Ivanhoe Mines Ltd

TSX:IVN

Earnings Call Transcript 2021-Q3

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Ivanhoe Mines Q3 2021 Financial Results Conference Call. [Operator Instructions]I would now like to turn the conference over to Bill Trenaman, Vice President, Investor Relations. Please go ahead.

[Bill Trenaman, Vice President of Investor Relations]

Thank you, operator. It is my great pleasure to welcome you to Ivanhoe Mines' first ever quarterly earnings call. Today's call will feature a short presentation and brief overview from members of our senior management team. The presentation is available for viewing via the webcast. It is also available on our website at www.ivanhoemines.com. Today's call will end with a question-and-answer session. You could submit a question at any time using the Q&A box on the webcast page.Before we begin, I would like to remind everyone that today's event will contain forward-looking statements. Details of the forward-looking statements are contained in our third quarter MD&A and news release, both of which were issued earlier today and available on our website or on SEDAR.I will now turn the call over to our Founder and Co-Chairman, Robert Friedland, for a few introductory comments. Please go ahead, Robert.

[Robert Martin Friedland, Founder & Executive Co]

Thank you, Bill. For those of you joining this call from all over the world, I'm sitting in Singapore, it is late at night here, and I welcome all of you to this call, on this important occasion for the thousands of people that have contributed to the development of Ivanhoe Mines.The profits that we're announcing today and the initiation of commercial production is not in an individual mine, but in a mining district. This stratabound, basin-scale copper system is the largest untested copper system in the world. So it's a very momentous occasion to announce that the first phase concentrator is ahead of schedule, under budget and in production.We have some members of our senior management team here. We'll be happy to take questions. And we'd remind you that we've been working for over 25 years, not only on this project, but our 2 other Tier 1 projects, Kipushi and Platreef, which we will also be touching on in this presentation.So with that introduction, I'll turn this over to Marna, our President, who's going to take you through the quarter third results and beyond. Thank you.

[Martie Cloete, President & CFO]

Thank you so much, Robert. Matt, if we can just move to the slide that shows the highlights, and what a journey this has been.And so we transitioned from renowned explorers to operators of what I believe is the most exciting copper discovery in the world. In only 5 years, we transformed Kakula into the impressive mine it is today, in no small part due to the 7,000 people on site, each playing their part and making it possible to build this mine on budget, ahead of schedule, and let's not forget, during a pandemic. Rest assured, the same group of people intend to deliver similar results on our future expansions, power and smelter projects.The quarterly highlights you see on your screen today is only the start of continuous growth and improvement we're aiming to achieve for decades to come. With Phase 1 commissioning now complete and due to the impressive ramp up performance, we feel confident to increase our guidance to between 92,500 tonnes and 100,000 tonnes of copper in concentrate for the 2021 financial year.In just a short few months, it is clear that Phase 1 will easily exceed design capacity, and the same will ring through for Phase 2. We have produced over 77,500 tonnes for the year and expect our C1 cash cost currently at $1.37 per pound to decrease over time as we bring further expansions online and hone our efficiencies. But more now, inaugural earnings later, when David van Heerden, our CFO; and by the way, David, congratulations on your appointment, will take you through our results.If you can flip to the next slide, Matt. I would like to take a few minutes to focus on our ESG scorecard. Ivanhoe is now only in its fourth year of publishing our sustainability metrics. And we have already seen a marked increase in our MSCI index rating, achieving an A rating with a target of becoming a leader in the near future. There is a myriad of inputs driving ESG performance with health and safety being a key focus for Ivanhoe.Our operational teams have put in a tremendous effort to embed a culture of 0 harm. And we believe that every employee should return home safely every day and our improved lost time injury-free hours is a testament to that. When it comes to CO2 emissions, it seems like design intervention that we brought this copper mine into production when we did. We will also sign some visionary credit to our leader, Robert Friedland.It is clear that the world will need copper for everything from battery electric vehicles, EV chargers, solar panels, wind turbines, grid overhauls, to name a few. A lot of promises were made in Glasgow, and Ivanhoe will be happy to oblige in assisting world leaders in keeping their promises.I would like to remind everyone that copper from Kamoa-Kakula is mined using clean renewable hydro Power. Earlier this year, Ivanhoe completed the refurbishment of 6 turbines at the Mwadingusha power plant in partnership with SNEL, the state-owned power utility in the DRC. This power plant is now generating 78 megawatts, enough power for our Phase I and Phase 2. But we have now also extended this partnership to include Inga II, turbine 5, which will generate an additional 162 megawatts of power. This power will be sufficient for our future expansions as well as our smelter project.Today, the main source of emissions on the mine is the diesel fleet. And that is why we announced that we are exploring the use of battery electric or even fuel cell underground equipment. It is fantastic to see how much progress the equipment manufacturers are making in terms of electrifying mining fleet, and we plan to adopt the technology ahead of the curve. Thermal efficiency also heavily weighs into this decision as 70% of the energy of conventional diesel is wasted as heat, resulting in additional ventilation management and exhaust gases. We therefore already placed orders with Epiroc for battery electric underground fleet at Platreef, which will be delivered early next year and will transition -- and we will transition Kamoa's fleet over time. This will allow us to use the lessons learned from Platreef, where the ramp-up will be a little bit slower and then transition over to Kamoa-Kakula in due course.Lastly, a comment on diversity. Ivanhoe intends to publish targets for female employment across all levels in the organization. But in addition, we will continue to focus on minority groups and previously disadvantaged communities, in line with the jurisdictions in which we operate.I will now hand over to David to take you through our inaugural earnings.

