Ivanhoe Mines Ltd.

Thank you, operator. Hello, everyone.

My name is Matthew Keevil and I'm the Manager of Investor Relations for Ivanhoe Mines, dialing from Sunny Cape Town, South Africa. It is my pleasure to welcome you to Ivanhoe Mines' Q1 2022 financial results conference call.

We will finish today’s event with a question-and-answer session. You can submit a question using the Q&A box on the webcast page, as well as through the conference operator via your phone line.

Given our time constraints, it is unlikely that we will be able to answer every question. Our apologies if we run low on time, please follow-up with IR team with further questions.

Before we begin, I would like to remind everyone that today’s event will contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Details of the forward-looking statements are contained in our May 10th press release as well via SEDR and our website at www.ivanhoemines.com.

It is now my pleasure to present our Founder and Executive Co-Chairman, Robert Friedland for some opening remarks. Robert?

Thank you very much to all of our listeners. Most of your management is sitting in Cape Town, South Africa given large Indaba Conference there.

I'm going to be speaking tomorrow morning. We're very happy to present our first quarter 2022 financial results.

A lot of the numbers speak for themselves, but I'd like to offer a few comments. There are best numbers associated with the copper production of Ivanhoe Mines -- are associated with the fact that we produced less global one in gas per unit of copper produced than our competitors.

And that's the same reason why our cash costs are actually dropping for genetic reason simply, but we have those big yellow trucks and we're moving larger and larger volumes of rock in those big yellow trucks, particular to hydrocarbon. When hydrocarbon goes up, through the war or any other eventuality, there's no way around it, your costs have to go up.

Kamoa-Kakula is buying power essentially by hydroelectricity and within two years, our electric fleet, there'll be no exposure to hydrocarbon at all. So, we have a very, very good business at $4 a pound copper, lower than we're trading today.

And we have an extremely good business to get $3 copper occupied the bottom of the world's cost curve. We believe as our production continues to grow dramatically, we'll be amortizing an ever larger productive base against fixed overheads and when our green smelter comes in production late in 2024, cash costs will drop even further.

So, I want to thank the thousands of people that have worked so hard to make this a sustainable and different mining operation and given exceptional circumstances, having nothing to do with us, there's a sale on now with [indiscernible]. So, we're going to present our management team and our numbers.

We'll put this over to questions, I'm [email protected] if anybody would like to e-mail me directly. And with that, let's go on to the next stage of the call.

Thank you.

Thank you, Robert. Good afternoon and good morning, everyone from Katanga at Mining Indaba.

If we can move to the next slide, we are very pleased to announce another excellent quarter in our trajectory to become one of the largest copper producers in the world. Kamoa-Kakula never fails to impress.

And in April this year, our Phase 2 plant achieved commercial production, again, ahead of the original schedule and even more seamless than anticipated. The combined annualized production from the first and second front will be 450,000 tonnes, also the completion of our debottlenecking project, which we announced earlier this year, and we anticipate to complete this in the first quarter of 2023.

We are firmly on track to reach the upper end of our 2022 guidance of 340,000 tonnes of copper and concentrate. Our Phase 3 expansion, we will further increase copper production to 600,000 tonnes of copper with the addition of a 5 million tonne per annum plant adjacent to the two new mines, which we will develop at Kamoa 1 and Kamoa 2.

This expansion will be funded from cash flows from Phase 3, our plants and mines and smelter, and that's anticipated to be completed by the fourth quarter of 2024. I will now go to the next slide.

And before we go through our financial results, let's just pause for a minute and reflect on our ESG credentials. On the 2nd of May this year, we published our fifth annual sustainability report, highlighting the significant work we do from an environmental, social and governance perspective.

As I mentioned in our previous earnings call, we are firm believers in stakeholder capitalism. And to-date, our group has created and distributed more than $1.1 billion in national value.

From 2020, as our activities ramped up at Kamoa-Kakula, this national value has increased to 43%, and it will continue to do so as we develop and expand our Tier 1 assets. We currently employ over 12,000 people, of which 97% is local, and we actively set our targets to increase that percentage even further and employ more women across our operations.

