Zijin Mining, China’s largest gold producer and its second largest copper producer, announced separate agreements with Ivanhoe Mines and Barrick Gold in late May to acquire significant stakes in Ivanhoe’s Kamoa copper development project in the Democratic Republic of the Congo (DRC) and Barrick’s Porgera gold mine in Papua New Guinea.
Under terms of the Zijin-Ivanhoe agreement, Zijin will buy a 49.5% interest in Kamoa Holding Ltd., an Ivanhoe subsidiary that currently owns 95% of the Kamoa project, for an aggregate consideration of $412 million. The government owns the remaining 5% and has an option to purchase up to an additional 15%.
Under the terms of the Zijin-Barrick agreement, Zijin will acquire a 50% interest in Barrick (Niugini) Ltd. (BNL) for $298 million in cash. BNL owns 95% of the Porgera mine and manages it. Under the new structure, Barrick and Zijin will jointly control BNL. The transaction is expected to be completed in the third quarter of 2015.
The remaining 5% participating interest in Porgera is held by Mineral Resources Enga Ltd. and is divided between the Enga provincial government (2.5%) and local landowners (2.5%).
Core drilling at the Kamoa copper project.
(Photo: Ivanhoe Mines)
Zijin-Ivanhoe Agreement: Subsequent to the May 26 announcement of the Zijin-Ivanhoe Kamoa development agreement, the government of the DRC said the sale to Zijin could not be completed without government consent. Ivanhoe responded that, under DRC law, the agreement did not require government consent and that the agreement did not in any way diminish the government’s right to acquire an additional 15% interest in the project. (Details of the Zijin-Ivanhoe agreement presented below are based on the initial announcement and the assumption that that DRC government concerns will not interfere with eventual completion of the agreement.)
The Zijin-Ivanhoe “strategic co-development agreement” for the Kamoa project calls for an initial payment by Zijin of $206 million in cash upon closing. The remaining $206 million will be paid in five equal installments, payable every 3.5 months from closing and continuing through the remainder of 2015 and into 2016.
Zijin has committed to use its best efforts to arrange or procure project financing for 65% of the capital required to develop the first phase of the Kamoa project, as set out in the feasibility study, without any recourse, and on terms acceptable to Ivanhoe. Zijin will provide any and all required completion guarantees relating to the securing of project financing for the project. Pre-production capital to develop the first phase has been estimated at $1.4 billion.
The first phase of the Kamoa development targets underground mining of 3 million metric tons per year (mt/y) of high-grade copper ore and production of about 100,000 mt/y of copper in concentrate for sale to smelters. Planning for a second phase entails a major expansion of the mine and concentrator and construction of a smelter to produce 300,000 mt/y of blister copper beginning in the project’s fifth year of operation.
The long-term Kamoa production scenario calls for mining a total of 326 million mt at an average grade of 3% copper and production of 7.8 million mt of blister copper, plus 500,000 mt of copper in concentrate in the initial concentrate phase, over a 30-year project life.
Zijin-Barrick Porgera Agreement: Zijin and Barrick described their Porgera mine ownership and management agreement as a “strategic partnership.” In addition to the Porgera agreement, the companies have signed a long-term “strategic cooperation agreement” that outlines the intent of both companies to collaborate on future projects and joint investments, leveraging the strengths of each company.
The Porgera partnership applies to the Porgera mine, located at an altitude of 2,200–2,700 m in the Papua New Guinea highlands, about 680 km by road from the coastal port of Lae, from which all materials are delivered to the mine. Mining is both by open-pit and underground methods. Production for 2015 is forecast in the range of 500,000 to 550,000 oz of gold (BNL’s 95% share) at all-in sustaining costs of $1,025 to $1,125/oz.
At the end of 2014, BNL’s 95% share of Porgera’s proven and probable gold reserves totaled 3 million oz, while its share of measured and indicated resources totaled 4.1 million oz.
Regarding the Zijin-Barrick agreements, Barrick Chairman John L. Thornton said, “A 21st century mining company with global reach and the intention to become an industry leader must, by definition, have a distinctive relationship with China. This is particularly true in our industry, where China has become both the largest producer and consumer of gold, and a major source of capital and expertise for the mines of the future.
“Our partnership with Zijin is the first step in a long-term strategic relationship with one of China’s leading mining companies—a multifaceted partnership that will provide significant opportunities to work together on an ongoing basis as we continue to create value for our respective owners.”