[David van Heerden]

Thank you, Marna. We have been filing our quarterly results for a few years now. But with our first project now in production, we believed it was the right time to start with quarterly earnings calls, a practice we expect to continue with each quarter's results going forward.Since Q3 2021 is the first quarter since commercial production, I will focus on the results achieved in the quarter as opposed to comparing them to that of previous quarters. The comparisons of the 3 and 9 months ending September 2021 to the same periods in 2020 is, of course, elaborated on in our MD&A.Next slide, please, Matt. Over the last few months, we have received a number of questions about how can Kamoa-Kakula's revenue and ultimate profit will flow into Ivanhoe's statements of comprehensive income. We, therefore, decided that this is probably a good place to start the financial overview. The Kamoa-Kakula project is a joint venture between Ivanhoe Mines and Zijin Mining through their 49.5% share interest in Kamoa Holding that holds an 80% interest in the project, with the DRC government holding a direct 20% interest. Therefore, Kamoa Copper's results are consolidated into Kamoa Holding, and Ivanhoe then recognizes its 49.5% share as a single line item on Ivanhoe's statement of comprehensive income.Next slide, please. During its first quarter of commercial production, the Kamoa-Kakula joint venture sold 41,490 tonnes of payable copper and recognized revenue of $343 million. The revenue is net of a $12 million reduction due to the re-measurement of contract receivables as at September 30. This represents the effective mark-to-market of the August and September sales at a copper price of $4.10 per pound. So additional upside is expected in Q4 if the copper price remains at current levels. Kamoa-Kakula's cost of sales for Q3 2021 was $99 million in total and $1.08 per pound of payable copper sold, while cash costs per pound of payable copper totaled $1.37 per pound, but more on that later.General and administrative expenditure was $33 million for the quarter, which, of course, includes the cost of the excellent site management team that worked tirelessly to bring Kamoa-Kakula's first phase into production on time and on budget and is now not only focused on operations, but also on the Phase 2 and Phase 3 expansions.Operating profit for the first quarter of commercial production was $210 million and EBITDA was $233 million. Kamoa Holding recorded finance cost of $52 million in Q3, which is principally the interest on shareholder loans from Ivanhoe and Zijin as well as interest on Kamoa-Kakula's equipment financing facility and the short-term facilities available under the offtake agreements.Development and exploration expenditure incurred from inception is available for the offset against taxable income and Kamoa can amortize these for tax purposes over the first 2 years following commercial production. For this reason, Kamoa has an income tax expense equal to only 1% of the revenue. And the remaining $47 million of the tax expense is deferred tax and does not represent cash outflow. The non-controlling interest of $24 million represents the profit attributable to the DRC government's 20% interest in the Kamoa-Kakula project, leaving a profit of $84 million attributable to the joint venture partners, Ivanhoe share of which equaled $41 million for the third quarter of 2021.Next slide, please, Matt. If we turn to Ivanhoe's consolidated interim results for Q3, the chart on the slide deck starts where the last slide ended with Ivanhoe's share of profit from the Kamoa-Kakula joint venture of $41 million for the quarter. Additionally, Ivanhoe earned interest income of $24 million from Kamoa Holding in the third quarter for the shareholder loans advanced to the joint venture.During the quarter, the company spent $9 million on the Kipushi project, $7 million on Western Foreland's exploration and $7 million on general and administrative expenditure. Costs incurred at the Platreef project are necessary to bring the project into commercial production and are, therefore, capitalized as development costs in property, plant and equipment.The $55 million gain on the fair valuation of financial liability in Q3 represents the change in the deemed fair value of the conversion feature attached to the $575 million, 2.5% convertible senior notes, which Ivanhoe closed in March of this year. The conversion feature is an embedded derivative to financial liability and the fair value change is principally due to the fluctuations in our share price. Ivanhoe recognized finance cost of $10 million in Q3 relating to the interest on the convertible notes at the effective interest rate, which ultimately builds up to Ivanhoe's profit for the 3 months ending September 2021 of $85 million.Next slide, please, Matt. The cash cost per pound of payable copper produced for delivery to China was $1.37 per pound for Kamoa-Kakula's first quarter of commercial production. Costs for the quarter reflect the measured ramp-up of production at Kamoa-Kakula to steady state and are expected to trend downward as the Phase 2 concentrated plant is commissioned and the mine's fixed operating costs are spread over increased copper production. Longer term, we are looking at projects like the smelter, which may improve cash costs by up to 15%.Cash cost is a non-GAAP measure and the reconciliation from cost of sales to cash costs are provided on Page 39 of our MD&A. We intend to provide all-in sustaining costs when Phase 2 commences. As the mine is newly commissioned, sustaining capital is limited, but mostly relating to the underground infrastructure and development. However, as we are in the process of ramping up the Kakula mine in anticipation of Phase 2, it is somewhat arbitrary to make the distinction between expansion and sustaining capital activities. In fact, today, we are mining in excess of our Phase 1 mining rate. And we also have the 3.7 million tonne mining stockpile to draw down on.Next slide, please. We have a strong balance sheet and are well positioned for further development of our project with $580 million in cash and cash equivalents on hand and consolidated working capital of $624 million. Our debt of $671 million relates mainly to the 2.5% convertible notes I mentioned earlier. However, these are only due in 2026 with possible earlier redemption. Our forecasted spend for the remainder of the year is $61 million on Platreef, Kipushi, continued exploration at the Western Foreland and overheads.I now hand over to Alex Pickard, our Vice President, Corporate Development; and Marna to provide a brief update on further developments on our projects.

