- Try this epic rant from billionaire mining boss Robert Friedland on the discount utilized to copper miners in the DRC
- Friedland says Martians might see Congo is the perfect place in the world to mine copper, torches analysts on valuations and says nothing in BHP goal OZ Minerals is ‘necessarily Tier 1’
- Gold miners surge as US Fed confirms ‘light’ 25bps price hike
Robert Friedland is a legend in the mining recreation, a Canadian political science main whose fervour for metals led to his involvement in the discoveries of the Voisey’s Bay nickel area in Newfoundland and Labrador, and the Oyu Tolgoi copper-gold mine in Mongolia.
The Ivanhoe Mines chairman, price US$3b in response to Forbes, isn’t any stranger to dangerous, far-flung or neglected jurisdictions and exploration performs.
And his newest improvement is in some methods his ballsiest but. C$15 billion capped Ivanhoe is now two years into manufacturing on the Kamoa-Kakula copper mine in the Democratic Republic of the Congo alongside its JV companion, China’s Zijin.
The most important Tier-1 improvement in years, the operation is a roughly 400,000tpa copper mine at an trade main grade of nearly 5%.
However a proposal to develop its third and fourth phases at a mixed capital value of ~US4.5 billion, together with a US906m smelter which might produce 500,000t of 99% pure blister anode copper a 12 months, would flip it into one of the world’s largest copper mines, producing 620,000tpa of copper on common over its first 10 years.
The Section-3 growth, to be accomplished in the fourth quarter of 2024, would value round US3b, with Ivanhoe additionally asserting capital estimates of US490m and US$380m for its Platreef improvement in South Africa and Kipushi improvement in the DRC.
The undertaking carries an NPV of US19.1 billion at US3.70/lb, or US23b at spot costs of round US4.25/lb. However that features an 8% discount price, one thing Friedland has points with.
In his thoughts, that ‘African discount’ — generally utilized by analysts on account of the political dangers of working in Africa — is all bull, telling analysts in a self-described rant on Wednesday the DRC is “the most desirable location in the world to mine copper”, and taking a barely-veiled swipe on the BHP’s (ASX:BHP) $9.6 billion money purchase of OZ Minerals (ASX:OZL) in the method.
The place to start out?
Friedland’s first goal is the Canadian analysts.
Take it away Bob:
“So the most important mining firms in the world are throwing these NPV fashions out the window.
“They need to be burned; they need to be trashed. They need to by no means seem once more.
“The administration of these banks that enable analysts to create these absurd fashions they need to simply change their minds. As a result of the true world worth of a Tier 1 mine is far more than an NPV mannequin and NPV modelling isn’t the one solution to mannequin a mine.
“The markets mannequin nice mines at a premium.
“And I think Oyu Tolgoi is going to be a Tier 1 mine, Kamoa-Kakula is already a tier 1 mine – I don’t think anything in Oz Minerals is necessarily Tier 1” (Photographs. Fired. – GB)
“However in order to pay a 68% per cent premium, these consumers – BHP and Rio Tinto – will need to have used $US6/lb copper in their fashions.
“$US6/lb copper to your model on Kamoa-Kakula and you’ll begin to see how severely undervalued this asset is at the moment.”
Tech firms are subsequent on the invoice.
“You know tech companies are modelled at a 0% discount rate and gold companies are modelled at a 0% discount rate, but there isn’t going to be any technological revolution without this copper,” Friedland stated.
“There isn’t going to be any electrical automobile trade with out this copper, so it now not is smart that analysts are utilizing a ten% discount price or 8% discount price which supplies you no worth for this asset.
“It took 26 years to find and construct the asset. It’s actually, actually arduous to do that.
“It is literally as rare as hen’s teeth, so thank you for giving me the opportunity to tell everyone on the call that the only discount rate that makes sense for this asset is zero.”
Something actually on the market?
Right here’s our favorite half.
“We don’t have ice or snow, we have a lot of young kids that are desperate to work, so I continue to insist that if I came from Mars in a flying saucer and I was sent here by my masters, obviously I would go to Katanga to mine copper,” he stated.
“I’m completely satisfied to inform everybody on this name there isn’t a serious mining firm in the world that hasn’t been in contact with us, wanting to go to the mine or determine easy methods to become involved in the Congo.
First up, perhaps younger youngsters isn’t the only option of phrases in relation to mining in the Congo… not that we’re accusing Ivanhoe of something untowards right here.
Secondly, the Martians!
The Alien Idea — typically propounded by basketball savant Invoice Simmons to clarify well-built gamers who would seem to an alien to be the perfect on the court docket, however typically aren’t — is one of our favourites to spew out drunkenly over a can of Bushchook at a summer season barbie.
