Ivanhoe’s Review of Kamoa-Kakula Mine Construction and Exploration Activities

Ivanhoe Mines (TSX: IVN) (OTCQX: IVPAF) today the 8th March 2022 announced its financial results for the year ended December 31, 2021. Ivanhoe Mines is a leading Canadian mining company developing and expanding its four principal mining and exploration projects in Southern Africa: the Kamoa-Kakula copper mining complex in the Democratic Republic of Congo (DRC) that began commercial operations in July 2021; the Platreef palladium, rhodium, nickel, platinum, copper and gold discovery in South Africa; the historic Kipushi zinc-copper-lead-germanium mine in the DRC; and the expansive exploration program for new copper discoveries on Ivanhoe’s Western Foreland exploration licences, near Kamoa-Kakula. All figures are in U.S. dollars unless otherwise stated.

HIGHLIGHTS

• Ivanhoe Mines recorded a profit of $48.2 million for Q4 2021, compared to a loss of $10.9 million for the same period in 2020. Ivanhoe Mines’ share of profit from the Kamoa-Kakula copper joint venture (Kamoa Holding) and finance income of $103.9 million were the principal contributors to the profit recorded in the fourth quarter.
• The Kamoa-Kakula Mining Complex produced 54,481 tonnes of copper in concentrate in Q4 2021, compared to 41,545 tonnes produced in Q3 2021.
• Kamoa-Kakula produced a total of 105,884 tonnes of copper in concentrate in 2021, significantly exceeding the initial 2021 production guidance range of 80,000 to 95,000 tonnes, as well as the increased guidance of 92,500 to 100,000 tonnes for 2021.
• Kamoa-Kakula’s copper recoveries increased from an average of 81% in July 2021 to a record of 88.5% in December 2021. The Phase 1, steady-state-design copper recovery is approximately 86%, depending on ore feed grade.
• During Q4 2021, Kamoa-Kakula sold 53,165 tonnes of payable copper and recognized revenue of $488.5 million, with operating profit of $198.9 million and EBITDA of $357.6 million.
• Kamoa-Kakula’s cost of sales per pound (lb) of payable copper sold was $1.12/lb for Q4 2021, while cash costs (C1) per pound of payable copper produced totalled $1.28/lb; compared to $1.08/lb and $1.37/lb in Q3 2021, respectively. Cash costs are expected to continue to trend down as the Phase 2 concentrator plant is commissioned and the mine’s fixed operating costs are spread over increased copper production.
• Kamoa-Kakula’s Phase 2 concentrator plant is on track to begin operations in April 2022, which will see a doubling of Kamoa-Kakula’s nameplate milling capacity throughput to 7.6 million tonnes of ore per annum (Mtpa).
• A de-bottlenecking program is underway to expand processing capacity of the Phase 1 and Phase 2 concentrators by 21%, to a combined total of 9.2 million tonnes of ore per year. The de-bottlenecking program is projected to boost copper production from Kamoa-Kakula’s first two phases to more than 450,000 tonnes per year by Q2 2023, positioning Kamoa-Kakula as the world’s fourth largest copper producer.
• Ivanhoe Mines has a strong balance sheet with cash and cash equivalents of $608.2 million as at December 31, 2021, and expects that the majority of Kamoa-Kakula’s expansion capital expenditures on Phase 2 and Phase 3 will be funded from copper sales and project facilities already in place. Based on current market conditions, it is expected that Ivanhoe Mines will start to receive shareholder loan repayments from Kamoa-Kakula in 2022.
• During Q4 2021, Ivanhoe continued its copper exploration program on its Western Foreland licences that cover approximately 2,550 square kilometres in close proximity to Kamoa-Kakula. An extensive drilling program is planned for 2022, commencing with the onset of the dry season in the DRC, which will build upon Ivanhoe Mines’ 2021 work program that was focused on airborne and ground-based geophysics, soil sampling and road construction.
• Exploration models that successfully led to the discoveries of Kakula, Kakula West, and the Kamoa North Bonanza Zone on the Kamoa-Kakula joint-venture mining licence are being applied to the extensive Western Foreland land package by the team of exploration geologists responsible for the previous discoveries.
• In December 2021, the Platreef Project secured a $200-million gold stream financing and additional $100-million palladium and platinum stream financing, with the first prepayment of $75 million received in December 2021.
• In February 2022, Ivanhoe Mines announced the outstanding results of a new independent feasibility study for the Platreef Project that builds on the alternate scenario to expedite production, based on a steady-state production rate of 5.2 Mtpa, confirming the viability of a new phased-development pathway to fast-track Platreef into production in Q3 2024.
• Platreef feasibility study’s sensitivity analysis at current metal prices of approximately $1,121/oz platinum, $2,979/oz palladium, $22,200/oz rhodium, $1,995/oz gold, $4.84/lb copper and $13.12/lb nickel (March 7, 2022), results in an after-tax NPV8% of $5.1 billion with an after-tax real IRR of 33%.
• In February 2022, Ivanhoe Mines and Gécamines signed a new agreement to return the ultra-high-grade Kipushi Mine back to commercial production.
• In February 2022, Ivanhoe Mines announced the positive findings of an independent feasibility study for the planned resumption of commercial production at Kipushi based on a two-year construction timeline. Kipushi feasibility study’s sensitivity analysis at current zinc prices of approximately $1.84/lb (March 7, 2022), results in an after-tax NPV8% of $3.0 billion with an after-tax real IRR of 86%.
• At the end of 2021, Kamoa-Kakula had reached 2.7 million work hours free of a lost-time injury, Kipushi had reached approximately 4.0 million work hours free of a lost-time injury, and Platreef had reached 677,450 work hours free of a lost-time injury.

