Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ivanhoe Mines Ltd (IVPAF, Financial) reported a record EBITDA of $547 million for Q2 2024, driven by increased production and higher copper prices.
- The company successfully commissioned the Phase 3 plant, boosting annualized copper production to approximately 600,000 tonnes.
- Ivanhoe Mines Ltd (IVPAF) maintained a low cash cost of $1.52 per pound of copper produced, close to the bottom of their guidance.
- The company has secured additional power supply from Zambia, improving operational stability and supporting future growth.
- Ivanhoe Mines Ltd (IVPAF) announced its first dividend distribution, amounting to $98 million, with 20% payable to the DRC government.
Negative Points
- The company recorded a fatality in Q2 2024 due to a breach in safety protocol, highlighting ongoing safety challenges.
- Kipushi concentrator faced operational challenges, struggling to achieve desired concentrate grades and stable production.
- Ivanhoe Mines Ltd (IVPAF) increased its capital guidance at Kamoa-Kakula by $300 million for Project 95, indicating higher-than-expected capital expenditures.
- The company deferred some Phase 2 spending at Platreef, potentially delaying future production increases.
- Ivanhoe Mines Ltd (IVPAF) continues to face power stability issues in the DRC, requiring significant investments in diesel generation and imported power solutions.
Q & A Highlights
Q: The first question I see paying a dividend for the first time. How should we look about the future dividend policy or expectation for run rate of cash returns going forward?
A: I'm happy to take that, Daniel. Yeah, I mean, we've got Kamoa-Kakula generating significant cash flows, but as we've seen with this Project 95, we continue to find ways to reinvest for a better return on capital and for ways, which we think are better for our shareholders than paying a dividend. We are still in growth phase, so depending on the plans for future expansions of maybe Phase 4 at Kamoa, we would have to look at dividend policy subsequent to that decision being made.
Q: So in the interim, should we just look at it as an ad-hoc basis for dividends?
A: Yeah, I think that would be right. However, I think once the dividend flow commences, we should be able to continue with a steady stream thereof.
Q: On the smelter, your schedule to be complete by the end of the year and then ramping up into next year, can you give us any sense of two things? The working capital implications for the JV during the ramp up of the smelter, how much working capital will you build and then release? And what's the sort of timeline expected before you hit steady state capacity at the smelter?
A: I can do a bit of that one. And Steve maybe want to --
A: Yes, I can chip in as well, Mark. So working capital is probably, if you want a number, it's going to be around $100 million, $70 million to $100 million. A lot of that is basically, strategic spares, first fills, and a lot of it's to make sure that you battle. When you do commissioning, you've got enough of everything to get going. So that's more or less basically been happening in the background. That's one. And then to ramp up a big smelter like that, Steven. six months a year.
A: No, Mark, I'd say, I mean, yes, to ramp up to maybe 80% six months, but I would say a year to get to sort of city state production. We're going to stockpile about 70,000 tonnes of con ahead of the commissioning of the smelter. Sort of nice, sweet stuff, so that we can make our lives easy and then sort of work our way through that as we go.
Q: Slightly more strategic question with respect to the Platreef. We're seeing Anglo American intention to separate plats. Have you looked at a combination of the Platreef and Mogalakwena or some other ownership combination at some point in the future?
A: Difficult one to answer on a public platform, but I think we are keeping all our [windows] open. And obviously, we do get approached with a lot of ideas and synergies between ourselves and Anglo. I would never say never. I think there could be a lot of synergies between the two companies and it's something that we're not necessarily close to but not necessarily actively pursuing as well.
Q: Just a quick question on C1 cash costs and the success in keeping them near the lower end of the guidance. If you could just talk a little bit about what's allowed us to keep cash costs so well controlled and also how you see those costs moving in the next, let's say, 12 months or so?
A: Happy to, Matt. I think key during this quarter has been the increased production. I think, I would also note that grade is key. Yes, our cash cost has increased quite a bit from where it was in the second quarter of 2023. But in terms of cash costs on a grade equivalent basis, it's actually very close, especially if you discount the differential caused by power outages. So keys being power for us, we do expect probably a slight increase in the latter parts of the year because of the fact that Phase 3 and the Phase 3 concentrator would run at a slightly higher cash cost because of the grade factor and because that grade coming from Kamoa 1 and Kamoa 2 will be slightly lower than coming from Kakula. But, yeah, definitely proud of what the team has achieved so far.
Q: Mark mentioned Western Forelands. So Alex, Marna, or Robert can chime in here, but Mark mentioned the next set of mines. And the question involves what are next steps following the completion of the 70,000 meters this year? And how do you see sort of milestones for the Makoko West region over the next year or so?
A: If I can just answer the short-term things, we're drilling. So we've got this drilling program going, we've got desktop studies running. But I think we need a bit more time because we're defining a fantastic ore body there. We're trying to link shallow and deep, and then it will be a footprint that we create. But we need to do the drilling to define the ore body a bit better. I'm not sure if -- Robert will want to comment. I'm sure. But I think what we're finding is very exciting. It needs to be linked and then we will design, and like we've been doing with all the other phases, we'll do something similar.
Q: It seems like you're now moving from having issues with power to moving at this strength where you have the optionality to address all this, just in terms of how you guys project Phase 3 ramping up and the smelter coming on and your trajectory call it over the next 18 months, does the imported power plus backup power ever get kind of tight? Or is this really the end of discussions about power constraints and operations?
A: Yeah. Thanks, Andrew. So I mean, two years ago we made the decision to add the diesel generation capacity, which basically the 220 megawatts, so that if anything does happen on the SNEL network or any conditions, we can run the three concentrators and the mine. So that's the fallback position. I've explained that before. In the meantime, we've done proper, deep, accurate studies on the SNEL network. We've identified issues or constraints that need to be resolved. We've extended our loan. So basically, the funding mechanism to improve, make the improvements on the network, and then also to get it repaid over time, that loan has been extended to about $450 million now. So I think we've identified all the big stuff on their network. And once that's resolved, you'll have a stable SNEL network. In addition to that and in order to grow, we've started to look at importing power from different countries. So today, for example, I'm actually in Angola. Angola sits with 2,000 meg
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
