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Aug. 8, 2019, 7:34 a.m. EDT

Ivanhoe Mines Issues Second Quarter Financial Results and Review of Mine Development and Exploration Activities

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CITIC Metal and Zijin Mining to invest an additional C$679 million (US$515 million) in Ivanhoe Mines on August 16, 2019, positioning Ivanhoe to fully finance its share of capital costs to bring the Kakula Copper Mine in D.R. Congo to commercial production

Drilling expands the new Kamoa North Bonanza Zone to at least 550 metres, with an implied strike length of 2.7 kilometres of shallow, thick, massive sulphide mineralization, with copper grades up to 18.48% over 13.6 metres

New Kamoa Far North extension discovery made on Ivanhoe's 100%-owned Western Foreland licences, immediately north of the Kamoa-Kakula mining licence

Toronto, Ontario--(Newsfile Corp. - August 8, 2019) - Ivanhoe Mines (otcqx:IVPAF) /zigman2/quotes/207656050/delayed CA:IVN -1.08% today announced its financial results for the quarter ended June 30, 2019. All figures are in U.S. dollars unless otherwise stated.

Ivanhoe Mines is a Canadian mining company focused on advancing its three mine-development projects in Southern Africa: the Platreef palladium-platinum-nickel-copper-gold-rhodium discovery in South Africa; the Kamoa-Kakula copper discovery in the Democratic Republic of Congo (DRC); and the extensive upgrading of the historic Kipushi zinc-copper-lead-germanium mine, also in the DRC. The company also is exploring for new copper discoveries on its wholly-owned Western Foreland exploration licences, adjacent to the Kamoa-Kakula mining licence.

HIGHLIGHTS

  • CITIC Metal Africa Investments Limited's (CITIC Metal Africa) C$612 million ($464 million) second equity investment in Ivanhoe Mines is scheduled to close on August 16, 2019. The private placement transaction now has received all necessary internal approvals, as well as recordals and registration with Chinese government regulatory agencies. CITIC Metal Africa is a direct subsidiary of CITIC Metal Co., Ltd. (CITIC Metal).

  • Ivanhoe's joint-venture partner at Kamoa-Kakula, Zijin Mining Group Co., Ltd., exercised its existing anti-dilution rights on May 15, 2019, which will yield additional proceeds to Ivanhoe of C$67 million (approximately $51 million) to be received concurrently with the CITIC Metal Africa private placement.

  • Upon closing, the additional funds from CITIC Metal Africa and Zijin Mining will position Ivanhoe to fully finance its share of the capital costs to bring the Kakula Copper Mine to commercial production.

  • CITIC Metal Africa, currently Ivanhoe Mines' largest shareholder with a 19.3% ownership stake, will come to own 29.4% of Ivanhoe's issued and outstanding common shares when the placement is completed. Robert Friedland will remain Ivanhoe's second-largest shareholder and Zijin will maintain its 9.8% ownership stake in Ivanhoe Mines.

  • CITIC Metal's existing standstill provision will be amended to a maximum ownership stake of 29.9% and extended until January 8, 2023 to provide sufficient time to bring the Kakula mine to production, and to advance subsequent, planned expansions at Kamoa-Kakula, as well as the Kipushi and Platreef projects.

  • On July 29, 2019, Ivanhoe announced that drilling on its 100%-owned Western Foreland licences, immediately north of the Kamoa-Kakula mining licence, had discovered the extension of the Kamoa Far North high-grade shallow copper corridor on Ivanhoe's wholly-owned licences for at least 400 metres. Six holes have been completed in this new discovery area, two of which intersected visually strong copper mineralization, and assays are pending.

  • On July 29, 2019, Ivanhoe announced assays from 19 new drill holes at the latest high-grade discovery at Kamoa-Kakula ─ the Kamoa North Bonanza Zone. Multiple, thick drill intercepts of more than 10% copper were recorded at the new discovery, including 13.80% over 15.50 metres in the central discovery area.

  • The Kamoa North Bonanza Zone has been extended to at least 550 metres, with an implied strike length of at least 2.7 kilometres. Six rigs now are drilling at Kamoa North to extend the discovery's strike length and fast track a resource estimate.