Principal projects and review of activities

1. Kamoa-Kakula Mining Complex
39.6%-owned by Ivanhoe Mines
Democratic Republic of Congo

The Kamoa-Kakula Mining Complex, 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. The project is approximately 25 kilometres west of the town of Kolwezi and about 270 kilometres west of Lubumbashi. Kamoa-Kakula began producing copper in May 2021 and achieved commercial production on July 1, 2021.

Ivanhoe sold a 49.5% share interest in Kamoa Holding Limited (Kamoa Holding) to Zijin Mining and a 1% share interest in Kamoa Holding to privately owned Crystal River in December 2015. Kamoa Holding holds an 80% interest in the project. Since the conclusion of the Zijin transaction, each shareholder has been required to fund expenditures at Kamoa-Kakula in an amount equivalent to its proportionate shareholding interest. Ivanhoe and Zijin Mining each hold an indirect 39.6% interest in the Kamoa-Kakula Mining Complex, Crystal River holds an indirect 0.8% interest and the DRC government holds a direct 20% interest.

Kamoa-Kakula’s Phase 1 and Phase 2 concentrator plants at dusk.

Health and safety at Kamoa-Kakula

At the end of December 2021, Kamoa-Kakula reached 2,696,794 work hours free of a lost-time injury. One lost-time injury occurred in Q4 2021. The project continues to strive toward its workplace objective of zero harm to all employees and contractors.

Kamoa-Kakula has successfully focused on prevention, preparation, and mitigation in managing the risks associated with COVID-19. Large-scale testing, combined with focused preventative measures, ensured that positive cases were quickly identified, isolated, and treated, with cross contamination kept to a minimum. Kamoa-Kakula also continues to focus intensively on rolling out vaccinations across the workforce and local communities. Maintaining this high standard of risk management remains a daily focus, to prevent future cases. More than two thousand employees have at minimum received their first dose of the vaccine.

The Kamoa Hospital continues to treat COVID-19 patients when required, as construction progresses well for the expansion and upgrade of the primary healthcare wing. Kamoa-Kakula’s highly experienced doctors and nurses apply the latest medical treatments, supported by a world-leading emergency response and paramedic team.

