mine in late January. That's what we refer to as the 2023 Integrated Development Plan or IDP. We like this slide as it's a good summary of why we believe that Kamoa-Kakula today is the world's best copper mine with a unique combination of incredibly high grade of between 5% and 6% copper going into the mill. But uniquely for a very high-grade mine, we also have a world-class production scale aiming to be the fourth largest producer in this chart, but with our sites set to become much bigger. And finally, with a very, very long life, which is reflected by the large bubble size that you see in this diagram. One of the other striking conclusions, I think, of the IDP study is Kamoa's ability to sustain a huge production rate in excess of 600,000 tonnes of copper per annum for a period of almost 30 years, which is quite unparalleled, I think, in the industry today and provides us with huge leverage to copper prices on an ongoing basis. We recommend that listeners review the study in full, and that will be published this week in 43-101 from on March 16, and that will be available on the Ivanhoe Mines website and also available on SEDAR. So with that, I will hand back to our Executive Co-Chairman and Founder, Robert Friedland to talk a bit more about our exploration initiatives.

Thank you, Alex. Having listened to this presentation, I think we make a few more remarks first, about the smelter. It's really important to understand that a great percentage of the world smelting capacity is in China and there's going to be a shortage of smelting capacity. It doesn't really matter how much copper concentrate is produced if you have a bottleneck in smelting. So the fact that we're building the most modern up-to-date smelter with technology from Outokumpu as well as the best Chinese technology from Nerin is going to make this a super green copper mine, what energy is required is coming from hydroelectricity and the analog holds like in the aluminum industry with green hydropower and the highest grades. It has been noted by a number of major mining companies who've visited Kamoa-Kakula that this is the world's best copper mine, certainly the greenest, certainly with the best ESG characteristics, and that puts a lot of attention on the Western Forelands. The basin that we hold in the Western Forelands holds identical geology to Kamoa, Kakula, Kansoko, the Bonanza Zone, Kamoa-Kakula itself. All of these deposits are hosted in sedimentary geology that is important to our industry on a global scale. It's difficult for me to think of a major mining company that has not approached us with interest in the Western Forelands. Now in the Western Forelands, there are 4 magic ingredients. The information is proprietary to our geologists, but if we have 3 of them coming together, we sort get an ocean of 3% copper. And our cutoff grade up until now is 3%, our head grade is 5% or 6%. But even a 3% copper deposit is highly anomalous in the crust of the earth, we're using less capital intensity, less energy, less water, less carbon dioxide per unit of copper produced than any competing copper mine in the world. Now if you get a fourth magic ingredient, you get a Kakula and it's our team that knows these ingredients, and there is a huge amount of work to be done in the Western Forelands. We've noted that we're working at Lupemba, Mushiji, Makoko but we're also starting to look at the possibility of developing our own fully owned mine in the Western Forelands at Makoko, utilizing some of the high grades at Kiala. At this stage, I would only like to say if it walks like a duck and it quacks like a duck, it's probably a duck, it's only a matter of time before one of our wholly owned mines manifest in the Western Forelands, I don't know of an exploration project at this scale in the copper industry. We've recently had some very competent new geologists to join our team. We're throwing a $19 million budget at drilling through sand cover. This sand in the Western Forelands blew in from the Kalahari desert. And so there's a blanket of anywhere between 10 and 30 meters of sand obscuring the geology. So there's very large areas in this basin where we're drilling to the sand to test what's underneath it and we couldn't be more excited about our multiyear program at the Western Forelands. So for copper, this is the best copper hunting area in the world. But I'd like to draw attention a little bit to precious metals because the platinum price is up today more than gold. The palladium price is up as much or more than gold. Gold is not bad. Rhodium is going crazy. And in a world that seems to be afraid of risk. I'd like to remind everybody, we are building the world's largest precious metals mine with astronomically large precious metals endowment. If you look at the Mokopane feeder slide, and you see our shafts up there on the Turfspruit farm, where did this northern limb come from? So if you look at those magenta colors on the Blinkwater, Lisbon and Macalacaskop farms, we're looking at what is one of the largest gravity anomalies in the world. and the host rocks on the critical limb of the Bushveld are extremely heavy. So there's something enormous and something very heavy under those 3 farms. Seven years of patient effort was required to get those farms awarded to Ivanhoe Mines, Blinkwater, Lisbon and Moorddrift. And this is the most significant exploration project in the precious metals business anywhere in our estimation. We don't know what's causing all that gravity. But if you go to the next slide and look at the Mokopane feeder in relation to the Bushveld Complex, the Bushveld Complex has produced more precious metals than any single structure in the world. The Mokopane feeder occurs at the structure of the Northern limb of the Bushveld and the ring structure that represents the Bushveld, there's something extremely heavy there. And in our quarterlies, we disclosed that we're going to be starting a lot of sophisticated geophysics, more detailed gravity in [indiscernible] and we'll be testing this unusual feature. And of course, if we're right, this would be a neural scale target of nickel, of copper, of gold, of platinum, of palladium and rhodium. Perhaps this is where the metal has been tapped. And that's why PhD geologists working for the South African government called this the Mokopane feeder. If you ever want to lay awake at night dreaming about the possibility of a super giant discovery that follows in the history and the footsteps of all the other super giant discoveries we've made, I would also nominate the Mokopane feeder as sort of a mind-blowing opportunity in the South African industry. And I want to thank our team and the support we've had in the South African government to put this project forward. So with that, we look better at even better days. And with the continued growth of our company. I'll hand this back to our compatriots to continue the discussion about Platreef. Alex?