We have held in excess of 10,000 stakeholder meetings in the 2021 financial year, keeping our communities and host governments informed and addressing queries they may have. As a company, we strive to be a net zero carbon emitter, and that Kamoa-Kakula our high-grade underground hydropowered mine is well-placed to be an industry leader.

I will now hand over to our CFO, David van Heerden to take you through our quarterly financial results.

Thank you, Marna, and good day to everyone joining the call. As Robert and Marna mentioned, the first quarter of 2022 was another quarter of exceptional operational performance of Kamoa-Kakula.

And with commercial production of Phase 2 concentrator achieved on April 7 and the debottlenecking well underway. We are confident that the impressive trends will continue going forward.

But for now, I'm happy to summarize the financial results for the quarter. This call is, of course, just a high-level summary of our quarterly results and the presentation should be viewed in conjunction with our quarterly financial statements and MD&A for the period ended March 31, 2022.

Kamoa-Kakula sold almost 52,000 tonnes of payable copper in concentrate during the quarter leading to a record quarterly revenue of $520 million, up from $489 million in the last quarter of 2021. Higher average prices in the first quarter and the remeasurement of contract receivables at – as at March 31 resulted in the increased revenue for the quarter.

C1 cash cost continued its downward trend and was $1.21 per pound of favorable copper delivered to China for the first quarter of 2022, but non-cash costs on a later slide. Kamoa-Kakula’s EBITDA for the first quarter was $399 million, and increased by an impressive 12% when compared to Q4 2021, driven by the increase in revenue and the decrease in cost per pound.

If we move to the next slide, and the slide illustrates how the just mentioned highlights, combined for the Kamoa Holding joint ventures profit and how it will ultimately translate into Ivanhoe share of the profit attributable to the joint venture partners. The revenue of 520 million in Q1 2022 includes the remeasurement of contract receivables of $52 million, which represents the effective mark-to-market of provisional sales at the period ending copper price.

Kamoa-Kakula’s cost of sales for Q1 was $123 million in total and $1.08 per pound of favorable copper sold, while cash costs were down of payable copper reduced totaled $1.21 per pound, after deducting G&A, the operating profit for the first quarter of the year was $380 million and Kamoa-Kakula’s EBITDA, as I mentioned, $399 million. Kamoa Holding reported finance costs of $55 million in the first quarter, and which is principally the interest in the shareholder loans from Ivanhoe infusion as well as interest on Kamoa-Kakula’s equipment financing facilities.

Of the $110 million tax expense, $105 million of deferred tax and does not represent a cash outflow due to the ability to offset the acceleration. And certain development expenditure incurred from inception against taxable income over the first two years, five commercial production.

The remainder represents the minimum income taxes payable equal to 1% of revenue. The non-controlling interest of $45 million, represents the profit attributable to the DRC government's 20% interest in the Kamoa-Kakula mining complex, leaving profit of $176 million attributable to the joint ventures partners.

Ivanhoe share which equals $87 million for Q1 2022. If we move to the next slide, which highlights Ivanhoe’s consolidated Q1 financial highlights.

On the chart, on the deck starts with the last slide ended effectively showing Ivanhoe’s share. Additionally, Ivanhoe earned interest income of $28 million from Kamoa Holding in the first quarter for the shareholder loans advanced to the joint venture.

During the quarter, the company spent $9 million on the Kipushi project, $4 on the Western Foreland exploration and $6 million on general and administrative expenditure. Cost incurred at the Platreef project of the necessary to bring the project to commercial production and are therefore capitalized as development cost in property planting equipment.

Ivanhoe recognized finance cost of $7 million in Q4 relating to the interest on the convertible notes at the effective interest rate. The $66 million loss on the fair valuation of the financial liability in the first quarter represents the change and the deemed fair value of the conversion feature attached to the $575 million, 2.5% convertible senior notes, which Ivanhoe closed in March 2021.

The conversion feature is an embedded derivative financial liability and the fair value changes principally due to the fluctuations on our share price. And the loss is therefore resulting from the increase in Ivanhoe share price from end of December 2021 to the end of March 2022.