  • The controlling east-west striking structure thought to be responsible for the massive copper sulphide mineralization in the Kamoa North Bonanza Zone is visible as a lineament on airborne magnetic images and can be traced over a distance of up to 20 kilometres. It trends west onto the adjacent Western Foreland exploration licences that are 100%-owned by Ivanhoe Mines.

  • Development at the six million-tonne-per annum (6 Mtpa) Kakula Mine, the first of multiple, planned mining areas at Kamoa-Kakula, is making excellent progress. The first underground access drives are very close to intersecting Kakula's initial high-grade ore, and Ivanhoe and its joint-venture partner Zijin Mining are advancing rapidly on earthworks for the processing plant and other surface infrastructure. The joint venture also has issued purchase orders or tenders for the long-lead mining and processing equipment. Initial copper concentrate production from the Kakula Mine currently is scheduled for the third quarter of 2021.

  • Other engineering and construction activities underway at Kamoa-Kakula include construction of a permanent road between the mine site and the Kolwezi airport, construction of the first phase of accommodations for 1,000 employees and contractors, and earthworks for the processing plant and other surface infrastructure.

  • An independent preliminary economic assessment (PEA) issued in February 2019 indicates that Kamoa-Kakula has a potential production rate of at least 18 Mtpa. Once this expanded rate is achieved, Kamoa-Kakula is projected to become the world's second largest copper mine, with peak annual production of more than 700,000 tonnes of copper.

  • At the Kipushi mine redevelopment project in the DRC, the definitive feasibility study (DFS), which will update and refine the findings of the PFS issued in December 2017, is being reviewed by Ivanhoe's engineering team who continues to work toward completion. Similar to the PFS, the DFS will focus on the initial mining of Kipushi's Big Zinc Zone.

  • At the Platreef mine development project in South Africa, the project's first shaft (Shaft 1) has been extended to a depth of more than 900 metres below surface. The next station development for Shaft 1 is at 950 metres, with completion of the shaft to a final depth of 982 metres planned for early 2020.

  • The concrete foundation (hitch) for the headframe was completed in mid-July. Shaft 2 will have an internal diameter of 10 metres and will be equipped with two 40-tonne rock-hoisting skips with a capacity to hoist a total of six million tonnes of ore per year - the single largest hoisting capacity at any mine in Africa.

  • Ivanhoe is investigating an alternative early production plan for the Platreef Project, targeting significantly lower initial capital, to accelerate first production by using Shaft 1 as the mine's initial production shaft, followed by expansions to the production rate as outlined in the DFS.

  • On June 10, 2019, Ivanhoe issued its second annual Sustainability Report, which provides an overview of the company's sustainability programs and initiatives conducted in 2018, and highlights the significant accomplishments achieved at its three mine development projects and the new goals set for current and future corporate activities.

  • At the end of Q2 2019, Kamoa-Kakula had recorded 15.0 million work hours free of lost-time injuries, Kipushi 432,000 work hours free of lost-time injuries, and Platreef 1.7 million work hours free of lost-time injuries. Regrettably, a lost time injury occurred at both the Platreef and Kipushi projects in July 2019.

Principal projects and review of activities

1. Platreef Project
64%-owned by Ivanhoe Mines
South Africa

The Platreef Project is owned by Ivanplats (Pty) Ltd, which is 64%-owned by Ivanhoe Mines. A 26% interest is held by Ivanplats' historically-disadvantaged, broad-based, black economic empowerment (B-BBEE) partners, which include 20 local host communities with approximately 150,000 people, project employees and local entrepreneurs. In Q2 2019, Ivanplats reached Level 2 contributor status in its verification assessment on a B-BBEE scorecard. A Japanese consortium of ITOCHU Corporation, Japan Oil, Gas and Metals National Corporation and Japan Gas Corporation, owns a 10% interest in Ivanplats, which it acquired in two tranches for a total investment of $290 million.

The Platreef Project hosts an underground deposit of thick, platinum-group metals, nickel, copper and gold mineralization on the Northern Limb of the Bushveld Igneous Complex in Limpopo Province, approximately 280 kilometres northeast of Johannesburg and eight kilometres from the town of Mokopane.

On the Northern Limb, platinum-group metals mineralization is hosted primarily within the Platreef, a mineralized sequence that is traced more than 30 kilometres along strike. Ivanhoe's Platreef Project, within the Platreef's southern sector, is comprised of two contiguous properties: Turfspruit and Macalacaskop. Turfspruit, the northernmost property, is contiguous with, and along strike from, Anglo Platinum's Mogalakwena group of mining operations and properties.