[Alex Pickard, Vice President of Corporate Development]

Thank you, David, and good day to everyone on the line. I will now take you through an operations update at Kamoa-Kakula and the Western Foreland, and I will pass back to Marna to take you through our activities at Platreef and Kipushi.Next slide, please, Matt. At Kakula, we have achieved an exceptionally smooth ramp up to steady-state production since we first commissioned the concentrator in May of this year. To date, we have produced over 77,500 tonnes of copper in concentrate, which is either being coal treated to produce blister copper at the Lualaba copper smelter nearby in Kolwezi or shipped by our off-takers for export to international markets.Given the exceptional ramp-up performance, we have steadily increased our guidance for the year from the initial range of 80,000 to 95,000 tonnes to the current range of 92,500 to 100,000 tonnes of copper in concentrate. We intend to provide full guidance for 2022, which will include our initial production forecast for Phase 2 in January. While the concentrator has reached nameplate capacity, the Kamoa team is busy exploring several optimizations to maximize the capability of the plant, both in terms of ore throughput, but also copper recovery.As an example of this, during the quarter, we identified that the main bottleneck in the process was the concentrate filter capacity at the back end of the plant, particularly when floating our exceptionally high copper grades. To alleviate this, we installed well ahead of time the Phase 2 filter press, which provides significant additional redundancy. Since eliminating this bottleneck, we have frequently achieved copper production in excess of 700 tonnes per day, which gives an idea of what is possible.Next slide, please. On the Phase 2, as with the Phase 2 build, we are well ahead of our schedule and on budget. Construction is more than 60% complete overall with procurement effectively complete and almost all deliveries on site, which significantly reduces the risk of project delay. During the quarter, we tightened our guidance for first production from Phase 2 from Q3 to Q2 of next year. Phase 2 will double the plant capacity to an annualized rate of 400,000 tonnes of copper in concentrates or potentially more depending on optimization. This means that Kamoa-Kakula, within a year, will be one of the 10 largest copper mines in the world.Now our attention has shifted to Phase 3. We are busy working on the design and engineering of Phase 3, but the early indications are that we will build a larger concentrator than Phase 1 and Phase 2 located close to Kansoko, our second mine, located roughly 10 kilometers north of the existing Kakula mine and concentrator. We are planning for new access into the mining areas for Phase 3, starting with an expansion of can Kansoko as well as the opening up of the Kamoa deposits to the North.Phase 3 will be brought online in parallel with the Inga II power project mentioned by Marna, and will also include investment in a 500,000 tonne per annum direct to blister copper smelter to produce copper metal on-site at Kamoa-Kakula and significantly reduce our unit costs. We will be providing further details on the plans for Phase 3 by the second quarter of next year.Next slide, please. Moving now to the Western Foreland. We firmly believe that the DRC will play a pivotal role in supplying copper to meet the global transition to a low-carbon economy. And in addition to our world-class mine at Kamoa-Kakula, future discoveries in the Western Foreland Copper Basin will have truly global significance. Within the management team of Ivanhoe Mines, the Western Foreland is perhaps the project that we are most excited about, and we are confident that this ground is the most prospective in the world for copper exploration, as evidenced by the first discoveries we have made at Makoko and Kiala.During the quarter, we've been focusing our efforts on completing critical exploration infrastructure to access the enlarged 2,500 square kilometer land package that Ivanhoe now controls between 90% and 100%. This includes a 70 kilometer access road that is nearing completion to allow for drilling access to the licenses during both the wet and dry seasons. At the same time, we've nearly completed high definition geochemical and geophysical surveys across the licenses, which will significantly inform our drill targeting in 2022.With that, I will hand back to Marna to discuss Platreef and Kipushi.

