Ivanhoe Mines Ltd. (OTCQX:IVPAF) Q2 2022 Results Conference Call August 15, 2022 10:30 AM ET
Company Participants
Matthew Keevil – Director of Investor Relations and Corporate Communication
Robert Friedland – Founder & Executive Co-Chairman
Marna Cloete – President
David van Heerden – Chief Financial Officer
Alex Pickard – Vice President, Corporate Development
Conference Call Participants
Lawson Winder – Bank of America
Andrew Mikitchook – BMO Capital Markets
Operator
Good day, ladies and gentlemen. Welcome to the Ivanhoe Mines Q2 2022 Financial Results Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Matthew Keevil, Director of Investor Relations and Corporate Communication. Please go ahead.
Matthew Keevil
Thank you, operator. Hello everyone. My name is Matthew Keevil and I’m the Director of Investor Relations and Corporate Communication for Ivanhoe Mines.
It is my pleasure to welcome you to our second quarter 2022 conference call. We will finish today’s event with a question-and-answer session. You can submit a question using the Q&A box on the webcast page as well as through the conference operator via your phone line. Given our time constraints, we will unlikely that we will be able to answer every question. Our apologies if we run low on time, our IR team will endeavor to collect the questions for follow-up.
Before we begin today, I would like to remind everyone that the event will contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Details of the forward-looking statements are contained in our August 15th press release as well via SEDR and our website at www.ivanhoemines.com.
It is now my pleasure to present Ivanhoe Mines’ Founder and Co-Chairman, Robert Friedland.
Operator
Robert, we are connected. We’re not hearing you. You might have self-muted on your end.
Robert Friedland
Yes. Thank you very much. Thank you to everybody on this call. It’s been a very good quarter for Ivanhoe Mines, underlining the fundamental importance in mining of having a Tier 1 ore body at the bottom of the world’s cost curve. It was an excellent quarter, given primarily driven by the fact that, we are using low-cost hydroelectricity produced green copper in the Congo.
We see a number of factors that give us great optimism of the future. We invite comparisons to any other competing operation anywhere in the world. So, I want to turn this over to a very, very, very strong operating team, Marna and David, to take you through all the details and later in the call, I’ll be back to answering questions.
Thank you very much. Marna?
Marna Cloete
Thank you, Robert, and good afternoon everybody from a very challenging Johannesburg. The second quarter for 2022 marked a number of significant milestones on our journey to become a major diversified mining company. This includes Kamoa-Kakula declaring commercial production our Phase 2 ahead of schedule, the completion of changeover and equipping of Shaft 1 at our Platreef project, and in June, Ivanhoe and Gécamines approved the development budget at Kipushi project.
At Kamoa-Kakula ramp up of Phase 2 continues and it is anticipated that the market global reach combined proper production of 450,000 tons by the second quarter of 2023 after the completion of the debottlenecking program. With the early commissioning of Phase 2, it allowed us to tighten the lower end of our guidance and revise our production guidance upwards to between 310,000 tons and 340,000 tons of copper and concentrate for 2022.
During the ramp up of Kamoa-Kakula produced a record 32,877 tons of copper in July, for an annualized production rate of 387,100 tons of copper that is significant seeing that vice to it were commissioned in April. The Phase 3 expansion is ongoing. This will increase copper production to 600,000 tons per annum by Q4 in 2024. This expansion will be funded from cash flows and joint venture facilities.
David van Heerden, our CFO will talk you through our quarterly numbers shortly. But it might be worth mentioning here that we did see an increase to our C1 cash costs during the second quarter. Cash costs per pound of favorable copper produced that was $1.42 per pound, compared to $1.21 per pound and the $1.28 per pound in the first quarter of 2022 and the fourth quarter of 2021, respectively. The increase mainly declined to logistic charges; and Alex Pickard, our VP Corporate Development will discuss a number of initiatives currently underway to reduce these charges.
We do expect to see a slightly elevated cash costs in the third quarter. We’re off the chip reduce in the fourth quarter wanting to Lualaba Copper Smelter returns online in early September of the scheduled maintenance dispose this coming quarter and the cost saving initiatives start yielding results. We therefore reiterate our C1 cash flows guidance for Kamoa-Kakula of $1.20 to $1.40 per pound for the calendar year 2022 and expect our crash cost to be at the upper end of guidance for the year.
