Dundee: Buy rating & $2.50 target for Ivanhoe Mines LimitedAccording to Dundee Securities:
Ivanhoe Mines Ltd.
May 21, 2014
BUY, High Risk
Dundee target: C$2.50
$150M Bought Deal To Finance Pre-Development at Kamoa & Kipushi
Event: IVN announced a $150M bought deal @ $1.50/unit for 1 share + 1 warrant exercisable @ $1.80 for 18-months.
Impact: Neutral as it was expected and the positive impact of the additional funds is offset by the dilution. It nevertheless demonstrates the company still has access to capital and its chairman and major shareholder, Robert Friedland, roughly maintained its ~23% share by contributing $25M of the $150M (or ~17%) under the same terms and conditions. Company noted the net proceeds will be used for the advancement of and pre-development activities at, the Kamoa and Kipushi Projects, and for general corporate purposes.
Dilution:
- 17% more shares as it adds 100M shares @ $1.50/sh (brings total to 684M shares from 584M)
- 33% more shares on fully-diluted basis accounting for the 100M warrants @ $1.80/sh (brings total to 792M shares on a fully-diluted basis)
- NAV down 16% on fully-diluted basis from $4.36/sh to $3.63.
More news to come? In last MD&A, company noted it is “progressing ongoing discussions and negotiations with potential strategic investors and joint-venture parties” and management is examining a number of corporate and project-level options, including "a corporate reorganization; project spin-offs; sales or joint ventures; project or corporate-level debt and/or equity investments (including interim financing)”.
Reiterate our BUY recommendation and target price of $2.50/sh
IVN is exploring/developing 3 world class deposits including the super-giant Kamoa copper deposit and offers exposure to copper, platinum group elements (PGEs) and zinc. IVN is already big and it keeps growing. In total, it currently has access to more than 90 Billion lbs of contained copper equivalent resources. IVN also has a significant champion in main shareholder Robert Friedland (23% ownership, FD basis), and still has access to capital markets. For all these reasons we believe that IVN deserves a premium to our developer average multiples. We have a BUY recommendation and target price of $2.50/share based on a 0.68x TP/NAV multiple (up from 0.57x) to our NAV of $3.63/sh (down from $4.36)
Valuation:
- Trading at ~0.69 cents per lbs of CuEq Resource, below our developers' average of 1.23 cents.
- Trading at ~0.45x P/NAV, above our developers' average of 0.28x.