THE CALANDRA REPORT: Subscribe
$91 yearly

JOHANNESBURG  — Ivanhoe Mines (T.IVN in Canada) probably stands in the company of the world’s most successful mine developers of the past 15 years.

ivn1

Zinc-rich samples at Kipushi in DRC Congo

Those companies, Randgold and Yamana for example, or Turquoise Hill in Mongolia, are five to seven times the stock market size of 19-year-old Ivanhoe (market worth: $1.3 billion).

This report is culled from a September 2013 tour of Ivanhoe Mines’ three main Africa properties. [Photos & videos: The Calandra Report]

Ivanhoe Mines, formerly Ivanplats and African Minerals, owns large parts of the Platreef’s platinum group metals properties in South Africa’s Limpopo Province; Kamoa in the heart of the DRC Congo Copper Belt; and the historic Kipushi zinc-copper-germanium mine, about 25 kilometers due east of Kamoa.

Steve Garcia, a veteran mine builder, is showing a group copper and zinc samples at Kipushi in the Congo’s Katanga Province, which is said to be the country’s richest. “We’re classic stratiform copper,” he says.

Mr. Garcia, a mine builder, says an immediate challenge is draining, or de-watering, underground levels, as deep as 1,200 meters.

ivn2

Steve Garcia, left, discusses drill core and strategy at Kipushi

Project manager Andre Zeelie, a veteran of Ivanhoe’s former flagship mine in Mongolia, says a main pump station at Shaft 5 will stabilize water levels after almost 20 years of neglect.

“We’ll have 50 employees here by December, and most of them will be local,” says Mr. Garcia. (In photo: Wearing orange helmet) “We have artisanal miners on site, and their skill sets are quite good.” Ivanhoe owns 68 percent of Kipushi, which has a mining history going back to the Prince Leopold Mine of Belgian rule in the 1920s.

Ivanhoe Mines founder Robert M. Friedland and his Ivanhoe Capital Corp. of Singapore and Canada have a pedigree of success in the mining and prospecting business: recently, the Oyu Tolgoi copper and gold mine in Mongolia — now called Turquoise Hill and run by Rio Tinto.

Also: the early 1990s Voisey’s Bay nickel discovery in Newfoundland, Canada; Ivanhoe Energy (IVAN in USA and IE in Canada); Ivanhoe Australia – now Inova Resources. [There are hotel and film companies in the Ivanhoe mix. too,]

Many of Mr. Friedland’s resource holdings around the world were sold for 10 to 20 times their initial investment worth. In the case of Voisey’s Bay, which originally was a diamond project, some say hundreds of times Mr. Friedland’s investment. [See references below.]

ivn3

Young Ivanhoe Mines geologist points to hot spots among Kamoa copper targets

As executive chairman, Mr. Friedland, age 63, runs this African mining company with a hand-chosen CEO, Lars-Eric Johansson, a 66-year-old alumnus of Noranda, Kinross and Falconbridge and a degree from Gothenburg School of Economics in Sweden.

Both men are lean, and both are frequently on site — in South Africa, in the Congo and at exploration targets elsewhere in Africa, including the tiny nation of Gabon.

They confer regularly with Mr. Garcia, who recently re-joined Mr. Friedland after acting as project director for Oyu Tolgoi in Mongolia; and with David Broughton, Ivanhoe’s vice president of exploration.

Talent Show

The purpose of touring Kipushi, Kamoa and Platreef was to meet the talent that Mr. Friedland and Mr. Johansson keep adding to Ivanhoe Mines.

It is here in spades, and that satisfies me as a shareholder. It also worries me.

Mr. Friedland is a dealer of grandness.

The Chicago-born businessman specializes in attracting the world’s best known mine builders and mine finders as employees. Accordingly, his frequent presentations around the world draw professional investors, among them the late commodities trader Marc Rich, asset managers in Abu Dhabi and Dubai, China’s International Trust & Investment Corp., Eike Batista of Brazil and many more.

The strongest attraction right now looks to be Ivanhoe’s platinum, a precious and industrial metal that some see as the next global frenzy.

