Ivanhoe Mines Update: Kamoa Project Update (December 08, 2015)

by FI Fighter on December 8, 2015

in Copper Update, Precious Metals Updates

zijin-mining-buys-10-of-canadas-ivanhoe-mines

Wonderful news this morning, as Ivanhoe Mines (IVPAF/IVN.TO) and Zijin Mining announced that they have completed their agreement in which Zijin Mining acquired a 49.5% ownership stake in the Kamoa copper project for $412 million.

HONG KONG – Robert Friedland, Executive Chairman of Ivanhoe Mines Ltd. (TSX: IVN), and Lars-Eric Johansson, Chief Executive Officer, announced the completion today of the investment by China-based Zijin Mining Group Co., Ltd. in Ivanhoe’s Kamoa Copper Project in the Democratic Republic of Congo.

Zijin, through a subsidiary company, has acquired a 49.5% interest in Kamoa Holding Limited for a total of US$412 million in a series of payments. These funds will be paid into Ivanhoe’s corporate treasury and will be utilized by the company for general corporate purposes.

Ivanhoe received an initial US$206 million from Zijin today; the remaining US$206 million will be received in five equal installments, payable every 3.5 months from today. The Zijin investment, combined with Ivanhoe’s cash, cash equivalents and short-term deposits, will make a total of approximately US$530 million (C$716 million), exclusive of current liabilities, available to advance Ivanhoe’s tier one projects in South Africa and the Democratic Republic of Congo.

Of this total, approximately US$61 million (C$82 million) is reserved for use at Ivanhoe’s Platreef Project in South Africa. 

The total cash, cash equivalents, short-term deposits and receivables from Zijin, exclusive of current liabilities, represent approximately C$0.92 per issued and outstanding common share of Ivanhoe Mines.

Kamoa Holding is an Ivanhoe Mines subsidiary that presently holds the company’s interest in the Kamoa Project. Ivanhoe also has sold 1% of its share interest in Kamoa Holding to Crystal River Global Limited, which is operated from Hong Kong.

“It is satisfying to complete this transaction with Zijin amid these interesting market conditions,” said Mr. Friedland.

Our partnership with Zijin will allow us to develop Kamoa into a major, tier one copper mine at a time when conditions in commodity markets are compelling virtually all others to run in the opposite direction. When the consistent, downward trend in head grades at the world’s major copper mines is combined with the current drastic curtailment in exploration and development spending, as well as cutbacks in sustaining capital, we are highly confident we will see a significant copper-supply deficit and a sharp rise in copper prices as this decade draws to a close – at approximately the same time as we expect Kamoa to begin decades of commercial production. The old adage again is proving to be very true: The best cure for low prices is low prices.”

Mr. Johansson said Ivanhoe “is confident that Kamoa will become one of the world’s truly great copper mines and we are proud to partner together with Zijin to build and operate it. Together with Zijin, we will work hard to ensure that Kamoa

With Indicated Mineral Resources of 739 million tonnes grading 2.67% copper, containing 43.5 billion pounds of copper, and Inferred Mineral Resources of 227 million tonnes grading 1.96% copper, containing 9.8 billion pounds of copper (at a 1% copper cut off), Kamoa is independently regarded as Africa’s largest, high-grade copper discovery1 and the world’s biggest, undeveloped high-grade copper discovery2. In March this year, members of the Ivanhoe Mines exploration team received the prestigious Thayer Lindsley Award from the Prospectors & Developers Association of Canada for the Kamoa copper discovery, recognized as 2014’s top international mineral discovery.

 

Today’s announcement further de-risks the Kamoa project, and Ivanhoe is now well cashed up ($530 million) to continue its development work.

The market took well to the announcement, as shares of IVN.TO are up 6.25% this early morning.

IVN_12_8_15

It looks like I’ll have to be patient again if I want to add any more shares to my position…

Previously, I was hoping for another opportunity to load up on shares of IVN.TO, had it dipped below C$0.60/share.

At a market cap of C$530 million, IVN.TO is currently trading for less than cash in the bank (accounting for today’s announcement/funding):

The total cash, cash equivalents, short-term deposits and receivables from Zijin, exclusive of current liabilities, represent approximately C$0.92 per issued and outstanding common share of Ivanhoe Mines.

That might be hard to believe, but in a deflation for natural resources, that’s the nature of the beast right now… But when commodity prices rebound in the future (particularly copper and platinum), Ivanhoe should be in a terrific position to benefit.

As I’ve stated before in the past, IVN.TO is my favorite “non-expiring call option” on a commodities rebound.

To be clear, although the market consensus is that Ivanhoe holds 3 world class assets, these mines are NOT so economical at today’s low prices (the IRR is also terrible).

A speculation on IVN.TO is a bet on the future recovery of commodity prices. For Ivanhoe (and basically any other base metal producer/developer) to succeed, prices MUST eventually go back up!

My own timeframe with this speculation is at least 3-5 years (I don’t believe a recovery in base metals is anywhere near imminent)…

 

Nevertheless, today’s wonderful news is a step in the right direction!

 

Happy Hunting!

 

 

Full Disclosure: I currently own 40,000 shares of IVPAF.

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