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Friedland Seeks Congo Funding After Gobi Exit: Corporate Canada

Billionaire Robert Friedland
Billionaire Robert Friedland is now proposing a mining development in Congo, whose government seized copper assets from Canada’s First Quantum Minerals Ltd. in 2010, and in South Africa, where the mining industry is convulsed by labor unrest. Photographer: Carla Gottgens/Bloomberg

Robert Friedland, the billionaire who spent the past decade building a $6 billion copper mine in Mongolia’s Gobi Desert, is asking investors to fund projects in an even riskier locale -- the Democratic Republic of Congo.

Ivanplats Ltd., a Friedland-controlled mining company, plans to raise about C$300 million ($307 million) in an initial public offering in Toronto, according to a person with knowledge of the IPO who declined to be identified because the amount hasn’t been published. Vancouver-based Ivanplats seeks funding for its Kamoa copper project in Congo and to repay debt owed to Israeli investor Dan Gertler, who sold the company a zinc mine in the African country last year, according to a prospectus filed with regulators Sept. 10.

Friedland, 62, five months ago lost control of the Oyu Tolgoi mine in Mongolia after disputes with the government and joint venture partner Rio Tinto Group. He’s now proposing a mining development in Congo, whose government seized copper assets from Canada’s First Quantum Minerals Ltd. in 2010, and in South Africa, where the mining industry is convulsed by labor unrest.

“I would call the DRC the ultimate high-risk, high-reward mining destination -- it’s one that’s on the radar of all serious mining companies because of its huge wealth and mineral resources,” James Smither, head of the mining practice at Maplecroft, a Bath, England-based risk-analysis company, said by telephone.

“With that comes a significant array of potential pitfalls ranging from political uncertainty to contractual variances and very significant security challenges,” he said.

Marc Faber

A C$300 million share sale would be the third-largest Canadian mining IPO since at least 1999, according to data compiled by Bloomberg. Franco-Nevada Corp. raised $1.26 billion in a 2007 offering while Tahoe Resources Inc. sold $365.4 million of stock in 2010.

Friedland had planned to sell as much as $1 billion of Ivanplats shares, people with knowledge of the situation said in mid-January. Since then, China’s economy has slowed and Europe’s sovereign debt crisis remains unresolved.

Ivanplats’ board of directors includes Cyril Ramaphosa, chairman of South Africa’s Shanduka Group Ltd., and Marc Faber, author of the Gloom, Boom & Doom report, the prospectus shows. Lars-Eric Johansson is chief executive officer.

Bank of Montreal is leading a group of underwriters including Morgan Stanley, Macquarie Group Ltd. and Royal Bank of Canada, according to the document.

Voisey’s Bay

Friedland, who lives in Singapore and has a net worth estimated by Forbes at $2.3 billion, wasn’t immediately available for comment, according to a spokesman.

The Chicago-born businessman befriended Apple Inc. co-founder Steve Jobs while a student at Reed College in Portland, Oregon, before going on to invest in a gold-mining company in the 1980s.

His first multibillion-dollar deal came in the 1990s when, as co-chairman of Diamond Field Resources Inc., the owner of the Voisey’s Bay nickel deposit, Friedland presided over a bidding war between Canadian miners Inco Ltd. and Falconbridge Ltd. Inco paid C$4.3 billion for the project in 1996.

Ivanhoe Mines Ltd., a company controlled by Friedland, signed an option in 2000 to explore in Mongolia, which led to its acquisition of the Oyu Tolgoi project.

Even after attracting Rio as an investor and starting construction, Ivanhoe faced political pressure. Ivanhoe shares fell in September 2011 after Mongolia said that it wanted to increase its stake in the project. It agreed in October to keep its existing holding.

‘Extreme’ Risk

While the level of business integrity and corruption risk in Mongolia is “high,” in Congo it’s “extreme,” Maplecroft said in a July report. The risk of interference by Congolese authorities in private assets is always a possibility, said Daniel Balint-Kurti, a campaign leader at Global Witness, a non-profit group targeting corruption and human-rights abuses involving natural resources.

“There is also clearly a risk of confiscation of assets,” Balint-Kurti said in an interview from London yesterday. “The justice system is generally seen as not being independent, meaning you’re more at the mercy of what government officials want you to do.”

Ivanplats estimates that the Kamoa project in Congo’s southern Katanga province, the center of the country’s copper industry, will cost about $2 billion to develop, according to the prospectus.

Gertler Deal

The risks associated with the country were demonstrated in 2010 when Congo concluded a review of mining concessions and canceled a contract allowing Vancouver-based First Quantum to extract copper at the Kolwezi project in Katanga. The move was was criticized by Global Witness and the Atlanta-based Carter Center for a lack of transparency.

Congolese state-owned mining firm La Generale des Carrieres et des Mines -- also known as Gecamines -- subsequently seized a controlling stake in Kolwezi. Gecamines then sold the holding to Gertler, who then sold it to London-based Eurasian Natural Resources Corp. as part of a $175 million deal in August 2010.

First Quantum sued ENRC and Gertler-affiliated companies for more than $2 billion. The dispute was settled in January when ENRC agreed to pay First Quantum $1.25 billion. Shimon Cohen, a London-based spokesman for Gertler, said Gertler was unavailable for comment.

Platinum Project

Ivanplats bought 68 percent of the Kipushi zinc and copper mine from Gertler in November 2011, and has paid him $45 million, with at least $100 million still owed, according to the Ivanplats prospectus. Ivanplats will pay Gertler as much as $105 million should its IPO raise $250 million or more by Dec. 14, the prospectus shows.

The Platreef platinum and nickel project, 280 kilometers (175 miles) northeast of Johannesburg in South Africa’s Bushveld mining complex, is another Ivanplats project. The country’s platinum industry, the largest in the world, has seen production disrupted by labor unrest in the past month. Violence associated with a strike at Johannesburg-based Lonmin Plc’s operations has left 45 dead. Platinum futures have jumped 19 percent in the past month in New York trading.

Friedland’s greatest talent “is finding prize assets, the biggest and the best, and growing them -- he’s doing that with Ivanplats,” John Goldsmith, vice president of Canadian equities at Montrusco Bolton Investments Inc., which oversees C$5.1 billion, said yesterday by telephone from Toronto. “I would never bet against him.”

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