Environmental, social and governance remain at the heart of what we do. And in May, we proudly published our fifth annual sustainability report. In June, Ivanhoe’s membership of the United Nations Global Compact, and we remain committed to upholding the 10 principles underpinning this initiative. We do acknowledge the importance of gender diversity and diversity in all forms, but particularly in the DRC where female representation in the mining sector was lagging behind.
We have established group-wide targets for the gender inclusion. We are also committed to ensuring that the majority of our workforce is comprised of local employees from the footprint areas of our minds. To achieve this, we have established world-class training centers to capacitate local community employees.
Acknowledging that not everyone can be employed by our mines, we also apply a significant focus on enterprise and supplier development, seeking to incorporate these local businesses into our supply chain and to capacity thing for sustainable business operations beyond the life of our mines.
At the time when the world is experiencing significant deflationary charges, in particular pertaining to fields, we are fortunate that in the DRC our investment in refurbishing existing hydropower facilities provides better fuel inflation as well as enable us to attain our vision of being a green metal producer.
I will now hand over to David van Heerden, our Chief Financial Officer, to take you through our second quarter results. Over to you, David.
David van Heerden
Thank you, Marna, good day to everyone joining the call today. The second quarter of 2022 was another quarter of exceptional operational performance of Kamoa-Kakula. However, the results were impacted by the decline in the copper price at the end of the period and inflationary pressures, both of which we will discuss in a little bit more detail.
This call is, of course, just a high-level summary of our quarterly results and the presentation should be viewed in conjunction with the quarterly financial statements and MD&A for the three and six months ended June 30, 2022.
In just its fourth quarter since the commencement of commercial production, Kamoa-Kakula sold almost 86,000 tons of payable copper in concentrate, leading to quarterly revenue from contracts receivables of $699 million before a negative remeasurement of $205 million at the period end. The highs will be higher diesel prices and other factors combined with limited trucking capacity, which is worsened by the marked increase in terms produced by Kamoa-Kakula resulted in an increase in cash costs.
More importantly, though, Kamoa-Kakula was able to sell 1,000 tons in excess of payable copper produced in the quarter. The decrease in Kamoa-Kakula’s EBITDA to $296 million for the quarter was largely due to the remeasurement of sales, which I’ll explain further now on the next slide, which focuses on the greater detail of Kamoa Holding’s joint ventures profit.
Revenue from contracts receivables booked at the average copper price during the month of sale was up to $699 million in Q2 compared to $467 million in the first quarter with the increase driven by the production from Phase 2.
Q1 sales was remeasured at the end of March at the copper price of $4.69, while the realized copper price for Q2 was $4.34 per pound. Furthermore, the outstanding balance of provisioning price sales will remeasure at the end of June using a copper price of $3.79 per pound, with these collectively resulting in the negative mark-to-market in Q2 of $205 million.
Kamoa-Kakula’s cost of sales for the second quarter was $273 million in total and $1.15 per pound of payable copper sold up from $1.08 in the first quarter, after deducting G&A, the operating profit for the second quarter for the year was 253 million and Kamoa-Kakula’s EBITDA of $286 million.
Kamoa holding recorded finance cost of $66 million in Q2, which was principally the interest on the shareholder loans from Ivanhoe infusion as well as interest on Kamoa-Kakula’s equipment financing facilities.
Deferred tax was $57 million during the quarter with a current tax expense of $5 million. The non-controlling interest of $37 million represents the profit attributable to the DRC government’s 20% interest in the Kamoa-Kakula mine complex leaving a profit of $100 million attributable to the joint venture partners, Ivanhoe share of which equaled $50 million for Q2.
If we turn to Ivanhoe’s consolidated results for the second quarter, the chart on Slide 6 starts with the last one, which is showing Ivanhoe’s share of profit from Kamoa joint venture of $50 million for the quarter. Additionally, Ivanhoe earned interest income of $35 million from Kamoa Holdings in the second quarter. All the shareholder loans advanced to the joint venture.
