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Ivanhoe Mines: A Deeply Undervalued Mining Giant In The Making


  • Ivanhoe holds three pre-production, world-class mines in Africa, i.e., Platreef for precious metals, Kipushi for zinc and copper, and Kamoa-Kakula for copper.
  • These mines are characterized by some of the world's lowest costs and largest mineral resources, unique among the junior miners.
  • The stock was sold off since March 2018 partly due to the mining code changes implemented by the Democratic Republic of Congo.
  • The transaction value, NAV, and replacement cost estimated in this study indicate the existence of a large margin of safety relative to the current stock price.
  • I believe the risk-reward profile supports a high conviction buy.

“The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.” — Warren Buffett

Investment thesis

Ivanhoe Mines Limited (IVN.TSX) ( OTCQX:IVPAF) holds three world-class mines in Africa, with enormous mineral resources, incredibly low costs, and attractive economics. The small-cap firm is run by an executive team led by the legendary mining tycoon Robert Friedland, which has a proven track record of shepherding giant mines in difficult operating environments to production.

The company is reckoned to be a deep value at the current stock price of $2.11. It offers a margin of safety north of 39-58% relative to the estimated intrinsic value and a discount of 20% with regard to the replacement cost. Even in the worst scenario of Ivanhoe having to completely write off the Kipushi and Kamoa-Kakula projects in the Democratic Republic of Congo, aka, DRC, the intrinsic value of Platreef in South Africa still covers the current stock price and some.

The recent operational achievements such as the Kamoa-Kakula PEA, Kipushi PFS, and Kakula mineral resource update are yet to be priced in. Furthermore, Ivanhoe is poised to release the Kipushi DFS in 2Q2018 and the Kamoa-Kakula PFS in 3Q2018, which may not only result in incremental growth in intrinsic value but also catalyze the materialization of a 62-133% upside by driving a reversion of the stock price toward that intrinsic value within the next few quarters.

Therefore, I believe the risk-reward profile of Ivanhoe may justify an entry by the risk-tolerant and patient investors.

Why does the opportunity exist?

Ivanhoe has been consolidating along with the entire mining sector as represented by the SPDR S&P Metals and Mining (XME) since the beginning of 2018. Then, the new DRC

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Laurentian Research profile picture

As a natural resources industry expert with years of successful investing experience, I conduct in-depth research to generate alpha-rich, low-risk ideas for members of The Natural Resources Hub (TNRH). I focus on identifying high-quality deep values in the natural resources sector and undervalued wide-moat businesses. This investment approach has proven to be extremely rewarding over the years.

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Analyst’s 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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Comments (65)

Laurentian Research profile picture
Just in case you wonder why Ivanhoe Mines is up 15% today, I think it is because Robert Friedland aptly pointed out their Congolese mine could end up to be the world's second largest:


“Kamoa-Kakula will become the world’s second-largest copper mine with peak annual production of more than 700,000 tons of copper metal,” Ivanhoe founder Friedland said Wednesday at a mining conference in Cape Town.
Laurentian Research profile picture
Congo Opposition Leader Is Surprise Winner of Presidential Vote
_ Tshisekedi beats outgoing president Kabila’s protege Shadary
_ Victory may mark first democratic transfer of power since 1960


Tshisekedi's win may bode better for the foreign mining companies operating in the country, with my fingers crossed.
Laurentian Research profile picture
October 1, 2018
Ivanhoe Mines announces the Makoko Copper Discovery on its 100%-owned Western Foreland exploration licences near Kamoa-Kakula in the Democratic Republic of Congo
Makoko is Ivanhoe’s third major copper discovery in the DRC. Makoko high-grade copper shows characteristics identical to the tier-one Kamoa-Kakula Discoveries. Makoko has been drilled over an area measuring 4.5 kilometres by 1.5 kilometres and remains open. Drilling continuing on other Western Foreland targets.

Laurentian Research profile picture

PROGRESS GALLERY: Building futures. Strengthening communities.
During his meeting with Mouamba, Wang said China supports the Republic of Congo's efforts to achieve prosperity and hopes the two sides can make joint efforts to push forward people-to-people cooperation between the two countries as well as China and Africa.

