Mongolia's fabled mine stirs Asian frontier
* Oyu Tolgoi copper/gold mine worth $350 bln - Ivanhoe
* Canada's Ivanhoe clashes with shareholder Rio Tinto
* Ivanhoe's shares up 68 pct since July
* Mine latest venture of colourful American billionaire
* Mongolia may be fastest-growing economy - analysts
By Joseph Chaney and David Stanway
ULAN BATOR, Oct 12 (Reuters) - A feeling of expectation hung in the air early one September morning as a group of bankers emerged from the aging, Soviet-era chic of Ulan Bator's Chinggis Khaan Hotel en route to a two-hour flight deep into the Gobi Desert, which blankets Mongolia's southern frontier.
Their destination, about 80 km (50 miles) from China's northern border, was Oyu Tolgoi, which bankers, geologists, journalists, and the mine's main developer Ivanhoe Mines Ltd routinely describe as one of the world's largest untapped copper and gold deposits. Ivanhoe, led by the colourful American-born billionaire Robert Friedland, owns 66 percent of the 5mine, and the Mongolian government the rest.
"This is going to be among the top five mines in size around the world," Keith Marshall, president and CEO of Oyu Tolgoi LLC told a conference in Mongolia's capital, Ulan Bator. "The only way to describe it is that it is just an awesome deposit. I have been 30 years in the mining industry and I haven't seen anything quite like this."
Landlocked Mongolia lingered in isolation for 70 years as a Soviet satellite state, serving as a sleepy buffer zone between its giant neighbours, Russia and China. Now, a young democratic government, in power since the early 1990s, is trying to pull its 3 million citizens out of poverty by exploiting vast amounts of untapped mineral wealth underneath the country's deserts and grasslands.
Oyu Tolgoi, or "Turquoise Hill," is named after the colour of the copper oxide leaching to the surface. The project is Mongolia's crown jewel, a massive ore body with a lifespan of 40-50 years that Ivanhoe says contains approximately 81 billion pounds of copper and 46 million ounces of gold -- not including estimates from a new vein discovered late last month. The mine will have a major impact on the supply of global copper. The copper reserves alone would be second only to Chile.
Much of the mine's treasure will be sold to China to satisfy the Middle Kingdom's voracious appetite for natural resources.
Mongolia's emergence as one of Asia's premier frontier markets is rarely discussed without reference to the Oyu Tolgoi site, a modern-day El Dorado that analysts say could account for roughly 30 percent of the country's GDP once it is fully operational.
Bankers and fund managers from Citi, ING, Morgan Stanley, Aberdeen Asset Management and other financial powerhouses flew in on Sept. 6 to take a closer look at the famous mine.
"Obviously, people wanted to know what would drive Mongolia's economy going forward and (Oyu Tolgoi) is a testament to where it is heading," Alisher Ali Djumanov, chairman of Hong Kong-based investment bank Eurasia Capital, which organised the trip told Reuters. "We felt it important for foreign investors to see for themselves the transformations taking place so they feel more confident about the entire Mongolian story."
The visit came at a challenging time for Ivanhoe. The Canada-based miner is trying to fend off a possible takeover by its biggest shareholder, global mining giant Rio Tinto -- a deal that could be as compelling for Rio as its Australian rival BHP Billiton's $39 billion pursuit of Canada's Potash Corp.
SEEKING WHITE KNIGHT?
Analysts say Friedland is maneuvering to prevent Ivanhoe from being acquired too cheaply by the much bigger Rio, which posted a profit of $5.8 billion for the first half of 2010 on earnings of $25 billion.
"Ideally, Robert (Friedland) wants to be bought out and he wants a fair price," said UBS analyst Glyn Lawcock.
Rio holds about 35 percent of Ivanhoe and can steadily increase that stake to a limit of 47 percent. That "standstill agreement", however, expires in October of next year, at which point Rio could make a run for a majority stake.
Ivanhoe, which posted revenues of $31.6 million and an operating loss of $146 million in the first half 2010 -- typical of a mining company in the exploration phase of its projects -- has devised a shareholder rights plan known as a "poison pill" to protect itself against what it called "coercive and creeping takeovers".
