In-situ resource, BGraham, Forbes,etcFirstoff, BGraham, as per my last post wrt the $24.34 share evaluation, it was based on 2 major assumptions;
1) - The cutoff grade is 0.4% Copper equivalent
2) - We assume the deposit has a current value of 10% of what's in the ground.
I personally do not have any reservations about the economic viability of the resource for reasons which I will explain below. I also strongly believe that for around the $25.00 share price, the project or a portion thereof will be sold, barring any other spectacular surprises on the exploration side that might dramatically increase the size of the orebody. Based on the tone of the conference call, it seems that the company is gearing up to change direction from an exploration play to a mine development play. The geologists did hint that there might be the possibiltiy of 2 pits on site, obviously the large one in the SW zone, but also a pit in the central zone where the near-surface 1% CU chalchpyrite blanket could provide early feed for the mine mill. They were also extremely positive on the block cave-abiltiy of the Deep Hugo zone, and commented that the super-high grade zone is very columnar and that it would be easy to block cave this zone early on, thus generating quick payback on mine development costs.
Now, wrt to my opinion on the economic viability and points 1 and 2 that I have made above, this ties into my feeling that the Forbes article is indeed biased, with what seems like malicious intent to harm RF and the IVN share price.
Firstoff, I am aware that there has been some bad blood between Forbes and RF in the past, and this article might be considered a continuation of past indifferences. But after reading the article for the 3rd time, I am especially upset with the last few paragraphs, where that article uses only opinions of those who are seemingly Anti-Friedland and those who have never visited the sight. What if they had, to be fair and balanced, spoken to someone like myself or the scores of others (many of whom are reputable professionals) who were quite excited and bullish on this deal. Then the article would have been at least balnced wrt to discussions on the deposit itself. Sure there are sceptics, but there are also plenty of believers.
Additioanlly, the article slags Rf himself, and most of what they said was at least half-true. We are all aware of RF's past, but that is precisely why most of us are here, myself included. There is no better minefinder on this planet. Both Voiseys' bay and Turquioise hills represent 2 of the premiere deposits on this planet. Additionally, he past record indicates that he can extract top dollar from potential suitors! Let's fact it - you either love him or hate him. I personally have great admiration for the man. The article should have mentioned that RF has quite a following, based upon his past sucesses to be more balanced. Further more, yes RF obtained most of his paper in this deal via a poor investment into the Savage River Iron ore project- for which he had no control. But all his paper was obtained long before the bull market in metals emerged and long before there was any drilling done on the North Zone. Yes he did get the last of his paper by exercising options just around the time of the discovery hole- but this deal was very very risky at that time, and he took a chance.
Getting back to points 1 and 2, I do believe that a cutoff grade of 0.4% CU equivalent is reasonable. Firstoff, it's safe to assume that it's more expensive to extract ore from underground than it is from an open pit. So let'e consider a ton of ore from the underground of Deep Hugo portion of the deposit. (This is precisely where all the highest grade stuff is coming from! The average grades down there are typically over 1% CU equivalnet anyway.) Now, just to be on the conservative side, let's look at what it will cost us to get a ton of low grade 0.4% from underground. During previous conference calls, the IVN geologist and Rf visisted undergroung block-caving operations in China, where the Copper equivalent typical grades were about 1/4 of those found at Oya. It was stated that these operations were pulling stuff from underground for less than $1.00/ton. Furthermore, according to my research, milling, concentrating, transport and smelting costs, after extraction costs, work out to about $4.00/ton. So let's assume that it costs $5.00/ton to refine Cu from this underground ore. Now, we have to ask ourselves, what is 0.4% Cu equivalent ore worth? At US $0.92/lb Cu prices, it's US$7.36/ton.
(2000lbs)x(.4%Copper)x(Us$.92/lb) = US 7.36
So, if we have a decent margin on the low-grade garbage, what about analyzing our margins on the good stuff? Some of the good grades indicate large tonnage that is worth close to $100.00/ton. The costs are still $5.00 to turn the ore into metal, lower if open-pit, and you have $95.00/ton left over as operating profits for the shareholders!! We also must keep in mind that with the low-grade stuff, you either process it or use it for fill, because you have to take it out anyhow. So, for these reasons, I firmly believe that 0.4% Cu equivalent is a reasonable assumption, and that the potential profitabiltiy of this operation is mind-numbing! Why did'nt Forbes mention this?
This naturally leads to the next assumption, namely that the deposit has a present value of 10% of the ore value. Upon analyzing worst case scenario block-caving costs, pehaps the 10% valuation is much too conservative, and that 20% valuations should be used??
Finally, the article used Michael Riebers comments as follows;
"One other major hurdle: Even if Ivanhoe strikes it big and can pull copper and gold out at a reasonable cost, how will it get the ore to market?"Mongolia is the middle of nowhere, even for China," says Michael Rieber, a retired mineral economist at the University of Arizona."
IMHO, this issue of remoteness is just being used by those with sour grapes who fail to recognize the following reality of mine development. Take Grasberg for example;
It's the undisputed cash cow of all large mines, and it's a project that seperated Freeport from all other players. Like Oya, it's a Copper/Gold porphyry, but Grasburg has higher gold values whereas intially, it seems that Oya has much higher Copper valuations. Firstoff, it should be notes that grasburg's resource took over 30 years to dilineate, whereas Oya is just 2 years in the making to date. (Why did'nt Forbes mention this?). Furthermore, Grasburg is located high the the Indonesial mountains at an elevations of around 14,000 feet. The road coming out of grasburg is the known to be the steepest road in the world! Let's compare this to Oya: the Gobi desert is not sandy, but hard rock. You can practicaly drive a cadillac in any direction you want, including China! Furthermore, the latitude of Oya is same as that of Niagra falls, and the elevation is about 2500 feet. It seems to me that road and rail development costs at Turquoise hill would be a pittance compared to costs at Grasburg. Another large undeveloped project would be Northern Orion's Agua Rica in Argentina. It's a monster orebody, but it's located at about 16,000 feet elevation in the Andes, and the terrain is steep. Most South American mines are located at extremely high altitudes. As a matter of fact it's a non-issue other than to state that this project is so unique in that development and operational costs will be so much lower than most all other major mines on the planet. Monthly wages in Mongolia are about the same as daily wages in North America and Europe. Why did'nt Forbes, to be fair and balanced, delve into these topics or discuss Oya with those like myslef who feel the deposit is possibly terribly under-valued at today's share price?
Anyhow, for those of you who read through this, sorry for being so long winded.. It's just that I am upset and very surprised with Forbes - a publication I used to believe was first class.
I doubt that RF could sue Forbes for harming his reputation, but I do wonder if Forbes can be sued for harming the share price of IVN. I ask myself this;
-Could a jury be convinced that Forbes is influential, and that positve or negative articles can impact share price? I certainly believe so.
-Could IVN lawyers claim and convince a jury that the article was biased and one-sided, and that the reporter did not include comments from those who are bullish?(They included comments from those who have never even visited the site first-hand). I believe so.
Futhermore, these type of lawsuits go over much better in Canada as Canadian libel laws are much more sympathetic than the "freedom of speech" mentality that exists in the US. It might also be interesting if a large fund that is holding plenty of IVN paper were to initiate such a suit, or even a class-action suit. Also, what if IVN was in the midst of arranging a financing? Perhaps a financing that has fallen through as a result of the prcipitous drop in share price of late?
I personally believe that this whole event should never end-up in the courts - As long as Forbes issues an apology, or at least agrees to go visit the mine, and then write a more balanced follow-up article. There is never a winner in a libel suit - unless you happen to be a lawyer. LOL
Good luck to all longs!
JANDD