Thank you, Robert. So they are talking about super giant discovery. So a bit of an update as to what we've been up to as Platreef. Our underground development work has been focused on vertical development of [ waste ] forces and lateral development towards the ore body. We've completed more than 750 meters of lateral development and over 200 meters of vertical development. Our Shaft 3 is currently being reamed, and you can see that in the picture in the background on the slide and we plan to complete this in the fourth quarter of this year of 2023. We have initiated optimization work to identify value-accretive options for installing hoisting capacity in the shaft. So Shaft 3 was originally planned as a ventilation shaft only. It has a diameter of far -- it will have a diameter of 5.1 meters. And we are now planning to equip the shaft for hoisting, which provides an alternative option to remove ore and waste from the underground mine. This has the benefit of derisking the development and ramp-up of Phase 1, but it may also be used to accelerate the ramp-up of the underground mining activities for Phase 2. And just to remind you, Phase 2 is planned for completion at the end of 2027. Earthworks construction for the Phase 1 concentrate tests also underway with the mill foundation and civil activities also advancing well. And then we have also commenced with the construction of our first solar plant at the end of last year and the first quarter of 2022, and we expect to commission this in 2023. And this power will be used for mine development and construction activities. If we go to the next slide. This is a beautiful picture. Let me -- [indiscernible], this is our Shaft 2. The 10-meter diameter Shaft 2, which is required for the Phase 2 expansion will be among the largest hoisting shaft on the African continent and is currently under construction. Shaft 2 headframe will be equipped with up to 8 million tonnes per annum of hoisting capacity. And the headgear concrete like construction has commenced and is more than 70 meters complete, and this is what you see there in the background, and that 17 meters out of 104 meters in total. There's also a very nice focus of me if I may say so myself, initiating the pilot drill for the raised boring of Shaft 2 in the press release that was issued earlier today. And then last but not least, we go back to the DRC to give you a bit of an update on Kipushi. Our long lead orders are expected to commence delivery to site in early July. And this includes the ball mill currently being fabricated by CITIC in China. And maybe I just want to stand still on Kipushi a little bit. I think a lot of our shareholders will be surprised as to the progress that we are making at Kipushi. Kipushi is really an easy project compared to what our team has managed to do at Kamoa. And our construction work on site is advancing very well, on schedule with our earthworks effectively complete and our civil works is also advancing very well. I'll first concentrate that the Kipushi schedule to occur during the third quarter of 2024. So that's next year. That's as early as tomorrow. With Kipushi anticipated to bring additional trucking volumes online, we completed a scoping study investigating various broader options at Kipushi [ border ports ]. And this was issued to the government for consideration. We are also doing further studies on the Zambian road network to identify preferred routes to link Kipushi to international ports. A new commercial board crossing will be a significant advantage in terms of direct imports, clearing customs, but it will also provide social economic benefits to the town, which is currently mine dependent. The Border Crossing will, of course, also benefit logistics for Kamoa-Kakula operation. And then if we go to the next slide. Yes, you can see our underground mine development around Kipushi zinc ore body, and that advancing ahead of schedule. Our staff perimeter drives are being developed, and we are expecting to start extracting ore towards the latter part of this year. Shaft 5 is planned to be the mine production shaft with a maximum hoisting capacity of up to 1.8 million tonnes per annum. Our offtake discussions, including a $250 million prepayment facility has advanced the final draft term sheet. This has been received from shortlisted parties, and it's under review by the Kipushi's shareholders. The offtake agreements as well as the revised joint venture agreement are expected to be completed during the first half of 2023. So with that as remarks on both Platreef and Kipushi, we will now go to the Q&A section of today's call. Over to you, Matt.

Thank you, Marna. We'll now begin the question-and-answer session. The way this will go, we'll clear the phone lines first, and then we'll go to web questions thereafter as we have time. We probably won't be able to get to all questions today. So if we don't get to your question, please do follow up with IR team directly and we can get an answer for you. With that, I will turn it back to the operator to populate the phone line, and we will grab questions on the line first, and then we will turn to webcast. Operator?

