Digging into Ivanhoe Mine's Lesser-Known Assets

While mining companies spend their time and money searching for new and undiscovered deposits, some of the Ivanhoe Mines Ltd.’s (IVN) assets may themselves be running under the radar of investors.

Two such lesser known assets – an 89% stake in SouthGobi Energy Resources Ltd. [SGQ.V], and the Swan copper and gold discovery in Australia – present a good chunk of hidden value, says UBS analyst Tony Lesiak.

In Australia, Ivanhoe’s 1450 square kilometres of mining interests are located in the historic mining district of Cloncurry, with neighbors like Barrick Gold Corp. (ABX), and BHP Billiton (BHP). Xstrata’s successful Ernest Henry mine is also nearby, and Mr. Lesiak thinks Ivanhoe’s Swan deposit could be a look-alike.

He also noted that the floating of Ivanhoe’s Australian assets should see a proposed IPO before the end of 2007.

SouthGobi Energy meanwhile, is considered by Mr. Lesiak to be a key source of value. While nearly all of the company’s market cap is attributed to its Ovoot Tolgoi coal development project in Mongolia, nearby exploration assets represent significant upside, he said.

Meanwhile, parliamentary delays means first production at the Oyu Tolgoi gold and copper project, also in Mongolia (Ivanhoe/Rio Tinto), is expected in mid-2010.

Mr. Lesiak is confident that the project’s Investment Agreement will be ratified, but said it depends heavily on Rio’s involvement. The agreement will likely provide Ivanhoe rights to water, power, access and labor.

He rates Ivanhoe shares a “buy,” and hiked his price target by C$3 to C$19.

IVN 1-yr chart: