Robert Friedland's Ivanhoe Mines has three of the best undeveloped natural resource projects in the world spanning three commodities: PGMs, copper and zinc (Photo: Darren Calabrese/National Post)
Turns out the De Beers decision Friday to close its Snap Lake diamond mine in Canada's Northwest Territories, eliminating more than 400 jobs, was just a preview of cuts to come at the parent company.
Anglo American, one of the world's largest mining companies, took radical action today to stem the bleeding from low commodity prices - scrapping its dividend and announcing plans to cut its workforce and shrink the number of mines it runs.
The miner is cutting its employee count from the current 135,000 to 50,000 and reducing its focus to three business divisions: De Beers (it owns 85%), industrial metals (platinum, base metals) and bulk commodities (coal and iron ore). On the block are its phosphates and niobium businesses.
Shares of the company plummeted more than 10% on the London Stock Exchange, sparking a selloff in the sector that saw Rio Tinto's stock fall 7% and Glencore shares drop a further 5%.
How far have the mighty fallen? Shares of Anglo and Glencore are down more than 70% YTD as prices for commodities from copper to crude oil drop to multi-year lows.
Here's Bloomberg on the latest commodity carnage.
Taking the other side of the commodity trade is Robert Friedland, whose Ivanhoe Mines (IVN:TSX) has officially completed an agreement with Zijin Mining for a US$412-million investment into the Kamoa project.
Zijin will acquire a 49.5% stake in Kamoa. Ivanhoe received $206 million today and will receive $41.3 million every 3.5 months for 17.5 months (5 payments).
Including all Zijin payments exclusive of all current liabilities Ivanhoe would have a capital position of ~$530 million.
Ivanhoe currently has 772.18 M shares outstanding and at a 66 cent share price a market cap of $509.6 million.
"It is satisfying to complete this transaction with Zijin amid these interesting market conditions," said Mr. Friedland.
"Our partnership with Zijin will allow us to develop Kamoa into a major, tier one copper mine at a time when conditions in commodity markets are compelling virtually all others to run in the opposite direction. When the consistent, downward trend in head grades at the world's major copper mines is combined with the current drastic curtailment in exploration and development spending, as well as cutbacks in sustaining capital, we are highly confident we will see a significant copper-supply deficit and a sharp rise in copper prices as this decade draws to a close - at approximately the same time as we expect Kamoa to begin decades of commercial production. The old adage again is proving to be very true: The best cure for low prices is low prices."
Ivanhoe shares are up 2 cents (3.13%) to 66 cents this morning on the news.
Ivanhoe has been a disaster since its IPO in 2013, when it listed on the Toronto Stock Exchange at $5 a share.
Even with what seems like constant promotion by Sprott's Rick Rule (talking his own book) $IVN is near all-time lows.
I have heard many times over the last 3 years that Ivanhoe has "three of the greatest undeveloped mining projects in the world."
I would disagree, especially at current metal prices.
The definition of ore is a naturally occurring solid material from which a metal or valuable mineral can be profitably extracted.
The Platreef project PFS shows an IRR of 13% at $1,699 (U.S.) per ounce Pt, $667 (U.S.) per ounce Pd, $1,315 (U.S.) per ounce Au, $1,250 (U.S.) per ounce Rh, $8.81 (U.S.) per pound Ni, $2.73 (U.S.) per pound Cu.
Kamoa, the project Zijin is buying into today, has an after-tax IRR of 15.2% using a copper price of US$3.30.
No question: Ivanhoe's huge undeveloped projects have great leverage if metal prices rise.
Not for me at these levels - I will leave it to Mr. Rule to average down and Zijin to buy for the long term.
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