[Operator Instructions] Our first question comes from the line of Greg Barnes with TD Securities.

I guess a question for Alex. Can you talk about the grid stability issues in the DRC and how that's impacting operations at Kamoa-Kakula currently?

Sure. Thanks for the question, Greg. So as we've written in our annual announcement, we have been experiencing intermittent power issues in the DRC grid. That's been going on roughly since December. But the first thing to say is that, that is reflected in terms of our production guidance for the year. So when we say 390,000 to 430,000 tonnes, that was on the basis of the grid stability that we were seeing on the -- at the time. I think we've mentioned it's a regional issue. It's not an issue with any of the hydro dams that we have been a part of upgrading. But it is generally caused by failures in generated capacity across the grid and some of that is avoidable through better maintenance and putting other systems in place. So what we're trying to do is mitigate this in a number of ways. The first thing is to install backup capacity. So we mentioned in the release that we will have an additional 13 megawatts in generator capacity arising in a little over a month at Kamoa, which will start to help. And the plan is to ramp up that generated capacity to 132 megawatts by next year, which will cover quite a bit of our operations from Phase 1 and Phase 2. We'll be able to basically run at least 1 mill uninterrupted even during incidences or blackouts. The second thing I think we're doing is in terms of assisting SNEL, we're doing a detailed analysis of what the weak points are in the regional grid system. And then we are going to see how we can assist in terms of the project management to perform those improvements across the grid. And a lot of them are not big capital cost items. It's small incremental improvements and these could potentially be incorporated into our loan agreement with SNEL. And then the third thing maybe to mention is that we are discussing additional dedicated grid power capacity coming in from Zambia, and we're quite confident and optimistic in terms of that potential. But maybe just to end on a more positive note, I think without these power numbers, also in the power intermittent capacity, I think we would be seeing some unbelievably good operational numbers from Kamoa-Kakula, like the 1,500-tonne daily record that I mentioned in my segment, but it's obviously the power that has a knock-on impact for how often you can run and also consequences for your recoveries.

Great. And maybe a question for Robert. Do you have any sense on the Mokopane feeder zone, maybe too early at how deep that large zone actually could be? Or is it just too early at this point to have a sense of that?

Thank you. Only God knows and She might change your mind. We see an enormous gravity feature. It's been known for a long time. It's [indiscernible] details. People used to [indiscernible] Botswana and turned left over a big mag anomaly turned out to be the biggest diamond mine in the world, Jwaneng. So this big gravity feature must mean something. Now it could be a super giant gravity anomaly, 2 kilometers of depth or it could be a slightly less giant gravity anomaly at 500 meters or 1 kilometer of depth, and we won't know until we detail it and drill it. But it's the probable source of the magma that formed the Northern Limb. And the reason I'm so excited about it. So when you look at the Northern Limb, the further south you are in the limb, the higher the base metals content, they are the nickel and the copper. The footwall at Platreef is limestone, it actually is reducted and that's why there is such a enormous [indiscernible]. Looking at the scales of this gravity anomaly, one could imagine that it could be the largest base metals discovery in the world. And it doesn't really matter how deep it is, if it's not big. I mean you can see that anomaly is miles across. So we're just going to have to go step by step. It took us 7 years to acquire 100% of those farms. Believe me, that wasn't easy and hats off to our people that worked right up to the President's office because we've established our credibility to look at this asset and only drilling is going to tell us how deep it is and what its ultimate scale is. But if you're looking for an ultra giant precious metals target, given that Platreef is the world's largest precious metals mine in development, the geophysics of the Mokopane feeder just dwarf anything else on the continent. So let's drill it and see. Thank you for your interest in it.

[Operator Instructions] Our next question comes from the line of Andrew Mikitchook with BMO Capital Markets.

Can you hear me?

Yes.

Okay. Just 2 quick questions. Maybe one for David first. What -- can you give us some guidance on the pace of spending for Phase 3? I realize you can't give us the exact numbers, but maybe give us a sense potentially where the peak CapEx intensity is or the peak spending just so we have a sense of what to expect this year going into next year, please?

No problem, Andrew. And I think we do 2 things pretty well, and one thing is coming online in on schedule and budget. And then the other is we -- the project being generally underspent what they plan or will spend it later and we've included ranges on our 2023 guidance, specifically for that reason. And we do -- I probably expect us to come in closer to the smaller end of the range as shown in our 2023 guidance. But the -- because of -- because we've incurred placed a large amount of [indiscernible] over the years. We expect a big funding point to be close to September. That's basically the -- the forecasted a big funding point for us internally. But that might be slightly later and as there is a bit of a drag when comparing committed amounts to actual positive cash.

