Ivanhoe Mines Close to Agreement with Oyu Tolgoi

Major progress is being made on talks between Ivanhoe Mines Ltd. (IVN) and the Mongolian government to finalize an investment agreement on the giant Oyu Tolgoi copper-gold project. Desjardins Securities analyst John Redstone likes what he sees and has boosted his target on the stock 57% to C$9.40 a share.

"We expect an agreement between the two parties by the end of this month; we still assume that the Mongolian government will take a 51% interest in the project," he wrote in a note to clients.

Once an agreement is reached, the serious mine construction can begin. Mr. Redstone is estimating that $4-billion will be needed for initial capital expenditures, plus $550-million for contingencies.

Those are monster numbers. But assuming that Rio Tinto Ltd. (RTP) exercises all its Ivanhoe warrants and debentures, that would lead to net proceeds of $1.9-billion, Mr. Redstone wrote. Asset sales could bring in another $500-million, and he figures the balance ($2.15-billion) would be financed with debt at an interest rate of 8%. He assumes zero funding from the Mongolian government.

Mr. Redstone expects Oyu Tolgoi to go into production in 2014, and become cash flow positive (with cumulative operating cash flow surpassing cumulative capital expenditures) in 2020.

His valuation of Ivanhoe does not include the company's holdings in SouthGobi Energy Resources Ltd, Ivanhoe Australia or the Bakyrchik gold project.

Comments

[Doc 224899:]

No discussion of the asset value of Ivanhoe Mines is complete without taking into account the non-trivial value of Entre Gold(EGI), particularly the Mongolian projects.

Mar 13 10:51 AM

[growsmart:]

Many people sympathetic to Mongolia and anxious to support the economic development necessary to improve the standard of living for the people are very discouraged by the delays in the OT project over the last seven years. What could have been a major contributor of revenue in this difficult time is still being endlessly delayed and there is no income. Good investors are being turned away and new ones frightened by the various proposals. There is no lack of sound models for this development and good advice is readily available. There seems to be an unwillingness to trust anyone. The fact that the people of Mongolia own their mineral resources is not disputed. They have the right to have these resources developed by miners like Ivanhoe and Rio Tinto under suitable terms and conditions. It is not only unlikely but impossible that the Mongolian government would have the ability to fund and operate a complex project like OT. This is a job for large mining companies under appropriate agreements. As the folk saying has it: "A man who acts as his own physician has a fool for a patient." A wise government probably does not want to run mines or banks or other businesses. There lies the path to conflict of interest, corruption and incompetence. There is no need to try and reinvent the wheel. After seven years of work the one that has been designed is square and has turned a smooth road into a bumpy one with no end in sight.

Mar 14 05:28 PM

[jt:]

Cash flow positive in 2020...think about it...LUDICROUS!!!! Who the heck knows what the world will even look like in 11 years...yet alone talk about being cash-flow positive. I still own a few shares I didn't sell between $11-$13(US!!)in 2007...VERY few in comparison to back 4-5 years ago when OT looked like the 8th wonder of the world, a neverending treasure chest.

And I couldn't care less about the target price anyone sets. "Major progress" has supposedly been happening the entire 7 years of this idiocy and greed by the Mongolian govt. I'll believe it when I see it, and I'll be selling the rest of what i've got left the day after the agreement is announced...if it ever is...b/c I don't trust the Mongolian govt at all to not change the terms once the money has been put in.

Heck for all I know, Obama could get us into a war with China just to try to "get us out" of the Biggest Depression Ever...stranger and stupider things have certainly been done by people in power...and Mongolia could easily be "annexed"...again...by China...along with all resources. Anyway...I'll take the money and run away from Mongolia for good, once the "agreement" to rob Ivanhoe has been announced. If it turns out to be a good longterm investment for some folks...hey, good for them. But it aint me, babe. jt

Mar 15 03:19 AM

[delacroixP:]

It's only fair that Mongolia should guard against being taken for a ride by capitalist expediency.
Many years of financial inexperience have left Mongolia ignorant in the face of lottery-type, potential earnings.
The Great Wall of China itself is ample evidence of the sheer depth of Mongolian inability to overcome financial obstacles.

It's all good
Pascal

Mar 15 11:59 AM

[growsmart:]

With all the shorts piling on in the US and Canada, it looks like hopes for an agreement may be just flying up the spout. Seven years of this foolishness may be the real clue about how things will work out. If an agreement is signed by the present government, a new government might come in after riots like last summers' and disown it. Long term commitments to Mongolia seem foolish now. The Chinese and the Russians are jockeying for position and buying politicians in Mongolia is cheaper than the cost of shipping coal and copper from Australia and South America. Sic transit gloria.....caveat investor.

Mar 15 07:52 PM