Ivanhoe Mines is a Bargain, But...

One of the stocks I've loved and lost money on this year, a real heartbreaker, is Ivanhoe Mines (IVN).

What attracted me over a year ago was Ivanhoe's outstanding geology staff. IVN geologists have been hugely successful proving gold and copper deposits in Mongolia. Ivanhoe's Oyu Tolgoi discovery is a world class resource, capable of annual production of a billion pounds of copper and 330,000 ounces of gold for 35 years. Rio Tinto (RIO) committed $2.4 billion to back development of Oyu Tolgoi, in exchange for 46% of Ivanhoe's stock. Oyu Tolgoi is situated close enough to China to connect it by rail to the port of Tiajin for bulk ore shipment to refiners in Canada. Ivanhoe has done an absolutely brilliant job of geology, commercial planning, and corporate finance. 

Except for one exasperatingly hopeless obstacle. The government of Mongolia tore up their agreement with Ivanhoe, held fresh elections, shot a few sore losers, and are idly reconsidering how much loot they want from Oyu Tolgoi. Ivanhoe shares dove from $12 to $2.

According to Ivanhoe's website,

Prime Minister Bayar has [recently] made it clear in public statements that he believes an Investment Agreement for Oyu Tolgoi can be concluded without the need for further consideration of amendments to the 2006 Minerals Law. The Parliamentary Working Group's intention, subject to joint-government concurrence, is to present the draft resolutions to the Parliament. When ratified, the resolutions would provide a broad mandate to speed up the process [of renegotiating an agreement].

I don't believe a word of it. Canadian ministers and trade representatives backing Canadian-based Ivanhoe have flown to Mongolia several times, trying to push this deal along. No luck. As far as the Mongol chieftains are concerned, Canada is a herd of fat northern hemisphere cows to be milked.

Minister of Roads, Transport, Construction and Urban Development Kh.Battulga has met with the Deputy Minister of Foreign Affairs and International Trade of Canada Drew Fagan, who is also in charge of Strategic Planning, and with Canadian Ambassador to Mongolia Ann Biolick. The Minister said a house town is planned to construct by Canadian frame-house technology in Batsumber soum of Tov aimag to develop this soum into a module one. Almost similar climate conditions of the two countries allow using the Canadian technology for the construction of modern houses, Kh. Battulga noted. The Canadian side said that the youth working in the private sector has possibilities for studying Canadian construction, particularly frame-house technologies, and invited the Minister to Canada.

Source: slightly incoherent Mongolian wire service.

That's the most frustrating aspect of following the drama in Ullan Baattar, the frozen capital city of Mongolia. Ivanhoe Mines is our only source of cogent information, and they're running out of money and time at Oyu Tolgoi:

Recent developments in capital markets have restricted access to debt and equity financing for many companies. As a result, the Company is reviewing its 2009 capital spending requirements. The Company also is assessing its options for financing future capital expenditures in light of prevailing conditions in international credit markets.

Source: IVN 2008Q3 announcement

At $2 a share, Ivanhoe is a bargain. But I think I'll wait for a new Investment Agreement signed in yak blood and witnessed by the grand vizier in charge of baksheesh.

Sources:

• Ivanhoe 2008Q3 press release
• Oyu Tolgoi maps and data

Disclosure: Author holds a long position in IVN

Comments

[Alan von Al...:]

MineWeb has picked up the story about Ivanhoe threatening to cut spending at its Mongolia mineshafts, roadbuilding, etc: "Vancouver's Ivanhoe Mines has threatened to cut pre-construction spending and 'act decisively' to curtail further spending on the Oyu Tolgoi complex 'if sufficient progress is not made toward the timely conclusion of an investment agreement with the Mongolian Government'."

www.mineweb.net/minewe...

2008 Nov 17 09:28 AM

[lostalot:]

Please confirm/correct your notation that Rio Tinto, to which you give ticker symbol RIO, invested in this company. The ticker RIO is not for Rio Tinto. It is for Brazilian mining firm Companhia Vale do ADR. Which company invested in IVN, Rio Tinto, or Vale?

2008 Nov 17 10:17 AM

[Keating35:]

RTP is the NYSE symbol for Rio Tinto.


On Nov 17 10:17 AM lostalot wrote:

> Please confirm/correct your notation that Rio Tinto, to which you
> give ticker symbol RIO, invested in this company. The ticker RIO
> is not for Rio Tinto. It is for Brazilian mining firm Companhia Vale
> do ADR. Which company invested in IVN, Rio Tinto, or Vale?