The context is that Friedland reckons the DRC, ranked third final solely forward of Spain and Zimbabwe on the mining funding attractiveness index launched final 12 months by the Fraser Institute in its annual survey of mining firms, is a greater wager for copper than Chile or Peru.
(As an apart, ask AVZ (ASX:AVZ) traders in regards to the predictability of working in the DRC.)
The 2 largest producers in the world, Chile and Peru have been stung by a string of suspensions and turmoil as a brand new left wing authorities in Chile and political unrest threatens to curb provide. The Las Bambas mine in Peru notably entered a suspension on Wednesday.
“When I first said that I would rather mine copper in the Congo than in Chile, I got a lot of snickers. It was written about in the Financial Times in London as an absurd statement,” Friedland stated.
“However underneath the younger 35 years outdated communist celebration member in Chile (President Gabriel Boric), you’ll be able to see that the Chilean trade has been unable to develop any significant growth.
“The grid in Chile isn’t inexperienced, they burn coal for most of the grid, they’re desperately making an attempt to get some photo voltaic there however there’s a scarcity of water. The identical applies in Peru.
“As we’ve stated 100 occasions; if my mine is 10 occasions the grade of your mine – and our mine is 10 occasions the grade of Escondida, the most important copper mine in the world – we’re utilizing a tenth of the metal, a tenth of the concrete, a tenth of the water and a tenth of the electrical energy, and we’re producing routinely tenth of the worldwide warming gasoline per unit of copper.
“It makes no sense to apply a 10% discount rate to Congolese copper production, when it’s the greenest place in the world to mine copper.”
He says that may enhance additional with the event of a brand new transport community generally known as the Lobito Hall being developed by a Trafigura-led consortium. In a while Friedland returns to the theme.
“We will fix that by running tours to the mine and speaking at conferences like BMO and Bank of America, and eventually we’ll bring people into the light that this is exactly the type of asset we need if your children are ever going to live in a world that is greener and cleaner,” Friedland stated.
“And it’s not simply your kids in wealthy international locations, it’s Africans and South People and other people in the creating world that additionally have to stay and eat and survive. So I believe this enterprise wants much more monetary backing, and a way more mature and wiser methodology of analysis.
“I recently tweeted out a chart showing how absurdly small the mining industry is in market capitalisation compared to the technology companies, and it’s simply because the mining companies are saddled with these crazy NPV models that don’t pay them for any value after 10 years.”
I repeat … We have had 40+ years the place all the cash went into broadband, or web, or Netflix or the cloud and no cash went into primary productive capability of #metals. pic.twitter.com/HTartdKlCT
— Robert Friedland (@robert_ivanhoe) January 30, 2023
“It’s nearly impossible to create a new BHP, or a new Rio Tinto. Those companies have 50 years of reserves. They shouldn’t be modelled on an NPV basis. It makes no sense.”
“If anything needs a discount it’s anything south of the Panama Canal.”
Copper slides on Chinese language actual property, Caterpillar
It’s actually true that the availability facet of copper has been severely crimped by Chile and Peru’s struggles to get well post-Covid, amid a fraught political and funding panorama.
Codelco, Chile’s state-run copper miner and the world’s largest standalone producer, noticed output fall round 10% or 172,000t in 2022, with three main improvement initiatives properly delayed and over price range — the US$5.6 billion El Teniente mine to the tune of 75%.
Nonetheless, copper costs in a single day sagged on a worse demand profile, falling 1.5% to US$9087/t.
“Copper led the complex lower as the market switched its focus away from supply disruption to signs of weaker demand. Caterpillar, one of the world’s largest makers of heavy machinery, warned that demand in China won’t be bouncing back this year,” ANZ’s John Bromhead stated in a observe this morning.
“This got here after information confirmed China’s house gross sales continued to stoop in January. The 100 largest actual property builders noticed gross sales fall 32.5% y/y to CNY325.3bn, in response to China Actual Property Data Corp.
“Nevertheless, supply side issues appear to be worsening. China’s MMG fully closed its Las Bambas operation amid social unrest in Peru.”
Main iron ore miners have been extraordinary, however the supplies sector lifted 0.22% after Jerome Powell, boss of the US Fed, introduced a light 25bps rate of interest hike in an indication it believes final 12 months’s hawkish method helped stem inflation.
Gold miners went loopy, with the All Ords gold sub-index up 4.87% at 12.30pm AEDT as costs rose a startling 1.46% to US1955.34 (2736/oz AUD).
Evolution Mining (ASX:EVN) climbed 7.41% to steer the massive cap miners, with Northern Star (ASX:NST) up 5.1%.
NST shares at the moment are up nearly 65% over the previous six months to a market cap of over $15 billion.
Gold miners share costs in the present day:
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