Article of interest
Friedland’s back
By: Stewart Bailey
Posted: 2003/08/13 Wed 00:00 EDT | © Mineweb 1997-2003
PERTH -- Fast-talking mining promoters – the geological salesmen who peddle speculative exploration stock to investors – made a resounding comeback at this year’s Diggers and Dealers conference in Western Australia. The long awaited return of the promoters to the mining sector mainstream brought with it a welcome sense of theatre, which has been largely absent since the disastrous BriEx scandal scuttled the market for small-scale mining stock in 1996.
And who better to lead the return than American-Canadian-Australian-Singaporean super-promoter Robert Friedland, the controversial mining entrepreneur who made it big with the C$4.3 billion sale of the Voiseys Bay nickel deposit to Inco? Friedland, who now heads Australian and Canadian-listed Ivanhoe Mines, is said to have pocketed around $600 million from the Voisey’s Bay sale.
The Voisey’s Bay purchase price was equivalent to no less than 42 percent of the metal contained in the deposit – an unprecedented level for an undeveloped base metal prospect. Referring to Inco’s eagerness to get the deal done at the price, Friedland says: “Admittedly, when the male member gets hard, the brain gets soft…but our shareholders have never complained.” Indeed.
The cash from Inco gave Friedland demigod status among junior miners and helped fund a growing list of private equity investments through his Singapore-based fund Ivanhoe Capital. His interests now span from the Democratic Republic of Congo, to South Africa and from the Pacific Rim and Myanmar, to Mongolia.
But it is Ivanhoe’s Mongolian foray, the Oyu Tolgoi mine in the Gobi Desert, that Friedland is now showing punters.
Judging by Ivanhoe’s incredible run from A$3.45 a share in May, to its current level of A$5.60 – an all time high - investors are hoping Friedland can entice another major to go soft-brained and pay handsomely.
Friedland engaged in some shameless skirt-lifting at the headline presentation at Diggers and Dealers, giving an auditorium packed with more than a thousand mining sector heavyweights, a glimpse of what he believes is the most significant copper find in mining history. Potentially bigger, he says, than the Rio Tinto-Freeport McMoran behemoth at Grasberg.
“We’re talking about something that is very important and very large,” says Friedland. His speech is measured and deliberate, but his line in sales talk is better than most. The Vancouverite hippy-turned billionaire miner, overshot his allotted 25 minute presentation time by more than 40 minutes and there was scarcely a murmur. The man oozes the type of charisma that has made even the most streetwise investors open their wallets and this pitch was no exception.
The hungry dragon
The peg for Friedland’s talk was China’s seemingly insatiable appetite for strategic metals, most notably copper and platinum, to fuel its staggering economic growth. With Friedland’s platinum work going on feverishly on his landholdings in South Africa, Oyu Tolgoi takes care of copper side of things.
In fact, so convinced is Friedland of the Chinese government’s desire for a large domestic copper supply to feed the country’s under-utilised smelters, (“they’re well inland and freaking out for feed”), that he has quietly amassed the world’s largest private landholding. It is no coincidence that the property lies atop what might turn out to be an entire copper province.
The 110,000-km2 property is 80 km from the Chinese border on the outer reaches of the Gobi Desert. Friedland says it takes him two hours to cross, travelling at Mach 0.8 in his private jet.
The close proximity of Oyu Tolgoi to the Chinese border gives it the edge over its African, Australian and South American competitors. Friedland is careful not to skimp on China’s jaw-dropping growth statistics, which make the project all the more alluring.
For a start, 18 million Chinese youths enter the labour force every year – that’s more than the entire population of Australia. The under-18 portion of the Chinese population is also greater than the combined population of the US and the UK. “They all speak English, they’re eager to do things and none of them remember Chairman Mao,” says Friedland. To emphasise the growing production capacity of the Chinese manufacturing giant, he says: “There’s a giant sucking sound as all of the world’s manufacturing goes into China.” The manufacturing giant, which is generating $18 billion in trade surpluses each month, needs copper and Friedland is keen to help out.
Logistics the key
The business logic for smelting and refining the metal in China also appears sound. According to Friedland, the going rate of copper refining in China is $10/ton compared to $90/ton in Canada. Toll refining is charged at 1c/lb compared to 9c/lb in Canada.
Attractive as the processing rates are, Friedland says Chinese ports are swamped by a rapidly increasing deluge of imports and have little capacity to deal with the volume of copper concentrate imports needed to fill the smelters. He says getting the copper onto rail or road inside China is “as good as having it on the ocean”.
Enter the Chinese government. Friedland says the world’s largest state is so keen on ensuring the rapid development of Oyu Tolgoi, that it will “cooperate in the development of Mongolian and Trans-border infrastructure, including highways and railways”. The Chinese government has also committed to the construction of a 226 km highway linking the Mongolian-Chinese border, only 80 km south of Oyu Tolgoi.
Friedland says a $300 million soft finance package has also been offered by the Chinese government for infrastructure projects in Mongololia. Ivanhoe is expected to make a bid for some of the loan, which requires no principal payments for 30 years and is charged at 2 percent. Access to the facility could take care of the mine-to-highway rail link needed to get the copper from the Gobi into the Chinese hinterland. Water, an equally essential component of any mine development, has also been found on site, only 80m below the surface.
Friedland is also at pains to point out the favourable development costs of the mine. “The Chinese can build mines as cheaply as they build televisions,” he says.
He anticipates discounts of: 60 percent on steel fabrication; 50 percent on construction; 80 percent on installation and earthworks and 70 percent on water supply. Electricity too, says Friedland, is a fraction of the price charged in other territories at 2c/Kwh. “There are also no show stoppers from an environmental point of view,” says Friedland.
The deposit
So with the crucial auxiliary components in place, how does Friedland the promoter rate the deposit? Not known for understatement, he says Oyu Tolgoi is “the highest grade copper gold porphyry yet found by man”.
With only 17 months of drilling under its belt, he reckons Oyu Tolgoi is more than half the size of the legendary Grasberg deposit in Indonesia, which has been intensively drilled for 32 years. At last count, the Mongolion deposit had indicated and inferred resources of 38 million pounds of copper and 21 million ounces of gold. If the “hyperbolic” growth trend continues and Friedland’s model is proved correct, the mine could outstrip Grasberg in no time at all. A definitive study outlining development and financing options will be concluded by the end of next year.
Throwing in the line
Friedland meanwhile continues to throw out the bait - first to institutional investors and then to the majors - in the hope of a snagging a copper sequel to his Inco hit. He’s already won over the equity investors if Ivanhoe’s stock performance is anything to go by. In fact, few noticed his seamless switch from extolling the merits of China and the Oyu Tolgoi deposit to his blatant entreaty to investors to load up on Ivanhoe stock. The evangelical similarities to the television preacher swapping effortlessly to panhandler are hard to miss.
But Friedland will have to up his already-impressive intensity if he’s to succeed on the second count. The promoter has still to shake the “toxic-Bob” stigma of his environmental misadventures in the US and Papua New Guinea, as well as the regulatory hangovers left over from his Voiseys bay sale to Inco, before getting another major to bite. |
