Why men race horsesBecause men can legitimately disagree which is faster. Perhaps one is fast out of the gate but the other strong down the back stretch. Only one can win, but before the race is run, each owner has a good, sound reason to believe he will win, and so it is with any race yet run, no winner can be crowned. And so it is with stock trades.
In regard to Ivanhoe, its leading cheerleader claims it is grade that matters most. On the other hand, I believe that delivery of product is more important than the quality of ore yet mined. The same very unhappy underwater shareholder, who complained I was picking on him, has repeatedly challenged me to comment on the recent “Technical Report” which might better be called a Recovery Plan. Naturally to understand where the company stands today, one needs to review its history and to recognize existing serious risks threatening profitability going forward.
We know that the two major costs in mining are labor and energy. Fortunately, mine work in that region is highly valued and Ivanhoe appears to maintain a good relationship with its employees and is relatively free from the type of labor unrest seen in some South American operations. It is when we look at the risks to a dependable power supply, it is apparent that this is Ivanhoe’s weakest link.
In the 2025 Fourth Quarter and Annual Financial Results, the company issues a bold claim-
“This extraordinary complex, which is the highest-grade major copper complex, has many decades of life ahead, powered by clean hydroelectric power…”
So, the question is will sufficient hydroelectric power continue to provide the major source of electrical power for the mines, and the facts are not reassuring. Fact number one – Kariba Lake is designed to operate between levels 475.50m and 488.50m and as of 7-Apr water level is 479.61 less than 1/3rd of capacity going into the normally dry summer. Fact number two – predictions of a “extra-strong” El Nino occurring during usual southern African historical rainy season thus threatening additional drought and rationing of hydroelectric power.
Recognizing the high risks to fluctuating rainfall and reduced hydroelectric power the company reports installation of diesel power generators to serve a backup, and although Ivanhoe also reports to have secured additional supplies of diesel fuel, the Iran War has shown just how sketchy is the supply of oil products with declarations of force majeure due to the closing of the strait. But the cost of diesel fuel can become quite problematic since fuel shortages are expected to continue for more than one month even after the Strait is re-opened.
https://www.youtube.com/shorts/Jf3rHAXOZj0 “Southern Africa could experience major hydrological changes in coming decades, bringing drastic changes to hydropower. … this study analyzed how these dams have altered river flows in the past, and how hydropower generation could be affected by future climate change and water … Future climate change could affect reservoir levels by decreasing water inflows and by increasing evaporation. Future climate change could affect reservoir levels by decreasing water inflows and by increasing evaporation. Results showed a decrease in median annual water levels for all reservoirs, with largest changes expected at ItezhiTezhi (−1.3 to −3.3 m), followed by Cahora Bassa (−0.8 to −2.8 m), Kariba (−0.2 to −0.9), and Kafue Gorge (0.1–0.2 m). Flows downstream of dams show a consistent negative trend, with mean annual flow changes of −30% to −49% at the furthest downstream gauge. The combined reduction in water levels and flows could result in decreases on average annual hydropower generation and increases in interannual variability; annual generation could decrease by −61% to −28% at Kariba.”
Arias: Future hydropower operations in the Zambezi... - Google Scholar If the cost of power should double, and a global recession reduce copper prices and demand, it is arguable that Ivanhoe’s earnings will fall with Ivanhoe’s own expectation of “cash cost (C1) range has been revised to $2.60/lb. to $3.00/lb. in 2026” after a loss of over 20% of the previous guidance on production.
How far and how fast earnings will fall of course is impossible to estimate in advance, but mining investors have long recognized risks without knowing the full consequence of those issues.
“Although mining of the Kakula orebody has restarted, risk factors remain, including the integrity of underground infrastructure, once fully dewatered, the ability to ramp up underground operations in line with expectations, the ability to access in the required time new mining areas. Guidance for Kamoa-Kakula is based on an assessment of these factors that management believes are reasonable at this time, given all available information.”