During the quarter, the Company spent $10 million on the Kipushi project, $4 million on Western Foreland exploration and $4 million on general and administrative expenditure. Cost incurred at the Platreef project of the industry to bring the project to commercial production and therefore capitalize as development costs in property planting equipment.
The $134 million gain on the fair valuation of and the financial liability in Q2 represents the change and the deemed fair value of the conversion feature attached to the $575 million, 2.5% convertible senior notes, which Ivanhoe closed in March of 2021.
The conversion feature is an embedded derivative financial liability and the fair value changes principally due to the fluctuations in our share price. And the gain is therefore resulting from the decrease in Ivanhoe share price from end of March to the end of June this year. Ivanhoe recognized finance cost of $10 million in Q2 relating only to the interest on the convertible notes at an effective interest rate.
With the agreement of the development plan by the shareholders of Kipushi and the approval of the development budget consistent with the Kipushi in 2022 feasibility study. It has been probable that future taxable profit will be available from the Kipushi project at which and it can offset its unused tax losses and unused tax credits. And we therefore recognized the previously unrecognized deferred tax asset in June of this year and leading to a gain of $114 million.
The aforementioned items ultimately build up to Ivanhoe’s profit for the second quarter of $352 million. The cash cost per pound of payable copper produced and for delivery to China was $1.42 per pound in the second quarter and up from $1.21 per pound in the first quarter of this year. And cash cost per pound of payable copper for the second quarter were higher largely due to a 42% increase in logistics charges for the transportation of Kamoa-Kakula’s copper products.
And as Marna mentioned, our cost reduction initiatives will be detailed a little bit later in this call. We also saw an increase in mining costs due to the high diesel prices as well as some other higher price seen in consumables as well as due to the utilization of some of our surface stockpiles which ships at a slightly higher average rate.
We have a strong balance sheet and are well positioned to support the development and growth of our projects with $507 million in cash and cash equivalents on hand and consolidated working capital of $550 million. Our liabilities of $734 million and $775 million of that relates to the 2.4% convertible notes and with these only due in 2026 with possible earlier redemption.
Our forecast has spent for 2022 is $251 million on Platreef of Kipushi and continued exploration on the Western Foreland and recovery rates. And all operating and capital expansion cost at Kamoa-Kakula are expected to be funded from copper sales and facilities at Kamoa. We also expect to receive the secondary payment on the Platreef streams later this quarter, which will add a further $225 million to our cash position at that time.
I will now hand over to Alex Pickard, Vice President of Corporate Development; and Marna to provide a brief update on the development project.
Alex Pickard
Thank you, David and good day to everybody on the line from a very warm and humid London. I’ll take you through the key operational results for both Kamoa-Kakula and the Western Foreland from the second quarter. Kamoa-Kakula had another stellar operational quarter with the biggest achievement being the very successful ramp up of Phase 2. I think it’s worth highlighting the timelines of this incredible ramp up. We commissioned the plant on March 21, just before the end of the first quarter, and by April 8, a little over two weeks later, we declared commercial production.
During the first month of production, in fact, the first two weeks of production, the Phase 2 concentrator was already regularly exceeding its design throughputs and achieving close to design recovery of 86%. This trajectory has been continued by the operations team, which you can see from the record production month of close to 32,900 tons of copper achieved in July. This is close to 400,000 tons on an annualized basis.
As a result, we have raised the lower end of our production guidance from 290,000 tons to 310,000 terms and also maintain the upper end of the guidance at 340,000 tons, and we expect to be comfortably within this range. The debottlenecking program at Kamoa-Kakula is also progressing well, and we expect this to be completed by the second quarter of next year, increasing the production capacity to approximately 450,000 tons of copper.
In tandem with this, we’re also working on mine optimization plans at Kakula targeting increased mining rates to meet the expanded plant capacity of 9.2 million tons after the debottlenecking. While this ramp up and material handling capacity underground takes place Kakula, we will be feeding some material from the stockpile, which is at a slightly lower but still a very healthy grade of 4% to 5%, and we will target getting back towards 6% copperhead grades later on this year.
The exceptionally strong production ramp up at Kamoa-Kakula did mean that we sold a much larger volume of copper products, primarily copper concentrate, but also blister copper from Alltel smelting agreement at the neighboring Lualaba Copper Smelter. The charts on the right hand side process in context, we saw an increase of over 70% in terms of the absolute volume of concentrate dispatched during the quarter.
