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Evaluating Ivanhoe Mines Ltd. (IVN) is always a tricky thing to do, as the company still does not have an investment agreement for its flagship Oyu Tolgoi copper-gold deposit in Mongolia. But BMO Capital Markets analyst John Hayes did his best in new coverage.

He rated the stock a "market perform" (with no price target). He noted that the shares are trading at a 51% discount to his 10% net asset value of $12.45 a share.

When it comes to Oyu Tolgoi, Mr. Hayes wrote that it appears the government will end up with 34% of the project, based on recent press reports from Mongolia.

If an investment agreement with the government is completed soon, he wrote that there are still other significant risks at Oyu Tolgoi, including a weak copper price environment (BMO thinks the recent rally is overdone), potential changes to the development plan, and project financing.

He pointed out that the Oyu Tolgoi development plan from 2005 is out of date, and there are many issues (such as power and infrastructure) that need to be addressed. Raising financing is also extremely difficult in this environment, but Mr. Hayes suggested that the delay in hammering out an investment agreement means that the mine could be built in a lower-cost environment than was contemplated a year ago.

He wrote:

The current financing environment is unfavourable for base metal development companies; however, Oyu Tolgoi is a premium asset and the market should stabilize by the time that we project Ivanhoe will seek project financing.

Ivanhoe's strategic partner Rio Tinto Ltd. (RTP) has its own financing issues, and Mr. Hayes noted that Rio's proposed refinancing (with Chinese firm Chinalco) could help with the advancement of Oyu Tolgoi.

Source: Ivanhoe Mines: Some Issues, But Oyu Tolgoi Is a Premium Asset - BMO