[Martie Cloete, President & CFO]

So Alex, I may want to argue with you. I think I'm more excited about Platreef. I do understand the sizzle at Western Foreland and very excited about that too. But at Platreef, there's a lot happening. We've added a lot of depth to our management team, and we are now in full execution, planning to start production in 2024, which seems like tomorrow with the way time is flying.Our stream financing announced earlier this year, is in its final stages and should be completed soon. And this, together with our project financing facility that we will conclude after this stream will source the funding for our first phase mine. Our definitive feasibility study will be published early in 2022. But we have a number of very exciting developments at our Platreef project to announce, and we plan to update the market in the next couple of weeks, so watch this space.If we can move over to Kipushi. I personally, I've been spending a lot of time in Congo over the past couple of months, now that we can travel again. And our discussions with Gecamines have advanced significantly. And I'm confident that we should be in a position to reach agreement on a development path in short order. The feasibility study for Kipushi is also essentially complete, and it will be published once we reach consensus. We are also currently capacitating our Kipushi team with additional manpower and planning critical path procurement, so we can hit the ground running and bring this mine into production within 24 months once we reach agreement with our partners.We've also initiated discussions with financiers for third-party financing. I must say, with zinc prices at record high, the time has come to restore this mine to its former glory.Next slide. This brings us to the final section of today's presentation. We've been receiving a lot of questions from investors and analysts about our future cash flows and capital allocation philosophy. So we thought we would give you a bit of a taste as to what our current thinking is.It is clear from our recent modeling, supported by current copper prices that Kamoa-Kakula will generate more than sufficient cash flows to fund all future expansions that we are currently planning. This includes the completion of Phase 2, Phase 3, the power project as well as the smelter. There will be future cash flows to the shareholders of Kamoa, which is ourselves, Zijin and the DRC Government through shareholder loan repayments and through ultimately paying dividends.If current market conditions prevail, it is expected that there will be sufficient cash flows to commence with shareholder loan repayments from Kamoa-Kakula as soon as after Phase 2 is fully commissioned in 2022. This will flow directly into the treasury of Ivanhoe.So if we can move over to the next slide. David already mentioned our strong cash position of $580 million early in the presentation. This will be augmented with the cash flows received from Kamoa-Kakula that I just mentioned and will help to maintain our strong balance sheet and fund our highly accretive growth projects.At both Platreef and Kipushi, we plan to fund the projects with third-party funding. So that be it streams, project finance facilities or prepayments, and that will be in combination with our current cash resources. But it is our intention to reward our shareholders with a dividend from cash surpluses, after funding our Tier 1 growth projects that's already in the pipeline.So I will now ask Bill Trenaman to moderate today's Q&A session. Over to you, Bill.

[Bill Trenaman, Vice President of Investor Relations]

Thank you, Marna. Now -- and I would like to thank all the shareholders and investors who have submitted questions via the webcast. We've tried to assemble them and group them together as best as we can. We may not have time to get to everyone's question, and we encourage you to reach out to anyone of our team for follow-up in case we don't have time to answer your question today.So without further ado, we will move to the first questions, and they come from Andrew Mikitchook of BMO Capital Markets. And the first one, I'll ask David to answer. And the question is, can you provide some additional commentary on the $1.37 per pound C1 cash cost during the ramp-up quarter and how these will compare to those budgeted in the mine plan? As an addition to that question, it says which cost components would you expect to have the most savings potential as you build a steady operating track record over the next quarters? David, please?

[David van Heerden]

Thank you, Bill and Andrew. Given it's our first operating quarter, we are very encouraged by the cash cost of $1.37 per pound, considering that the mine was ramping up below our targeted throughput and efficiency. The $1.37 cash cost per pound was lower than the cash cost budgeted by the mine site team. And general and administrative expenditure is an obvious component where we would expect to see a saving fairly quickly as fixed operating costs are spread over increased copper production. As mentioned during the presentation, the smelter project is expected to result in a significant cost saving in both logistics and other realization costs in the longer term. But we also see some room for savings on logistics in the interim.

[Bill Trenaman, Vice President of Investor Relations]

Thanks, David. Andrew has a second question that while we have you on the line, I'll ask. Is the Phase 2 startup expected to have a pre-commercial period in Q2 2022, similar to the Phase 1 startup in 2021? Or will this immediately start contributing to the joint venture earnings?

[David van Heerden]

Andrew, we expect the Phase 2 to immediately start to contribute to Kamoa-Kakula's joint venture earnings once the second concentrator plant starts to produce copper in concentrate. But this question is also a good opportunity to highlight the really quick ramp-up we've experienced with Phase 1, where first ore was introduced into the concentrator plant on May '0. And initial commercial production was declared on July 1, which is, I think, is exceptional.

