Basic Questions for IvanhoeBottom Lining Ivanhoe Mines
Every now and then I ask myself basic, common sense questions to establish an investment thesis (or establish an unquestionable risk). Often, it’s these basic questions that confirm a buy or a sell decision for me. Sure, the net present value calculations, macro environment, commodity price, recommendations from experts and stock board conversations are all great. But, when all is said and done and I’m alone with my own thoughts, it’s often my very own thoughts that make the most sense. Here are two basic questions for Ivanhoe Mines that I’m presently struggling with:
- Why hasn’t Congo bought their stake in Ivanhoe yet? With copper at multi-decade lows, there is no better time…what are they waiting for?
- Congo’s vast abundance of mineral resources is no secret in terms of potential. It’s priced at over 24 trillion, greater than England’s total GDP. Miners have been there since the 1920s. So, why is Congo not already one of the richest countries in the world?
The answer to both questions is that Congo has essentially been lawless for decades. Never has there been a peaceful transition of governments. One dictator is replaced by the next, and so on. As a consequence, private property rights are not enforced by a robust legal system. In the USA, private property rights are entrenched in the constitution. In Canada, they are well established by statute and case law. We, as investors, usually take property rights for granted. These legal concepts operate in the background and you never have to worry about them. However, in jurisdictions like the Congo, they are by no means a sure thing. What you think is yours may not be yours at all. So, if you can’t rely on a jurisdictions private property rights/legal system, you risk losing all of your investment over night. One day, everything is going to plan, you’re calculating how much your mine deposit is going to be worth….the next morning, you wake up to read management is reacting to the company’s revoked mining license and your assets are being seized by presidential decree. In a moment – years worth of investing time, effort and money….gone. A permanent loss to zero. I also happen to think the latest discovery at Komoa just makes it a more likely target to be in Congo’s public interest for seizure or outlawed foreign ownership beyond a certain percentage. In Canada, we would not allow a natural resource deposit of that size to be owned by a foreign company without a rigorous regulatory review. I see no reason to think Congo will simply cut a simple deal and let it go. And Robert Friedland, with all his bravado and past success, is controversial. He’s formerly known as “Toxic Bob” with mining environmental issues from the 1980’s. He can be a real nasty fellow at times – you don’t get to be like him by always being a nice guy and making friends.
This is what keeps me from leveraging in and buying mindlessly. For the record, I have a long position in IVN. I happen to think Congo will transition peacefully in November. I think Congo will probably emerge as the world’s most high growth economy because of mining activity. I do think Ivanhoe is an excellent buy and hold investment. But what went wrong in decades past for Congo? Grrrrrr. It’s not a sure thing. Even if IVN pops, I will end up severely over weight in the position. Sure, I’ll feel elated as I watch IVN explode to the upside, but knowing when to sell is always harder than knowing when to buy. What then?
Just out of curiousity, has anyone done a calculation on the ivanplats asset and calculated a share value for only this portion of the company?
Cheers everyone. GLTA with Ivanhoe shares.