Mouamba said the Forum on China-Africa Cooperation and other relevant meetings have unveiled the traits of Africa-China cooperation which are sincerity, unity, pragmatism, and win-win result.

The Republic of Congo is grateful for the aid China has provided and stands ready to forge pragmatic cooperation in various fields, to make progress on the Belt and Road Initiative and build a community with a shared future for China and Africa, he said.

With Investments China is making in Africa the DRC would be wise to keep good relations with them it appears to me that the DRC would be aware of it. now that china has a 20% stake in ivan hoe it would seem that they may get favorable treatment your thoughts?
Laurentian Research profile picture
Glencore's great game is avoiding US sanctions: Chris Bryant

Laurentian Research profile picture
South Africa will give mining companies credit for past black-empowerment deals even when the investors later sold their shares to whites or foreigners, removing a major concern for the industry.

Laurentian Research profile picture
Glencore faces third Congo legal challenge this year

Unbelievable stuff. Well, I did say above that the Government wants the Western companies out and the Chinese in.........
Laurentian Research profile picture
Yes, you were spot on.

CITIC is a very deep-pocketed company with a lot of strings it can pull. So the CITIC news is definitely positive.
Laurentian Research profile picture

Congo mining regulations to be signed into law on Friday — mines minister
Laurentian Research profile picture
May 29, 2018

Ivanhoe Mines installs new primary crusher as underground mine upgrading work nears completion at the historic Kipushi zinc-copper-silver-ger... mine in the Democratic Republic of Congo

Kipushi’s unmined Big Zinc Deposit has an estimated 10.2 million tonnes of Measured and Indicated Mineral Resources grading 34.9% zinc, 0.65% copper, 19 grams per tonne silver
and 51 grams per tonne germanium

Updated mineral resource estimate expected in June; definitive feasibility study scheduled for release later this year
hulubalang profile picture
The rhetoric/threats are heating up, big miners taking a cue from the President?

Miners warn Congo it faces $3bn revenue loss over new law

otoh since im now part of your crew this investment is anything but the cheery consensus mr WB talks about. pretty sure the Chinese wont take this gang warfare tactic so why should I lol like mikey Corleone said im with my godfather lmfknao small spot ok just for something to remember. hope this works out better than when I followed Cooperman visa into monitise a long while back. ive done well with weed and lithium stocks and this one was one of my few mining victories. WTF im insane lets party like its 1999. sure do miss that music. that quote today on ivpaf appears to be a mistake by SA RIGHT?
Laurentian Research profile picture
Today, Ivanhoe traded down by 3% at TSX but up 1.3% on OTC.

That IVPAF at $2.40, up 1.92 (407.40%), I guess is SA teasing us to cheer up. LOL.
guess one would never take life liberty and pursuit of happiness for granted after working in the congo. owned ivpaf awhile back doubled sold half then the DRC slim shadys reared their dark stars and I went bye bye. glta following RF has been profitable too bad I didn't see this piece on the 4th congrats to those that picked the low hanging fruit. not sure I have the stones to enter after today run up RR
Laurentian Research profile picture
Thanks, RR, for sharing your thoughts on Ivanhoe.
No effect (assuming no carrier actually gets on a plane and brings it there).

I am slightly out of the political scene now (I left in 2010), but the problem has always been lack of a credible opposition. Congolese politics is a battlefield, and democracy hardly comes into it - look at history since independence :

- Mobutu - took power by coup;
- Kabila senior - took power by force;
- Kabila junior - was put in place after assassination of his father.

Hardly a great record. There was one possible successor - Moise Katumbi - who was governor of Katanga (the province where the copper and cobalt mines are located) and popular with both the local population and the mining companies (being quite business orientated), but he was forced into exile. He has vowed to return for elections but....

Congo is a nightmare, logistically and most every other way. I imagine that Kabila Jr will 'win' the election and stay in power. TBH, I don't see any alternative.BTW - Kabila was, at one stage, very popular with the international sector - he is actually English speaking by birth (I think he was born in Tanzania), quiet-spoken and very presentable (unlike his father). However he has gone the way of basically all African people in power.

