Ivanhoe bloodletting continues

Ivanhoe Mines gave up another 3% on Monday, bringing its losses over the past trading week to 15% as worries about its Oyu Tolgoi project – one of the richest copper and gold mines in the world – continue to mount.

In mid-afternoon trade on the TSX, Ivanhoe (TSE:IVN) had given up 2.7% at $13.39, up from the day’s low of $13.28, a loss of 3.4%.

Investors were reacting to a downgrade of the Vancouver-based miner by Canada’s BMO Bank last week on concerns about rising development costs for the $6 billion Mongolian copper-gold-silver mine.

Ivanhoe’s 513-page Development and Operations Plan Technical Report includes forecasts of higher mining and processing costs at Oyu Tolgoi in Mongolia, a delay in underground development and lower projected ore grades, Tony Robson, a Toronto based analyst at BMO, said Tuesday in a note.

Robson downgraded Ivanhoe to hold from buy and reduced his estimate for Ivanhoe’s net present value to $18.17 a share from $24.78.

Ivanhoe has already spent over $5 billion on the 66%-owned project in Mongolia and the mega-mine, scheduled for production in Q3, is sucking up all of Ivanhoe’s cash.

In order raise funds for the 73%-built project, the company last week sold a controlling stake in its coal subsidiary in the Central Asian country to a Chinese consortium.

Ivanhoe has also put up for sale its 59% stake in Ivanhoe Australia where it has a number of copper-gold projects in various stages of development. The company also owns half of a private gold project in Kazakhstan.

Ivanhoe stock is down more than 25% in 2012 and down from a peak above $28/share reached in February last year. Monday’s losses has seen the market value of Ivanhoe, headed up by billionaire Robert Friedland, plunge through the $10 billion level. In August Friedland said Ivanhoe should be worth $30 billion.

World number three miner Rio Tinto took control of Ivanhoe in January after Ivanhoe scrapped a controversial “poison pill” shareholder provision clearing the way for Rio, which already owned 49% of the Vancouver-based company, to do a complete takeover.

At the time Rio paid $20/share for the additional 2%.

In October Ivanhoe and Rio dodged a bullet when the Mongolian government said it was rethinking the 2009 deal that gave Ivanhoe Mines a 66% stake in Oyu Tolgoi and that it wanted half of the $6 billion project.

Ivanhoe shares plunged on the news, but the firm took a tough stance and after some desperate negotiations Mongolia backed off.

Oyu Tolgoi, which Ivanhoe has been advancing for the last 8 years, is one of the biggest mining projects in the world and will help turn Mongolia into the world’s fastest-growing economy with staggering GDP growth of 35%.

The mine is set to produce more than 1.2 billion pounds of copper and 650,000 ounces of gold each year.

While Oyu Tolgoi is nearing completion, Mongolia’s other massive resource project – Tavan Tolgoi – is beset by delays, a situation China’s state-owned coal company hopes to exploit.

Frik Els

Email: fels@mining.com