Increased production of hydrogen-cell cars during this decade could strain platinum supplies. So could further labor protests that are exposing South Africa’s notorious harsh platinum mining conditions. The metal, priced along the same lines as gold, is said to be many times more rare than gold within the earth.

Ivanhoe’s Platreef holdings are probably the largest and richest underground accumulation of platinum and platinum group metals in the world. The company’s licenses are 280 kilometers northeast of Johannesburg and within an easy drive of Anglo Platinum‘s Mogalakwena mining operations.

At 3 grams per metric ton cutoff, the Platreef holds indicated resources of an estimated 22 million ounces of platinum, palladium, gold and rhodium. South Africa produces more than two-thirds the world’s platinum.

On the copper side of this Ivanhoe coin, Kamoa, discovered by Mr. Broughton and his team, looks to be the largest, and one of the richest, copper deposits in the world. At some point, Mr. Broughton and his team likely will be recognized by the prospecting industry for their discovery at Kamoa – one that might be difficult to surpass for copper grades, tonnage and ease of mining.

ivn4

Bankers and analysts gather around one of Kipushi’s shafts

When cash-hungry DRC Congo essentially opened the gates for fresh mineral exploration two years ago, the Ivanhoe team decided to survey Copper Belt areas that had little in the way of visible outcroppings. That’s a simplification, but as board member William Hayden affirms, “The strategy worked. Kamoa might be providing a notable percentage of the world’s copper in our lifetimes.”

As for Kipushi, part of it is called Big Zinc because of freakishly high grades of the metal — as much as 40 percent in some areas. Mr. Friedland often points to zinc as an agricultural fertilizer – a use that could boost its price.

The team, Ivanhoe’s collection of talent, is a running hyperbole. Some of the geologists and engineers are Ivanhoe veterans from one part of the world or another. Others are longtime associates of Mr. Friedland, or of Mike Gray, Ivanhoe’s chief operating officer in London.

Nearly all of them are either at the top of their fields, or getting there. The board level is much the same.

Cyril Ramaphosa, who conceivably could become president of the Republic of South Africa, recently stepped down to pursue other business and political interests. Mr. Friedland values and rewards loyalty; board members have been with the company as long as 15 years.

Monthly expenses for publicly traded companies with little or no revenue are usually termed the “burn rate.”  Mr. Friedland’s payroll alone seems a hellfire burn. I have no idea how much. In an April 2013 filing, Ivanhoe said its board was increasing annual salaries for 2013 for Mr. Friedland and for Mr. Johansson to $650,000 and for Mr. Broughton to $360,000.

Ivanhoe Mines had $158.6 million in cash and cash equivalents and $80.1 million in short-term deposits as at June 30, 2013. [See full paragraph below on restrictions and working capital.)

The most recent capital raise, in process, of $108 million is almost surely not enough to power Ivanhoe’s relentless drilling, hiring and negotiations. That money, from a non-brokered private placement of stock, would be used at the Congo projects.

One newspaper, the Wall Street Journal, this week cited sources who say the sale of an Ivanhoe asset, or more equity, to a China gold miner might be on the table. See article. Believe it when you see it. Mr. Friedland is not known to sacrifice equity or assets for the bargain price that the stock market currently is placing on Ivanhoe Mines (price: $2.25 Canadian vs. IPO price of $4.75)

IVN Chart

IVN data by YCharts

Hiring the best and the brightest, 35-year-long miners, middle aged geologists and young, blazing talents, is expensive.

Ivanhoe raised $304 million in its year-ago IPO. BMO Capital Markets was lead bookmaker. It was called the public offering of the year in Canada.

ivn5

Dr. Danie Grobler, Ivanhoe project geologist, discusses Flatreef structure at Bushveld Complex, South Africa

Ivanhoe also banked $280 million of backing from a Japanese consortium, specifically for work at the Platreef platinum and nickel project. About a third of that Japanese cash is gone, Ivanhoe executives say. The Japan group owns about 10 percent of the South Africa project, which in addition to the platinum will target nickel, gold and rhodium.

