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Ivanhoe Mines

Ivanhoe Mines goes on a Mongolian rollercoaster ride

Ivanhoe Mines, based out of Vancouver BC, has its core business set firmly in Asia. The jewel in Ivanhoe’s crown is the Oyu Tolgoi copper and gold mine development project in southern Mongolia; the company also has a shareholding in Mongolian coal miner SouthGobi Energy Resources and wholly owns the Cloncurry iron-oxide-copper-gold (IOCG) exploration project in Australia.

Ivanhoe had a substantial interest in Jinshan Gold Mines, which it sold to China National Gold Group Corp. in April 2008; Ivanhoe retains the right to purchase 1.5 million common shares of Jinshan at $2.50 up to June 26, 2009. However, China is still on the agenda for Ivanhoe, "This is the first step toward the formation of a long-term, strategic partnership between Ivanhoe Mines and China National Gold Group that will focus on gold and copper exploration and mine development opportunities in China," said executive chairman Robert Friedland. "There are significant benefits to be realized for Ivanhoe Mines' independent, 100 per cent owned gold exploration programs now underway in China, through a cooperative partnership with China's pre-eminent, government-owned gold group. A substantial portion of the proceeds of this asset sale will be dedicated to advancing Ivanhoe Mines' significant and advanced gold and copper exploration ventures across China," said Friedland.

Apart from Ivanhoe’s declaration to continue in China, in Mongolia, it was market expectation of a post election green light from the Mongolian government for Oyu Tolgoi and perhaps a further investment from Rio Tinto, which already has a ten per cent interest in the mine, that caused Ivanhoe’s stock to jump nine per cent to $11.02 on the TSX on Monday, June 30, 2008. Oyu Tolgoi is one of the largest undeveloped copper projects in the world today, which is why Rio Tinto shelled out $297m for its stake in Oyu Tolgoi in 2006.

In 2007, Ivanhoe and Rio Tinto agreed a draft deal with the Mongolian government potentially giving the government a 34 per cent stake in Oyu Tolgoi that would allow the project to go ahead. The bad news was that due to opposition from minority parties in the Mongolian coalition government early in 2008 the Oyu Tolgoi agreement was withdrawn.

Current projections from the mine’s partners say that Oyu Tolgoi could be in production during 2011 and produce 440,000 tons of copper and 320,000 ounces of gold annually. They’re pretty good numbers. However, in order for the Mongolian government to do its bit, it had to have a working majority to get things back on track. On Sunday, June 29, the Mongolian people went to the polls and, according to reports of released results, the ruling Mongolian People's Revolutionary Party (MPRP) scored a comfortable win, gaining 47 of the 76 parliamentary party seats; the opposition Democratic Party won 26 seats. Therefore, in trading on Monday all seemed set, according to the market, for a, “go,” for Oyu Tolgoi. 

Sometimes events just get in the way because despite reported assurances by the Mongolian General Election Committee and international monitors that the election was, “free and fair,” violence erupted on the streets amid allegations of election rigging.  The rioting was so bad that the Mongolian president declared a state of emergency and a curfew in the capital, Ulan Bator. The Mongolian Justice Minister Tsend Munkhorgil told reporters that five people had been killed and three hundred injured, including police officers, during the rioting; many hundreds of people were detained.

Civil unrest in the country made investors uncomfortable and not surprisingly, Ivanhoe stock started to head south. In early trading on July 3, 2008 the stock was down $0.18 at $10.36 (52wk high $18.00; low $7.80).

One can’t help where the resources are, and, it’s unusual for there to be civil unrest of such magnitude in Mongolia. If the international observers say that the election was fair then the result should probably stand and be accepted. Nonetheless, there are warning signs for the future. According to the BBC, correspondents inside Mongolia report that there is dissatisfaction amongst the people over the division of the nation’s wealth. The MPRP has promised to address this and make changes and even distribute cash dividends to the people. If the MPRP can calm the troubled waters the future for the Oyu Tolgoi mine may be bright.

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