Wednesday 22nd November 2017

Resource Clips


Robert Friedland’s favourites

Unprecedented demand calls for unparalleled grades, the industry legend says

by Greg Klein

For all that’s being said about lithium and cobalt, Robert Friedland argues that the energy revolution also depends on copper and platinum group elements. Of course he has a stake in them himself, with Kamoa-Kakula and Platreef among his current enthusiasms. Still, whether motivated by self-interest or not, the mining titan whom Rick Rule calls “serially successful” presented a compelling case for his favourite metals at the Sprott Natural Resource Symposium in Vancouver on July 25.

We’re living in “an era of unprecedented change,” said Ivanhoe Mines’ TSX:IVN founding chairperson. China’s the main cause. That country’s “breeding mega-cities prodigiously.” But one result is “incredibly toxic air… with a whole suite of health effects” from heart attacks to stroke, asthma to Alzheimer’s.

Unprecedented demand calls for unparalleled grades, the industry legend says

A crew operates jumbo rigs to bring
Ivanhoe’s Platreef mine into PGM production.

China’s not alone. Friedland pegs current global population growth at 83 million a year, with a projected 8.5 billion people populating the planet by 2030. Five billion will inhabit urban areas. Forecasts for 2050 show 6.3 billion city-dwellers. But China, notorious for its poisoned atmosphere, “is on an air pollution jihad.” It’s an all-out effort to turn back the “airpocalypse” and, with a command economy, a goal that shall be achieved.

The main target will be the internal combustion engine, responsible for about 60% of urban air pollution, Friedland said. China now manufactures 19 million cars annually, he adds. The country plans to increase output to 60 million, a goal obviously contrary to the war on pollution unless it emphasizes electric vehicles.

Like others, Friedland sees massive disruption as the economics of EVs overtake those of internal combustion engines, a scenario he expects by 2022 or 2023.

Demand for lithium-ion batteries (comprising 4% lithium, 80% nickel sulphate and 15% cobalt) has sent cobalt prices soaring. But bigger EVs will likely rely on hydrogen fuel cells, he pointed out. They’re already used in electric SUVs, pickup trucks, double-decker buses in London, trains in Germany and China, and, expected imminently, autonomous air taxis in Dubai.

Hydrogen fuel cells need PGMs. If only one-tenth of China’s planned EV output used the technology, demand would call for the world’s entire platinum supply, Friedland said.

“I would rather own platinum than gold,” he declared. Additionally, “there’s no platinum central reserve bank to puke out platinum.”

Ivanhoe just happens to have PGMs, about 42 million ounces indicated and 52.8 million ounces inferred, at its 64%-held Platreef project in South Africa.

Unprecedented demand calls for unparalleled grades, the industry legend says

Underground development progresses at the Kansoko mine,
part of the Kamoa copper deposit and adjacent to Kakula.

Electricity for the grid also ranks high among China’s airpocalyptic priorities. A study produced for the United Nations Environment Programme credits the country with a 17% increase in renewable electricity investment last year, most of it going to wind and solar. Almost $103 billion, China’s renewables investment comes to 36% of the world total.

Just as EVs remain more copper-dependent than internal combustion, wind and solar call for much more of the conductive commodity than do other types of electricity generation. Friedland sees additional disruptive demand in easily cleaned copper surfaces now increasingly used in hospitals, care homes, cruise ships and other places where infectious diseases might lurk.

He sees a modest copper supply deficit now, with a crisis possibly starting as soon as 2019. The world needs a new generation of copper mines, he said, repeating his unkind comparison of today’s low-grade, depleting mines to “little old ladies waiting to die.” The world’s largest producer, the BHP Billiton NYSE:BHP/Rio Tinto NYSE:RIO Escondida mine in Chile, is down to a 0.52% grade.

Copper recently hit a two-year high of about $6,400 a tonne. But, citing Bernstein data, Friedland said new mines would require a $12,000 price.

Not Kamoa-Kakula, though. He proudly noted that, with an indicated resource grading 6.09%, it hosts “the richest conceivable copper deposit on this planet.”

I’ve never been as bullish in my 35 years on a project.—Robert Friedland

A JV with Ivanhoe and Zjin Mining Group each holding 39.6% and the DRC 20%, Kamoa-Kakula inspires “a plethora of superlatives.” The veteran of Voisey’s Bay and Oyu Tolgoi added, “I’ve never been as bullish in my 35 years on a project.”

The zillionaire likes zinc too, which his company also has in the DRC at the 68%-held Kipushi project. With a measured and indicated grade of 34.89%, the Big Zinc zone more than doubles the world’s next-highest-grade zinc project, according to Ivanhoe. There’s copper too, with three other zones averaging an M&I grade of 4.01%.

“Everything good in the Congo starts with a ‘K’,” he said enthusiastically.

But recklessly, in light of the DRC’s controversial Kabila family. In June Ivanhoe was hit by reports that the company has done deals with businesses held by the president’s brother, Zoe Kabila, although no allegations were made of wrongdoing.

The family has run the country, one of Africa’s poorest, since 1997. Current president Joseph Kabila has been ruling unconstitutionally since November, a cause of sometimes violent protest that threatens to further destabilize the DRC.

As the New York Times reported earlier this month:

An implosion of the Democratic Republic of Congo, a country almost the size of western Europe, could spill into and involve some of the nine countries it borders. In the late 1990s, neighbouring countries were sucked into what became known as the Great War of Africa, which resulted in several million deaths.

Friedland’s nearly hour-long address made no mention of jurisdictional risk. But the audience of hundreds, presumably most of them retail investors, responded warmly to the serial success story. He’s the one who, after Ivanhoe languished at five-year lows in early 2016, propelled the stock more than 300% over the last 12 months.


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