Other investors in equity or a debt facility include Fidelity Investments of Boston and Sprott Global in Toronto and California. It is unclear whether Mr. Batista and his Brazil interests still own any of their IPO stake in Ivanhoe.

Since I became a shareholder in 2003, I have run into others, in London, in California, in Canada — some of them who go back to 1998. This includes a Santa Rosa, California, couple on the September recent tour. [Photo here: Dr. Danie Grobler is a geology manager at Platreef]

“Most great discoveries have to climb a wall of worry and disbelief,” says founding president and deputy chairman of the original Ivanhoe Mines (Mongolia), R. Edward Flood. “Especially when it comes to Robert Friedland — because all the seasoned investors who follow this sector cannot allow themselves to believe he has done it again.”

ivn6

Sample crops that Ivanhoe Mines plants at Kamoa for local residents — education program

Mr. Flood, a former mining CEO from Nevada who lives in Monaco, continues, “They have a thousand reasons why this cannot be happening, including but not limited to country risk, how is he going to finance the project, why has this not been found before, the grades have to be wrong and so on.”

“When in actuality, what made these discoveries is tenacity, good geology and one hell of a lot of drilling. The Flatreef, Kamoa and (Kipushi) are genuinely world-class deposits in one company and very seasoned management,” he says. [Mr. Flood and Mr. Friedland at a Monaco venture capital event: article here]

This week, Mr. Friedland said he would pony up $25 million for that estimated $108 million Canadian financing, keeping his ownership level at 25 percent of Ivanhoe Mines.

Copper In Congo

Mr. Friedland is fond of emphasizing how Kamoa’s lengthy stretches of 3 percent, 5 percent, 10 percent copper make the project four to six times as potent as global head grades of existing copper mines.

Compliant data show almost 44 billion pounds of copper there in the so-called indicated category at an average 2.7 percent grade. Much of the industrial metal appears close to the surface.

“Explorers have no idea how important continuity, flatness and metallurgy are to making a buck,” Mr. Friedland says. “The space between lower head grades and rising cutoff grades (the latter being the grade of mineralization to qualify as ore — rock that can be mined at a profit) is shrinking, and is non-existent in many, if not most projects promoted by juniors.”

On this tour, there is none of the flash often described of Mr. Friedland. I don’t think I ever have been on a mine tour with such little joking, or camaraderie. The 20 or so mid-level and high-level engineers, geologists, logisticians we met were all business all the time.

Says supervisor Gerick Mouton at the platinum project on the Bushveld Complex in South Africa, stretching his arms across drill core, “In Merensky (Reef) mining, they are only mining a meter – from here to there. We have Merensky-type platinum, but giant, colloidal.”

Mr. Broughton, head of exploration, says to a group of analysts and bankers a few feet away, “Who has that, 25 meters? The first meter can run 50 grams (per metric ton of 4E platinum).”

I have to believe from all I have seen of Ivanhoe Mines that the executive chairman’s pride and joy is still the platinum. Mr. Friedland leads with platinum in presentations. He started African Minerals on the promise of the Platreef property in the early 1990s.

He wears – or used to wear when I spent time with him years ago – a platinum wristwatch. He admires in his speeches the Chinese population’s love affair with platinum in its jewelry.

ivn7

“Safety first” — Hlokomela is a reference to a rampant HIV rate among workers in South Africa; see also — http://htt.org.za/

“If anybody knows of a larger precious metals discovery in the last 100 years, would you let me know about it? Because I’ve mentioned it as the largest mechanizable ethical precious metals discovery on a global scale and nobody has challenged me on it,” he said earlier this year in Toronto.

Still, there is the money needed to run a mining company on at least three separate geographic fronts.

Mr. Broughton notes, when queried, “Drilling the heck out of core isn’t cheap.” At Platreef, as many as 11 drill rigs are performing exploration drilling. That number soon will rise to 15.

At the Denver Gold Forum this week, four of every five corporate presentations had a CEO promising spending cutbacks, mothballing of projects and de-risking of assets.