We have full mentioned items ultimately builds up to Ivanhoe’s profit for the 3 months ending at March 2022 of $20 million with a total profit before the loss of the fair value on the financial liability of $88 million for the first quarter. The next slide just breaks down the cash cost of Kamoa-Kakula.

The cash cost per pound of payable copper produced for delivery to China continued with its downward trend and was $1.21 per pound in the first quarter and that’s down from $1.28 from Q4 2021 and $1.37 was down in Q3 2021. The decrease mainly resulted from the mines fixed operating cost being spread over increased production and it's extremely impotent to see Kamoa-Kakula already at the bottom of our cash cost guidance between Q2 of between $1.20 and $1.40 per pound of payable copper produced.

As Phase 2 is ramped up in the second quarter, we might see a cash flow slightly higher, but only slightly, but if that's expected. But I'm excited to see what is achieved in Q3 onwards with the possibility of breaking below the bottom range of our cash cost.

We remain optimistic with what the year holds because of the increased copper production from the Phase 2 concentrator and decreasing what we'll be giving the possibility to increase cash flows further. Cash costs is of course, a non-GAAP measure and the reconciliation from cash cost to cost of sales to cash cost is provided on page 40 of our MD&A.

Next slide, please. This slide just indicates we can articulate on the cash cost curve to highlight how exceptional project is.

It's very encouraging to be comfortably first quartile while still having significant further improvements planned. Next slide, please.

We have a strong balance sheet and are well-positioned for further development of our project with $562 million in cash and cash equivalence on hand and consolidated working capital of $650 million, other liabilities of $922, $752 relate to the 2.5% convertible notes with these only due in 2026 with possible earlier redemption. Our full cost spend for 2022 is $386 million on Platreef, Kipushi, continued exploration and overheads.

And ore operating and capital expansion costs at Kamoa-Kakula are expected to be funded from copper sales and facilities in place at Kamoa. We also expect to receive the second prepayment on Platreef streams later in the year, which will add $225 million to our cash position at that plant.

I now hand over to Alex Pickard, our Vice President, Corporate Development; and Marna to provide a brief update on the developments on our projects.

Thanks a lot, David, and good day to everybody who is on the line. I will now take you through the key results in terms of operations and projects at Kamoa-Kakula, and then I'll pass back to Marna to take you through Platreef and Kipushi and our closing remarks prior to the Q&A.

Next slide, please. So looking first at Kamoa-Kakula Phase 1, we achieved a record operating quarter during the first quarter, with 1.08 million tonnes milled at over 5.9% copper, which produced 55,600 tonnes of copper in concentrate.

We also achieved a recovery of 87%, which beats 86% from the previous quarter, which is also our design recovery. The Phase 2 concentrator was commissioned towards the end of the quarter and has achieved commercial production on April 7, which is around four months ahead of the original schedule.

Since then, the Phase 2 concentrator has been performing strongly, and we expect that before the end of this quarter, we will have the same performance level of Phase 1 consistently, which is 10% to 15% above the design capacity that is in the throughput. With this, all re-commissioning and rampup news is that we are confident to point towards the upper end of our 2022 production guidance range of 390,000 tonnes to 340,000 tonnes of copper in concentrates.

Finally, as Marna mentioned, we are well underway with our $50 million debottlenecking campaign, which takes advantage of the strong performance of the front end of the plant and also the high grades that we're experiencing, and it targets reaching an annualized production rate of 450,000 tonnes of copper by the second quarter of next year. Next slide, please.

Now, we are firmly looking to the future with Phase 3 of the Kamoa-Kakula projects underway. We recently announced that we will build an upsized concentrator of 5 million tonnes per annum, which will be located close to the existing Kansoko mine and the larger Kamoa mining footprints, which is just over 10 kilometers to the mouth of Kekula.

In order to supply this new concentrator, we are busy expanding our mining activity at Kansoko as well as preparing a new box cut, which will open up the Kamoa 1 and Kamoa 2 ore bodies. We also placed contracts to break ground on the Kamoa-Kakula smelter, which will be the largest smelter in Africa with a capacity of 500,000 tonnes of blister copper.