In July, Ivanhoe opened the door to other buyers by terminating a clause in an agreement with Rio that restricts it from issuing shares to other "strategic investors". (Oyu Tolgoi is the most prized of Ivanhoe's assets. But it also has controlling interests in Mongolia's Ovoot Tolgoi coal mine, the Cloncurry copper, gold and uranium project in the Australian state of Queensland and a gold project in Kazakhstan.)
Rio, which has invested $1.7 billion in Ivanhoe and its Oyu Tolgoi mine since 2006, is not backing down either, and has launched arbitration proceedings against Ivanhoe for scrapping the shareholding agreement.
Friedland, meanwhile, has been flogging the mine's fabulous potential to potential investors. He told the Diggers and Dealers mining conference in Kalgoorlie, Australia in August that the estimated present value of the copper and gold at the project was about $US350 billion, and could, if the project expanded, be worth up to US$1 trillion.
Terminating the agreement with Rio "has opened us up to some very interesting discussions with third parties", he told the conference without elaborating.
Rio ultimately wants to swap its Ivanhoe stake for a direct holding in Oyu Tolgoi and bring in one of its largest shareholders, China's Chinalco, as a partner.
"Chinalco has indicated an interest in acquiring a minority equity stake in the company (Ivanhoe) or acquiring, from the company, a direct minority ownership interest in the OT project," Rio said in a July 7 filing to the U.S. Securities and Exchange Commission.
"At the end of the day, you're dealing with one of the shrewdest investors in the mining space," said James Bruce, portfolio manager at Perpetual Investments, which owns a stake in Rio Tinto. "It's a very difficult negotiation, but one that, presumably, Rio Tinto are keen to have."
Both Ivanhoe and Rio, meanwhile, have profited from a 68 percent rise in Ivanhoe's shares between mid-July, when Ivanhoe announced it had scrapped the shareholding agreement, and Sept. 28, when the company disclosed it had discovered the new vein in Oyu Tolgoi containing an estimated 10.2 billion pounds of copper and 15 million ounces of gold. The surge has also coincided with a 25 percent increase in copper prices during the period.
* Canada's Ivanhoe clashes with shareholder Rio Tinto
* Ivanhoe's shares up 68 pct since July
* Mine latest venture of colourful American billionaire
* Mongolia may be fastest-growing economy - analysts
By Joseph Chaney and David Stanway
ULAN BATOR, Oct 12 (Reuters) - A feeling of expectation hung in the air early one September morning as a group of bankers emerged from the aging, Soviet-era chic of Ulan Bator's Chinggis Khaan Hotel en route to a two-hour flight deep into the Gobi Desert, which blankets Mongolia's southern frontier.
Their destination, about 80 km (50 miles) from China's northern border, was Oyu Tolgoi, which bankers, geologists, journalists, and the mine's main developer Ivanhoe Mines Ltd routinely describe as one of the world's largest untapped copper and gold deposits. Ivanhoe, led by the colourful American-born billionaire Robert Friedland, owns 66 percent of the 5mine, and the Mongolian government the rest.
"This is going to be among the top five mines in size around the world," Keith Marshall, president and CEO of Oyu Tolgoi LLC told a conference in Mongolia's capital, Ulan Bator. "The only way to describe it is that it is just an awesome deposit. I have been 30 years in the mining industry and I haven't seen anything quite like this."
Landlocked Mongolia lingered in isolation for 70 years as a Soviet satellite state, serving as a sleepy buffer zone between its giant neighbours, Russia and China. Now, a young democratic government, in power since the early 1990s, is trying to pull its 3 million citizens out of poverty by exploiting vast amounts of untapped mineral wealth underneath the country's deserts and grasslands.
Oyu Tolgoi, or "Turquoise Hill," is named after the colour of the copper oxide leaching to the surface. The project is Mongolia's crown jewel, a massive ore body with a lifespan of 40-50 years that Ivanhoe says contains approximately 81 billion pounds of copper and 46 million ounces of gold -- not including estimates from a new vein discovered late last month. The mine will have a major impact on the supply of global copper. The copper reserves alone would be second only to Chile.
