Ivanhoe shares rise on positive Platreef PEA

POSTED ON March 26, 2014 BY Tommy Humphreys
CATEGORY Commodities, Ivanhoe Mines, Robert Friedland, South Africa,

Figure 3: Net total cash cost (2013 mines in production and selected projects), US$/3PE+Au oz.

Ivanhoe Mines published a positive Preliminary Economic Assessment (PEA) for the Platreef project in the Northern Limb of the Bushveld Complex in the South African province of Limpopo. The Platreef mine is projected to be the lowest cost producer of platinum-group metals in Africa, home to over 70% of the world's production.

Key features of the 8 million tonnes/year base-case scenario include:

Base-case annual production target of 785,000 ounces of platinum, palladium, rhodium and gold. (At an expanded operating scenario of 12 million tonnes per year, the annual production target would be 1.1 million ounces of platinum, palladium, rhodium and gold (3PE+Au)).
Platreef, with the highest concentration of base metals among Africa's platinum-group metals producers, would rank at the bottom of the cash-cost curve, at an estimated US$341 per ounce of 3PE+Au, net of by-products.
Estimated pre-production capital requirement of approximately US$1.7 billion, including US$381 million in contingencies.
After-tax Net Present Value of US$1.6 billion, at an 8% discount rate.
After-tax internal rate of return of 14.3%.

At first glance it looks like a conservative PEA - I like the 8% discount rate. Ivanhoe stock (TSX:IVN) is up 3% at press time on the news, last at $1.78. When considering the IRR, it's important to remember Platreef will likely be in operation for 40+ years, maybe even a hundred years or more as the deposit is open to the south, and recent drilling suggests the mineralization continues. Large mining investors want long life assets because the operations get more efficient over time, and expansions can be timed around a rise in commodity prices. To quote Teck Resources CEO Don Lindsay, "[Mining is] a cyclical business, and you know that you’re going to get all of your money back in 2 or 3 good years. What you don’t know is when those 2 or 3 good years are going to be. However, if you have 50 years, you’re going to have those 2 or 3 good years 5 or 6 times.”

Here's the full news release: Ivanhoe Mines releases positive independent preliminary economic assessment of its Platreef platinum-group elements, nickel, copper and gold project in South Afric

Disclosure: I own Ivanhoe stock and am biased. Always do your own due diligence.

Tommy Humphreys

Tommy Humphreys, 30, is an entrepreneur, investor and writer from Vancouver, Canada. He founded CEO.CA, a popular junior mining and Canadian finance blog, in 2012. He has been the president of Pacific Website Company Inc., a private marketing and web development company, since 2007. Tommy has authored articles for Globe and Mail, Financial Post and others. He speaks at select conferences. Reach him by email: tommy@ceo.ca. Follow him on Twitter: @TommyHump More →

Twitter: @tommyhump

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Tommy Humphreys

Twitter: @tommyhump

tommyhump@gmail.com

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