In order to provide power for the Phase 3 expansion on the smelter, we recently signed an EPC contract with Voith Hydro, which is a leading German hydro power company for the upgrading the turbine size at the Inga II dam and works are now commencing, which should be ready in time for our Phase 3 target production by the end of 2024. It's worth adding that all of this work will be documented in a new prefeasibility study for Kamoa-Kakula which will be published later on this year.

Next slide, please. This slide really just puts the Phase 1 and Phase 2 debottlenecking program as well as the Phase 3 expansion into context.

So we're targeting to ramp up Kamoa-Kakula from approximately 400,000 tonnes of copper annualized today to around 600,000 tonnes of copper production by the end of 2024. This will rank Kamoa-Kakula as the third largest copper producer in the world, but our target is to ultimately become the second largest producer to a Phase 4 expansion.

Next slide, please. Finally, moving next to Kamoa-Kakula, we are advancing the work program at our last 100% owned Western Foreland Exploration ground.

With the recent uncertain the dry season in the DRC, we are recommencing in full our drill campaign to explore four high-priority drill targets identified during the last year. We have an initial budget for this year of $25 million, which includes over 90 kilometers of drilling across the license package, which will be four to five drill rigs in operation.

I'll now hand back to Marna to take you through our other activities. Thank you.

Thanks, Alex. And we also published an update on our efforts at Platreef yesterday, and you can read that press release on our website.

But we completed the equipping of Shaft 1. And on 22 April, we initiated the first draft on the 950 meter level to commence lateral development towards the ore body.

Shaft 1 will serve as Platreef's initial production shaft and is approximately 450 meters away from the first high-grade area of the ore body. Ivanplats also to delivery of its first battery electric mining fleet and plans for an initial 5 megawatt solar plant is well underway.

The remainder of the spend for 2022 is approximately $150 million, with groundbreaking for the initial 750,000-tonne plant expected within the next month. Phase 1 mine production is expected to commence in the third quarter of 2024.

And then over to our Kipushi project. The Kipushi project economics are extremely compelling at current prices.

Underground early works have commenced, and we are in the process of recruiting key personnel for the construction of the plant and the operation of the mine. Our financing and offtake discussions are advancing with a number of interested parties, and we are targeting an accelerated return to production within the next 18 to 24 months.

And then some concluding remarks. In summary, we are confident in our team's ability to bring you the world's next diversified major mining company with our production success at Kamoa and our established track record in exploring for Tier 1 assets, we are sure to continue our story of growth and discovery.

That's our concluding remarks today. I will now hand back to Matt Keevil to facilitate the question-and-answer session for today.

Thank you.

Thank you, Marna. And we will now move on to the question-and-answer portion of the day.

Operator, do we have any questions waiting on the line.

Good morning, good afternoon depending on time zones. Congratulations on a very strong start to the year and a good trajectory for Kamoa-Kakula.

I wanted to look forward to Phase III. And in your release, you're guiding for something just over $480 million of kind of a placeholder budget for Phase III for the balance of the year.

I was wondering if we can get a few general comments on how that could possibly be spread out over the balance of the year? And what's the general components of that expenditure for this year are?

Thanks, Andrew. Its Robert here, I'll take that one.

The first part of your comment is, I think, important that this is effectively just a acquisition amount of placeholder and budget for what is expected at this point in time to be stayed during this year. And that will obviously be relooked at as the previous relative study is completed and expected in the first quarter.

The majority of that cash flow, we do expect to be – to only flow in the latter part of the year. Some of the expenditure less than $100 million in Q2 with the reminder pretty weighted towards the end of 2022.

But those funds are effectively being made available to the project team to ensure they can drive the timelines of Phase III and then a split between the smelter continued work on Ingest underground mining, but then also some allocations to general infrastructure and very early works on the concentrator.

Okay. I think that's a fair answer.

And I guess we're going to get a little bit more detail here going forward in the, I guess, Q3 or maybe a little later for the PFS. Just one last kind of conceptual question on Phase III.

A lot of the improvements that you guys are working are debottlenecking or optimizing that you're working on for Phase I and Phase II are those going to be directly reflected into the Phase III PFS, or should there be some concept of ability to exceed the 5 million tonnes that was headlined recently for the Phase III capacity?

Maybe I'll take that one, Andrew. It's Alex here.