As the pandemic evolves, the medical team at the Kamoa Hospital continues to review and update risk-mitigation protocols, while ensuring that new medical advances are investigated and applied to protect the health and safety of employees and community members.

The new Kamoa Hospital is a world-class medical facility featuring state-of-the-art equipment and highly-experienced doctors, nurses and paramedics.

John Botomwito, Kamoa Copper’s Superintendent of Health, in the ICU ward of the new hospital.

Kamoa-Kakula summary of operating and financial data

		Q4 2021			Q3 2021
Ore tonnes milled (000’s tonnes)		1,059			861
Copper ore grade processed (%)		5.96%			5.89%
Copper recovery (%)		86.40%			83.40%
Copper in concentrate produced (tonnes)		54,481			41,545
Payable Copper sold (tonnes)		53,165			41,490
Sales revenue ($’000)		488,536			342,584
Cost of sales per pound ($ per lb)		1.12			1.08
Cash cost (C1) ($ per lb)		1.28			1.37
EBITDA ($’000)		357,619			233,212

Prior to the start of commercial production on July 1, 2021, 9,858 tonnes of copper in concentrate was produced in Q2 2021, bringing the total tonnes produced for the year ending December 31, 2021, to 105,884.

C1 cash costs are prepared on a basis consistent with the industry standard definitions by Wood Mackenzie cost guidelines, but are not measures recognized under IFRS. In calculating the C1 cash cost, the costs are measured on the same basis as the company’s share of profit from the Kamoa Holding joint venture that is contained in the financial statements. C1 cash costs are used by management to evaluate operating performance and include all direct mining, processing, and general and administrative costs. Smelter charges and freight deductions on sales to final port of destination, which are recognized as a component of sales revenues, are added to C1 cash cost to arrive at an approximate cost of delivered, finished metal. C1 cash costs exclude royalties and production taxes and non-routine charges as they are not direct production costs.

C1 cash cost per pound of payable copper produced can be further broken down as follows:

			Q4 2021			Q3 2021
Mining	($ per lb)		0.27			0.36
Processing	($ per lb)		0.17			0.16
Logistics charges (delivered to China)	($ per lb)		0.37			0.35
Treatment, refining and smelter charges	($ per lb)		0.24			0.21
General and administrative expenditure	($ per lb)		0.23			0.29
C1 cash cost per pound of payable copper produced	($ per lb)		1.28			1.37

All figures in the above tables are on a 100%-project basis. Metal reported in concentrate is prior to refining losses or deductions associated with smelter terms.

Copper concentrate production from the initial 3.8-Mtpa Kakula concentrator plant commenced in May 2021; commercial production achieved on July 1, 2021

First ore was introduced into the Phase 1, 3.8-Mtpa concentrator on May 20, 2021, and the first saleable concentrate was filtered on May 25, 2021, marking the start of concentrate production of the project’s Phase 1 concentrator plant and associated facilities.

The Kamoa-Kakula Mining Complex was deemed to have reached commercial production on July 1, 2021, after achieving a milling rate exceeding 80% of design capacity and recoveries close to 70% for a continuous, seven-day period. Revenue recognition, as well as depreciation of Kamoa-Kakula’s Phase 1 concentrator plant and milling operation, commenced on this date.

Copper recoveries progressively increased from an average of approximately 81% in July 2021 to approximately 85% in September 2021. Copper flotation recoveries averaged approximately 86% in Q4 2022 and achieved a record 88.5% in December 2021. The Phase 1, steady-state-design copper recovery is approximately 86%, depending on ore feed grade.

The Phase 1 concentrator currently is running at a throughput that is in excess of its design capacity of 3.8 Mtpa by more than 15%, with 117% of design throughput achieved in December.

54,481 tonnes of copper in concentrate were produced in Q4 2021, up from 41,545 in Q3 2021, for a total of 105,884 tonnes for the year ending December 31, 2021, for delivery to either the Lualaba Copper Smelter near Kolwezi, or to international markets.

