What is the value of the biggest platinum deposit in the world? What is the value of the biggest zinc deposit in the world? What is the value of the biggest copper deposit in the world? These three different assets are combined in one company. Moreover, the firm is run by the best mining entrepreneur on the planet. What about getting these assets for free?
Robert Friedland is an international financier and a major player in the mining industry. Despite the collapse of the commodity prices since 2011, he has a net worth of $845 million.
Mr. Friedland is recognized as the most successful mining entrepreneur in the modern history. In the 90's, he discovered the Fort Knox gold deposit in Alaska. It cost $7 million to develop the property and Kinross (NYSE:KGC) bought it for $600 million.
He also discovered the legendary Voisey's Bay nickel deposit. The stock of Diamond Fields shoot up from $1 to $161. The mine was acquired by Inco for the sum of $4.3 billion.
For the skeptics, Robert Friedland is also the man behind Turquoise Hill Resource (NYSE:TRQ). He executed the largest drilling campaign in the history to find a massive copper and gold field. Oyu Tolgoi is one of the largest mine in the world and it is expected to produce copper at a negative cash cost for over 100 years.
The legendary man is the executive chairman and founder of Ivanhoe Mines (OTCPK:IVPAF). The firm owns the Kamoa, the Kipushi and the Platreef project in Africa. The technical reports about these properties are just incredible. The drilling program at Kipushi speaks for itself. Three holes returned zinc grades of 40.9% over 348.5 meters, 44.8% over 339.4 meters and 33.3% over 305.8 meters. These drill holes came from the worst project of the company. The third best project of Ivanhoe Mines is the best copper and zinc deposit in the world. The following video of the billionaire Rick Rule is extremely interesting. Despite these facts, I am not a speculator trying to find the next Rio Tinto. Considering that ''Free'' is my favorite number, I am attracted by Ivanhoe Mines at the current price.
According to the preliminary economic assessment, the Platreef project has a net present value of $2.18 billion based on a discount rate of 8%. It is an after tax result. The norm in the mining industry is a discount rate of 5% for a project located in a friendly mining jurisdiction. Otherwise, the analysts use a discount rate of 8%. The net present value in the PEA is based on a platinum price of $1,700 per ounces. Currently, the platinum price is around $850 per ounces. Consequently, I prefer to attribute a net present value of $0 to the Platreef project. In my opinion, the NPV is probably positive, but it is a worst case scenario.
The preliminary economic assessment is underway for the Kipushi project. So, it is pretty hard to determine the net present value. Therefore, it is preferable to attribute an NPV of $0 for this project. Again, the probability of a negative NPV based on the current metals prices is extremely low in my opinion. However, I prefer to be conservative.
It is possible to attribute a conservative value to the Kamoa copper project. The copper price is presently trading at $2.14 per pound. Considering a copper price of $2.50 and a discount rate of 8%, the net present value is equal to $1.01 billion. According to the preliminary economic assessment, the total cash costs should be around $1.19 per pound for the entire mine life. The NPV is based on a copper price of $2.5 and it is trading at $2.14 currently. So, the NPV is overvalued at $1.01 billion. To be conservative, I prefer to consider a net present value of $750 million to the Kamoa project.
To summarize, a value of $0 is attributed to the Platreef and Kipushi projects. In reality, their NPVs are probably positive. In the current environment, the Kamoa project is worth $750 million in my mind. Thereby, the net present value of the entire company is $750 million based on my extremely conservative calculations. Contrariwise, the market capitalization is equal to $470 million based on a stock price of $0.61.
On December 8th, Zijin Mining Group completed the acquisition a 49.5% interest in the Kamoa project for C$716 million. This transaction gave a value of $1.45 billion to the project. It is two times higher than my estimate. Logically, the stock deserves a market capitalization of at least $1 billion or $1.3 per share.
At the end of the third quarter of 2015, Ivanhoe has $115 million in cash. Ivanhoe received an initial payment of US$206 million or approximately C$280 million. The remaining will be received in five equal payments payable every 3.5 months. At the moment, the firm has $395 million in cash and $42 million in total liabilities. So, it is possible to calculate a net cash value of $353 million. Considering a market capitalization of $470 million, a value of $117 million is given to the three world-class projects. It is important to remember that Zijin attributed a value of $1.45 billion to Kamoa alone. I did not take into account the remaining C$280 million.
What is the value of the best mining entrepreneur in the modern history? According to the market participants, Robert Friedland is worth nothing. On a humorous tone, the expertise of a billionaire is worth at least $1 in my mind. This is why I bought Ivanhoe Mines. Despite the bullish tone of my article, please do your own due diligence and consult your financial advisor before taking any action. I am not a financial advisor. This article expresses my own opinion only.
I am an undergraduate student, not a professional. Please take this factor into consideration. Please do your due diligence and consult your financial advisor before taking any action. I am not a financial advisor. This article expresses my opinion only.
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Disclosure: I am/we are long IVPAF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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