Daily Archives: August 2, 2017

Minerals & Metals

Ivanhoe Mines Releases PlatReef DFS with a 14% IRR

Ivanhoe Mines has released its much anticipated DFS on its US$1.544 billion Platreef 4 Elements (4E-platinum, palladium gold and rhodium) project in South Africa (DFS yet to be released on Sedar).

Ivanhoe #2 shaft sink in progress

Key features of the Platreef DFS include:

  • Indicated Mineral Resources at a  2 g/t 4E COG are 346 million tonnes at 1.7 g/t Pt, 1.7 g/t Pd, 0.1 g/t Rh and 0.3 g/t Au for 42 million ounces of Pt, Pd, Rh and Au with an additional 53 million ounces in Inferred Resources;
  • Mineral Reserve containing 17.6 million ounces of platinum, palladium, rhodium and gold;
  • Development of a large, mechanized, underground mine with an initial 4 Mtpa concentrator and associated infrastructure with plans to increase production incrementally to 12 MTPA;
  • Planned initial average annual production rate of 476,000 ounces  of Pt, Pd, Rhand Au(3PE+Au), plus 9,500 tonnes of nickel and 5,900 tonnes of copper in concentrates;
  • 174 kt of concentrate will be produced at 38 g/t Pt, 39.1 g/t Pd, 2.4 g/t Rh, 5.3 g/t Au, 3.35 Ni and 5.5% Ni;
  • Estimated pre-production capital requirement of approximately US$1.544 billion, at a ZAR:USD exchange rate of 13 to 1.
  • After-tax Net Present Value (NPV) of US$916 million, at an 8% discount rate.
  • After-tax Internal Rate of Return (IRR) of 14.2%.

The 14% IRR is less than appealing and they only got there by using some snappy metal prices:  US$1,250 per ounce (current price $945) for Pt, $815/Oz ($835) for Pd, $1,300/ozs ($1,270) for Au and $1,000/oz ($900-990) for Rh.

Net total cash cost + SIB capital (2017 mines in production and selected projects), US$/3PE+Au oz.

So how to finance this project.  Ivanhoe owns 64%, their Black Economic Empowerment (BEE) partner 26% and a Japanese consortium 10%.  New legislation would see the BEE percentage increase to 30% and that has to be financed.  Given the evolving political uncertainty in SA there might be some investor hesitation for a project in that country and which has a 14% IRR.  We will watch with the usual interest. 

Energy

US$25 Billion AP1000 Nuclear Plants Abandoned

The vast Summer Nuclear Power station project – now abandoned due to cost overruns.

The state of the US and indeed western nuclear industries is exemplified by the decision on Monday to abandon the 35% completed Summer Nuclear Power Station project in south Carolina.  These were the only nuclear plants being constructed in the United States and upon completion would have been the first new plants since the 1980s.

South Carolina Electric & Gas Company (SCE&G), principal subsidiary of SCANA Corporation (SCANA) (NYSE:SCG), announced it plans to cease construction of the two new nuclear units at the V.C. Summer Nuclear Station in Jenkinsville in the USA.

The decision was reached due to the revised anticipated costs of construction being more than US$25 billion up from US$11 billion, uncertainty regards production tax credits (the plants would need to be in production by 2021 which seems most unlikely to qualify) and the realistic level of payments from Toshiba.  In addition the co-owner of the project, the South Carolina Public Service Authority elected to suspend construction as they had determined that it would not be in the best interest of its customers and other stakeholders to continue construction of the project.

Based on an independent evaluation the parties concluded that completion of both Units would be prohibitively expensive.

SCE&G also considered the feasibility of completing the construction of Unit 2 and abandoning Unit 3 under the existing ownership structure and using natural gas generation to fulfill any remaining generation needs. This option provided a potentially achievable path forward that may have delivered SCE&G a similar megawatt capacity as its 55% interest in the two Units and provided a long-term hedge against carbon legislation/regulation and against gas price volatility. SCE&G had not reached a final decision regarding this alternative when Santee Cooper determined that it would be unwilling to proceed with continued construction of two Units or one Unit. Consequently, SCE&G determined that it is not in the best interest of customers and other stakeholders for it to continue construction of one Unit.

Based on this evaluation and analysis, and Santee Cooper’s decision, SCE&G has concluded that the only remaining prudent course of action will be to abandon the construction of both Unit 2 and Unit 3 under the terms of the Base Load Review Act.

The cost blowout was due to the construction of a first-of-kind AP1000 reactor.  The AP1000 is  Westinghouse’s  new generation reactor designed for lower cost of construction and higher safety.

AP1000 nuclear plant components

The AP1000 plant was completely resigned from earlier generation plants with:

 

  • Fewer safety-related valves
  • Less safety-related piping
  • Less control cable
  • Fewer pumps
  • Less seismic building volume

Nevertheless, in the USA it seems that nuclear plants are unlikely to be economic now or in the immediate future.

 

Energy

Oil Price Above US$50/BBL

US oil prices (WTI) settled above US$50 per barrel on Monday, the first time for several months.  WTI futures rose 95% with many technical indicators showing a strong buy.  Likely automated trading followed the momentum.   Brent rose to US$50.20 a barrel in the ICE.

What drove this?  Likely a combination of rapidly declining US storage and the Saudi announcement that it will limit exports. The other drivers in the markets which is likely to limit the upside is US fracking which becomes increasingly profitable at these prices and recovery from the supply glut and the lack of OPEC restraint of the last few years.

We now have the perfect storm for speculative price moves, with declining inventories and a commitment to supply restriction plus continuing growth in demand.  While increasing US supply on any price uptick will see a cap on prices, the EIA announced that production in May was less than previously anticipated.