So just in terms of what will be in the PFS, just to be clear, you'll see 9.2 million tonnes per year from Phase I and Phase II. So that will be at the fully debottleneck rate.

And then there will be an additional 5 million tonnes from Phase III, bringing the total to 14.2 million tonnes. In terms of maybe what you're asking about Phase III can you expect some additional performance on top of that, 5 million tonnes?

Look, it's a bit too soon to say. I mean, there is the potential there because some of the front-end components of that 5 million tonne mill will be -- will already be able to operate at double the rate to accommodate a later Phase 4 expansion.

So, there is the ability to really push the front-end of the circuit and then figure out what else we need to do at the back-end of the circuit to produce more copper. And we obviously had a good experience on Phase 1 and Phase 2, but it's too soon to really give guidance on that.

Okay. Well, it's good to hear that you have all kinds of capacity and then, we'll wait to see what the team does.

I'll step back and let others ask questions.

Yes. Thank you.

Alex, I jumped ahead a little bit. I think you just said that you're going to potentially build an enough infrastructure to double the capacity of Phase 3.

Is that a place is going to look like 5 million tonnes a year at that location?

Hi, Greg. It's basically the same as what we did with Phase 1 and Phase 2, where the crushing circuit, so the very front-end is sized for 10 million tonnes per annum.

And then, that's the point at which it splits in two parallel circuits at ultimately 5 million tonnes each. So that will be Phase 3 and later on Phase 4.

But it does mean that when Phase 3 is operating, we have a greater capacity in terms of crushing.

Okay. So Phase 4 is going to effectively be mining from Kamoa then bring 5 million tonnes or do you bring ore from other locations to that new mill or that parallel mill, like Kamoa.

It should be said primarily from the different ore bodies that we're opening up at Kamoa. So just remembering this Kansoko where we're mining already, but then there will be two larger mines at Kamoa 1, Kamoa 2, which is fed from the same twin decline system.

And then later on, we'll figure out where Kakula West fits into the mix, because we do have some slightly higher grades in the West. So, you'll have seen in the press release, there was a reference to the fact that later on, we will start to develop declines into Kakula West to try and get a head start on that ore body as well.

But Kakula West material, we'll probably more naturally report to the Kakula mill.

And just turning to inflation, we've heard a lot about that from the mining companies through this earnings season and obviously, you seem to be a bit insulated from that. But are you seeing cost pressures from various inputs reagents, what have you feeding through?

Do you want to take this one, David?

Yeah. Thanks.

I might add well. Thank you, Alex.

No, I think if you look at our continued decrease in our cash costs, I think we are handling it well. But I mean, we're definitely not in need and processes of being put in place just to limit the effects specifically on field, et cetera.

And I think one thing that has helped us as well as just the fact that the hydro power, the price of hydro power is fixed. So I think that's -- and just one additional benefit you do get from actually getting that well.

But we definitely not in need and -- but the -- I think the performance has been really exciting and we are I think do look forward to good numbers for the remainder of the year.

Okay.

Grinding media reagent, things like that, if you have stores on hand, or you have long-term contracts at fixed prices, things like that, but it helps you into a little bit from cost inflation out there.

Yeah, exactly. It's a bit of a mix in having the right amount of inventory on board and being just asking possible future supply issues at certain prices has been helping us.

Okay, great. Thank you.

Thank you. Good day everybody.

Two questions from me. First question, given the recent flooding in Durban and it’s obviously highlighted a fact that investments were challenged there.

As you guys go through these phased expansions of Kamoa-Kakula, how are you thinking about the egress part of the inflation? Thank you.

Sorry, Dalton. I just missed the last part of your question there.

How are you thinking about…

About egress getting product there.

Okay. I'll take the question and then perhaps others can chime in.

So I mean the first thing to say about the recent issues at Durban was that they didn't really have a material impact on our operations and also remembering that our revenues are recognized when the material leads the mine gate under the terms of our Phase 1 and now Phase 2 off-take agreement. What it does mean is that you might be paying a little bit more at the margin to have the material in the warehouse somewhere waiting for shipments.

