As an exploration/development company, Ivanhoe Australia Limited (TSX:IVA)(ASX:IVA) requires little introduction, but has the market truly begun to understand that within the coming year the company will become a producer?
“That makes investors stand up and take note so I think we’re really starting to get on radar screens as being a potential producer in the shorter-term and that wasn’t realized before,” Peter Reeve, CEO says.
“If all of our plans come to fruition we could be a significant producer in multiple commodities within two years with some significant development projects under planning and study that would prove us to be a very good growth study over a five-year period.”
In October 2010, the company made its 100 per cent acquisition of the Osborne Operation in the Cloncurry region of Queensland, Australia—giving its development track to early-stage production a significant push. Ivanhoe’s focus remains the same in terms of getting its Merlin molybdenum-rhenium project—the largest of its kind in the world—into production in 2012 and considering its Mount Elliot Swan project to be the overall flagship. In light of the company’s recent acquisition, and developments made on various projects, the market should prepare for upcoming company success.
The latest acquisition boosts future production
In acquiring Osborne approximately 50 kilometres from its Mount Dore project, Reeve explains, Ivanhoe has been able to expedite the production of Merlin for a lower development cost, lower development risk and without potential permitting issues.
“It’s also allowed us the opportunity to start a new copper and gold business for Ivanhoe Australia and that’s what we’ve been focusing on. It essentially means we can look at ore sources, from Osborne all the way up to the Starra line, which can be fed into this plant,” he says.
“We’ve got plans to build a haul road between the two sites, and doing that gives us the ability to bring the Merlin ore down to the Osborne site and the ability to bring the copper and gold down to that site as well.”
The company spent $17.5 million on its new addition, but Reeve says it has a significantly higher placement value in today’s market and both the quality and quantity of the assets it brings to Ivanhoe are nothing less than outstanding.
Previous owners Barrick Australia had ceased spending capital on Osborne a year previous to its sale to Ivanhoe and upon surveying the project, Reeve says, the company considered that with an ore body in the region Osborne was a highly favourable opportunity for Ivanhoe to also acquire operating facilities.
“There were a number of parts of facilities that we could have used with respect to infrastructure, even if we’d gone ahead and built our own concentrator in the north, but even as it stood we were fine to make use of the assets in the end when we looked at it,” he says.
“We realized we would save ourselves a lot by using the existing facilities.”
At a glance, Osborne includes copper and gold flotation concentrator with a capacity of two million tonnes per annum, a gas and diesel fired power station, a camp for 470 personnel and an underground mining and mobile fleet. Ivanhoe is now on track to move Osborne and Kulthor—an extension ore body from off the Osborne decline—into production within the year (Ivanhoe approved a $30 million budget for Kulthor/Osborne preproduction development in late January).
The company’s drilling strategy has also been adjusted to play to the strengths presented by this new project, and Reeve says that Ivanhoe will drill some of the prospects that are near Osborne to try and get a big mine life built up for that system.
“There are some great targets there, like the extensions to Kulthor, Osborne and Houdini, all of the Starra line,” he says.
“We think that some of these can really maybe provide significant extensions to the mill inventory for Osborne.”
Latest reports from surrounding projects Houdini, within 20 kilometres of Osborne, and Starra—where the iron-oxide-copper-gold (IOCG) rock package from this project down to Osborne is essentially the same—also suggest that Ivanhoe’s decision to bring the project into the fold will bear a highly successful outcome.
On track and meeting expectations
On January 21, Ivanhoe announced that drilling at its Houdini project had intercepted strong copper-gold mineralization. Reeve says that it is an interesting opportunity for the company and its potential as a feed source for operations at Osborne, should it become a mine, have been recognized.
“It’s got quite a good long copper anomaly there, and we’ve drilled one fence and released the results. We don’t yet have the assay results for the other fences, but we’ve got four drill rigs on it so it’s providing a lot of interest for us as a drilling target at the moment,” he says.
Houdini is not the only target to offer favourable proximity to Osborne either, and news that drilling continues to intersect high-grade copper and gold mineralization at the Starra 222 Mine—adjacent to the area earmarked for a planned haul road for Osborne and Merlin—has also proved encouraging.
“That’s in a situation where all of that material could be fed into the Osborne mill which is great. The Starra line has both developed underground mines and four open pits so access to the mineralization is good,” Reeve says.
“We’re currently drilling 3,500 metre holes into Starra 276 in order to build the mineral resource up there—hopefully we’ll have the first information on that by the middle of the year and it should be completed by around the third quarter.”
Plans for the Merlin project continue to progress, and Reeve says that the concentrator will be ready to produce concentrate in line with aims to commence production in 2012.
“We’re planning to build the concentrator within the Osborne facilities so we can leverage off the other infrastructure there. We’ve changed our view in that we will most likely build a roaster now at the Osborne mine site,” he adds.
Since reporting a 20 per cent increase to 570 million tonnes for Mount Elliot Swan’s copper-gold resource, on October 21, 2010, this high priority project has also continued to develop of time.
“We plan to do a scoping study in 2011, a feasibility study in 2012 and a full feasibility study in 2013. If the project looks good then, we expect to begin development in 2014/2015 and have production in 2016,” Reeve says.
“We’re also looking at the Mount Dore cathode-copper project and expecting production in 2016.”
The addition of Osborne laying solid and highly promising foundations for Ivanhoe’s wider portfolio, but Reeve stresses that the company’s overall strategy remains the same: to be a producer and generate cash flow.
Production, cash flow and finding large ore bodies
In highlighting that Osborne has not changed Ivanhoe’s game, but ensured faster development of the projects as previously intended at lower risk and development costs, Reeve says that we are going to see a progression throughout the portfolio.
“We have the existing facilities at Osborne to start copper and gold production. We’ll build a small concentrator for production for Merlin within the Osborne infrastructure so that will be reasonably straight forward,” he explains.
“A bit after that we’ll start the development at Mount Dore, should that be approved by the board, and then we’re doing the studies during that whole period.”
The company’s debut on the TSX—also as of October last year—marks its longer-term view. Given Ivanhoe’s profile in Canada, its number of shareholders in the country and the nation’s good understanding of molybdenum, listing on the exchange is backed by a host of positive reasons.
“We’re still looking for repeat Merlins. We think that there’s a lot of molybdenum in the geological systems around the Ivanhoe tenements, so we are looking for those,” Reeve says.
“There are more than 250 prospects with old drilling—very high grade in some cases old assays—and we need to look at those as well. From our point of view we’ve been very focused on getting Merlin up and we’ve been very focused on Osborne, but we still haven’t even scratched the surface as far as exploration in this field goes—it’s looking very interesting.”
There is no question that Ivanhoe’s approach through exploration has proved to be extremely productive, and despite recent additions to the portfolio, Reeves emphasizes, the company is still very much here to find large ore bodies in the future.
“If we can accelerate some of our existing projects into production in the future that’s good—it makes us sustainable on the exploration front—and that’s what Osborne has done,” he says.
“It’s made production cash flow more certain and brought it forward a bit earlier, but the overall focus is still the same: to get into production, get good cash flow and find big ore bodies.”
Ivanhoe is well on its way to becoming a multi-commodity producer in the short term—with various projects staggered in development to commence production between now and 2016. Its focus remains on the Merlins of the region and the massive potential at Mount Elliot Swan, and its recent advantageous acquisitions—as well as being impressive in their own right—fall in line to quicken and support the future production of the company’s larger projects. Each project marks an achievement that can’t be underestimated in the coming five years—and each achievement we see will signal new success for the company.