[Bill Trenaman, Vice President of Investor Relations]

Thanks, David. Now I'm going to turn the floor over to Robert to answer a question from Orest Wowkodaw of Scotiabank. And the question somewhat of a 3-part series, is does Ivanhoe Mines plan to develop all 3 projects in the portfolio, Kamoa expansions, Platreef and Kipushi concurrently? Assuming Kamoa expansions are the top priority, is Platreef or Kipushi likely to be the second project under development? And does the company have the bandwidth and financing ability to be constructing all 3 projects at once? Over to you, Robert, please?

[Robert Martin Friedland, Founder & Executive Co]

Well, thank you. Look, Kamoa and Kakula are Tier 1 mine. That's where [indiscernible] came from, a Tier 1 mine in Nevada. BHP came from a Tier 1 mine at Broken Hill. So we definitely intend to build a major mining company off of these Tier 1 assets. And we definitely have the bandwidth to develop all 3 projects. And in fact, they're very well -- they're well advanced. The Kipushi mine, we've completely redeveloped the underground in the last 5 years. Everything you see there is new underground. So we're limited to a dedicated team starting scoping of some of the richest base metals ore in the world and a 45% zinc equivalent with silver credits, germanium credits and copper credits. It's one of the highest grade ore bodies on this planet.So building a concentrator with the underground already developed is a relatively straightforward task for a dedicated management team. I'd remind you, in the Congo, we have hydroelectric power, and we don't have any snow, and we don't have any ice. So we have natural advantages, and we have a population of close to 90 million people to choose from in the management team. So Kipushi is kind of a dream mine, and we can definitely develop it with a dedicated management team. Pierre, our Chief Technical Officer, used to run that mine. He knows it like the back of his hand, and that's ready to go.Platreef has also been under development for some 25 years. The #1 shaft has already been sunk. It's a very short drift into extremely high-grade platinum, palladium, rhodium, copper, nickel and gold ores. So the small mine, as long as it's financed, we're building a concentrator, definitely our separate team that's resident at the mine site and in South Africa is quite ready to do that. So we have an independent Congolese unit. There was a lot of [ cross-pollinization ] between Kamoa-Kakula and Kipushi, they're both in the Katanga province. But South Africa as a separate, deep, experienced management team with a lot of the underground development already underway and with separate financing facilities.So yes, we will develop all 3 of these mines. We slowed down 2 of them at the beginning of the COVID-19 panic. I went to the PDAC almost 2 years ago, when the first cases of COVID-19 broke out in Canada. And you all remember, it was quite a scary period. So we decided to tighten our belt and sprint to production at Kamoa-Kakula quickly as possible. And as the world knows, we brought this mine in production ahead of schedule and under budget. And you can't really find that anywhere else in the global mining industry.I can give you a long list of the copper mines that either won't get built or already many years late, but we have enough analysts on this call to make that list themselves. It's sort of a pink unicorn to bring a mine on schedule, let alone ahead of schedule and on budget, let alone under budget. And that's a testament to the fact that the greatest projects attract the best people. So we've got people from all over the mining industry, at all levels, applying to come join our organization because they see that we're going to build a world-class major mining company.Kamoa-Kakula has reserves to last for more than 50 years, and the same is true of Platreef. So these are absolutely at the very top of Tier 1 resources. I would remind you that the Platreef project is the world's largest precious metals development. And it also has an enormous nickel and copper sulfide resource, which is very important to the electric metals requirements of the planet. So yes, we're going to bring all of these in production. They're all opening soon at a theater near you.

[Bill Trenaman, Vice President of Investor Relations]

Excellent. Thanks, Robert. Now I'm going to turn the floor over to Alex Pickard to answer your question from Sam Crittenden of RBC Capital Markets. And the question is; Alex, can you give some more color to the planned Kamoa onsite smelter in terms of your approach to sizing, CapEx and timing?

[Alex Pickard, Vice President of Corporate Development]

Okay. Thanks, Bill, and thanks, Sam, for the question. Look, I think the first thing to say on the smelter is that we will be awarding the basic engineering for the smelter imminently. And it is a project that we're excited about for a couple of reasons. First of all, I think there's a great impact on the economics for Kamoa-Kakula overall, and David touched on that, but also in terms of our green credentials. We think it's fantastic to operate a smelter on hydropower in the DRC instead of, say, a smelter in Asia running on coal power, but also in terms of what we're shipping and what we put on the road, so we can effectively halve the number of trucks that we are sending. So we think from a CO2 point of view, there's also a huge benefit.In terms of the sizing of the smelter, I think people will have picked up in our press releases that we've increased the sizing from the sort of 400,000 tonnes of blister copper capacity we were looking at before, up to around 500,000 tonnes of blister copper. And I think that's partly a reflection of how much we've accelerated Phase 1 and Phase 2, and we will look to accelerate Phase 3. So that 500,000 tonnes will accommodate the bulk of the Phase 1, 2 and 3 concentrate, but also leaving some concentrate left over to send to the Lualaba copper smelter where we have a successful partnership.In terms of the CapEx, I think our previous guidance was somewhere in the region of $600 million, but that was a slightly smaller smelter. So I would say that it will be a little bit higher, but not materially higher, but we will come out with more information on that. And in terms of the overall timing, obviously, with the basic engineering, we're looking to move this project ahead as fast as possible. In terms of the actual execution timeline to engineer and build the smelter, it's somewhere in the region of 3 years. But crucially, we will tie it in with the startup of the new power generation at Inga II dam. And so we will come back to the market with firmer timing on when that will be possible. Thank you.