Since 2007, Ivanhoe has focused its exploration and development activities on defining and advancing the down-dip extension of its original discovery at Platreef, now known as the Flatreef Deposit, which is amenable to highly mechanized, underground mining methods. The Flatreef area lies entirely on the Turfspruit and Macalacaskop properties, which form part of the company's mining right.

Health and safety at Platreef

As at the end of Q2 2019, the Platreef Project had reached a total of 1,700,812 lost-time, injury-free hours worked in accordance with South Africa's Mine Health and Safety Act and Occupational Health and Safety Act. Unfortunately a lost-time injury (LTI) occurred in July 2019 after the project had reached 14 months without a LTI. The Platreef Project continues to strive toward its workplace objective of an environment that causes zero harm to employees, contractors, sub-contractors and consultants.

Platreef alternative production plan

Ivanhoe Mines is investigating an alternative production plan for the Platreef Project, targeting significantly lower initial capital, to accelerate first production by using Shaft 1 as the mine's initial production shaft. This plan will focus on initially targeting the development of mining zones accessible from Shaft 1 and maximizing the hoisting capacity of this shaft, followed by expansions to the production rate as outlined in the DFS.

Shaft 1 now extends to a depth of more than 900 metres below surface

Shaft 1 reached the top of the high-grade Flatreef Deposit (T1 mineralized zone) at a depth of 780.2 metres below surface in Q3 2018 and has since been extended to a depth of more than 900 metres below surface. The thickness of the mineralized reef (T1 and T2 mineralized zones) at Shaft 1 is 29 metres, with grades of platinum-group metals ranging up to 11 grams per tonne (g/t) 3PE (platinum, palladium and rhodium) plus gold, as well as significant quantities of nickel and copper. The 29-metre intersection yielded approximately 3,000 tonnes of ore, estimated to contain more than 400 ounces of platinum-group metals. The ore is stockpiled on surface for further metallurgical sampling.

The 750-metre-level and 850-metre-level stations have both been completed and will provide initial, underground access to the high-grade orebody, enabling mine development to proceed during the construction of Shaft 2. As sinking of Shaft 1 advances, one more station will be developed at a mine-working depth of 950 metres. Shaft 1 is expected to reach its projected, final depth of 982 metres below surface in early 2020.

The DFS planned for Shaft 1 to ultimately become the primary ventilation shaft during the project's four-Mtpa production case.

Shaft 2 box cut and concrete foundation completed in July

Shaft 2, to be located approximately 100 metres northeast of Shaft 1, will have an internal diameter of 10 metres. It will be lined with concrete and sunk to a planned, final depth of more than 1,104 metres below surface. It will be equipped with two, 40-tonne, rock-hoisting skips capable of hoisting a total of six million tonnes of ore a year - the single largest hoisting capacity at any mine in Africa.

The headgear for the permanent hoisting facility was designed by South Africa-based Murray & Roberts Cementation. The box-cut excavation to a depth of approximately 29 metres below surface, including the concrete foundation (hitch), was successfully completed and will form the foundation of the 103-metre-tall concrete headgear that will house the shaft's permanent hoisting facilities and support the shaft collar.

Construction of Platreef's Shaft 2 headframe foundation has successfully been completed.



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Testing the ventilation at Shaft 1's 750-metre-level station. The shaft currently is at approximately 900 metres below surface. The next station is at 950 metres, and completion of the shaft to a depth of 982 metres is planned for early 2020.



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Figure 1: Schematic section of the Platreef Mine, showing Flatreef's T1 and T2 thick, high-grade mineralized zones (red and dark orange), underground development work completed to date in shafts 1 and 2 (white) and planned development work (gray).



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Underground mining to incorporate highly productive, mechanized methods

The mining zones in the current Platreef mine plan occur at depths ranging from approximately 700 metres to 1,200 metres below surface.

Planned mining methods will use highly productive, mechanized methods, including long-hole stoping and drift-and-fill mining. Each method will utilize cemented backfill for maximum ore extraction. As per the DFS, the ore will be hauled from the stopes to a series of internal ore passes and fed to the bottom of Shaft 2, where it will be crushed and hoisted to surface.