Spot price of copper (US$/lb) over the last 12 months.

The Phase 2 high-pressure-grinding-rolls (HPGR) stockpile feed conveyor (on the right) began commissioning in February 2022. The Phase 1 HPGR feed conveyor and stockpile are on the left.

One of Kamoa-Kakula’s talented Congolese mining crews at the entrance to the Kakula Mine’s northern decline.

Project completion of Kamoa-Kakula’s Phase 2 processing plant almost complete; Phase 3 engineering studies and early works advancing well

Construction of Kamoa-Kakula’s Phase 2, 3.8-Mtpa concentrator plant almost is complete with early stage commissioning activities now underway. Hot commissioning of the concentrator with first ore and initial copper concentrate production are both on track for April 2022.

Engineering and early works for the Phase 3 expansion, including a new box cut and twin declines to access new mining areas, are progressing quickly. The third, significantly larger concentrator is being designed and is expected to be commissioned in Q4 2024. Phase 3 is expected to be fed from a combination of the established mine at Kansoko Sud, together with the new mines at Kamoa 1 and Kamoa 2. An updated pre-feasibility study, including the Phase 3 expansion, is expected in Q3 2022.

After successfully operating the Phase 1 concentrator for more than eight months, the Kamoa-Kakula team identified a number of relatively minor modifications that are expected to increase ore throughput from the current design of 475 tonnes per hour to 580 tonnes per hour. These modifications include increasing the diameter of a number of pipes, replacing a number of motors and pumps with larger ones and installing additional flotation, concentrate-thickening, concentrate-filtration and tailings-disposal capacity.

These modifications will allow the team to consistently operate the concentrator plant at the increased throughput without compromising plant availability, copper recovery or copper concentrate grade. Engineering design is underway and procurement of long-lead items already has started. This de-bottlenecking project is expected to cost approximately $50 million and will increase Kamoa-Kakula’s combined processing capacity to 9.2 Mtpa by Q2 2023.

Riaan Vermeulen, Kamoa Copper’s incoming Managing Director (middle-left) and Mark Farren, Kamoa Copper’s CEO (middle-right), with members of Zijin Mining’s senior management team during a recent Zijin site visit.

Members of Kamoa-Kakula’s diverse, multi-national team that has delivered the first two phases ahead of schedule, inside one of the new Phase 2 ball mills.

Excellent progress is being made on the excavation of Kamoa-Kakula’s new box cut that will provide access to the Kamoa 1 and Kamoa 2 mines, part of the project’s Phase 3 expansion.

Kamoa-Kakula smelter basic engineering underway

Early works on the planned direct-to-blister flash smelter at Kamoa-Kakula adjacent to the Phase 1 and Phase 2 concentrator plants is underway. The smelter is designed to use technology supplied by Outotec Oyj of Helsinki, Finland, and has been sized to process the bulk of the copper concentrate forecast to be produced by the Phase 1, 2 and 3 concentrator plants, with a production capacity of 500,000 tonnes per annum of blister copper.

China Nerin Engineering Company Co., Ltd. has been appointed to carry out the basic engineering design and develop a control budget estimate for the smelter; work is progressing well.

Ore stockpiles now hold more than 4.6 million tonnes grading 4.58% copper, containing more than 212,000 tonnes of copper at the end of February 2022

Kamoa-Kakula’s total high- and medium-grade ore surface stockpiles totalled approximately 4.65 million tonnes at an estimated grade of 4.58% copper as of the end of February 2022. The operation mined 1.70 million tonnes of ore grading 5.44% copper in Q4 2021, which was comprised of 1.52 million tonnes grading 5.60% copper from the Kakula Mine, including 0.81 million tonnes grading 6.68% copper from the mine’s high-grade centre, and 0.18 million tonnes grading 4.05% copper from the Kansoko Mine.