[Bill Trenaman, Vice President of Investor Relations]

Great. Thanks, Alex. While you're on the phone, we have some questions from Dalton Baretto of Canaccord Genuity. And they're probably best answered by you. So the first one is, given the mining productivity to date, the smooth ramp-up of the mill and the optimization work to date, do you anticipate Phase 1 being able to operate above design capacity? If so, by how much?

[Martie Cloete, President & CFO]

I will take that one, Bill.

[Bill Trenaman, Vice President of Investor Relations]

Yes, it sound like -- I think we subsequently end up -- go ahead Marna.

[Martie Cloete, President & CFO]

Yes. So yes, we do anticipate it to -- definitely anticipate it to operate above design capacity. Our team is also currently working on a number of optimization initiatives. And in the short term, up to 15% additional throughput is planned and even more in the long term.

[Bill Trenaman, Vice President of Investor Relations]

Thanks, Marna. The second part of Dalton's question is, is there a possibility you could commission Phase 2 in the early part of Q2? And what is the critical path item to achieve this?

[Martie Cloete, President & CFO]

Definitely, that is our current objective. The critical path is running through the electrical installation. And in particular the last delivery of the electrical components to site. Everything is currently on the African continent. So we don't really foresee an issue or delay. So planning for a report of Q2.

[Bill Trenaman, Vice President of Investor Relations]

Thank you. And the third part is, the question is, given what you've learned from Phase 1, do you anticipate Phase 2 being able to operate above design levels as well?

[Martie Cloete, President & CFO]

Most definitely, there is no reason to believe that it will be any different from Phase 1. In fact, we have implemented our lessons learned on Phase 1 into our design and implementation of Phase 2. And we envision an even smoother ramp-up than Phase 1.

[Bill Trenaman, Vice President of Investor Relations]

Great. Last but not least from Dalton is, with the onsite operations going so well, how is the logistics chain to and from the port working?

[Martie Cloete, President & CFO]

It's going well. I wouldn't say it's without hiccup. We've had a few issues at the Durban port, especially with a lot of demand on freight on sea going to the U.S. and shortages coming to Africa. But luckily, we had all our procurement items procured well ahead of time. So that's been delivered to site. And we don't foresee any impact on our schedule as a result of it.

[Bill Trenaman, Vice President of Investor Relations]

Thank you, Marna. We have a question for Robert and it's from Lawson Winder of Bank of America. Robert, the question is, given the exploration plan for the Western Foreland in 2022, when do you anticipate you'll have an initial resource? And will it include existing deposits like Makoko and Kiala? So either to Robert or to Alex.

[Alex Pickard, Vice President of Corporate Development]

I don't hear, Robert, so I'll take that one. So look, I mean...

[Robert Martin Friedland, Founder & Executive Co]

