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VANCOUVER
Mongolia puts Friedland back on the map
WENDY STUECK
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VANCOUVER -- When Robert Friedland said last month that his Mongolian copper-gold discovery is "not Voisey's Bay all over again," some interpreted his declaration as just another tactic in a master's playbook.
After all, the skeptics said, Mr. Friedland arranged the sale of the Voisey's Bay nickel deposit to Inco Ltd. for $4.3-billion (U.S.) after initially saying his company would develop the project.
This time, the renowned promoter says, things are different.
"The situation that we have in Mongolia is far superior to the situation that we had in Voisey's Bay," he said recently, speaking from Hong Kong, en route to Mongolia.
Mr. Friedland -- founder, president and chairman of Ivanhoe Mines Ltd., the Vancouver-based company that owns the Turquoise Hill deposit in Mongolia -- said those who assume he'll repeat history are ignoring key differences between Voisey's Bay and Turquoise Hill, known as Oyu Tolgoi in Mongolia.
Developing Voisey's Bay would have meant building a smelter, a condition Newfoundland demanded and that would have made the undertaking far more expensive than building a mine on its own. As well, he said, the Voisey's Bay nickel deposit was a "one-off," a single mineral deposit. By contrast, he said, Ivanhoe geologists believe they have uncovered a mineral "province," a group of deposits that contain as yet unknown stores of copper and gold.
Then there's the China factor.
China's copper consumption climbed by 21.6 per cent in the second quarter, and that was with the SARS outbreak at its peak. Automobile production is expected to increase by 25 per cent this year, and manufacturing of consumer goods such as televisions, radios and refrigerators, all containing copper, are expected to grow by a similar amount. Oyu Tolgoi is a copper deposit, 80 kilometres from the Chinese border and next to the biggest metals consumer in the world. Oh, and don't forget that the Mongolians have revamped their mining legislation and are keen on building their economy.
"What we have, in short, is not for sale because it is just too damn good," Mr. Friedland said.
With one of his projects back in the spotlight, one might think Mr. Friedland is enjoying a comeback. But analysts, fund managers and fellow mining executives say he never really went away -- the broader investing public just stopped paying attention. Between scandals such as the Bre-X Minerals Ltd. hoax of 1997, the Asian Flu currency devaluation the same year and a dot-com boom of the late 1990s that sucked up investment capital, resource exploration plays lost their allure. Now, however, commodities and resource ventures are back in favour, a sea change analysts chalk up to factors that include a faltering U.S. greenback, Chinese industrial growth, geopolitical anxieties and low interest rates. The improved outlook for metals sent money streaming into mining ventures last year. In the first half of 2003, the value of equity financings for mining companies on the Toronto Stock Exchange and the TSX Venture Exchange climbed to $2.3-billion (Canadian), up 44 per cent from the $1.6-billion raised during the first half of last year.
The shift, and its timing, has been good for Mr. Friedland. Ivanhoe Mines acquired its Mongolia leases from BHP Billiton in 2000 and announced its first significant discovery in July, 2001. The project is still at an early stage, with none of its drilling results yet translated into proven or probable reserves. But early results point to a big deposit, with most recent results indicating potentially richer grades that would put it on par with some of the world's top producing copper mines. The speculation has helped propel Ivanhoe Mine shares up 137 per cent this year. The stock closed yesterday on the TSX at $8.10.
Renewed interest in commodities has also been good for another company in the Friedland stable, Ivanhoe Energy Inc. Mr. Friedland is deputy chairman of the Vancouver-based company, which recently announced that a subsidiary was preparing to drill the first of more than 100 oil wells planned in China. Ivanhoe Energy's stock has risen by 406 per cent this year. The stock closed yesterday on the TSX at $3.81. Mr. Friedland owns 40.5 per cent of Ivanhoe Mines and just under 30 per cent of Ivanhoe Energy, making his combined stake in the two companies worth, on paper, about $979-million.
Mr. Friedland said he continues to explore, raise money and do deals around the globe because he enjoys it. Similarly, he said he and long-time associates, such as Ivanhoe Mines deputy chairman and director Edward Flood, are looking forward to becoming operators at Oyu Tolgoi because they have decided they are in the right place at the right time in the mining cycle.
