Ivanhoe Mines Ltd (IVPAF)

[JB3729]

BMO Nesbitt Burns reinstates IVN with a $3.25 target
Read more at http://www.stockhouse.com/companies/bullboard?symbol=ivn&postid=25435497#QFlibvwl88Zi6AhO.99

Kakula Is Copper-Grade Royalty; Reinstating Coverage at Outperform

Bottom Line: We are reinstating coverage of Ivanhoe Mines with an Outperform rating driven by our assessment of the Kakula discovery’s exceptional initial resource (October 2016) and development implications. In our opinion, the market has only partially reflected the value at Kakula and we expect further revaluation from delivery of engineering and development milestones.

Key Points

The October 12 initial resource at Kakula - in our opinion - elevates the discovery's value above Ivanhoe’s other assets and should attract the majority of the market’s attention. Kakula’s exceptionally high grades should allow early mining at almost twice the grade of Kamoa in addition to being thicker, flatter, and shallower. Kakula is the only large discovery we are aware of minable at 6+% copper.

For its three largest assets, Ivanhoe has arranged joint ventures to reduce financing risk. Zijin Mining is currently earning into a 32% interest in Kakula and Kamoa (with US$82.4mm in payments left to complete) and holds a 9.9% interest in Ivanhoe mines. JOGMEC has purchased a 10% interest in the Platreef deposit. In our opinion, joint ventures on these sizeable assets still leave significant exposure for Ivanhoe’s shareholders and do not extinguish potential takeover upside – a significant portion of world-class assets owned/developed/operated under joint ventures.
In our opinion, the most apparent risks visible for Ivanhoe investors is financing and political risks. We expect that by accessing debt, relying on their joint venture partners, and staggering development timelines of their assets, management should be able to secure financing requirements. While there remain uncertainties within the DRC, we would suggest that the operating track record of the large operating copper deposits in Southern Congo, several owned by major producers, shows that development and operations are possible.
Potential Catalysts:
Late 2016 - Kakula PEA (Preliminary economic assessment) and fast-tracking
towards development
Early 2017 – Platreef Feasibility – targeting grade scheduling and costs improvements
Early 2017 - Kipushi Feasibility - targeting capital cost reductions
Kakula Exploration Upside – ongoing extensional drilling to NW/SE and potential for additional targets on the larger Kamoa mining concession.