But on that front, we've also doing a lot of work together with [indiscernible] and all of logistics service provider partners in order to streamline the Kamoa-Kakula concentrate logistics operation as a whole. So we're looking at things like warehousing capacity in Zambia and also trying to spread the load through different ports on the African continents.

And longer term, we are also still very keen to support the Western line project to the Angolan port of Lobito, which will completely change the face of the whole logistics chain in the DRC and it will really reduce the bottleneck there. And then I think the other thing to bear in mind is that's also one of the key advantages of the smelter, of course, is that we, instead of shipping 1.3 million tonnes of wet concentrate in banks.

Instead, that becomes 500,000 tonnes of blister copper, which is obviously less than half the volume, but also much easier from a handling point of view.

Makes sense. But the Angola option is still very much off the table.

I must say, right?

Absolutely, I mean, it's not something is going to happen in the next year, but it's definitely still ongoing in the background.

Okay. Great.

And then my second question is on flat rate, just given the implications to PGM and markets does from the fall in the Russian and Ukraine situation, is there an opportunity for you guys to accelerate Shaft 2?

I mean, look, I think in terms of the engineering that we put out in our feasibility study, we were sort of pointing towards Shaft 2 being a 2027 project, which then allows you to phase the expansions of the two concentrators to get up to 5.2 million tonnes thereafter. What I can say is the team on the ground now that it would move from that kind of feasibility stage into really the detailed mitigate of the engineering, we're looking at everything we can in terms of whether we can accelerate that thinking, looking at different the methodologies like raise boring instead of blind thinking, and we have that optionality in terms of having the access from the bottom of Shaft 2 not just the top of Shaft 2.

But it still takes time, and I don't think we're guiding that it's going to be any quicker, but we're really working hard at this.

Okay. But it sounds like the constraint is an engineering problem, not a capital?

No. Yeah, exactly, I mean exactly.

It just – you can move a certain many – a certain amount of meters in a day when you're thinking a shaft and regardless of how much capital you throw at it, that is one blast or two blast a day.

Understood. Thank you very much.

That's all.

Thank you, operator. We will step over and take a look at our webcast questions and take a couple of the most popular inquiries and answer a few of those before we wrap up.

So first and foremost, I think we'll start off one of the more popular questions is about the drilling program at Western Portland and in terms of timelines, the number of drill rates and when results can be expected. So I'll turn that over to management.

And if anyone would like to pick up some details on the Western Portland drilling, that would be great.

I'm happy to take that on that. I mean I can't add too much more beyond what we went through in the presentation.

But really, the first quarter, we weren't doing a whole lot in terms of drilling meters. It's always difficult to get out there during the wet season.

And we're also moving out for the sort of more remote parts of this huge land package, remembering that it's almost 170 kilometers of strike along the entirety of the Western Forelands. But now that the wet season is over and we're firmly moving into the dry season, that's why we're really going to accelerate our drilling activities through the -- I guess, the winter in the Southern Hemisphere.

And as I mentioned, we're looking at four to five rigs as the sort of provisional budget. But obviously, I think people are very familiar with our approach when it comes to exploration that we won't fail to stretch that budget if we start to explore a trend that we'll become very interested in, and we'll certainly move in more rigs at the right point in time.

That’s great. Thanks….

Sorry, I don't hear you right now. You might be unmute .

Sorry about that guys, a little bit of an interruption in the call. Just one more of a broader macro question maybe for Robert.

Talking about building the next large diversified miner, it seems Ivanhoe large portfolio, but what about outside acquisitions and the potential of looking at new exploration opportunities.

Well, Ivanhoe mines is already with industry-leading exploration -- So we have literally hundreds of proposals coming to our attention monthly, and we keep our mind to open about all manner of things. So certainly, the board is wide open.

And if anybody has any great ideas and [indiscernible]. It's a great idea to get through the first three stomachs [ph], I'll take a good look at it and I’ll see if our Board is interested in finding anything that's better than what we already have, but I rather doubt it, but we keep an open mind.

Thank you.

Thank you, Robert. And with that, we're wrapping up on the 45-minute mark.

So operator, I think we'll wrap the call up for today. Thank you very much, everybody, for attending, and we look forward to talking to you soon.