Long-term supply of bulk water secured for the Platreef Mine

On May 7, 2018, Ivanhoe announced the signing of a new agreement to receive local, treated water to supply most of the bulk water needed for the first phase of production at Platreef. The Mogalakwena Local Municipality has agreed to supply a minimum of five million litres of treated water a day for 32 years, beginning in 2022, from the town of Mokopane's new Masodi Treatment Works. Initial supply will be used in Platreef's ongoing underground mine development and surface infrastructure construction.

Under terms of the agreement, which is subject to certain suspensive conditions, Ivanplats will provide financial assistance to the municipality for certified costs of up to a maximum of R248 million (approximately $19.6 million) to complete the Masodi treatment plant. Ivanplats will purchase the treated wastewater at a reduced rate of R5 per thousand litres for the first 10 million litres per day to offset a portion of the initial capital contributed.

Ivanplats received its Integrated Water Use Licence in January 2019, which is valid for 30 years and enables the Platreef Project to make use of water as planned in the 2017 DFS.

Development of human resources and job skills

The Platreef Project's Social and Labour Plan (SLP), toward which it pledged a total of R160 million ($11 million) during the past five years, expires in November 2019. The approved plan included R67 million ($5 million) for the development of job skills among local residents and R88 million ($6 million) for local economic development projects. Consultation regarding the project's second SLP has commenced.

2. Kipushi Project
68%-owned by Ivanhoe Mines
Democratic Republic of Congo

The Kipushi copper-zinc-germanium-lead mine, in the Democratic Republic of Congo, is adjacent to the town of Kipushi and approximately 30 kilometres southwest of Lubumbashi. It is located on the Central African Copperbelt, approximately 250 kilometres southeast of the Kamoa-Kakula Project and less than one kilometre from the Zambian border. Ivanhoe acquired its 68% interest in the Kipushi Project in November 2011; the balance of 32% is held by the state-owned mining company, La Générale des Carrières et des Mines (Gécamines).

Health, safety and community development

At the end of Q2 2019, the Kipushi Project reached a total of 432,275 work hours free of lost-time injuries. It had been more than seven months since the last lost-time injury occurred at the Kipushi Project. Regrettably, a lost-time injury occurred at Kipushi in July 2019.

The Kipushi Project operates a potable-water station to supply the municipality with water. This includes power supply, disinfectant chemicals, routine maintenance, security and emergency repair of leaks to the primary reticulation. The Kipushi Project also installed and commissioned new overhead powerlines to the pump station. Other community development projects continued during Q2 2019 and included a new enrolment into the Kipushi women's literacy project, the continuation of the sewing training centre project and the upgrading of a school.

Installing Kipushi's new P2 winder.



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Refurbished overhead crane at Kipushi's 850-metre-level pump chamber.



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Pre-feasibility study for Kipushi completed in December 2017 and definitive feasibility study progressing

The Kipushi Project's PFS, announced by Ivanhoe Mines on December 13, 2017, anticipated annual production of an average of 381,000 tonnes of zinc concentrate over an 11-year, initial mine life at a total cash cost of approximately $0.48 per pound (lb) of zinc.

Highlights of the PFS, based on a long-term zinc price of $1.10/lb include:

  • After-tax net present value (NPV) at an 8% real discount rate of $683 million.

  • After-tax real internal rate of return (IRR) of 35.3%.

  • After-tax project payback period of 2.2 years.

  • Pre-production capital costs, including contingency, estimated at $337 million.

  • Existing surface and underground infrastructure allows for significantly lower capital costs than comparable greenfield development projects.

  • Life-of-mine average planned zinc concentrate production of 381,000 dry tonnes per annum, with a concentrate grade of 59% zinc, is expected to rank Kipushi, once in production, among the world's largest zinc mines.

All figures are on a 100%-project basis unless otherwise stated. Estimated life-of-mine average cash cost of $0.48/lb of zinc is expected to rank Kipushi, once in production, in the bottom quartile of the cash-cost curve for zinc producers internationally.

The project team continues to work towards the completion of the Kipushi Project's definitive feasibility study (DFS).

