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Some Robert Friedland riffs

July 29th, 2015

The “miner’s miner” talks commodities, jurisdictions, markets and majors

by Greg Klein

A “miner’s miner” was how Rick Rule introduced Robert Friedland. The founder and executive chairperson of Ivanhoe Mines TSX:IVN also serves as executive chair of the Sprott-Stansberry Natural Resource Symposium in Vancouver, where he delivered the opening day’s keynote speech on July 28. That was the original plan, anyway. Instead, a relaxed-looking Friedland eschewed a script to sit back and, in response to questions posed by Rule, discuss commodities, jurisdictional risk, markets and the problem with the majors.

Friedland’s favourite metals? They’re currently copper, platinum, palladium and zinc—stuff for which he sees bright futures and, not surprisingly, the stuff he’s currently pursuing. He also likes diamonds but considers himself “an agnostic on gold.”

The “miner’s miner” talks commodities, jurisdictions, markets and majors

A community group poses on Ivanhoe’s Platreef
project, expected for 2019 production.

“Copper is the metal if you believe in human advancement,” Friedland says. “Gold is the opposite.” Meanwhile this market has either hit bottom “or it’s the end of the world.” He says he’s never seen such a severe devaluation, with stocks “priced for Armageddon.”

He’s cynical of the prognosis industry. The media report obituaries for all commodities, disregarding the bullish case that Friedland sees for some metals. JP Morgan, he points out, couldn’t predict oil’s fall. Goldman Sachs’ forecasts come from “just two guys, they don’t really know, they go to the bathroom about as often as the rest of us.”

As for his own forecasts, Friedland sees economic recovery and growth, as well as specific mining opportunities because “you can’t have economic growth without copper.” He notes recovery in Europe and describes the U.S. undergoing a “slow, gentle, lousy recovery,” but a definite recovery just the same.

He considers the collapse of Chinese equity markets to be an issue separate from the country’s underlying economy. “It’s definitely not 1929 in China,” Friedland emphasizes. Run by a powerful boss, the country’s “command economy” continues to grow. Chinese hold huge personal savings. With a currency stronger than the U.S. dollar, the country now has its own de facto reserve currency.

Even if China’s economy grows 3% to 4% a year, “it’s still an enormous disruption.”

Getting back to commodities, he argues that Saudis killed the Alberta oilsands and devastated U.S. shale “but no one can do that to copper.” Friedland dismisses some copper miners as “little old ladies waiting to die,” saying some grades fall so low that companies are “practically mining air.”

Serious debt prevents most majors from building big copper mines, Friedland contends. Yet his Oyu Tolgoi discovery, “the world’s highest-grade copper mine,” will undergo major expansion following last May’s agreement between operator Rio Tinto NYE:RIO and the Mongolian government.

The long, painful process of building Oyu Tolgoi “was like a woman giving birth to a 20-kilogram baby.” But it’s high grades, not jurisdictions, that attract Friedland. In fact he sees jurisdictional risk everywhere.

But the Democratic Republic of Congo inspires him to say, “If I were a dry cleaner I’d work there.” Just the same, a deal announced in May with the Zijin Mining Group on Ivanhoe’s Kamoa copper discovery would help “defuse” jurisdictional risk thanks to China’s “very good relations” with the DRC. Once again Friedland finds very high grades—the world’s largest undeveloped high-grade copper discovery—as well as the cost benefits of a country with cheaper currency.

Ivanhoe’s other DRC project, the past-producing Kipushi mine, boasts world-class zinc grades as well as copper. As an additive for agricultural fertilizer, zinc has “an absolutely brilliant future,” Friedland says.

More high grades in South Africa’s Bushveld complex are complemented by the “ever-depreciating rand.” Friedland expects Ivanhoe’s majority-held Platreef to begin production by 2019, making it among the world’s largest platinum-palladium mines, as well as a producer of nickel, copper, gold and rhodium.

While other South African miners struggle with very deep, highly labour-intensive operations, Platreef will be shallower and mechanized. “No one has to lift more than a pencil.”

As a self-made success, Friedland denigrates those who run some of the world’s biggest companies. Pointing to the iron ore wars, he says the big players seem committed to “destroying each other through a war of attrition”

He says the people who run major miners “are just driving the bus.” Heads of companies like Anglo American and BHP Billiton NYE:BHP don’t hold significant stock positions in their companies, he claims. While majors struggled through the adversity of the last few years, boards blamed CEOs and fired them. Their replacements, Friedland insists, are “risk-averse.”

As for the guy who first hit the big time over 20 years ago at Voisey’s Bay, “I made my own money.”

The Sprott-Stansberry Vancouver Natural Resource Symposium continues to July 31.