And I'm back, I'll take -- since I love Lawson, I'll try to answer that question. Look, this is a 400 square kilometer joint venture in a copper bearing basin that's at least 3,000 square kilometers. All of it has the same geology. So this is oilfield geology. These are stratabound systems that were constrained by one super giant geological event throughout the entire basin. It's just like the Witwatersrand basin for gold, ultimately hosts hundreds of gold mines in the Witwatersrand basin. There's just enormous potential to find additional animals in this jungle. I mean, if you look at these pictures, due to the curvature of the earth, you can only see 26 kilometers. A ship disappears at sea at a distance of 26 kilometers due to the curvature of the earth.But just going to the south, this license of Western Forelands is something like 6x longer than the distance that you can see to the horizon are 150 kilometers, 175 kilometers. In addition, we may be acquiring additional ground in the basin. So in this jungle, there's all kinds of animals. You have a Kamoa, which might be a zebra or you see at Kakula, which would be a lion. And when you go in the jungle, you can find hairy aardvarks and you can find ant eaters and you can find elephants. And what we're looking for, of course, are blue whales or brontosaurus. So I wouldn't worry too much about Makoko or Kiala.Kiala is very close to our northern concentrator. It's very high grade. The bonanza zone is ridiculously high grade. You've got $1 billion or $2 billion in a couple of million tons of rock. So there are potential for extremely high grade, structurally controlled copper deposits like the bonanza zone, and there's deposit -- there's potential to find more Kakula or maybe even something better. So I wouldn't really worry too much about quantifying Makoko or Kiala other than they represent proof that the basin is pregnant with copper. The step out distance from Kakula to Makoko is a distance of 25 kilometers or 30 kilometers. I can't think of any incidents in my 40 years in mining, where a mining company has done a 25 kilometers or 30 kilometers step out and encountered exactly the same type of mineralization as they encountered when they started.So the scale of the mineral exploration potential will be realized over decades. You can find mines here faster than you can build them. And we're responding in sort of a legendary buildup of copper because, first of all, we don't have license now. We're not in the Cordillera in British Columbia at high elevation. We're on basically flat land. We can operate year around 365 days a year. You have to start by building a road system through all this lands. We've just built a 65 kilometer initial spine road going into this completely untested terrain. And so there's a big sort of military logistical campaign underway just to open the place up. You don't really want to drive 65 kilometers or 70 kilometers from an exploration camp back to Kakula, for example.So we're going to be establishing remote camps. And so it's a very serious military grade effort, and we're really there to hunt very big game. The list of financial entities and major mining companies that have approached us to get involved in this asset would come -- almost everybody you could think of has expressed interest because there really is no place on Planet Earth, we can go out and find these kinds of copper assets. That's simply a fact.The copper belt east of Kolwezi was the largest producing copper zone on Planet Earth until Chile got invented in the 1970s. But these giant porphyry coppers chew up enormous volumes of rock and enormous volumes of electricity per unit of copper produced. And so when you look at their global warming gas per unit of copper produced, they're horrendous. I mean, a lot of the grid in Chile, for example, is burning coal. So they're coal burning mines. And so as COP 26 has happened and people read about scope 1 and 2 emissions, let alone scope 3. And our scope 3 should be negative because our copper is powering the energy transformation.What we're doing here is absolutely critical to the world's attempt to directly address the global warming gas problem. That puts a lot of responsibility on those of us on this call because this is a legendary scaled effort. And I really wouldn't want to comment on an ant either or a small anaconda snake or a Zebra. We're really out there to find really large deposits and to understand the basin. We have some 20 years in this geological environment. And I would say, by way of a clue, that there are about 4 factors that have to come together to create a Kakula. And we know what those 4 factors are. If you get 3 of them, you'll get something like a Makoko. A Makoko would have been the biggest copper mine in the British Empire. If we went back 100 years, it would be a Tier 1 deposit, but it's just not as big as Kakula because at Kakula, we have all 4 elements of our secret sauce.So in surveying the basin and identifying the sub-basins, where the right 4 factors exists, we think we have a head start on looking for some really, really large deposits. And so you have -- in a sense, you have 3 or 4 mining companies in one here. You have a cash generation machine that is going to grow faster than anybody else in the mining industry. There is no gold mine in the world that can scale as fast as this copper mine can. There's no copper mine in the world that can scale as fast as this copper mine can because of the very low capital intensity. After all, we have about $1.75 billion of copper sitting in the surface that we've already mined that hasn't even gone through the concentrator yet and the capital cost to build that mine that you see there was only $1.3 billion.So this is a mine that can bend over and pick itself up off the floor by pulling on its boot straps, and our responsibility is to set the highest ESG standard humanly obtainable. And that's why we're putting so much effort into hiring women and hiring local people and training young people based on their aptitude for work so that we set a very, very, very high ESG bar because we think copper mines that can produce copper with less global warming gas than anyone else will have a commodity that will trade at a big premium to a normal copper mine that is generating a lot of global warming gas. And we think companies that set a very high ESG bar will attract capital at a lower cost and in larger quantities than you would in a traditional mining company.So our mines is a redesign of the mining industry from a clean slate. Everything was consciously thought through. The team, the technical team is very broad and very deep. And the cultural change for those that come and visit us, you'll see that it's quite an improvement on the traditional mining industry. Very efficient, very passionate people, similar to a Silicon Valley culture, people that know they're making history and are proud of doing it. So we invite you all to continue on this journey with us because the best is yet ahead of us. This is just our first earnings call. There'll be many more in the future, and there'll be a lot more news to disclose.So Lawson, I look forward to the time that you can come to Indaba. Maybe we'll jump in a helicopter and fly over the Western Foreland and give you an idea of the incredible scale of the geologic endowment we have ahead of us to explore on behalf of the Congolese people and all of our stakeholders. Thank you.

[Bill Trenaman, Vice President of Investor Relations]

Thank you, Robert. We are coming up to 1 hour, and we're running out of time very quickly. So we'll take one last question. It comes in from Farooq Hamed of Raymond James. And it's a question that I'll turn over to Alex and Marna to address. And it really relates well to what Robert said about Kamoa-Kakula's outstanding ESG credentials. The question is, how will carbon emissions from Platreef and Kipushi compare to Kamoa-Kakula? And the second part of that question is, how will you plan to manage carbon emissions across your asset portfolio?

