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Gold stream on Ivanhoe's Platreef might sell for up to US$900M, analysts say

SNL Image
Gold bars stacked at the United States Mint in West Point, N.Y.
Source: Associated Press

Analysts highlighted the potential for Ivanhoe Mines Ltd. to raise about US$500 million to US$900 million through a gold streaming deal to fund ongoing development of its 64%-owned, polymetallic Platreef project in South Africa, after the company outlined plans to speed up its path to production and touted increasing interest from possible financiers.

Platreef hosts palladium, platinum, nickel, copper, rhodium and gold mineralization, and Ivanhoe said July 27 that it was getting "daily inquiries" about investing in its projects in Africa amid rising base and precious metal prices. "That level of interest requires that we critically examine these opportunities, which we are now doing," Ivanhoe Executive Co-Chairman Robert Friedland stated.

Ivanhoe recently outlined plans to accelerate production at Platreef. The company completed the sinking of a nearly 1,000-meter deep shaft at the site and said in mid-June that it was looking at bringing forward production by using the shaft as initial access for mining.

The company previously planned to first finish a wider, second shaft and then start mining, according to a 2017 feasibility study.

Paradigm Capital analyst David Davidson told S&P Global Market Intelligence that Ivanhoe's mention of interest from royalty and streaming companies in Platreef was intriguing given the accelerated production plans.

"We are on the verge of getting an updated bankable feasibility study for the project with the plan for a phased startup ... instead of waiting for the No. 2 shaft to be completed," Davidson said. "Hence with production as soon as 2021 it would be time to entertain the streamers."

Ivanhoe did not specify companies that have expressed interest in its assets.

As for a potential price tag, TD Securities analyst Greg Barnes said a gold streaming deal covering 85% of the production from Platreef, which will mostly produce platinum and palladium, could fall in the range of US$800 million to US$900 million. "We believe that there is potential for a precious metal streaming transaction to be completed that could provide funding for the development of the Platreef project," Barnes said in a July 27 note.

Analysts Kerry Smith, with Haywood Securities, and Davidson both said they expect a gold-only stream to sell for less. "That seems like an aggressive price tag," Smith said.

Davidson told Market Intelligence that he saw a stream on the project's gold production as falling in the range of US$500 million to US$750 million. "I suspect a 5% [net smelter royalty] on all metals would be more likely to get you close to US$1 billion," he added.

Ivanhoe said it plans to release an updated feasibility study of Platreef in the third quarter, which will incorporate a preliminary economic analysis of an accelerated production scenario.

In the 2017 feasibility study, Ivanhoe pegged initial capital expenditure for the first phase of the project at about US$1.5 billion, with throughput set at 4 million tonnes per year. Average yearly production for a 32-year mine life was estimated at about 476,000 ounces of combined platinum, palladium, rhodium and gold, as well as 13 million pounds of copper and 21 million pounds of nickel.

In addition to interest in Platreef, Ivanhoe said mining companies had also asked about investing in its 100%-owned Western Foreland copper project in the Democratic Republic of Congo. The project is adjacent to the more advanced Kamoa-Kakula copper project, a joint venture between Ivanhoe and Zijin Mining Group Co. Ltd. that is under construction.