"As we have gotten older we have sort of decided we would like to hang out in countries that we enjoy and work with people that we enjoy working with," he said. "In fact that is almost the only definition of success that I can think of, is that you get to choose who you hang around with. So we have a very, very great deal of affinity for the Mongolian people, we really love being here."
Fans of Mr. Friedland refer often to his passion and commitment, as well as his ability to make millions for investors. Detractors focus on his unsuccessful promotions, such as a Venezuelan gold play in the 1990s, and the controversial saga of Galactic Resources Corp.
Galactic, Mr. Friedland's first publicly listed Canadian company, developed the Summitville gold mine in Colorado which operated between 1986 and 1992. Technical failures at the mine and drainage from previous mine workings resulted in toxic contaminants being discharged into nearby watersheds. Those problems triggered a flurry of lawsuits and countersuits between Galactic and Colorado and U.S. agencies. Mr. Friedland had resigned all of his executive positions by 1990, and owned less than 5 per cent of the company when it went bankrupt in 1993. After years of legal wrangling, Mr. Friedland in December, 2000, reached a voluntary settlement with the United States and Colorado. As part of the settlement Mr. Friedland paid $20-million (U.S.) toward restoration of the Alamosa River watershed. The United States and Colorado acknowledged "no one person or entity" was solely responsible for environmental problems at Summitville. Ivanhoe Mines has also been criticized over its stake in Monywa, a copper mine it operates through a joint venture with a government-owned firm in Myanmar, formerly Burma. Critics have called on Ivanhoe Mines to stop operating in the country, where Aung San Suu Kyi, a Nobel Peace Prize winner and pro-democracy leader, has been detained since May 30.
Mr. Friedland repeated what has been the company's consistent position: That it supports democratic reforms in Myanmar and that its operations provide important economic and social benefits.
"We have built schools and hospitals and support two major regional hospitals that serve a population of about four million people. We have engaged in an anti-Dengue fever campaign, we have an ISO 14001 environmental certification and our mine there is one of the lowest cost and most efficient copper producers in the world," he said. "Our wishes for Burma to make progress are very sincere," he added. "And we think we probably do a hell of a lot more good by staying there than by leaving."
There have been reports that Ivanhoe could sell some of its assets as its Mongolia venture begins to play a bigger role in the company. Mr. Friedland said Ivanhoe Mines is constantly reviewing its assets, and that sales or spin offs may occur.
The company yesterday declined to comment on reports that Monywa could be sold to Chinese interests. From the perspective of many of today's investors, Galactic and Monywa are irrelevant compared with Ivanhoe's prospects in Mongolia. Some observers point to the preliminary nature of exploration results and the challenges of building a mine in the remote location.
"From a financial standpoint, the depth and grade is going to make the costs quite large," said John Ing, a gold analyst and president of Maison Placements Canada Inc. "And the isolation means the infrastructure is also all-important."
Those who believe in Mr. Friedland's vision say China is so eager for copper feedstock for its smelters that it will do everything it can to help bring a mine into production.
Rohit Sehgal, a fund manager and investment strategist with Toronto-based Dynamic Mutual Funds Ltd., travelled this year to Mongolia and China with Mr. Friedland. Mr. Sehgal runs the Dynamic Power Canadian Growth Fund, which owns shares in Ivanhoe Energy and Ivanhoe Mines. Mr. Sehgal said his group stopped at one point in Baotou, a city of nearly two million people in northern China. He left with two overriding impressions: the incredible amount of industrial activity going on in a city that he'd never heard of and the welcome accorded to Mr. Friedland and his team by Chinese officials.
"They gave him a reception that only heads of state get," Mr. Sehgal said. "The Chinese are dying for copper feed. They will build roads for him, they will give him power -- they are all over him, it's 'give us a list and we will get it done for you.' "
Regardless of the eventual size of the Turquoise Hill deposit -- or who winds up bringing it into production -- Mr. Friedland has put Mongolia on the map of mining hot spots in a way it hadn't been before. |