Geology and exploration

Geological work in Q1 2019 was focused on obtaining additional information required for the DFS, as well as planning the geological delineation-drilling and grade-control program for underground mine development. The design criteria for the delineation drilling will target areas along the edge of the Big Zinc, which presently are inaccessible from the historic workings. No new geological and exploration work was conducted during Q2 2019.

Project development and infrastructure

Significant progress has been made in modernizing the Kipushi Mine's underground infrastructure as part of preparations for the mine to resume commercial production, including upgrading a series of vertical mine shafts to various depths, with associated head frames, as well as underground mine excavations and infrastructure. A series of crosscuts and ventilation infrastructure still is in working condition and have been cleared of old materials and equipment to facilitate modern, mechanized mining. The underground infrastructure also includes a series of pumps to manage the mine's water levels, which now are easily maintained at the bottom of the mine.

Shaft 5 is eight metres in diameter and 1,240 metres deep. It now has been upgraded and re-commissioned. The main personnel and material winder has been upgraded and modernized to meet international industry standards and safety criteria. The Shaft 5 rock-hoisting winder now is fully operational with new rock skips, new head- and tail-ropes, and attachments installed. The two newly manufactured rock conveyances (skips) and the supporting frames (bridles) have been installed in the shaft to facilitate the hoisting of rock from the main ore and waste-storage silos feeding rock on the 1,200-metre level.

The main haulage way on the 1,150-metre level between the Big Zinc access decline and Shaft 5 rock load-out facilities has been resurfaced with concrete so the mine now can use modern, trackless, mobile machinery. A new truck-tipping bin, which feeds into the large-capacity rock crusher located directly below, has been installed on this level. The old winder at P2 Shaft has been removed and construction of the new foundation, assembly and installation of the new modern winder has been completed.

With the underground upgrading program nearing completion, the project's focus now will shift to upgrading Kipushi's surface infrastructure to handle and process Kipushi's high-grade zinc and copper resources.

Kabamba Ngoie, a Kipushi employee, constructing new walls for a community potable water pumping station that Kipushi is renovating as part of its community support program.



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3. Kamoa-Kakula Project
39.6%-owned by Ivanhoe Mines
Democratic Republic of Congo

The Kamoa-Kakula Project, a joint venture between Ivanhoe Mines and Zijin Mining, has been independently ranked as the world's fourth largest copper deposit by international mining consultant Wood Mackenzie, with adjacent prospective exploration areas within the Central African Copperbelt in the Democratic Republic of Congo, approximately 25 kilometres west of the town of Kolwezi and about 270 kilometres west of Lubumbashi.

Ivanhoe sold a 49.5% share interest in Kamoa Holding to Zijin Mining in December 2015 for an aggregate consideration of $412 million. In addition, Ivanhoe sold a 1% share interest in Kamoa Holding to privately-owned Crystal River for $8.32 million - which Crystal River will pay through a non-interest-bearing, 10-year promissory note. Since the conclusion of the Zijin transaction in December 2015, each shareholder has been required to fund expenditures at the Kamoa-Kakula Project in an amount equivalent to its proportionate shareholding interest in Kamoa Holding.

A 5%, non-dilutable interest in the Kamoa-Kakula Project was transferred to the DRC government on September 11, 2012 for no consideration, pursuant to the 2002 DRC mining code. Following the signing of an agreement with the DRC government in November 2016, in which an additional 15% interest in the Kamoa-Kakula Project was transferred to the DRC government, Ivanhoe and Zijin Mining now each hold an indirect 39.6% interest in the Kamoa-Kakula Project, Crystal River holds an indirect 0.8% interest and the DRC government holds a direct 20% interest. Kamoa Holding holds an 80% interest in the project.

Figure 2: Kamoa-Kakula mining licence, showing the Kamoa North Bonanza and Kamoa Far North zones, the new Kamoa Far North extension discovery on Ivanhoe's 100%-owned exploration licences, and the planned mines at Kakula and Kansoko.



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Kamoa-Kakula surpasses 15 million hours worked without a lost-time injury

The project achieved a significant milestone during June 2019 when it recorded a combined total of 15 million hours of work without a lost-time injury. By the end of Q2 2019, a total of 15,006,878 hours had been worked free of lost-time injuries. It has been more than seven years since the last lost-time injury occurred at the project. This outstanding achievement reflects the dedication to a safety-focused culture of the entire Kamoa-Kakula exploration and development teams.