Looking more closely at these numbers, you’ll see that the volume dispatched for local treatment actually decreased at the Lualaba Copper Smelter was closed for scheduled maintenance. And we do expect this to continue through the third quarter, which means in total, we will be exporting a larger volume of concentrates until that smelter is running again.
So, as David and Marna both pointed out earlier, the main result of this was that we faced a significant cash cost increase in our logistics charge of roughly 42% in Q2. This is partly due to the pressure of these additional volumes on the trucking capacity as well as some issues ramping up customs clearing procedures and congestion on the DRC Zambia border, but there are also some regional factors at play here such as the interrupted port operations at Durban caused by flooding and global increases in diesel prices.
Kamoa Copper is working very closely with its off-take partners CITIC and Zijin as well as the DRC government to address these issues. And we already have plans in place which include the facilitation of increased trucking capacity, helping the DRC government to improve customs clearing administration, and we are also very pleased to note that there is now a second import export border between the DRC and Zambia opened at Sakania to add to the previous single border at Kasumbalesa, which was the bottleneck.
In terms of shipping, we are now exporting via four different ports on the African continent which provides much greater flexibility with the potential to add a fifth at Lobito in Angola, where a concession was re was recently awarded.
Finally, coming back to the big picture on cost, we expect a step change improvement once our onsite director blister smelter is commissioned, which we’ve conservatively estimated can reduce costs by 10% to 20%. The main impact is by significantly reducing per unit the volumes shift by over 50% which also includes the Phase 3 volumes, but as well as this, the smelter generates valuable byproducts from the sale of sulfuric acid, which commands a high price in the DRC copper belt currently.
Turning now to our Phase 3 expansion plans, we are well underway with the 5 million ton per annum mining concentrator expansion, which is on track for the end of 2024. The graphic on the right hand side shows the location of the Phase 3 concentrator, which will be close to the new box cuts and declines opening up on the Kamoa 1 and 2 mines that are both progressing well. In June, we placed orders for key equipment which included ball mills, crushers, flow cells and filters for the plant.
For the state-of-the-art 500,000 ton per annum director blister smelter I mentioned before, we commenced earthwork on sites in the quarter, and in June we also placed orders for the furnaces and other long lead time equipment. So that project is also progressing very well. All of this comes together with the works at Inga II where we signed up the EPC contractor in April and work is now underway to upgrade Turbine 5, which will provide a critical green source of power for all of our expansion plans.
We’re in the process of completing a prefeasibility study that brings together all of these Phase 3 projects together with the optimization work we’re doing at the Kakula and this will provide up-to-date guidance on costs by the end of the year.
Moving on to exploration, at the Western Foreland, we were back exploring in the field during the second quarter, which followed the typical end of the rainy season. Our airborne gravity and electromagnetic surveys of the entire 2,400 square kilometer land package are nearly complete, which allows a significantly improved targeting over what is an extremely large area.
During the quarter, we have been drilling extensions to the existing discovery of Makoko located to the West of Kakula as well as regional stratigraphic drilling in the north and far south west areas of the license package. But we have a lot more drilling planned for the entire season, including 50,000 meters in shallower areas and up to 45,000 meters in deeper regional drilling. So, we are very excited to see what that brings.
With that update, I will now pass back to Marna to cover the other projects.
Marna Cloete
Thank you, Alex. Just focusing on Platreef first, following the completion of the shaft equipping and changeover, and lateral development commenced in the second quarter, our underground development is focused on the waste passes on the 750-meter 850-meter and 950-meter labels with 200 meters completed on the 950-meter label. Lateral development on the 750-meter and 850-meter labor will commence in the third and fourth quarter.
In August 2022, we completed the construction of the 26-meter concrete each to collar at the 10-meter diameter shaft 2, which is on the critical path for the future expansion of Phase 2. We plan to continue with the construction of 103-meter-tall headgear shaft 2, as this will allow for optionality to bring forward the 5.2 million ton per annum mine at Platreef.
The construction of a 5 megawatt solar plant has scheduled to commence in the third quarter with commissioning expected in 2023. Expenditure for the rest of the year equates to $129 million, and as David previously mentioned, we plan to draw the remaining $225 million of the $300 million stream facility in the third quarter, which will fund our ongoing efforts at Platreef.
