January 10, 2022 | 15:26 ET~
Ivanhoe Mines
IVN-TSX Rating Price: Jan-7 Target Total Rtn Outperform $10.69 $15.00 40%
2022 Guidance: Setting the Stage for Strong Performance
Bottom Line:
Ivanhoe announced 2022 production and cost guidance at Kamoa-Kakula of 290-340kt copper at cash costs of $1.20-$1.40/lb, which includes the second phase of the project coming online in Q2 and surpasses our conservative expectation of 279kt. 2021 copper production was 105,884t after surpassing the 100,000t upper end of guidance on December 22nd, and December throughput and recoveries were above design rates. 2022 is setting up to deliver strong production growth and establish Kamoa-Kakula among the largest copper producers world-wide.
Key Points
2022 guidance forecasts strong production from Phases 1 and 2. The 290-340kt guidance exceeds our previous 279kt expectation, and we are updating our estimates to 315kt of copper in 2022, comprised of 210kt from Phase 1 and 105kt from Phase
2. Ivanhoe's 2022 guidance suggests a ramp-up profile for Phase 2 similar to the impressive timeline achieved with Phase 1, leading us to increase our modeled Phase 2 production to 105kt (from 79kt) in 2022.
Cost guidance is roughly in line with our pre-guidance expectations ($1.19/lb) and puts cash costs at $1.20-$1.40/lb, similar to the most recent level of $1.37/lb seen in Q3. We have adjusted our modeled financials to match IVN's earnings reporting in Q3, but we expect further adjustments in the categorization of G&A and other costs impacting EPS and CFPS over the next few quarters, and we will continue to fine-tune our estimates.
2021 copper production surpassed Ivanhoe's latest guidance of 100,000t, which was revised higher from an initial 80-95,000t. We note that Phase 1 of Kamoa-Kakula now appears to be consistently operating at or above its design capacity of 200ktpa just 6 months after declaring commercial production on July 1st, and highlight December's 17% outperformance above design throughput and 88.5% recovery (vs. design recovery of 86%). Indications from management that the steady-state production is sustainable above design capacity means that we could see these elevated operating results become a long-term trend.
Phase 2 remains on track for early Q2 startup and sits at 80% complete, up from 70% last month. Construction activities are now focusing on electrical, control and instrumentation. For Phase 3, IVN guided that results from the PFS are expected in Q3; Phase 3 will have a larger capacity than Phases 1&2 and will include construction of a 500ktpa smelter.