Recently, I discussed Ivanhoe Mines, Inc. (IVN) with Clay Mahaffey, Chief Analyst of the National Eagles and Angels Association on the "Stock Watch" segment of my nationally syndicated radio program "The George Jarkesy Show". Below is the discussion we had on the show about the prospects for IVN and its copper mining operations in Mongolia. The stock is currently trading at $16.52 as of close on March 23rd and is something I believe the individual investor should add to their watch list and maybe it will be a good fit for your portfolio.
Clay and I also discussed Gold ETF's including Large Cap Gold Mining stocks (GDX) and a Junior Mining ETF (GDXJ) as I believe gold should be a part of every individual investor's portfolio. The timing now I believe is good with the recent pull back in gold prices. I think the fact that many governments and central banks around the world are acquiring gold is a good indicator of their thoughts and intentions. Below is the transcript from Clay Mahaffey's appearance on our show.
George Jarkesy: We have with us the Chief Analyst of the National Eagles and Angels, Clay Mahaffey.
Clay Mahaffey: Hey, George. How are you?
George Jarkesy: It has been a big world Wednesday. We have just had an action packed show here. And as you know, we've been talking about a little bit of all things global: gold, and copper, and platinum, and, silver and other things, including coffee beans. What do you have for us today on Stock Watch?
Clay Mahaffey: George, in continuing that theme of a big world, I'd like to present today Ivanhoe Mines, Inc. This stock trades on the NASDAQ symbol IVN. I like this stock because of its short term value. It's currently priced around $17.00. This company is basically a play on copper. They're developing the fourth largest copper mine in the world in the Gobi Desert of Mongolia. But this mine is only 250 miles to Beijing and the millions and millions of people in China.
They have other assets. They have another coal mine in Mongolia. They have a gold mine in Kazakhstan. They have mining interests in Australia. They have a platinum mine in South Africa. Especially important, George, the stock has fallen 50 percent in the last six months in trades relative to the price of copper, but I think it's really undervalued at the current price.
George Jarkesy: Let me add in there, though, it dropped 50 percent, and copper is its main production. But copper only went down 11 percent in that same period.
Clay Mahaffey: Yes, I can explain that. It's a mispricing that investors could exploit. The size of this mine is mindboggling. They estimate they have a total of 50 billion pounds of copper than can be recovered from the mine. The value of the copper - and there's a little bit of gold - about 10 percent of the value is from gold. It's about $200 billion in the ground. The market cap of the company today is only 12 billion.
This is a good opportunity because a lot of the risk in mining companies is their ability to get financing. This company has developed a partner, Rio Tinto, Inc. (RIO), which is a $75 billion mining company based in Australia. They have financed construction of the project, which is 75 percent complete, out of cash and loans.
They're negotiating now at the World Bank, for a $4 billion project financing loan, which means there's no recourse to the owners. They will invest in the projects on its merits, which are very good. That's the story. It's a play on the global supply and demand of copper. With the developing countries, the demand for copper is growing very high. They need copper for appliances, transportation, wiring, and power. It's a very basic commodity. This will be one of the largest new mines in recent memory.
George Jarkesy: Have they said how long they expect that the new mine will actually go into production and start to show up in revenues and earnings? And then next question: When will the earnings start to show up? A lot of times in those mining projects, it's a couple years after you open the mine until you actually start to see the profits go up.
Clay Mahaffey: They've been developing this project for ten years already. They expect the initial production later this year. Within in one year, they will start the initial production. Within two years, George, I estimate the revenue will be $5 to $6 billion per year coming out of this mine; based on copper and gold, at the current market prices for those commodities. The company estimates that (the production) is good for ten years at a minimum.
George Jarkesy: With those revenues - and I know these are all commodity based and they can change dramatically with the price of that commodity - but what kind of earnings are you looking at on $6 billion of sales projected?
Clay Mahaffey: It should be a large, efficient - I don't have an exact number, but it should be one of the most profitable mines. It's a high grade or it's a combination of copper and gold, so you have a little bit of an offset from one product to the next on that end. It should be a very profitable business.
George Jarkesy: Okay. So the stock's around $17.00 right now. What is the symbol on it?
Clay Mahaffey: The symbol is IVN, India, Victor, Number.
George Jarkesy: IVN, and its Ivanhoe Mining. Let me ask, we have listeners who have listened to the show today. They heard about why I think there are many things that could happen this year that could make gold move much higher. What other ways would you tell our listeners - other than, of course, you can go buy bullion gold, silver, platinum bullion. You can do those things. But what other ways would you recommend investors could buy gold, or what other tools do they have that you would tell them to look at to try to get the gold, silver, platinum exposure?
Clay Mahaffey: George, there's an ETF that trades strictly based on the price of the commodity, gold. And then you have a group of ETFs, exchange traded funds, that hold a fixed portfolio of gold mining stocks. There are two that are popular. One is the Large Cap Gold Mining stocks. Their symbol is GDX.
There's another ETF that is more focused on the smaller, what they call junior mining companies. These are more speculative. The symbol of that ETF is GDXJ. Those are two options for playing the price of gold by getting a basket of stocks of mining companies primarily involved in gold mining. Normally, they have more leverage and they're more volatile. There's more upside and there's a little more downside to the price of gold.
George Jarkesy: So those ETFs are GDX, or the more speculative one for the junior mining companies is GDXJ.
Clay Mahaffey: That's it.
George Jarkesy: All right. That gives you some more tools in your investor tool chest. Clay Mahaffey, thank you for being on today.
Clay Mahaffey: Thank you, George.
Disclosure: Neither George Jarkesy or Clay Mahaffey hold Ivanhoe Mines, Inc, GDX or GDXJ.
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