And then back to the DRD, in June, Ivanhoe and Gécamines approved a development budget for Kipushi that was in line with the published feasibility study that we released earlier this year. Early works have commenced, which consists of underground preparatory work. This will enable the project to be completed on the planned timelines.
Long lead orders are being prepaid and preliminary construction work is underway. It is expected that financing discussions will be concluded within the next three months, where after full construction activities will be able to commence. Ivanhoe is well underway on our journey to become a leading supply of critical meters for the green energy, clean energy transition. With our Tier 1 assets in various stages of development, we are well placed to realize our vision.
I will now hand back to for today’s Q&A session. Thank you.
Matthew Keevil
Thank you, Marna. We will now begin the question-and-answer session. A reminder that if you have — would like to ask a question, please submit it via the Q&A box on the bottom left hand corner of the webcast page. We will do our best to answer as many questions as possible with the time we have remaining. Operator, first let’s turn it over to the conference line to answer anyone that’s waiting on the line with a question. Thank you.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] We’ll take our first question from Lawson Winder, Bank of America. Please go ahead.
Lawson Winder
While it is just a hiccup what would otherwise be a fairly extraordinary ramp up for a new mine. I did want to focus on the cash costs and the cash guidance for 2022? Marna, you’ve made a comment that Q3 ’22, cash costs would be slightly elevated. And it would be really helpful for you just get some clarity on whether or not you meant higher versus Q2 or just elevated versus guidance or what exactly you might mean by that? That would be very helpful. Thank you.
Marna Cloete
Thank you, Lawson. Maybe I can start and David, do feel free to jump in. I think our expectation was to trend below our existing guidance, but we do anticipate that we will trend slightly above guidance for the third quarter just as a result of the new Lualaba Copper Smelter undergoing scheduled maintenance. And because the measures that we are implementing, that Alex is alluding to, will take a bit of time due to bear fruit.
We all speaking to customers authorities, as Alex mentioned, we are adding trucking capacity. And all of that will alleviate the pressures on our logistical charges. We also believe that fuel prices will ease off, and that the shipping charges, rates will come down. So, we think all those will culminate in lower results during the fourth quarter, but we do expect the third quarter to be sort of in line with what we’ve seen in the second quarter.
Lawson Winder
And then, in terms of logistics costs that you guys are looking to manage away. Do you have a sense now at this point, what proportion can realistically be managed away, and how much might persist? Just maybe in terms of percentages at least until the smelter is ready to go.
Lawson Winder
David, would you like to venture a guess?
David van Heerden
I’d be happy to jump in. I think returning to the levels of Q1 once all the measures have been implemented, I don’t think it’s unrealistic. Further things we are looking at doing this just looking at our trade off of corporate recoveries versus concentrate trade again, just to see where the sweet spot is on and that also obviously has specifically a logistics charge and impact. It’s just about finding that sweet spot and making sure we maximize value. So, yes, a number of things looking into, but basically the Q1 levels aren’t and what aren’t unachievable, but they have a bit of work to be done.
Alex Pickard
Maybe if I could add to that as well, David. I mean, the African continental logistics market is a very competitive market, and I think we do expect there to be a market driven response where we’ve seen online freight rates in the past two, three years have probably increased by more than 50% in terms of the actual trucking cost. But that’s being as a lot more volumes have come online from Kamoa-Kakula and elsewhere.
But of course, with those costs being so high and trucking operators are probably making pretty reasonable profits right now, and it will certainly draw new entrants in and that’s part of the initiative that Marna mentioned is that we’re trying to facilitate new trucking operators to come in and respond to the market dynamics and bring those costs down to more normalized level. So, I think there is an opportunity from that point of view as well.
Lawson Winder
Okay, thanks, Alex. Also, if I could just follow-up, obviously, the smelter holds excellent potential to dramatically lower your costs. And just do away with these logistics issues all together. You’re now targeting year-end 2024 for that. When you think about the path to starting that up, what are the critical path items? And is there the potential to accelerate that timeline?