[Alex Pickard, Vice President of Corporate Development]

Thanks, Bill. Perhaps I'll start with Kipushi and then maybe Marna is best placed to talk about some of the renewable initiatives that we're looking at with Platreef. So I mean, with Kipushi, look, I think from a kind of unit of zinc per -- sorry, CO2 emissions per unit of zinc point of view, it can be even better than Kamoa-Kakula because it also runs a 100% on hydropower. And if you think of what actually consumes the power, Kamoa-Kakula we're mining, let's say, 6% rock, and we're turning it into a concentrate of 55%. So that's a factor, let's call it an energy factor of 9 or 10. At Kipushi, we're mining 35% zinc, and we're turning it into a concentrate of 55%. So the same energy factor is probably less than 2 in terms of what you actually have to do to turn that into a marketable product. So from Kipushi's point of view, I think the CO2 emissions are fantastic in terms of the units of zinc that we will produce. Perhaps I'll pass over to Marna to talk about Platreef.

[Martie Cloete, President & CFO]

Okay. Thanks, Alex. I think Platreef is probably the more complicated project in terms of carbon emissions just because of its location in South Africa. That's still Eskom and coal dependent. And we're almost definitely exploring solar solutions, and that's part of the studies that our team is currently conducting. Earlier this year, President Cyril Ramaphosa announced that companies can now generate up to 100 megawatts of power for use in its own projects, and we plan on fully utilizing that allocation in the future once we get up and running.But the ethos in Ivanhoe is such that we are doing everything to ensure that we start chipping away at our carbon emissions. And that's why, as I've discussed earlier, we're starting with electric fleet at Platreef and planning to use electric fleet throughout the mine. So every bit helps. And I think it's just showing that we take it seriously, incorporating it into our design parameters, and that we've incorporated across the group into all our designs for smelters. We ensure that we use best of all practice in terms of emission standards. And that will be continually our focus to ensure that whatever we do across the chain, scope 1, scope 2, scope 3, we try and reduce our emissions.

[Bill Trenaman, Vice President of Investor Relations]

Thank you, Marna and Alex. Robert, I'd like to now turn it over to you for some closing remarks before we hand it back to the operator to conclude today's conference call. Thank you.

[Robert Martin Friedland, Founder & Executive Co]

For those interested in the green world, I thought we should add that one of our associated companies has built the largest vanadium redox batteries. They're grid scale batteries. Our customer was the China state electrical grid, and we are now coming out with a third-generation battery. That's vrbenergy.com. And adding a grid scale battery here in the Congo will eliminate any issues with momentary interruptions of power in the grid, they kick in instantaneously in a few billionths of a second. And you can also add an infinite amount of solar to the hydro we have because once you have a battery, you can charge that battery with our hydroelectric power. You can also charge that battery with solar. And that will apply in South Africa.South Africa has a huge vanadium endowment. We've been identifying the lowest cost sources of vanadium pentoxide in the world. But the future in South Africa lies in putting up solar and then building a big grid scale battery. And then you just get off the grid because Eskom is a bit of a disaster burning coal. So if you want a green mine, you've got to build a grid scale battery. And you put that in the capital cost.About 60% of the capital cost of that battery is the vanadium. The vanadium never wears out and it never catches on fire, unlike a lithium ion battery. So the future is solar and grid scale batteries producing these metals at the bottom of the cost curve. You've got to have an ore body with very broad shoulders, but Platreef is incredible. Just the rhodium credit alone has got more precious metal than most gold mines. So it will be a deeply negative cost nickel mine or a deeply negative cost palladium or platinum mine when you use the magic of byproduct accounting.Copper gold mines are better than having just one mine. But having 5 or 6 payable metals at Platreef makes it the very top of Tier 1, the very top of Tier 1. And we need sulfide copper. We need sulfide nickel. We need platinum and palladium. We need them for hydrogen fuel cells. And so it's going to be in the end a very green line, and we're very focused on doing exactly that. All you really need to do is throw up the solar, which is cheap and put up a battery solution and you're there.So with that, I welcome you all to this call. We are distributing Moderna and Pfizer vaccines to our labor force now. We've really got a world-class medical effort there. We think it's safer to go to our mine site than it is to run around downtown Toronto. So we are looking forward to welcoming visitors, and I think people that have been here to the site 2 to 3 years ago are going to be astonished at what they see when they land in a new Kolwezi Airport and drive on a new highway past these 220 KV lines up to this Tier 1 mine development. And we look forward to welcoming you all there, and we thank all of our shareholders who are having such a good experience sticking with us, and we caution that the best is yet to come. Thank you very much.

[Bill Trenaman, Vice President of Investor Relations]

Thank you. Operator, I'd like to turn it over to you now, please.

[Operator]

Sure. Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.