Forbes did kinda hit Calandra earlier. I subscribe to it and missed it. :P
The Promoter
Nathan Vardi, Forbes Magazine
November 11 2003
Once again, Robert Friedland is talking up a huge strike. This time it's copper and gold in Mongolia.
These are mighty days for Robert Friedland. The 53-year-old natural resources billionaire has been racking up miles on his corporate jet, charming investors at conferences from Hong Kong to New Orleans, cajoling Japanese and Korean bankers, working with the repressive governments of China and Burma. It helps that commodity prices, as recorded by the Reuters-Commodity Research Bureau index, are up 30% in the last two years.
But the real attraction is Friedland himself and his tales of copper and gold deposits buried under the Gobi Desert. This Mongolian mother lode is in a remote place called Turquoise Hill, or Oyu Tolgoi, as the locals refer to it. Friedland calls it "the treasure chest," and claims it contains perhaps as much copper as Falconbridge's rich Collahuasi mine in Chile. Turquoise Hill is right on the doorstep of China, which last year sucked up 2.5 million tons of copper, making it the world's largest consumer. Indigent Mongolia, Friedland says, has pledged to do everything necessary to help develop the site. "I'm not in the business of giving investment advice," Friedland recently told Bloomberg News. "On the other hand, this is one of the major copper and gold discoveries in the world." His evidence: core samples taken over the last two years, but no comprehensive engineering studies yet.
Investors have been hearing what they want to hear. Shares of Friedland's Singapore-based Ivanhoe Mines--which trade on the Australian and Toronto stock exchanges, and (at $9) on the Pink Sheets in the U.S.--are up 318% in the last year, making his 41% stake worth $940 million. This notwithstanding that Ivanhoe Mines last year lost $30 million on revenue of $87 million, largely from mining iron in Australia, copper in Burma and gold in Kazakhstan. Mutual funds like Tocqueville Gold and Scudder Gold & Precious Metals have made Ivanhoe Mines their biggest single holding because they believe Friedland is on to something in Mongolia.
The stock is also being cheered on by stock analysts and newsletter writers (see "Helping Hands" below), who are brushing aside the self-dealing through which Friedland has increased his stake. Shareholders also seem to be dismissing Friedland's past legal battles with the U.S. government, his cozy relationship with the thugs running Burma and the lack of in-depth engineering analysis of Turquoise Hill. "Everybody gets excited when Bob Friedland is pumping some stock, whether it makes sense or not," says Ryan Bennett, principal at Resource Capital Funds, a Denver private equity group, who just returned from Mongolia.
No one questions Friedland's promotional skills. Born in Chicago, he bought into penny mining stocks and pitched them on the Vancouver Stock Exchange--until prospectors of his Diamond Fields Resources looking for diamonds in Voisey's Bay, Newfoundland happened upon a vast nickel deposit. That was in 1994, when Friedland was best known by critics as "Toxic Bob," after another of his ventures, Galactic Resources, tried to develop a gold mine near Summitville, Colorado, using heap leaching, an extraction process that dips ore in cyanide to extract gold. Galactic went bankrupt and left the mess for the Environmental Protection Agency to clean up. (The Department of Justice went after Friedland in 1996; he settled, paying $20 million.)
The Voisey's Bay find changed Friedland's fortunes and those of shareholders--but added to his controversial reputation. He angled two large mining companies, Inco and Falconbridge, into a bidding war. Inco emerged the winner, paying $3.1 billion for the nickel deposit in 1996--but soon regretted it. Voisey's Bay turned out to be as much of a political minefield as a nickel deposit. Newfoundland, Canada's poorest province, would not let Inco dig up the site unless the company promised to build a smelter and process the nickel in the province. Meantime, Innu and Inuit groups claimed the nickel deposit lay on their ancestral land.
Last year Inco finally struck a deal, agreeing to build a $530 million nickel processor in Newfoundland and getting the Canadian government to kick in $100 million, partly to train Innu and Inuit for work at the mine and plant. Inco admitted it overpaid by taking a $1.6 billion writedown on its Voisey's Bay investment in 2002. Friedland got to walk away from it all, pocketing $400 million for his 13% stake in Diamond Fields.
Friedland poured his money back into the ground. This prospector knows how to hedge his bets. Through a private holding company, Ivanhoe Capital, he owns a 32% stake in Nasdaq-listed Ivanhoe Energy--a stake worth $210 million. Ivanhoe Energy, run by former Occidental Petroleum executives, produces oil and gas in places like China and California. Friedland also has a 50% piece of African Minerals, a private outfit searching for platinum. He has tried to rehabilitate a failed iron mine, acquired from the government of Tasmania in 1996 by ABM Mining, then one of his private companies, with a promise of eventually paying $8 million in services. And then there is Ivanhoe Mines.
Ivanhoe Mines inked an agreement with the Burmese government to develop a copper mine and split the profits. Human rights groups were quick to denounce Ivanhoe, accusing the mine of taking advantage of forced labor and poisoning the environment. The company denies the accusations, saying the mine bolstered the area's economy.
Then came the big break. BHP Billiton, the world's largest mining firm, had been kicking sand around the Gobi Desert in the late 1990s. After drilling 23 holes at Turquoise Hill, BHP suspended activities there. Friedland swooped in and cut a deal to buy the exploration license to the 520 square miles of Turquoise Hill in May 2000, agreeing to pay $5 million and grant BHP 2% of the revenues generated by any mine. Ivanhoe also promised to spend at least $6 million to explore the area and started drilling in June 2000.
