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CITIC Metal to invest CAN$612 million in Ivanhoe Mines

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Global Mining Review,


Robert Friedland and Yufeng “Miles” Sun, Co-Chairmen of Ivanhoe Mines, announced yesterday that CITIC Metal Co., Ltd. (CITIC Metal), through its subsidiary CITIC Metal Africa Investments Ltd (CITIC Metal Africa), has agreed to invest an additional CAN$612 million (approximately US$454 million) in Ivanhoe Mines at CAN$3.98 per share, a premium of 29% over the last closing price.

CITIC Metal’s second major investment in less than a year, together with Ivanhoe Mines’ current cash balance of approximately US$512 million, will increase the company’s total cash on hand to approximately CAN$1.3 billion (US$1 billion). Ivanhoe’s pro-forma cash balance is almost double the approximately US$540 million required to be funded by Ivanhoe to construct the US$1.1 billion Kamoa-Kakula Project’s initial six million-tonne-per-annum (6 million tpy), high-grade copper mine at the Kakula deposit in the Democratic Republic of Congo (DRC).

Ivanhoe’s joint venture partner in the project, Zijin Mining Group, is required to fund its equivalent share of approximately US$540 million of the mine’s initial capital costs. Ivanhoe and Zijin also are in financing discussions with international export-credit agencies and equipment-finance providers, which could materially reduce the amount of funding that Ivanhoe and Zijin would have to contribute.

The CITIC Metal investment is expected to close no later than 7 September 2019, much sooner than could be expected for a typical project-finance facility. This timing will allow Ivanhoe to rapidly move forward with construction without relying on third-party project financing and being subject to the fees, interest, or hedging requirements typically associated with project financing.

This second major investment by CITIC Metal, bringing its total investment in Ivanhoe to US$1 billion, will position Ivanhoe to become a leading copper and zinc producer in the DRC and a leading producer of platinum-group metals, nickel and copper in South Africa.

In addition to the Kamoa-Kakula project, Ivanhoe is upgrading the historic Kipushi zinc-copper-germanium-silver mine in the DRC, in partnership with La Générale des Carrières et des Mines (Gécamines), and developing the Platreef palladium-platinum-nickel-copper-gold discovery in South Africa with its broad-based, black empowerment partners and a Japanese consortium led by ITOCHU Corporation.

“CITIC Metal has been a shareholder in Ivanhoe Mines for eight months now, and in that time, CITIC has seen what we already know – that the Kamoa-Kakula Project is unquestionably the best copper development project in the world,” said Friedland.

“The investment announced today will comfortably provide Ivanhoe with the equity cushion required to fast-track Kamoa-Kakula’s 6 million tpy Phase 1 mine to production. More importantly, it also is a profound vote of confidence in our management, in our key stakeholders and partners, and in the promising future of the Democratic Republic of Congo and South Africa. We look forward to hosting the DRC President at the Kamoa-Kakula and Kipushi projects later this year,” Friedland added.

“We now are in a position to finance our first two mines - Kakula and Kipushi - to commercial production, and significantly advance, or achieve, production at the Platreef project. Ivanhoe also is positioned to have its planned expansions at the Kamoa-Kakula Project funded from internally generated cash flows.”

Sun commented: “Today’s investment consistently advances CITIC Metal’s implementation of its investment strategy in mining. It demonstrates CITIC Metal’s firm confidence in the long-term potential of Ivanhoe Mines’ assets, the resource potential of the Southern Africa region and the mining industry as a whole. It also demonstrates that, through close cooperation and an in-depth mutual understanding, CITIC Metal recognises the professionalism and technical competence of the Ivanhoe Mines team led by Friedland.

“As a major shareholder, CITIC Metal will further develop and promote cooperation with Ivanhoe Mines in the fields of exploration, mine development and beyond, and unlock potential synergies between our groups. We also are confident that CITIC Group’s comprehensive capabilities will help Ivanhoe Mines to strengthen business relationships with the DRC and South African governments,” Sun concluded.

CITIC Metal’s investment comes at a premium to Ivanhoe’s share price and maintains governance stability agreed in its 2018 initial investment

Under today’s agreement, Ivanhoe Mines will issue 153 821 507 common shares to CITIC Metal Africa at a price of CAN$3.98 per share, yielding total proceeds of approximately CAN$612 million (US$454 million).

Similar to the 2018 conditions agreed to for CITIC Metal’s initial investment in Ivanhoe Mines, the investment is conditional upon completion of customary, confirmatory due diligence by CITIC Metal and certain internal approvals. It also is subject to approval by the Toronto Stock Exchange and recordals with certain Chinese regulatory agencies, which also were required and obtained for CITIC Metal’s initial investment in Ivanhoe Mines. Receipt of all necessary approvals and completion of the transaction is expected no later than 7 September 2019.

CITIC Metal, currently Ivanhoe Mines’ largest shareholder with a 19.3% ownership stake, will come to own 29.9% of Ivanhoe’s issued and outstanding common shares when the placement is completed. Friedland will remain Ivanhoe’s second-largest shareholder.

 

CITIC Metal and Friedland are subject to standstill provisions. When the placement is completed, CITIC Metal’s standstill provision will be amended to a maximum ownership stake of 29.9%. Both standstills also will be extended until 8 January, 2023. The standstill period has been agreed to be lengthened to provide sufficient time to bring the Kamoa-Kakula Project’s 6 million tpy high-grade copper mine at the Kakula deposit to production, and to advance the first of its subsequent, planned expansions, as well as the Kipushi and Platreef projects. It is expected that Ivanhoe Mines’ entire shareholder base will benefit from the economic growth and significant cash flows that result from commercial production at three mines.

Ivanhoe is developing an alternative production plan for the Platreef project, targeting significantly lower initial capital, to accelerate production by using Shaft 1 as the mine’s initial production shaft. Shaft 1, presently at a depth of 855 m below surface, is expected to reach its final depth of 980 m, complete with working stations on three levels, in early 2020.

Ivanhoe is continuing to advance the arrangement of a project financing for the development of the Platreef project with a syndicate of international banks and export-credit agencies. Discussions also are underway with leading South African financial institutions for financing the black economic empowerment partners’ contribution to development capital. Ivanhoe also is in discussions with various streaming companies interested in acquiring exposure to one or more of the metals that will be produced at Platreef.

At Kipushi, discussions also are continuing with a number of potential project financiers to launch a new era of commercial production at the upgraded zinc-copper-silver-germanium mine.

Ivanhoe Mines’ shareholder approval will be required, and will be sought at the company’s Annual and Special Meeting scheduled to be held on 28 June 2019 in Vancouver (B.C.) Details will be included in the circular expected to be mailed by the end of May 2019.

 

At closing, CITIC Metal’s director nomination rights in Ivanhoe Mines will increase from two to three directors, with the one additional director to be appointed at closing.

Ivanhoe Mines also has agreed that it will use its reasonable best efforts to assist CITIC Metal, or an affiliate, to negotiate an offtake agreement in respect of production from Phase 1 of the Kamoa-Kakula Project, or to transfer Ivanhoe Mine’s rights to any offtake which it may become entitled to at fair market value.

 

Zijin Mining, which acquired a 9.9% stake in Ivanhoe Mines in 2015 through a wholly-owned subsidiary, will be entitled to exercise its anti-dilution rights through a concurrent private placement at CAN$3.98 per share, which could result in additional proceeds of up to CAN$67 million (US$49 million).

Read the article online at: https://www.globalminingreview.com/finance-business/26042019/citic-metal-to-invest-can612-million-in-ivanhoe-mines/

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