In July, members of the Kamoa-Kakula Copper Project team celebrated 15 million lost-time-accident-free hours.



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PFS for Kakula and updated PEA for an expanded Kamoa-Kakula production rate of 18 Mtpa announced

On February 6, 2019, Ivanhoe announced the results from the Kakula 2019 PFS. The study assesses the potential development of the Kakula Deposit as a 6 Mtpa mining and processing complex. The Kakula mill would be constructed in two smaller phases of 3 Mtpa each as the mining operations ramp-up to full production of 6 Mtpa. The life-of-mine production scenario provides for 119.7 million tonnes to be mined at an average grade of 5.48% copper, producing 9.8 million tonnes of high-grade copper concentrate, containing approximately 12.4 billion pounds of copper. All figures are on a 100%-project basis unless otherwise stated.

On March 22, 2019, Ivanhoe filed an updated NI 43-101 technical report for the Kamoa-Kakula Copper Project covering the independent pre-feasibility studies for the development of the Kakula and Kansoko copper mines, and an updated, expanded preliminary economic assessment for the overall integrated development plan for the project. The report, titled "Kamoa-Kakula Integrated Development Plan 2019", is available on the company's website and under the company's SEDAR profile at www.sedar.com .

Highlights of the PFS, based on a consensus, long-term copper price of $3.10/lb include:

  • Very high-grade, stage-one production is projected to have a grade of 7.1% copper in the second year of production and an average grade of 6.4% copper over the initial 10 years of operations, resulting in estimated average annual copper production of 291,000 tonnes.

  • Annual copper production is estimated at 360,000 tonnes in year four.

  • Initial capital cost, including contingency, is estimated at $1.1 billion.

  • Average total cash cost of $1.11/lb of copper during the first 10 years, inclusive of royalties.

  • After-tax NPV, at an 8% discount rate, of $5.4 billion.

  • After-tax internal rate of return (IRR) of 46.9%, and a payback period of 2.6 years.

  • Kakula is expected to produce a very high-grade copper concentrate in excess of 55% copper, with extremely low arsenic levels.

Ivanhoe also announced an updated independent PEA for an expanded Kamoa-Kakula production rate of 18 Mtpa, supplied initially by a 6 Mtpa mine at Kakula, followed by two 6 Mtpa mines at Kansoko and Kakula West, and a world-scale direct-to-blister smelter.

In July, the reaming of Kakula's first ventilation shaft was completed. The 5.5-metre diameter shaft is the first of five ventilation shafts to be raise bored in Kakula's first phase of development.



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Highlights of the PEA, based on a consensus, long-term copper price of $3.10/lb include:

  • Very high-grade initial phase projected to have a grade of 7.1% copper in the second year of production and an average grade of 5.7% copper during the first 10 years of operations, resulting in estimated average annual copper production of 386,000 tonnes.

  • Recovered copper production is estimated at 740,000 tonnes in year 12, which would rank the Kamoa-Kakula Project as the second largest copper producer in the world.

  • Initial capital cost, including contingency, is $1.1 billion, with subsequent expansions at Kansoko, Kakula West, and other mining areas, as well as the smelter, to be funded by cash flows from the Kakula Mine.

  • Average total cash costs of $0.93/lb of copper during the first 10 years, including sulphuric acid credits.

  • After-tax NPV, at an 8% discount rate, of $10.0 billion.

  • After-tax IRR of 40.9% and a payback period of 2.9 years.

Figure 3: Kamoa-Kakula 18 Mtpa PEA long-term development plan.



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Figure by OreWin 2019.

Figure 4: Projected 18 Mtpa Kamoa-Kakula PEA production (year-12 peak copper production shown) compared to the world's projected top 20 producing mines in 2025 by paid copper production.



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Note: Kamoa-Kakula 2019 PEA production based on projected peak copper production (which occurs in year 12) of the 18 Mtpa alternative development option. Source: Wood Mackenzie (based on public disclosure, the Kakula 2019 PFS has not been reviewed by Wood Mackenzie).

/zigman2/quotes/207656050/delayed
CA : Canada: Toronto
$ 3.68
-0.04 -1.08%
Volume: 251,065
Feb. 20, 2020 4:00p
P/E Ratio
54.52
Dividend Yield
N/A
Market Cap
$4.45 billion
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