Got this puff piece in my e mail from Tom Calandra. Good IVN write up, but I have to ask: where was he at 3.00?
There's little natural about natural resources. Developing a field of
natural gas, or a vast deposit of copper and gold, takes tons of
equipment, diamond-tipped drill bits, trucks, tractors, laboratories,
helicopters, power supplies, aquifers -- and an army of men and women:
lawyers for permitting, bankers for raising capital, tough-skinned
Australians and South Africans and Canadians to do the heavy lifting,
dependable cooks, mineralologists, geologists, mining engineers, project
managers.
Most of all, it takes belief. Manic belief in a world of skeptics. Even
if you are proven explorer and miner Robert Friedland.
"There's only one guy who would have pursued this for three years," Rick
Cohen, a mining financier from Dundee Securities, tells me as we walk
among some of the 16 drilling rigs at Oyu Tolgoi, the southern Mongolian
copper and gold deposit that is the crown jewel of Ivanhoe Mines'
growing Asia portfolio.
Dundee Securities' Dynamic family of mutual funds in Canada is one of
several large and prescient shareholders in Friedland's Ivanhoe
Mines (CA:IVN) (AU:IVN). Capital Research is another large shareholder
in Friedland's China and Mongolia-intensive mining company. Ivanhoe
Mines' Toronto and Australia-traded shares doubled in value this summer.
They are poised to double again, most probably in very short order.
I am sending this text alert after viewing the company's Mongolia assets on
a trip sponsored by Ivanhoe this week and speaking with officials in tiny
Mongolia and in neighboring China, a country ravenously in need of copper,
gold and other raw materials.
Ivanhoe Mines'nearly 100,000 square kilometers of property across
Mongolia, as well as producing mines and exploration tracts across
China, in South Korea, Australia, Kazahkstan and Myanmar, are turning
heads in the world of natural resources. But it is the Oyu Tolgoi
project in Mongolia that has startled most of the nearly 20 mining
companies -- the world's largest gold and copper miners -- that have
visited the swelling operation that Friedland and his team of geologists
and engineers have assembled in the Gobi Desert.
At present, the company's estimates on the discovery trail at Oyu Tolgoi are
staggering: 21 million ounces of gold, 38 billion-plus pounds of copper and
grades -- 2 percent, 3 percent, 4 percent copper per metric ton across
swaths of the three richest zones -- that are off the charts. (The company's
estimates are based on 2 1/2 years of intensive drilling.) The 14,000 meters
of core-drilling conducted by Ivanhoe Mines each month may rank as one of
the most extensive drilling programs ever. Equipement sheds on the property,
which is dotted with tent-like gers and crawling with trucks, earth movers
and an army of workers, hold several million dollars worth of diamond-laden
drills for sinking into core rock.
On the discovery front, inferred and indicated resource estimates at Oyu
Tolgoi are almost sure to rise in coming days, weeks and months. Any new
statements about further discoveries at base camp in all likelihood will
reverbate among investors, mining executives and the country officials from
Mongolia and China who are closely tracking the Oyu Tolgoi development.
"If Oyu Tolgoi starts to function on schedule, it will double our GDP,"
Mongolian Prime Minister Nambar Enkhbayar told me this week in an
interview in the nation's booming capital of Ulan Bator. The prime
minister's comments illustrate the support that Friedland's $1.3 billion
company has garnered at the highest levels in Mongolia. (See full story
on CBS MarketWatch.)
The reach of the company is growing. In China, Friedland is nearing the
completion of several transactions with CITIC, the China International
Trust & Investment Corp., that could put the company on the way to
becoming a full-fledged Asia mining powerhouse. One of those
transactions, according to informed bankers and mining executives, could
lead to more than $100 million in cash from CITIC in exchange for a Myanmar
(formerly Burma) copper mine. Other deals in the works may include two
spin-offs of Asia assets not related to Oyu Tolgoi in the Gobi Desert and a
full Nasdaq or American Stock Exchange listing.
The company's executives decline to comment on pending filings related
to the stock market. CITIC's mining and energy division, a small but
rapidly growing part of the state-controlled company's $60 billion or so
of assets, is also negotiating with another Friedland entity, Ivanhoe
Energy (IVAN), on expanding the company's exploration rights in China
and in Inner Mongolia, a China autonomous region.
At the center of all this is Friedland, who at the age of 53 is
developing mines, securing tracts of land or sending his geologists and
mineralogists to promising metal trends across central Asia, in South
Africa, Australia, Bulgaria and elsewhere. First and foremost on the
Friedland roster is China, a country that is consuming far more metal,
precious and non-ferrous, than it is pulling from its own ground.
"I think you need to understand that he is someone who understood the
China story long before many people," says Huang Jichun, a now-retired
vice president of investments for CITIC, a state-owned enterprise that
controls about $65 billion of assets across China. "When we met him six
or seven years ago, he said, 'China is a big dragon, but a hungry one.
The dragon needs petroleum to drink and copper, iron to eat.' "
With China's copper consumption alone far outstripping its internal
production, it is to Mongolia that CITIC, and others, are looking.
China, says CITIC's Hans H.C. So, is consuming 2.8 million
metric tons of copper each year yet producing only 800,000 metric tons
of the metal from state-owned mines. Mr. So is vice-chairman of CITIC's
energy and gold divisions, which include vast tracts of natural gas and oil
fields, some 16 gold mines and one copper mine.
China's imports of copper, in raw form and processed cathode, come
largely from Argentina and Chile, which are half a world away from
China. Ivanhoe Mines' Oyu Tolgoi, in contrast, is just 90 minutes from
Beijing by jet plane and just 60 kilometers from the China-Mongolia border.