2008 Nov 17 10:51 AM

[Keating35:]

RTP is the NYSE symbol for Rio Tinto.

2008 Nov 17 10:52 AM

[Alan von Al...:]

Thank you for catching the error. Rio Tinto RTP backed Ivanhoe.

2008 Nov 17 02:06 PM

[Bill Herbert:]

Sounds like Ivanhoe is headed to zero.

So...why not do the sensible thing, and buy Hecla Mining - HL?

It is on sale for an incredibly low price - and all the silver, lead, etc. are in the USA. It is down 90% in the past year - bargain time!

2008 Nov 20 12:50 AM

[Adi Hadi:]

I’ve been living in Ulaan Baatar for almost six years with Mongolian family ties. All the foreigners I have seen coming with high expectations went broke, sooner or later and left the country in total frustration. The administration of this country is corrupt to the bone, their leaders uncultured, decorating themselves with false diplomas, and are basically a bunch of drovers who like to play the big money game. You can’t rely on their word or on their signature. They change their mind on a day to day basis. They don’t care what kind of paper they signed yesterday. They are only interested in lining their pockets. They hate foreigners, no matter what nationality, because they belief that they coming to take their wealth away. They might be right in this point. On the other hand they all would be living in gers tending sheep and drinking vodka without the help and knowledge of foreigners. Without us, they weren’t able to get even one ounce of copper out of the ground. Did you know that Ulaan Baatar has the highest density of SUV’s in whole Asia but the country is one of the poorest in terms of per capita income? That’s what these sheep drovers want, but they don’t like to work for it. They wait for some stupid foreigners with a bunch of money to give it to them. And foreigners keep coming, again and again making the same frustrating experience like all the others before them. Recently the Russians are welcomed again, because almost all of the newly “elected” people of the government used to study in Russia where they got their faked diplomas and PhD’s. I can assure you that they are working on driving out Western entrepreneurs and replacing them with Russian companies. Since Outer Mongolia is landlocked, there is little that Ivanhoe, Canadian officials or the West in general can do about it. And as I mentioned before, Mongolians give a damn about what promises they made or what papers they signed yesterday.

2008 Nov 21 10:15 PM

[Alan von Al...:]

Right or wrong I sold the last of my IVN shares this morning.

2008 Nov 25 09:48 AM

[Lora:]

Alan: Mistake, big mistake!


On Nov 25 09:48 AM Alan von Altendorf wrote:

> Right or wrong I sold the last of my IVN shares this morning.

2008 Nov 27 02:45 AM

[Alan von Al...:]

Lora, maybe so. I watched it climb a notch, said ho-hum. But a funny thing happened this morning. Ivanhoe slid less than GLD. Decided to buy again at $2.22.

2008 Dec 01 11:42 AM

[Alan von Al...:]

Dow Jones reported that Oyu Tolgoi, copper-gold joint venture between Ivanhoe Mines, Ltd. and Rio Tinto Limited in Mongolia, has cut about 250 jobs, representing around 40% of its staff because of the global financial crisis and collapse in metal prices.

2008 Dec 02 05:55 AM

[Alan von Al...:]

Out again at $2.27. I think we need a signed deal with Mongolian govt for IVN to rally. My other concern is Rio Tinto and copper price.

2008 Dec 02 10:19 AM

[Alan von Al...:]

Nice 50-cent bounce overnight to $2.49 on Australian news. Might move higher in New York on optimism for a deal in Mongolia.

Sounds nuts, but I'm going to sit on the sidelines. I truly wish this company success on the abundant merit of their management and scientific staff, but I would like to see a signed agreement in Mongolia and a bump in copper. February? January?

2008 Dec 08 08:34 AM

[Alan von Al...:]

Starting to rebuild a position in IVN.

2008 Dec 10 05:41 PM

[Anthony M. ...:]

Your articles are difficult to read, as your punctuation and grammar are remedial at best:

"Except for one exasperatingly hopeless obstacle. The government of Mongolia tore up their agreement with Ivanhoe, held fresh elections, shot a few sore losers, and are idly reconsidering how much loot they want from Oyu Tolgoi. Ivanhoe shares dove from $12 to $2."

You might want explore the use of a "colon" and complete sentences in your writing, or you will continue to come across as a simpleton.

Sentence fragments are a sure sign of an unorganized mind.

Also, please stop whining about your poor choices of investments, no one cares.

2008 Dec 23 11:34 AM

[Alan von Al...:]

Pretty funny. Fair enough, we dislike each other. I think it makes sense to watch IVN as a speculative play. Not asking anyone to agree with me.

2008 Dec 24 08:57 AM