Ivanhoe looks to be on a separate course. Executives next week will stage another analyst and shareholder tour of the Africa projects.

From what one can see, Ivanhoe is eager to accelerate permitting, construction, engineering studies and hiring at all three Africa projects: Platreef, Kamoa and at Kipushi, which is partly flooded and not operating.

Also in the mix is a Gabon gold exploration project that began drilling in June 2013, and additional exploration sites in DRC Congo. [TCR take: Gabon’s four or five exploration holes are due to be published any day now.]

At Platreef, South Africa regulators have approved a bulk sample right for metallurgical testing; site mobilization is planned for the looming fourth quarter, and was proceeding during the tour. That will run about $80 million with 250 contract employees, we learned on the tour.

This is my fourth visit to the Bushveld Complex and second to Ivanhoe’s stake at the platinum-bearing structure. [Other visits have been to Platinum Group Metals’ exploration and mine projects on the Bushveld Complex’s western and northern limbs.]

My first visit, in 2003, featured a sprawling village near what is now a mineral property destined for underground mining. Mr. Friedland was my host on that first trip.

Ten years later, the village, near the township of Mokopane, looks to be better organized, cleaner and busier.

“We don’t have to relocate any people,” Mr. Mouton told a group of mostly Africa and Canada visitors who viewed a planned site for the bulk sample shaft.

Mr. Mouton is Ivanhoe’s project director and a vice president. He said most hiring for the projected platinum mine will occur in Limpopo Province, one of the nation’s poorest regions yet one of dramatic landscapes and natural beauty.

The Platreef of Ivanhoe Mines, in its literature and among its executives and geologists, is often called the Flatreef. This is to distinguish it from other platinum deposits in the area whose one-meter-thin bands of mineral curve 60 degrees toward the center of the earth.

“Robert has done it before. I think he will do it again,” says Arthur “Rick” Rule of Sprott Global in southern California and Toronto. Mr. Rule and his associates own shares of Ivanhoe Mines. Mr. Rule will interview Mr. Friedland later in December 2013 at a London mining show.

I encourage our audience to browse the reference section included here for technicals, more reporting, SEDAR filings and so on.

— Thom Calandra melt-ups@thom.calandra.com

Thank you for supporting TCR

References

Recent IVN articles: Thom Calandra via Stockhouse 

Photos, video | Ivanhoe tour September 2013 — Thom Calandra credit

Compliant technical reports: Ivanhoe links

Ivanhoe shareholder letter April 2013: Good overview*

Ivanhoe | Ivanplats SEDAR filings: Available here

Ivanhoe in-house descriptions: Kipushi, Kamoa, Platreef, Gabon and other exploration targets

Ivanhoe Mines founder Robert M. Friedland at PDAC, March 2013: Thom Calandra via BabyBulls

2003 coverage of Oyu Tolgoi and the original Ivanhoe Mines: Thom Calandra credit

DRC’s Katanga Province: BBC article

Financials: The company had $158.6 million in cash and cash equivalents and $80.1 million in short-term deposits as of June 30, 2013. Certain of the company’s cash and cash equivalents and short-term deposits, having an aggregate value of $188.6 million, are subject to contractual restrictions. As of June 30, 2013, the company had consolidated working capital of approximately $229.6 million vs. $324.3 million at December 31, 2012. Platreef Project working capital is restricted and amounted to $188.9 million at June 30, 2013, and $204.2 million at December 31, 2012. Excluding Platreef Project working capital, resultant working capital is $40.7 million at June 30, 2013, and $120.1 million at December 31, 2012.

Note: Thom paid his international air fares and his hotel expenses for this Ivanhoe Mines survey of three properties in Africa.  

He has owned Ivanplats, now Ivanhoe Mines, since 2003, when it was private. He has been adding to his family’s holdings in the open market via IVPAF (in USA pink sheets) since Ivanplats | Ivanhoe’s public debut in Toronto in October 2012.

Selection of Thom’s articles

Thom via Twitter: @thomcalandra