Robert Friedland
Perhaps, I’ll take a stab at that one, Lawson. I mean, the critical path item at the smelter is really the power. And so, that’s the work that we’re doing at Inga II to bring Turbine 5 online until we have the availability of that power from Turbine 5. You wouldn’t really want to ramp up a smelter in an environment where you can’t guarantee a steady supply of power to that smelter. So that’s really what we’re kind of hanging our hat on in terms of the Q4 2024 guidance. Of course, we’ll look for any way that we can to complete those works at Inga quicker, if possible, but we also don’t want to be repaired on realistic.
Operator
[Operator Instructions] We’ll take our next question from Andrew Mikitchook with BMO Capital Markets. Please go ahead.
Andrew Mikitchook
Good morning, good afternoon, depending on time zone. I just had a couple of small questions. I was wondering if we could get just some additional commentary broadly on your CapEx all that experience in terms of all this ordering of long lead time equipment, whether it’s in lined at least generally with what was expected or budgeted, and/or even availability and timeline of this equipment generally, across your projects, since I think you’ve probably got a broader experience and exposure than maybe other parts of the market, and I’m sure investors would be interested in getting your sense of how that looks?
Alex Pickard
David, do you want to take this one or should I…
David van Heerden
Yes, happy to take it initially, and feel free to jump in and thanks for the question, Andrew. On our current CapEx costs, we are not seeing the same inflation pressures as seen on OpEx and consumables. But obviously, the logistics and logistics go both ways. So, they are a little bit of an impact on deliveries and specifically for what’s been purchased for Kamoa and for Kipushi. And in South Africa because of the weakening of the South African rand, I think that’s sort of played into our hands a little bit.
So, we are not seeing a U.S. dollar increase for our capital and expenditure at the moment, so good on that front for now. But — and then also I’d also just like to add that the Platreef and Kipushi studies were obviously completed at the beginning of this year. So, those cost estimates are still pretty current, and we will however update the market, if we feel we are moving away from our and current studies significantly, but not the case at present. Maybe Alex, you can just augment on Kamoa a little bit prefeasibility survey.
Alex Pickard
Yes. Thanks, David. So obviously, we can’t go into specifics around the numbers until we have everything together in one package and there is obviously a number of different elements to that being the mine concentrator, the smelter and the power coming together. But as we point out, Andrew, I mean, we did place orders during June, so we have locked in pricing for some pretty big pieces of equipment including major components for the mill.
And I think where we are sitting today we are not particularly alarmed by the costs for any of those components. And there are signs that the market more broadly is easing. And in any case, I think we feel very confident that, we have the funding in place, both from the cash flow and from Kamoa-Kakula itself and the possibility to raise facilities at the Kamoa level.
Andrew Mikitchook
Great. David, if you’re still available. Can we get you just to comment quickly on the trajectory for the repayments of the development expenses on, I guess, Phase 1 and 2? And when we would see more substantial cash taxes payable versus deferred tax?
David van Heerden
So Andrew, that is — we also owned our West entry in that regard in the states that we are especially at Kamoa-Kakula probably eating into our tax assets pretty quickly. And so, we do expect to have more substantial tax expenditure and rather than deferred tax, so cash tax expenditure starting from as soon as next year.
Andrew Mikitchook
Okay. Well, that’s in line with the previous commentary. Thank you very much. I’ll step back and let others ask questions. Congratulations on a strong quarter.
David van Heerden
Thanks, Andrew.
Operator
We have no further phone questions at this time.
Matthew Keevil
Thank you, operator. We’ll move over to our web questions now. As usual, we do have some repeats, so we will probably amalgamate a few of them and ask them to the appropriate members of management. We’ll start off with one for Robert, which is a fairly popular question in our box here today. Robert, following the recently announced bid by BHP to buy OZ Minerals, clearly, the copper M&A market is picking up a little bit here. People are interested in your take on that market and how Ivanhoe might fit in terms of its M&A focus?
David van Heerden
Well, copper mines don’t go on trees, and we are not going to have clean air or make a meaningful impact on the climate, nor are we going to be able to act on this so called Inflation Reduction Bill without a massive increase in demand for copper metal. And the policy response to recession is inherently reflationary.
