Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
A statement put out by Ivanhoe Mines on Monday telling investors that its Oyu Tolgoi project remains on track and pooh-poohing rumours about the Mongolian government reneging on the deal that Ivanhoe and partner Rio Tinto spent five years negotiating did little to ease the fears of investors.
By early afternoon Ivanhoe had plummeted more than 21.3%, crashing through the $10 billion market valuation level and taking the week’s losses to over 35%, with the number of shares changing hands already exceeding the daily average. Ivanhoe also appeared to have patched things up with Rio Tinto on Monday after it said last week it’s unhappy that the world’s number two miner told investors about possible delays to the mega-project.
The counter’s losses began last week after rumours surfaced that the Mongolian government is rethinking a 2009 deal that gave Ivanhoe Mines and Rio Tinto a 66% stake in the Oyu Tolgoi and that it now wants at least half of the massive gold and copper project.
The bad news appears to have led to a bust-up between the two companies, with Ivanhoe founder and CEO Robert Friedland saying last week Rio’s senior management had been making “unauthorized and incomplete” statements about delays to Chinese power supply for the project. In the statement released on Monday Ivanhoe said it remains confident that the necessary agreements between Mongolia and China will be satisfactorily concluded and that Oyu Tolgoi should begin commercial production on schedule.
Ivanhoe Mines (TSE:IVN) had lost 21.27% of its value by lunchtime on the Toronto bourse, bringing its market value to $9.6 billion and its losses over the last five trading days to 35.2%. In August Vancouver-based Friedland told a group of investors that Ivanhoe is worth at least $30 billion and that the market was miss-pricing the counter.
Ivanhoe is closely tied to Mongolia. Ivanhoe Mine’s 57%-owned SouthGobi Resources (TSE:SGQ) which is already producing coal at an annual rate of 5.3mm metric tonnes and where production continues to ramp up was touted as a takeover target less than a week ago. It lost 2.4% on the TSX where it is worth just under $1.2 billion – Southgobi has shed a quarter of its value since last Monday.
Rio Tinto which owns just under half of Ivanhoe shed 1.5% on a generally positive day on the markets.
Revision talks may delay the 2013 proposed start-up of $6 billion Oyu Tolgoi Oyu Tolgoi’s average annual metal output during the first 10 years of commercial production is expected to exceed 650,000 ounces of gold, 3 million ounces of silver and 1.2 billion pounds of copper. Last month Rio Tinto (NYSE:RIO) raised its stake in Ivanhoe by 2% to 48.5% paying C$18.98 a share and exercising its subscription right of C$529.5 million.
At a time when many miners across the developing world struggle to preserve their social licence, Friedland has been touting Oyu Tolgoi benefits for the people of Mongolia at every opportunity and did so again in the Monday press release: the mine will contribute a third of the country’s GDP when it goes into full operation, will be mined until at least 2060 and increase the average earnings of Mongolians by 60%.
Ten days ago MINING.com reported Mongolia’s National Security Council has rejected a deal struck with foreign firms to develop the western block of Tavan Tolgoi in the South Gobi desert, the world’s largest deposit of high-quality coking coal and the second biggest investment in the country behind Oyu Tolgoi. Mongolia is also planning a potential initial public offering next year for the remainder of Tavan Tolgoi, which may raise more than $3 billion.
Click here for Monday’s complete statement from Ivanhoe Mines.
