Canada Research
Published by Raymond James Ltd.
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Ivanhoe Mines Ltd.
September 9, 2013
IVN-TSX
Company Comment
Alex Terentiew
MBA, P.Geo | 416.777.4912 | alex.terentiew@raymondjames.ca
Ross Yakovlev
CA, MBA (Associate) | 416.777.7144 | ross.yakovlev@raymondjames.ca
Mining | Base Metals & Minerals
Bulk Sample Permit Approved
- A Key Milestone for Platreef
Event
Ivanhoe Mines Ltd. announced its plans to begin shaft sinking at its Platreef
PGM project, following its receipt of the Bulk Sample permit.
Recommendation
We continue to like the long-term potent
ial of IVN’s three world-class projects
and see the potential for long-term va
lue creation. The company remains on
the de-risking path for its key assets and should achieve several value-creating
catalysts over the next year. We therefore reiterate our Outperform rating.
Analysis
Platreef project achieved an import
ant milestone last week, receiving
government approval for the Bulk-Sample shaft sinking.
The approval,
delayed by half a year, was seen as
a critical path item, allowing the
company to enter its next stage of underground development at Platreef.
As previously stated in our Apr-24-13
Initiation Report
, “Top Class Assets,
But a Long Road Ahead” $2.97,
we anticipate the shaft
build-out to last
approximately three years and facilit
ate the collection of a mineralized
bulk sample in late 2016,
compared to 2 years and 2H15 start-up currently
targeted by the company. The shaft is
expected to be sunk to the 800 m
level and cost $80 mln, according to management.
Platreef scoping studies remain ongoing,
as IVN reviews its 12 Mtpa long-
term production plan for further efficiencies (we model 9 Mtpa).
Management targets late 2013/early 2014 for PEA completion.
More capital likely needs to be raised by IVN.
Platreef’s upcoming shaft
development appears to be supported by ~$180 mln in dedicated funds at
the JV level (~$189 mln at 2Q-end). However, by our estimates, IVN would
have to contribute ~$130 mln at Kamoa and Kipushi over the next 6
quarters (IVN reported only $50 mln
in non-earmarked funds as at 2Q-
end), leading us to conclude that IVN may have to raise additional capital
in late 2013/early 2014 to avoid ad
ditional delays at those projects.
Valuation
We estimate a fully-financed NAVPS of $4.36, implying a current P/NAV of
0.49x, which is a discount to the producers’
average of 0.71x. Our target price is
based on 0.50x our 8% minesite NAV estimate, before adjusting for other
corporate items. These multip
les reflect our view of the relative risk of Ivanhoe
Mines’ operations, balance sheet, size, and liquidity.
EPS
1Q 2Q 3Q 4Q Full
Revenue NAVPS
Mar Jun Sep Dec Year
(mln)
2011A US$(0.05) US$(0.06) US$(0.08) US$(0.11) US$(0.30) US$0
2012A (0.10) (0.12) (0.09) (0.07) (0.38) 0 NA
Old 2013E (0.07)A (0.08)A (0.06) (0.06) (0.26) 0 US$4.36
New 2013E (0.07)A (0.08)A (0.06) (0.06) (0.26) 0 US$4.36
Old 2014E (0.03) (0.03) (0.01) (0.01) (0.09) 0 NA
New 2014E (0.03) (0.03) (0.01) (0.01) (0.09) 0 NA
Source: Raymond James Ltd., Thomson One
Rating & Target
Outperform 2
Target Price (6-12 mos): C$3.50
Current Price ( Sep-06-13 ) C$2.21
Total Return to Target 58%
52-Week Range C$5.45 - C$1.29
Suitability
Venture Risk
Market Data
Market Capitalization (mln) C$1,170
Current Net Debt (mln) -C$204
Enterprise Value (mln) C$974
Shares Outstanding
(mln, basic) 529.5
10 Day Avg Daily Volume (000s) 642
Dividend/Yield C$0.00/0.0%
Key Financial Metrics
2011A 2012A 2013E 2014E
P/E
nm nm nm nm
P/NAV
NA 0.49x NA
CFPS
US$(0.27) US$(0.33) US$(0.28) US$(0.10)
Working Capital (mln)
US$183 US$328 US$305 US$724
Capex (mln)
US$4 US$9 US$63 US$190
Total Debt (mln)
C$123 C$15 C$34 C$30
M&I Resource (Cu Mt)
NA NA 20.5 NA
Shares Outstanding (mln, f.d.)
465.2 565.5 698.8 698.8
Company Description
Ivanhoe Mines Ltd. is a Canadian advanced stage
mineral exploration company
with three key projects:
Kamoa (Cu, DRC), Platreef (PGM, South Africa), and
Kipushi (Zn-Cu, DRC).