This past August a unit of London-based Amec, an engineering firm, reported after studying samples from 400 or so drill holes that Turquoise Hill could potentially hold 38 billion pounds of copper and 21 million ounces of gold--$43 billion of metal at recent prices. These are very rough estimates, and in any event there is of course a wide gap between the value of refined metal and the value of buried ore.
Did BHP sell too cheap? The company insists it knew what it was doing. "New ventures and operations typically take longer than expected," says Francis McAllister, a BHP spokesman. He can't say anything about extraction costs. His hands are tied because of the company's confidentiality agreement with Ivanhoe Mines.
Whatever the case, the discovery has already been a bonanza for Friedland. Years before Ivanhoe acquired rights to the Mongolian acreage in mid-2000, he had received 17 million shares as repayment for a $3 million loan he made to the company for "general corporate purposes." Within six months of the deal Friedland, Ivanhoe Mines' chairman, managed to turn his holdings into a controlling stake. Remember that Tasmanian mine that he owned, but still hadn't completely paid for? Though it proved to be a dog--it lost $10 million on revenues of $60 million in 1999--Friedland sold it to Ivanhoe Mines for 50.3 million Ivanhoe shares.
Better yet, the deal also provided that $23 million of debt the Tasmanian mine apparently owed Friedland would be convertible into another 30.6 million Ivanhoe shares. By the time Friedland converted the debt into stock in December of 2001 he owned 101 million shares, or 51% of Ivanhoe Mines. (That has been diluted over the last two years, as Ivanhoe issued $210 million worth of shares to finance drilling.) The shares Friedland picked up in the sale of the Tasmanian mine alone are worth $763 million today. What happened to the Tasmanian mine? Ivanhoe Mines in 2001 took an impairment charge of $54 million on it citing a "sudden negative outlook for iron ore and pellet prices," and in the third quarter of 2002 wrote off another $18 million on the investment. Still, thanks to a $32 million gain on the settlement of debt, the mine showed a profit in 2002. Yet Ivanhoe now says it may shut down the mine unless it can obtain new financing.
As for the Mongolian venture, the payoff for investors is iffy. "Only God knows what is in the ground, but what they have delineated so far has been big on tonnage, light on grade, and a lot of it is deep," says John Ing, a gold analyst at Maison Placements Canada. "They have a long way to go." Friedland insists the latest drill results are even better. But Ivanhoe, he says, needs $800 million to develop open-pit surface and underground mines to grab ore buried 3,300 feet down. Banks won't lend the money until much more drilling is done, serious engineering work is completed and a feasibility study is presented sometime in 2004 that shows how much copper and gold can be mined at a profit.
One other major hurdle: Even if Ivanhoe strikes it big and can pull copper and gold out at a reasonable cost, how will it get the ore to market?"Mongolia is the middle of nowhere, even for China," says Michael Rieber, a retired mineral economist at the University of Arizona. "You might have a great deposit, but with costly transportation and no set infrastructure like power or water, so what?" Turquoise Hill, as Friedland likes to say, is only 50 miles from the Chinese border. China upgraded a 140-mile highway from China's railway system to the Mongolian border, leaving Friedland the task of convincing someone to finish the highway 50 miles farther to Turquoise Hill. That stretch, too, will probably require a rail link. But while Friedland sat down in Beijing with Mongolian Prime Minister Nambaryn Enkhbayar and China's Minister of Railways Fu Zhihuan to discuss such a spur, nobody is breaking ground just yet.
Friedland claims he wants to develop the Mongolian mine himself, or with a partner. He has shared the latest extraction data with no fewer than 16 mining companies. At the same time he is trying to list Ivanhoe Mines on Nasdaq or the American Stock Exchange, a move that would certainly attract new investors and, perhaps, result in a better price. That would be helpful if Friedland wants to raise more capital--or just sell out.
Helping Hands
Nathan Vardi, Forbes Magazine, November 24 2003
Robert Friedland has developed quite the fan club. Of the 11 research analysts following Ivanhoe Mines, 9 rate the stock a "buy" or "speculative buy," according to Bloomberg, a surprising endorsement for a stock trading at 27 times revenue and whose chief potential payoff -a speculative big strike in Mongolia--is years away.
Friedland issues a steady stream of press releases trumpeting ever more impressive results. That information is studied closely by those who follow the stock. "And the hits keep coming," HSBC analyst Tony Lesiak titled his Sept. 22 report on Ivanhoe Mines, which he rates a "buy." "Great results!" exclaimed CIBC analyst Jack Jones in a September conference call, rating the stock a "sector outperformer."
No one applauds louder than Thom Calandra, a columnist at CBS MarketWatch, a business-news Web site, where he writes a column and pitches his newsletter. Calandra has plugged Ivanhoe Mines in numerous columns and has gone on Ivanhoe-bankrolled trips to Mongolia, Beijing and London. He freely admits that he is "a large holder" of stock in Friedland's Ivanhoe Energy and has recommended both Ivanhoe Mines and Ivanhoe Energy in his newsletter. (He has also shilled for Ivanhoe Energy on CBS MarketWatch's weekend network-TV broadcast.) His enthusiasm has been credited by various news wires with moving the stocks higher. "Ivanhoe Energy Inc. shares rocketed 69% yesterday," wrote Toronto's Globe and Mail recently, "after a recommendation by CBS MarketWatch's chief commentator over the weekend."
Calandra has disclosed the junkets and his Ivanhoe Energy shares in his column and newsletter--and sees no problem with his close involvement with Friedland & Co. "I especially have a very, very strong commitment to making money--making lots of money--for my audience," he says.
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