Okay. That's very helpful for us to get a sense of what to expect. Maybe my second question, I assume would be for Alex. There have been discussions in previous calls and press releases about continuing to accelerate development at Kakula, so that the activity -- the mining activity there maybe better matches the mining process -- sorry, the processing rates from Phase 1 and 2 combined so that there's less reliance on the stockpile and less reliance on Kansoko. How is that progressing? And when should we be kind of seeing the benefits of that or start to hear more details from your team?

Yes. Thanks, Andrew. I mean it's still an ongoing initiative that basically the plan is the Kakula underground will be able to supply the entirety of the 9.2 million tonnes and large capacity for the Phase 1 and Phase 2 mill. And if you look at the mine today, we're probably somewhere in the high 8s in terms of what's coming, run of mine versus coming from the stockpile. But I would just add, it's not -- this is not necessarily a game of chasing the highest grade possible from 1 week to the next. Part of this development is basically to open up a lot more panels and open up much more of the mining footprint and have much more of our reserve at Kakula available to be mined at any one time. So that will take us months rather than weeks to be able to be in that position where we can routinely mine 9.2 million tonnes from Kakula but I think the study that we put out is a pretty good reflection of where we're intending to get to in that regard.

Thank you. I'm showing no further phone questions. I'll hand the call back over to you, Matthew.

Thank you, operator. We have a time for a couple of web questions. So I will pull a few here. There's quite a few repeat so we'll sort of group some together. First most, I think the first one is probably for Robert. It's more of a macro strategy question. Robert, with the pending cash flows coming in 2025, could you speak a little bit to your longer-term vision drive and home line strategically with Kipushi and [indiscernible] peak cash flow heading towards the end of the decade?

We're going to build Ivanhoe Mines as the world's greatest new major mining company. Just no doubt about it. We've had interest from all quarters. I'm spending my life lag around talking to sovereign wealth funds and major mining companies and investors from all over the world looking to get involved in something real for a change because these metals are required for the energy transition. Without these metals, it just won't happen. And these metals are required for national security, and everybody is interested in -- in beefing up their defense capability in a very uncertain world. And then, of course, paper assets are just trash. Nobody really trust central banks anymore or what they have to say, and you can see that in today's precious metals prices. So there's a lot of liquidity in the world looking for real things. And paradoxically, if our minus 10x the grade of your mine is [indiscernible] 1/10 of the energy and 1/10 steel and 1/10 of the concrete, and we're generating 1/10 the global warming gas for unit of metal produced. So -- looking at how far we've come in the last 26 years and looking at where we're going to go to the next decade, we really see no limit on Ivanhoe Mines' ability to become the next major mining company. We're -- we're already clearly the world's largest junior mining company or we're already the world's smallest major mining company, but we have the best-in-class mineral assets and we're mining in a part of the world where there's nowhere to go but up. So it's -- we have an incredible discrete core of a company where women are empowered and local communities are part of the effort. We've reinvented the software around mining on the ESG characteristics. We think over 26 years of effort, we have the right formula to grow. And I'm firmly of the belief in coming quarters, will show the world the best-in-class strategic long-term partners to grow Ivanhoe Mines into a century long pursuit. The great mining companies in the world like BHP came from Broken Hill or Rio Tinto really grew when it bought Bingham Canyon from British Petroleum and Utah, really took retort the moon. So when you have a great ore body like this with huge cash flows. Just imagine the cash flows of Kamoa-Kakula to all the government is concerned as well as ourselves, we're going to grow Ivanhoe Mines into Canada's next major mining company. period, full stop.

Thanks, Robert. And I think we have time for maybe 1 or 2 more. The next one is probably best suited for Marna. It's sort of a DRC related question. Marna, with the rise in copper production, did DRC now sort of even with Peru globally. Could you just speak to the stability and the sort of political situation there as well as, I guess, there's a pending election? And this has been asked a couple of times.

Thanks, Matt. I've personally spent a lot of time in DRC engaging with government and our experience has just been positive. There's been a real willingness from government to work with the investment community to see foreign investment into the country. And even with the pending elections, if I compare it to the previous election period, it was a lot more volatile. Now we see campaigns being run, but we don't see riots on a daily basis. So it's your normal campaign season, things are getting a bit active. But the government should remain stable. People want to see demographic elections being held towards the end of this year. There's a firm commitment from government to do so. And government has been very supportive in our efforts. We've hosted a number of tours to our partners through the Minister of Portfolio, the Minister of Mines, the Prime Minister to Kipushi. And they were all very complementary in terms of how we conduct our business and how they're going to use Kamoa-Kakula as an example of how mining can be done in the country and how we can grow the industry even further in a sustainable way as partners.

Great. Thank you, Marna. And we've just run short up here on our hours. So I think that's all we're going to have time for today. So this concludes the call. I'd just like to thank you again for attending today's event, and we look forward to speaking with everyone soon on the many exciting milestones coming in 2023. So thanks again, and back to you, operator.

Thank you all for participating. This concludes the conference call. You may now disconnect.