Douglas Kirwin, a highly regarded Australian geologist who has been with
Ivanhoe Mines since Day One in 1995, when it was called Indochina Goldfields
and explored mostly in and around Vietnam, oversees the mineralized samples
that come in on a daily basis from Ivanhoe's 55 million square acres of
exploration property in Mongolia.
Kirwin, sprinkling water on the latest test-batches of bornite-rich rock
that is heavily mineralized with streaks of copper and gold, explains
that Oyu Tolgoi, or Turquoise Hill as it is known in English, was a
property virtually abandoned by mining giant BHP when early results
showed what BHP judged as too small for an easily mined open pit
operation.
The rest is, or will be, history. Ivanhoe Mines' drilling program has
personnel working round the clock. There are signs at base camp that the
number of holes drilled exceed 500, for a total of more than 215,000 meters
of depth. The core samples are showing, in many cases, 3 percent, 4 percent,
5 percent copper per metric ton, and 1
gram, 2 grams and more of gold. All of it at depths of 300 meters, 500
meters, 800 meters, no more than 1,100 meters. "You only find this kind of
consistency in a porphyry," says Friedland, whose biggest success was the
sale of a vast nickel deposit in Voisey's Bay in Canada to Inco Ltd. for
$4.3 billion Canadian in the mid-1990s.
Says David Crane, another geologist on the Ivanhoe team, "We've done
at least 215,000 meters of drilling. That's probably more than any operation
anywhere."
I'm sending this report because it is clear to the on-site observer that
Oyu Tolgoi and its four main zones along a 5-kilometer chain, southwest,
central, north and far north extension, are fast headed to development in a
democratic country where total GDP is $1 billion and the number of residents
is less than 3 million. Base camp at O.T. is crawling with people and
stuffed with gear and equipment, electronic and mechanical.
Friedland and his backers, who include geologists and engineers
independent of the company, are fast disproving skeptics who had early
concerns about roads, water supply and electricity. Ivanhoe Mines has
snared the attention of governments, bankers, railroads, utilities, fund
managers and, in a world where China consumption of copper is growing
more than 10 percent a year, manufacturers who are ravenous for raw
materials.
"Friedland moves in ways the big lumbering giants don't," says Howard
Balloch, a former Canadian ambassador to China and Mongolia who now
advises Ivanhoe Mines. Balloch also sits on the board of another
Friedland company active in China, Ivanhoe Energy (IVAN), whose Sunwing
Energy unit is developing oil wells in the Dagang fields not far from
Beijing. "In terms of Asia time, Friedland is overweight, and no one at
the big miners can match that."(More on Sunwing/Ivanhoe Energy, and the
company's spreading blueprint for cash-flow growth in China and in
California's Central Valley, next week in The Calandra Report.)
Kirwin, the geologist, tells me some of the bornite mineralization his
team is documenting at Oyu Tolgoi "goes through the roof on copper
grade. I've been to most of the porphyrys around the world, and there's
none that has consistent 3 percent grades and higher like this one."
I am moving shares of Ivanhoe Mines (CA:IVN) to the Recommended List
immediately. They've about doubled in the space of six weeks, and if I
am correct, after viewing Oyu Tolgoi and speaking with executives and
officials on-site in Beijing and in Mongolia, I think they'll double again.
It is only a matter of time before Ivanhoe Mines updates its calculations on
the extent, depths and grades of Oyu Tolgoi's copper and gold veins and
schedules a scoping study that will put to rest concerns that Friedland's
growing team of miners in the Gobi can only develop the vast resource with
the deep-pockets support of a major mining partner.
Oyu Tolgoi is dramatic, and could, after independent analysis, reveal
the world's largest super-hypogene copper-gold deposit. It very well may be
bigger, and far more easily and economically tapped, than working mines in
Chile, Argentina and Indonesia, the three current capitals of the copper
universe. Says Cohen from Dundee Securities, "Just 23 months ago, when I was
here, they had a wooden shack and a few gers (tents) and the stock was $1.50
Canadian or less. I hardly recognize it now."
Friedland's Ivanhoe Mines this year successfully concluded a transaction
that gives it a majority stake in the Oblaga gold and copper deposits of
Inner Mongolia, which is an autonomous region of China. On the Mongolia
front, Friedland says Ivanhoe Mines will fully develop Oyu Tolgoi, with
possible minority interests from several sources, including publicly
held mining companies and China investors, one of them almost certainly
CITIC, the state-owned conglomerate.
In addition, as reported here earlier, the company may be nearing the sale
of a copper-producing property in Myanmar to CITIC in China and the spin-off
of two units, one an iron-ore mine and related assets in Australia and
another a South Korea silver mine packaged with Mongolia land parcels that
may border Oyu Tolgoi.
Summary: You asked, when subscribing to The Calandra Report, for on-site
research that would go beyond the pap distributed by Wall Street and by
most investment newsletters. Here it is. Buy Ivanhoe Mines' shares
before any further corporate transactions, such as spin-offs of
Australia, Korea and non-Oyu Tolgoi Mongolia assets, and before the
company releases further data on this monstrous project in the Gobi
Desert. Shares of Ivanhoe Mines in Toronto were last at $7.14 Canadian in
Toronto trading -- before trading opened Friday.
Related Ivanhoe-linked companies active in China include Ivanhoe Energy
(IVAN on Nasdaq) and exploration unit Pacific Minerals (CA:PMZ) -- both of
them certain beneficiaries of Friedland's growing political and financial
connections in China, Mongolia and across Asia.
In the United States, Ivanhoe Mines trades over-the-counter bulletin board
under the symbol IVHMF. Pacific Minerals trades in the U.S. under the symbol
PFMEF.
See you later next week in The Calandra Report.
Thom Calandra
The Calandra Report |
