By NIALL MCGEE
Tuesday, June 12, 2018
Robert Friedland's Ivanhoe Mines Ltd. is selling a minority stake to a Chinese state-owned firm, securing an important financing source, as uncertainty lingers over how a new African mining code could affect the Canadian base metals miner.
On Monday, Ivanhoe announced it is selling 19.9 per cent of the company by issuing 196.6 million shares in a private placement to CITIC Metal, a subsidiary of CITIC Ltd., China's largest conglomerate.
The shares are being issued at $3.68 apiece, a 13-per-cent premium to its Friday close. CITIC Metal, which is set to become Ivanhoe's biggest shareholder, has also agreed to advance Ivanhoe a US$100-million loan.
Vancouver-based Ivanhoe will invest the various funds in a number of its development assets in Africa, including a platinum and palladium project in South Africa, and its massive Kamoa-Kakula copper project in the Democratic Republic of Congo (DRC).
CITIC will also attempt to line up additional funds for Ivanhoe for the development of Kamoa-Kakula.
In a note to clients, Dalton Baretto, an analyst with Canaccord Genuity Group Inc., wrote that the CITIC Metal transaction "largely eliminates" financing risk around Ivanhoe.
Shares in Ivanhoe rose by 3.7 per cent on the Toronto Stock Exchange on Monday to close at $3.35 apiece.
The Chinese firm will also have the right to nominate two new Ivanhoe board members, one of whom will be CITIC Metal president Sun Yufeng, who is set to become co-chair alongside Mr. Friedland.
"We believe the presence of a major Chinese state-owned enterprise within the board and capital structure lowers the geopolitical risk profile of the company," Mr. Baretto wrote. "Given southern Africa's significant dependence on Chinese capital and investment," he added.
Ivanhoe is one of a number of international mining firms, including Glencore PLC and Randgold Resources Ltd., which are currently negotiating en masse with the DRC government, to try to amend a new mining code that was recently signed into law. Under the revised code, significant royalty increases are set to take effect and stability agreements that protected companies from tax hikes will be scrapped. The uncertainty has weighed on shares of Ivanhoe and other miners in the same boat. Around the world there are relatively few new large copper mines being built and some observers fret that the copper market may soon be facing a shortfall. Canada's First Quantum Minerals Ltd. is an exception. It is building a significant new mine in Panama.
In a technical report filed with Canadian regulators, Ivanhoe said that Kamoa-Kakula contains 80.7 billion pounds of "indicated" copper, making it one of the world's largest undeveloped copper assets. While a portion of KamoaKakula is already in the economically viable "reserves" category, more work needs to be done to upgrade metal held in the far less economically certain indicated category to reserves.
Over the past few years, China has emerged as a major investor in Canada's mining industry.
Last year, Barrick Gold Corp. sold half of its stake in its Veladero mine in Argentina to Shandong Gold for $960-million.
Ivanhoe itself already had another Chinese investor, Zijin Mining Group, which acquired a 10-per-cent stake in 2015.
Mr. Friedland, a veteran Canadian mining entrepreneur, and CTIC Ltd. have a long history, having first signed a strategic agreement in 2003 to jointly pursue metals ventures.