The worldwide response to the Russian invasion of Ukraine is resulting in demilitarization of the world’s militaries. The Germans haven’t had an army worthy of the name since World War II even the Dutch are raising their defense budgets. So, both of the military side and on the side of the greening of the planet, there’s an astronomic demand for copper metal.
The most bullish scenario is the capital markets are scared to invest. Copper mines take a decade or two to build. And very few of them can legitimately claim to be Tier 1. The BHP the 32% premium price minerals is the case in point. One could argue whether that’s actually a Tier 1 company or not in terms of its assets, but the bid was rejected. And more recently, 32% premium for Turquoise Hill in Mongolia an asset that I know better than anyone was also rejected as being unfair by an independent committee of the directors.
So, if you’re a sovereign wealth fund, or you’re a major mining company, or you’re a major manufacturer or consumer of copper, and you’re looking for a Tier 1 asset, you can count all of the potential acquisitions on less than one of your and you don’t need both of them. And then in sort of in an anaerobic environment, that’s an environment without oxygen for a lot of the juniors. The pipeline is stressed and we don’t see significant copper coming into production.
The world needs to essentially double copper production to maintain 3% GDP growth over the next 22 years. The recent S&P study headed by Dan Yergin has stunning statistics that everybody should read. We see financial markets driven by computers and algorithms, but they really have their head like ostriches stuck firmly in the sand with no understanding of our industry.
I recently spent a day with senior management at one of the world’s largest copper traders, and we see an incipient trend recommend in 2024, 2025, as demand for copper metal explodes and as inventories get virtually down to nothing. We also see reduction in legal costs coming, reductions in shipping indexes coming, and we see interest rates being cut in China. So, I think we’re very near the absolute sweet spot, where it would be wise to be long copper assets at this point in the cycle.
We couldn’t be happier with our fundamental position as a very low producer of global warming gas. You’ve seen some spectacular increases in capital costs in the mining industry. But if our copper mine is 10 times the grid of your copper mine, we’re using a 10th of the steal, a 10th of the electrical energy and a 10th of the hydrocarbon. So this is exactly what I have been telling you all about.
When push comes to shove and you go through an anaerobic period of mining, that’s when you want to be building. We want to be building a mine as the world is in the session. We want to be building your mine while the Chinese supply chain is looking for expansion. And actually this is a very good time to be buying steel and fabricated items from China, in fact, a perfect time. So we think we have our timing right, for a very, very bright future at the bottom of the world cost curve from 2024, in a situation that will last for decades.
And for our kids and our grandkids, if you want a greener world, half off to our management team that are reinventing mining, that’s an unprecedented amount of input from women, and an unprecedented amount of benefits to the communities that hosts our efforts. And in terms of exploration potential, not only in the Congo, but also in South Africa, I can assure you, our teams are well enhanced.
So with that, I think that’s a good enough answer for your general question. And I think all of you that are listing this call, it’s very important to remember to buy on red days, so that you can sell when the days turn green. Thank you.
Matthew Keevil
Thank you, Robert. And I think just glancing at the clock, we have time for one more. Marna this, this is a rather high level one for you as well. Following the Company’s excellent performance building in commissioning Phase 1 and Phase 2 of Kamoa-Kakula, what knowledge and skills are you planning or have planned to transfer to ensure that Phase 3 the smelter as well as the Platreef project will also be built and commissioned on time and on budget?
Marna Cloete
Thanks, Matt. I would say, success depends on people and planning, and the trick is to keep it simple, try and standardize designs where possible, and use the same contractors and suppliers if that performed well. At Kamoa-Kakula, we completed a few lessons learned review after we completed Phase 1 and 2. And we did identify some shortcomings, which we are busy sort of rectifying and also adapting our plans for the execution of Phase 3 that we plan to do the same at Platreef and Kipushi and leverage all of those lessons that we’ve learned at Kamoa and follow the same formula.
Matthew Keevil
Great, thank you, Marna. And we’ve run up just about our hour here today. So, this will conclude Ivanhoe Mines second quarter 2022 financial results call.
Thank you all again for attending today’s event, and we look forward to speaking to you very soon. And again, if you have further questions that were not answered today, please do reach out to our IR team.
Thanks again.
Operator
Ladies and gentlemen, this concludes today’s conference. We appreciate your participation. You may now disconnect.
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