Ivanhoe Upgraded on Improved Relative Valuation - BMO

While shares of most copper companies have done well in recent weeks, Ivanhoe Mines Ltd. (IVN) is a notable exception. It has fallen from above C$8.50 a share to the C$6.00-C$7.00 range, and BMO Capital Markets analyst John Hayes upgraded the stock to "outperform" (from "market perform") based on the improved relative valuation.

Ivanhoe is unique, because there is still so much uncertainty about when its agreement to develop the giant Oyu Tolgoi project in Mongolia will get approved. But Mr. Hayes simply believes it is cheap at these levels.

"We believe the company’s shares are not currently discounting potential for a timely resolution of the Oyu Tolgoi Investment Agreement," he wrote in a note to clients.

"The copper price should continue to be supported by better economic conditions and poor supply growth prospects over the longer term."

Mr. Hayes calculated that Ivanhoe is trading at a 54% discount to his 10% net asset value estimate of C$13.08 a share (at spot gold and copper prices of $951/oz and $2.25/lb, respectively). He warned that trading of the shares will likely remain volatile as long as there is uncertainty about the investment agreement on Oyu Tolgoi.

Comments

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IVN's CEO Friedlander is brilliant. Here's why: IVN is getting nowhere with the Mongolian Government. Chinalco is running around acting as an agent of the Chinese government, gobbling up commodities corporations in anticipation of a global Peak Commodities market. China wants the mineral resources in Mongolia, one way or another. If Ivanhoe forges an alliance with Chinalco, the full power of China will lean on the Mongolian government to push through a mining agreement, and Ivanhoe will benefit. If Ivanhoe didn't do this, China, through Chinalco, would get what they want anyway through Chinalco's share in Rio Tinto.

I wish I'd thought of this. Friedlander proves once again why he's a mining CEO that the other mining CEO's all listen to. Who does Ivanhoe hire to represent them? They hire Bill Weld, who served in a trade commission to China, and who probably knows the right people to talk to about this matter.

2009 Jul 02 01:43 PM