News that the Mongolian government is rethinking a 2009 deal that gave Ivanhoe Mines and Rio Tinto a 66% stake in the massive Oyu Tolgoi gold and copper project has sent the shares of Ivanhoe down more than 9.5% in Toronto on Wednesday afternoon, while Rio's ADRs gave up over 6% in New York trade.
The bad news appears to have led to a bust-up between the two companies, with Ivanhoe founder and CEO Robert Friedland saying on Wednesday Rio's senior management has been making "unauthorized and incomplete" statements about Oyu Tolgoi and that he will take the matter up with the world's number three miner. Ivanhoe is closely tied to Mongolia where it also controls SouthGobi, a producing coal mine. SouthGobi plummeted 10% on Wednesday.
Ivanhoe Mines (TSE:IVN) had lost 9.48% of its value by late afternoon on the Toronto bourse, bringing its market value to $12.46 billion. 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 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 close to 10% on Wednesday on the TSX where it is worth just under $1.5 billion.
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: 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%.
Over the weekend 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 used in steelmaking. Mongolia is also planning a potential initial public offering next year for the remainder of Tavan Tolgoi, which may raise more than $3 billion.
Bloomberg quotes Richard Knights, an analyst at Liberum Capital Ltd. in London: “The fact that they may be changing the goal posts near the end of the game is not ideal but they are not the first country in the world to be doing it. It would definitely make companies more cautious when considering an investment decision.”