2011 Photo: Dale de la Rey
I was able to catch up with billionaire Ivanhoe Mines (TSX:IVN) Executive Chairman Robert Friedland in Toronto yesterday. The Singapore-based mining legend was in Toronto this week to announce the launch of Ivanhoe Pictures, a new film and TV finance and production company, and to host the first investor presentations for his Ivanhoe Mines after a summer spent relaxing and reflecting on the Italian coast, where Mr. Friedland acquired a hotel property earlier this year.
Friedland says that the Chinese are determined to fight air pollution. “I have a home in Beijing but I’ve been avoiding it in recent years because the air pollution has become absolutely diabolical,” Friedland commented. This alone would be enough to drive the conventional Platinum market crazy, he added, noting that catalytic converters which reduce toxic emissions in automobiles use substantial amounts of platinum and palladium.
There is a revolution coming to the automobile industry via the Japanese, according to Friedland. Senior officials in Japan tell him that the Toyota Motor Company will announce hydrogen fuel cell automobiles later this year with a commercial roll out coming in 2015. “These cars will use ounces, not tenths of ounces of platinum,” Friedland said. This is why the Japanese government bought 10% of Ivanhoe’s Platreef project for $300 million, Friedland believes.
The Japanese will also spend as much as $100 billion upgrading their high speed trains, requiring massive amounts of metals, said the always enthusiastic Ivanhoe chairman.
“You will need a telescope to see how high the price of Platinum will go.”
On the subject of quantitative easing in the US, Mr. Friedland commented, “Now we have this new word written by idiots called tapering which is basically the breast of your mother is being taken out of your mouth but just for a few minutes and slowly, and while you’re getting deprived of your mother’s milk, they’re going to give you baby formula instead, and assure you at the same time that money’s going to be free forever. All of the world’s central banks are printing capital. We are not going into a deflationary meltdown. It’s not going to happen. Europe is starting to recover.. The US is clearly in a recovery… Growth in the developing world continues at pace.”
Friedland thinks the sacking of CEOs at major mining companies was a mistake by the boards and chairman at these companies. “Mr. Munk dispensed of Aaron Regent, which was a ridiculous decision, in my considered opinion… The new personage in the CEO positions are risk averse. They’re cutting costs and selling assets, sticking their heads in the sand… What do you think is going to happen in the mining industry where at the top all of the major mining companies are downsizing or shrinking?”
Friedland says that a growing global economy, coupled with a downsizing mining industry, and constricted exploration finance markets are contributing to a very bullish setup in commodities, in particular copper.
Electrical energy consumption per person on planet earth has never done anything but go up, said the mining legend, and power takes copper. “Copper is the king of metals.”
“These old mines are dying, and their grades are declining, and we’re going to have to have a much higher copper price.”
Friedland believes $4.50 – $4.75 per pound copper prices are necessary to justify the construction of new mines, with one exception, Ivanhoe’s high grade Kamoa project in the DRC, one of two copper development projects in that challenged but resource rich African nation which Ivanhoe owns stakes in. “Did you know the Katanga province [in the DRC] now produces more copper than all of Canada?” Friedland asked rhetorically.
“I think copper is going to hang around $3-$3.25, maybe for a nano second $2.75, but 5 years from now it’s definitely $4-$5 per pound, and this is what a bottom looks like.”
Friedland also suggested a new use for copper. Because of its antiviral and antibacterial properties, the mineral could replace stainless steel as a surface material in hospitals. Silver is another anti-bacterial alternative, albeit more expensive than copper. Whether we’ll be seeing copper counters in hospitals soon is unknown.
On the subject of Iron ore, Friedland commented, “Iron, I’m sorry to say it, but WE’RE FLOATING ON AN IRON BALL, THE EARTH. Iron is either the first or second most common element on the periodic table and everyone and his brother are building iron mines. But copper is rare and hard to find and without it we don’t have a modern world.”
Friedland Track Record
Mr. Friedland is considered to be the most successful mining entrepreneur of our time (Rick Rule to CEO.CA). In the early 1990’s one of Friedland’s companies discovered and developed the Fort Knox gold mine in Alaska, now owned by Kinross. According to Friedland, the project cost investors $7 million and was sold for approximately $600 million.
Friedland’s Diamond Fields International then discovered the Voisey’s Bay nickel project in Newfoundland, Canada, which sent his Diamond Fields stock from $1 to $161 in 13 months adjusted for splits in 1995. “So many trees died to generate the wood pulp in the Globe and Mail to gloat about the fact that Inco paid too much for Voisey’s Bay, $4.3 billion. But actually when the Brazilian’s came to buy Inco they ascribed $12 billion to the value of this asset, so I just want to remind you that the real wealth in the mining industry is generated by FINDING something,” Friedland emphasized.
Friedland turned his attention to Mongolia in 1999. With only $100,000 remaining in Ivanhoe Mines bank account, on the 153rd drill hole, the company discovered a massive copper gold ore body in the Gobi Desert at Oyu Tolgoi. Ivanhoe Mines then executed the largest drilling campaign in the history of the mining industry, over 1 million meters of diamond drill core, to delineate over $400 billion worth of reserves, which Friedland described as giving birth to a 100 kilogram baby.
Robert Friedland’s 100 kilogram baby, the Oyu Tolgoi mine in Mongolia (Company)
Over $7 billion was spent developing a mine at Oyu Tolgoi and a $5 billion expansion is now under way, however the market capitalization of the company which owns the mine (Turquoise Hill Resources – TSX:TRQ) is only $5.25 billion. Turquoise Hill will be producing copper at a negative cash cost (thanks to the gold) for over 100 years, Friedland said.
“All the drama about the Mongolian government and the investment agreement is long forgotten. This is the largest lowest cost new copper and gold mine in the world trading at a discount of the capital cost of building the plant right here on the Toronto Stock Exchange right under your nose because we have a bubble in panic.”
Friedland didn’t stop there. “Consider picking up a few shares as a speculation… Pack them away for your favourite nephew.”
Friedland says that he still holds some 80-90 million shares in Turquoise Hill, despite no longer being officially involved with the company, having relinquished control to Rio Tinto, one of the world’s largest mining companies, in 2012.
The team who discovered and built the mine at Oyu Tolgoi are still with Friedland at his Ivanhoe Mines 2.0 (TSX:IVN), and Friedland says that the company now has the three best undeveloped mines in the world, Kamoa, Kipushi and Platreef.
“These are world class mines opening soon at a theatre near you in one package trading at a radical discount to the price the Japanese government was willing to pay.”
Mr. Friedland did not discuss his plans for Ivanhoe Pictures, although rumours are circulating that Ivanhoe’s first film could be a biopic of Friedland himself. The legend’s life does deserve to be told on the silver screen, but who will they cast to play the man?
On the subject of junior mining stocks, Friedland thinks they are extremely undervalued. “We’re much closer to the bottom of this cycle than you imagine. This is not the end of the super-cycle… The financial markets are like a school of fish, they all head in one direction until all of a sudden, they turn on a dime.”
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Disclaimer: This is not investment advice. All figures approximate and all facts to be verified by the reader. We own shares in Ivanhoe Mines. Do your own due diligence.