Ivanplats Slide on Africa Belies Value Seen by Analysts

Ivanplats Ltd. (IVP), the mine developer founded by billionaire Robert Friedland, is the worst performer among its global peers this year. Analysts say its stock should be almost three times higher.

Ivanplats has dropped 69 percent this year in Toronto, the most among 115 companies in a Bloomberg mining index, which has fallen 30 percent.

The Vancouver-based company’s capital-expenditure needs, the geopolitical risk inherent in its African projects and the general doldrums in the global mining industry have spurred the decline, said John Goldsmith, deputy head of equities with Montrusco Bolton Investments in Toronto.

“The big issue with them right now is they do have a substantial amount of capex requirements,” Goldsmith, whose company manages C$5.5 billion ($5.3 billion), said in a July 10 phone interview. The riskiness of operating in Africa also is being factored into the way the shares are valued, he said.

Five analysts who rate the company have an average target price of C$4.19, almost triple Ivanplats’ closing price of C$1.54 a share yesterday, and the biggest spread in the Bloomberg World Mining Index. Six analysts rate the stock a buy, two have the equivalent of hold, and none recommend selling, according to data compiled by Bloomberg.

Photographer: Jerome Favre/Bloomberg

Ivanplats’ chairman Robert Friedland has succeeded in the past with large deposits. Close

Ivanplats’ chairman Robert Friedland has succeeded in the past with large deposits.

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Photographer: Jerome Favre/Bloomberg

Ivanplats’ chairman Robert Friedland has succeeded in the past with large deposits.

“Ivanplats is optimistic that the value of the company’s projects will be more broadly recognized as the company continues to make good progress advancing its three principal projects in South Africa and the Democratic Republic of Congo,” the company said in an e-mailed response to questions.

‘World-Class’

The statement also noted that Ivanplats’ shares only began trading out of step with its peers in the S&P/TSX Global Mining Index in late April, about the time that lock-ups related to its initial public offering last year started to expire.

“Ivanplats has the potential to realize significant value as it advances its three main projects through development and into production over the next five years,” Fraser Phillips, a Toronto-based Royal Bank of Canada analyst with a buy rating, said in a June 10 note.

Each of the company’s “world-class” projects have the potential to be “one of the largest mines in terms of production in their respective metals,” Alex Terentiew, a Toronto-based analyst at Raymond James Ltd., said in a June 11 note. Ivanplats is evaluating copper, zinc and platinum-group-metals projects in Democratic Republic of Congo and South Africa, the company said on its website.

Ivanplats has an experienced management and board that can advance the company’s projects to the point at which market confidence is boosted, leading to a “significant appreciation” in the company’s value, Terentiew said.

Oyu Tolgoi

Friedland, 62, Ivanplats’ chairman, has succeeded in the past with large deposits. His most recent promotion was Ivanhoe Mines Ltd., now renamed Turquoise Hill Resources Ltd. (TRQ), the owner of 66 percent of the Oyu Tolgoi copper and gold project in Mongolia. Rio Tinto Group, which now controls the company, said this week it made the first commercial shipment of copper from the $6.6 billion mine.

Friedland has been advancing mine projects for more than two decades and led the C$4.3 billion sale of the Voisey’s Bay nickel deposit in Canada in 1996, according to the Ivanplats’ IPO prospectus.

Friedland has shown that he’s able to raise the money for big projects, said Frank Holmes, chief executive officer of San Antonio-based U.S. Global Investors Inc., which oversees $1.3 billion of assets including Ivanplats shares.

“I’ve bought some more on the down days because it will have its day,” Holmes said in a July 11 phone interview. “It’s Robert Friedland and he’s a visionary and he’s relentless.”

Worst IPO

Ivanplats’ C$300.8 million initial public offering last October was the biggest Canadian mining IPO since Tahoe Resources Inc. (THO) raised C$348 million in 2010. Ivanplats has been the worst-performing IPO bigger than $100 million globally in the past 12 months, according to data compiled by Bloomberg.

Copper has fallen 14 percent in New York since Oct. 17, the date of the Ivanplats offering, while platinum has dropped 14 percent. Over the same period, the Standard & Poor’s/TSX Materials Index has declined 33 percent.

Ivanplats’ Kamoa copper project in Congo may produce at least 143,000 metric tons (315 million pounds) of copper annually in its first 10 years of operations, according to a May 15 statement. It’s the world’s biggest undeveloped high-grade copper discovery, Ivanplats said.

‘Political Risk’

The company owns 95 percent of the project and Congo holds the balance. Ivanplats has offered to sell another 15 percent to the government, according to the company’s website. It also said in April it was in “detailed discussions” with major international mining industry “participants” for financing and developing the project and associated infrastructure.

Ivanplats also is studying developing Kipushi, a base-metals mine in Congo that has operated on and off since 1924, and is evaluating the Platreef platinum-group-metals discovery in South Africa, the company said May 15.

Concerns around Ivanplats are “the insufficient installed power capacity, the political risk of higher taxes, royalties or asset expropriation, and the need to raise over $4 billion to bring these projects into production,” according to Raymond James’ Terentiew.

The decline in Ivanplats’ shares makes equity financings difficult, said Goldsmith, whose company has a policy of only investing in mine developers within a half year of starting production. The geopolitical risk will also be an issue for Ivanplats, he said.

“Because of where it’s located it’s never going to fetch premium valuation,” Goldsmith said. “It is what it is: great asset, wrong location, means you don’t get premium price.”

To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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