Friedland poised to snare Mongolian motherlode
ANDY HOFFMAN
00:00 EDT Tuesday, October 06, 2009
MINING REPORTER
globeinvestor.com
Today is "Super Luck Day" in Mongolia, the most auspicious day of the year, according to the Mongolian-Tibetan Buddhist calendar - a time to occupy a new house, get married or start a fresh business venture.
It will also be the day that Robert Friedland finally gets his deal with the Mongolian government.
For more than five years, the flamboyant mining financier and his Vancouver company, Ivanhoe Mines Ltd. , have tried to win an investment agreement with Mongolia that would green-light construction of the Oyu Tolgoi project, one of the world's largest untapped copper and gold deposits.
That long-awaited agreement is now at hand. Mongolian Prime Minister Sanj Bayaar will attend a signing ceremony today with government officials, executives from Ivanhoe and its partner, global mining giant Rio Tinto PLC .
Not surprisingly, Mr. Friedland won't be among the signatories to the deal. Once a flashpoint for opposition in Mongolia to the foreign investment agreement (he was once burned in effigy at a demonstration), the Ivanhoe chairman has kept a low profile as of late regarding Oyu Tolgoi. Negotiations have been spearheaded by other Ivanhoe and Rio executives, and the usually outspoken Mr. Friedland, mindful of offending Mongolian officials, has talked little about the project in public.
That is likely to change however, as Mr. Friedland will lead efforts to raise the capital needed to build Oyu Tolgoi, which is expected to cost about $4-billion (U.S.) over the next five years.
"There's a lot of money to be raised by the partners and that is where Robert is going to come into this," said an Ivanhoe executive, who spoke on condition of anonymity.
A legendary promoter and financier, Mr. Friedland, 59, has raised billions of dollars from investors over the years. He is perhaps best known for helping create a frenzy around the Voisey's Bay nickel deposit in Labrador, which was eventually sold to Inco in 1996 for $4.3-billion (Canadian).
He was also able to draw plenty of investor interest in Ivanhoe early on, including the deal with Rio in 2006. But the investment agreement stalled in Mongolia as the country tried to impose a windfall profit tax amid a global metals boom and surging copper prices. Political opposition grew, handcuffing Mr. Friedland's ability to raise funds for the project.
"That's what has changed over the last couple of years. There has been a need to get this [investment agreement] done so Robert can go and do what he needs to do, which is raise a bunch of money to get this built," the Ivanhoe executive said.
There's plenty at stake for Mr. Friedland, Ivanhoe and its partner Rio Tinto, not to mention Mongolia itself. Oyu Tolgoi contains a measured and indicated resource of more than 40 billion pounds of copper and 20 million ounces of gold and could be in production for more than 35 years.
Mr. Friedland personally controls about 26 per cent of Ivanhoe's stock, and while Rio Tinto currently owns just 9.9 per cent of the company, it has the right to increase its stake to about 43 per cent in exchange for $2.4-billion (U.S.) in project financing.
Under the terms of the investment agreement, Mongolia will acquire a 34-per-cent interest in Oyu Tolgoi, but its share of the capital costs to build the mine are expected to be carried by Ivanhoe. That means Mr. Friedland will have to raise about half of the capital to finance the project.
Ray Goldie, an analyst with Salman Partners Inc., expects him to succeed, in part, by striking a deal to supply copper concentrate to smelters in Japan or China, in return for financing.
Copper prices plunged last year amid the global financial and economic crises, but have since rebounded sharply.
"The world is so desperately short of copper feedstock, some of the financing will definitely come from an off-take agreement with a copper smelter. As for the rest, I believe the banks of the world are quite happy to bankroll this kind of project," Mr. Goldie said.
Mr. Friedland is also expected to look for investment capital from a sovereign wealth fund, such as China Investment Corp.(CIC), which has plowed more than $5-billion into the resource sector in the past few months.
In September, Ivanhoe said "several" sovereign wealth funds had expressed an interest in investing in the company and could acquire a stake of up to 9.9 per cent.
Mr. Friedland could have some high-powered help in raising the money. In July, former Liberal prime minister Jean Chrétien was appointed as an international adviser to Ivanhoe.
In a statement at the time, Mr. Friedland highlighted Mr. Chrétien's role in advancing Canada's relationship with China by helping "Canadians realize the promise of their destiny as a Pacific Rim nation."
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