When I was in the DRC, a reasonable number of recognised international mining companies were operating there - excepting a small number including Glencore and Ivanhoe, they have almost all collapsed, been pushed out or left, with the lucky ones selling up to the Chinese (eg FCX and their Tenge mine) - which tells you something about the country. The Chinese are very influential there - I can only see their influence growing ever greater. You know the issues with Katanga Mining (owned by Glencore) and the State entity, Gecamines (court case over excessive interest payments by Katanga Mining to Glencore stopping distributions to Gecamines etc.)? It wouldn't surprise me if the end game plan is to eventually replace Glencore with a Chinese company - the government owes the Chinese billions of USD via a deal that said repayment was to be in the form of basic commodities - not sure how that was or is supposed to occur, but the cobalt reserves held by Katanga Mining would certainly cover a fair whack of the debt.

In summary, anything to do with the DRC: beware.... The country is full of incredible riches but has no wealth (Kinshasa, the capital city, is a malaria-infested pot-holed slum of 12 million+ people - when I was there, there were few street lights and not one set of working traffic lights (...) in the entire city. The country in general has hardly any roads and an almost defunct rail system (except that paid by and serving the mines); ALL local airlines are black-listed internationally, and boats can no longer travel on the vast Congo river due to silting). Where has all the money gone.......????
Laurentian Research profile picture
Hi! Thanks a million for sharing your intimate knowledge of Congo. I'm glad you came out of the country in one piece. After having read your comment, I feel it's amazing that a few mining companies have managed to survive there. All the best!
Thanks. It was an interesting experience. Yes Glencore has certainly survived there (so far) but, as I'm sure you know, its methods of operation have not always been exactly squeaky clean. In fact, they fit in quite well in the DRC....
Laurentian Research profile picture
Yeah, I know what you mean ;-)
11146471 profile picture
With Embola virus now spreading..well like a virus, in the Congo basin, I think you did well to sell buddy...
doug5380 profile picture
Funny thing is Ebola is the least of DRC's problems
11146471 profile picture
I wouldn't invest there. Not touching it with a 10ft pole.
Laurentian Research profile picture
Thanks for sharing your opinion here. I appreciate you brought our attention to Ebola.

BTW, Ebola also has quite a few occurrences in the US: http://bit.ly/2InMpBO.
Maybe that's why SP 500 wasn't doing so well lately?
Guys I screwed up and sold now it's mooning. Any of you good at technical analysis. Should I FOMO buy back in right now or wait until it levels out if at all. I'm gonna be pizzed if this bolts back up to $5 in the next month or two.
Laurentian Research profile picture
You must have sold for a reason. What is that reason?

If the reason is valid, you shouldn't second guess yourself.
If the DRC manages to have peaceful elections IVN should really take off by the time Kipushi goes into production in the 2nd half of 19. I'm planning to load up even more shares in early 19 if this happens. The potential is endless.
Laurentian Research profile picture
@Hankmiestro, thanks for your insight shared generously and for your take.
"I believe the risk reward profile supports a high conviction buy". I have read the excellent article in full and agree. I am in.
Many thanks.
Laurentian Research profile picture
Thank you for reading and commenting.

The article only reflects the author's opinion for reading and does not constitute an investment recommendation. So invest prudently and be aware of the high risk associated with stocks like this one.

With that said, I wish you good luck in investing!
Great read. Thank you
Laurentian Research profile picture
Thanks for reading. Stay tuned for more to come.
The consensus appears to be to leave this one alone! Is that a wise move ?
Laurentian Research profile picture
Great question! However, intelligent investment decision making is anything but reaching the consensus. In investing, a consensus hardly leads to adequate profits.

First, when an idea is proven to be a consensus, the best time to make an entry already is already in the past.

Second, consensus begets crowdedness, which begets competition, which begets subpar profits.

See what the sages say about consensus:

“All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident." -Arthur Schopenhauer
It's ridiculed and opposed because it's not consensus; as it is accepted, it becomes the consensus.

“Investors like things that appear certain. My view is that everything is uncertain, you're just trading one type of uncertainty for another." - Seth Klarman

"You Pay A Very High Price In The Stock Market For A Cheery Consensus." - Warren Buffett

Hope this helps.
thnxto several violence- producing politicos here & there, name which brown-baggie land is NOT mired in despicable violence- ongoing or impending? Count police brutality as well....rampant. What have we allowed to happen? Not a healthy investing environment.
Laurentian Research profile picture
I appreciate your comment.
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