Kamoa-Kakula’s Phase 1 and Phase 2 concentrator plants and the ore stockpiles at the Kakula Mine’s northern decline. The direct-to-blister flash smelter is being constructed adjacent to the Phase 1 and Phase 2 concentrator plants.

Kamoa-Kakula delivering Phase 1 blister copper and copper concentrate under off-take agreements

Kamoa Copper’s off-take agreements are with CITIC Metal (HK) Limited (CITIC Metal) and Gold Mountains (H.K.) International Mining Company Limited, a subsidiary of Zijin, for 50% each of the copper products from Kamoa-Kakula’s Phase 1 production. The off-take agreements are evergreen for the production volumes from Phase 1, including copper concentrate and blister copper resulting from processing of copper concentrates at the nearby Lualaba Copper Smelter.

CITIC Metal and Zijin are purchasing the copper concentrate at the Kakula Mine and the blister copper at the Lualaba Copper Smelter on a free-carrier basis, meaning the buyers are responsible for arranging freight and shipment to the final destination, initially via the port of Durban, South Africa.

Kamoa-Kakula delivered its first bulk copper concentrates to the Lualaba Copper Smelter on June 1, 2021. The smelter is expected to treat up to 150,000 wet metric tonnes of copper concentrates from Kamoa-Kakula annually. Kamoa-Kakula began exporting its copper concentrate internationally in July 2021. The first truckloads of copper concentrate destined for smelters outside of the DRC departed from the mine site on July 17, 2021.

Mwadingusha hydropower plant fully operational and providing 78 MW of clean electricity for Kamoa-Kakula’s phases 1 and 2; focus now shifted to upgrading turbine 5 at the Inga II hydropower plant to provide power for expansions

All six new turbines at the Mwadingusha hydropower plant were synchronized to the national electrical grid in August 2021, with each generating unit producing approximately 13 megawatts (MW) of power, for a combined output of approximately 78 MW.

In August 2021, Kamoa-Kakula’s energy company signed an extension of the existing financing agreement with La Société Nationale d’Electricité (SNEL) to upgrade turbine 5 at the Inga II hydropower complex. Since June 2021, rehabilitation scoping works and technical visits have been conducted by Stucky Ltd. of Renens, Switzerland, and Voith Hydro of Heidenheim, Germany, a leading engineering group. Voith Hydro, the contractor for upgrading turbine 5, has successfully rehabilitated two turbine generators at the adjoining Inga I hydropower plant, a project that was financed by the World Bank.

Turbine 5 is expected to produce 162 MW of renewable hydropower, providing the Kamoa-Kakula Copper Complex and the planned, associated smelter with abundant, sustainable electricity for future expansions.

Kamoa-Kakula aiming to be first net-zero carbon emitter among top-tier copper mines by electrifying mining fleet with state-of-the-art equipment powered by electric batteries or hydrogen fuel cells

In May 2021, Ivanhoe Mines announced its pledge to achieve net-zero operational greenhouse gas emissions (Scope 1 and 2) at the industry-leading Kamoa-Kakula Copper Mine.

In support of the Paris Agreement on climate change, and in the spirit of the commitments at the April 2021 Leaders Summit on Climate by the Chinese and American governments to sharply cut emissions, Ivanhoe Mines has committed to working with its joint-venture partners and leading underground mining equipment manufacturers to ensure that Kamoa-Kakula becomes the first net-zero operational carbon emitter among the world’s top-tier copper producers.

Since the Kamoa-Kakula mines and concentrator plants are powered by clean, renewable hydro-generated electricity, the focus of the company’s net-zero commitment will be on electrifying the project’s mining fleet with new, state-of-the-art equipment powered by electric batteries or hydrogen fuel cells.

Kamoa-Kakula is working closely with its mining equipment suppliers to decrease the use of fossil fuels in its mining fleet, and evaluate the viability, safety and performance of new electric, hydrogen and hybrid technologies. The mine plans to introduce them into its mining fleet as soon as they become commercially available.