Much of the mine's treasure will be sold to China to satisfy the Middle Kingdom's voracious appetite for natural resources.
Mongolia's emergence as one of Asia's premier frontier markets is rarely discussed without reference to the Oyu Tolgoi site, a modern-day El Dorado that analysts say could account for roughly 30 percent of the country's GDP once it is fully operational.
Bankers and fund managers from Citi, ING, Morgan Stanley, Aberdeen Asset Management and other financial powerhouses flew in on Sept. 6 to take a closer look at the famous mine.
"Obviously, people wanted to know what would drive Mongolia's economy going forward and (Oyu Tolgoi) is a testament to where it is heading," Alisher Ali Djumanov, chairman of Hong Kong-based investment bank Eurasia Capital, which organised the trip told Reuters. "We felt it important for foreign investors to see for themselves the transformations taking place so they feel more confident about the entire Mongolian story."
The visit came at a challenging time for Ivanhoe. The Canada-based miner is trying to fend off a possible takeover by its biggest shareholder, global mining giant Rio Tinto -- a deal that could be as compelling for Rio as its Australian rival BHP Billiton's $39 billion pursuit of Canada's Potash Corp.
SEEKING WHITE KNIGHT?
Analysts say Friedland is maneuvering to prevent Ivanhoe from being acquired too cheaply by the much bigger Rio, which posted a profit of $5.8 billion for the first half of 2010 on earnings of $25 billion.
"Ideally, Robert (Friedland) wants to be bought out and he wants a fair price," said UBS analyst Glyn Lawcock.
Rio holds about 35 percent of Ivanhoe and can steadily increase that stake to a limit of 47 percent. That "standstill agreement", however, expires in October of next year, at which point Rio could make a run for a majority stake.
Ivanhoe, which posted revenues of $31.6 million and an operating loss of $146 million in the first half 2010 -- typical of a mining company in the exploration phase of its projects -- has devised a shareholder rights plan known as a "poison pill" to protect itself against what it called "coercive and creeping takeovers".
In July, Ivanhoe opened the door to other buyers by terminating a clause in an agreement with Rio that restricts it from issuing shares to other "strategic investors". (Oyu Tolgoi is the most prized of Ivanhoe's assets. But it also has controlling interests in Mongolia's Ovoot Tolgoi coal mine, the Cloncurry copper, gold and uranium project in the Australian state of Queensland and a gold project in Kazakhstan.)
Rio, which has invested $1.7 billion in Ivanhoe and its Oyu Tolgoi mine since 2006, is not backing down either, and has launched arbitration proceedings against Ivanhoe for scrapping the shareholding agreement.
Friedland, meanwhile, has been flogging the mine's fabulous potential to potential investors. He told the Diggers and Dealers mining conference in Kalgoorlie, Australia in August that the estimated present value of the copper and gold at the project was about $US350 billion, and could, if the project expanded, be worth up to US$1 trillion.
Terminating the agreement with Rio "has opened us up to some very interesting discussions with third parties", he told the conference without elaborating.
Rio ultimately wants to swap its Ivanhoe stake for a direct holding in Oyu Tolgoi and bring in one of its largest shareholders, China's Chinalco, as a partner.
"Chinalco has indicated an interest in acquiring a minority equity stake in the company (Ivanhoe) or acquiring, from the company, a direct minority ownership interest in the OT project," Rio said in a July 7 filing to the U.S. Securities and Exchange Commission.
"At the end of the day, you're dealing with one of the shrewdest investors in the mining space," said James Bruce, portfolio manager at Perpetual Investments, which owns a stake in Rio Tinto. "It's a very difficult negotiation, but one that, presumably, Rio Tinto are keen to have."
Both Ivanhoe and Rio, meanwhile, have profited from a 68 percent rise in Ivanhoe's shares between mid-July, when Ivanhoe announced it had scrapped the shareholding agreement, and Sept. 28, when the company disclosed it had discovered the new vein in Oyu Tolgoi containing an estimated 10.2 billion pounds of copper and 15 million ounces of gold. The surge has also coincided with a 25 percent increase in copper prices during the period.
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