Empowering local communities through sustainable development

Ivanhoe Mines founded the Sustainable Livelihoods Program in 2010 to strengthen food security and farming capacity in the host communities near Kamoa-Kakula by establishing an agricultural demonstration garden to support local farmers.

Today, approximately 900 community farmers are benefiting from the Sustainable Livelihoods Program, producing high-quality food for their families and selling the surplus for additional income. The Sustainable Livelihoods Program, which commenced with maize and other vegetable production, now includes fruit, aquaculture, poultry and honey.

Farmer Omba Gertrude Muwana (left) and Benoit Mujinga, Kamoa Copper’s Sustainability Agronomist, at one of the community gardens and fish-farming operations near Kamoa-Kakula.

Construction of 100 new fishponds is complete, bringing the total number of fishponds to 138. The project will significantly contribute toward local entrepreneurship and enhanced regional food security. A group of community participants took part in, and graduated as facilitators for, an adult literacy training program.

Newly constructed fish ponds near Kamoa-Kakula.

Additional non-farming-related activities continued during Q4 2021 and include education programs, enterprise and supplier development programs, and the supply of fresh water to a number of local communities using solar-powered boreholes. The planned community borehole project was completed, with all 35 boreholes drilled using local contractors, providing approximately 12,000 community members with easy access to clean water.

Construction, landscaping and equipping of the Kaponda Primary School was completed, thereby achieving another milestone in the ambition to advance the objectives set out in the United Nations Sustainable Development Goals. Local community enterprise programs continued including brick-making and sewing, which are planned for project expansion in 2022, as well as landscaping and gardening, which may be reviewed for business efficiency and continued growth.

Construction of resettlement houses for the relocation program is continuing as planned. To date, 129 homes have been relocated, with five households remaining. The remaining families are scheduled for relocation upon completion of the construction of their new homes. Construction of the community church at Kaponda was completed and the new church was officially handed over to the community. The livelihood restoration program focused on the distribution of 758 chickens for all project-affected people, as well as three goats each to all 45 beneficiaries. Additional livelihood restoration efforts included planting of 3,600 orange seedlings to cover nine hectares, 1,000 grafted avocados across 10 hectares and approximately 54 hectares of cassava.

COPPER PRODUCTION GUIDANCE FOR 2022

The Kamoa-Kakula joint venture produced a total of 105,884 tonnes of copper in concentrate for the year ending December 31, 2021. The figures are on a 100%-project basis and metal reported in concentrate is prior to refining losses or deductions associated with smelter terms.

Guidance for 2022 is based on a number of assumptions and estimates as of December 31, 2021, including among other things, assumptions about the timing of the Phase 2 expansion and anticipated costs and expenditures. Production and cost guidance assumes the Phase 2 concentrator plant will commence copper production in Q2 2022 and that ramp-up will be in line with what was achieved with Phase 1. Guidance involves estimates of known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different.

Kamoa-Kakula 2022 Guidance
Contained copper in concentrate (tonnes)		290,000 to 340,000
Cash cost (C1) ($ per pound)		1.20 to 1.40

Cash costs (C1) per pound of payable copper was $1.37/lb for Q3 2021 and was $1.28/lb for Q4 2021, reflecting the measured ramp-up of production at Kamoa-Kakula to steady state, and is expected to trend downward as the Phase 2 concentrator plant is commissioned and the mine’s fixed operating costs are spread over increased copper production.

C1 cash cost is a non-GAAP measure used by management to evaluate operating performance and includes all direct mining, processing, and general and administrative costs. Smelter charges and freight deductions on sales to final port of destination (typically China), which are recognized as a component of sales revenues, are added to C1 cash cost to arrive at an approximate cost of delivered finished metal.

Cost of sales per pound of payable copper sold for Q4 2021 was $1.12/lb. For historical comparatives, see the Non-GAAP Financial Performance Measures section of this news release.