Financier's saga of risk promises Gobi riches

The following critical article on the notorious Robert Friedland is a welcome update on a man whose recent exploits have received little publicity. Although Friedland's main mining vehicle, Ivanhoe Mines, announced in August that it does not currently envisage a "strategic partnership" with any other company in Mongolia, it has signed an exploration deal with BHPBilliton. This gives the Anglo-Australian giant a 50% option over a large part of Ivanhoe's Mongolian concession, contiguous to BHPBilliton's own holdings.

Financier's saga of risk promises Gobi riches

Mining Robert Friedland's global trail of dealmaking after Oregon could yet render a verdict of hero or villain

Richard Read, The Oregonian

Sunday, October 16, 2005

OYU TOLGOI, Mongolia -- When Robert Friedland got out of prison, he headed straight for Portland, and that's where he met Steve Jobs. The Reed College duo bounced around 1970s India, teamed with Woodstock emcee Wavy Gravy and communed on Friedland's Oregon orchard, credited with inspiring Jobs to name his company Apple Computer.

All that, of course, was before Friedland parlayed an abandoned Oregon gold mine into high-flying Galactic Resources Ltd., which helped turn a Colorado river into a Superfund site, costing him more than $20 million. And before his next company struck nickel in Labrador, making him more than $360 million. And before he got his drug conviction expunged, denied responsibility for the environmental debacle and landed on the Forbes billionaire list.

Jobs' story is well-known. But the latest chapter in Friedland's saga of risk and reward is playing out in this remote stretch of Outer Mongolia's Gobi Desert, where the former Oregonian has staked a claim bigger than Greece. The 52,000-square-mile license area contains copper and gold that Friedland says could be worth $100 billion at the Oyu Tolgoi, or Turquoise Hill, site. Coal and other metals add more value.

Once again Friedland, a master dealmaker, has the chance to prove himself a hero or a villain as he links prospectors, investors and officials with miners, markets and precious metals. The mine, which could cost $2.7 billion, will alter the Gobi environment and turbocharge Mongolia's economy.

Here, camels stroll past drill rigs and yurts. Herdsmen speak warmly of the suave, self-assured 55-year-old executive who persuaded them to move off site with the lure of new water wells and college tuition for their children. The mayor of the nearest town expects a boom that could bring the nation its first McDonald's.

Friedland says he's helping to build Mongolia, a landlocked country with fewer people than Oregon, into the next Asian "tiger" economy. "Nothing of this scale has been found on Planet Earth in the last 30 years," Friedland told investors last spring about his latest find, which explorers are drilling for core samples. "We can't find the limits of it."

Friedland, a slim man with a high forehead and brown wavy hair, chairs Ivanhoe Mines Ltd. of Vancouver, B.C. He and his second wife, Darlene, a former flight attendant, have sold their Sydney, Australia, mansion to live in Hong Kong and Singapore. Friedland, a dual U.S. and Canadian citizen, operates a network of companies from plush 37th-floor offices in Singapore's Millenia Tower.

"Mythological reports"

Friedland declined to "participate in any further recycling of the often mythological reports that have appeared from time to time about distant days in Oregon." Gravy, who once criticized Friedland for selling out, won't discuss his old friend. Gravy's publicist says the '60s icon's "chromosomes have amnesia." Jobs told the author of a 1984 book that he left Friedland's "All One Farm" when he got sick of the materialism he saw there.

Born in Chicago to European immigrants, Friedland was raised in suburban Boston and attended Maine's Bowdoin College. But on March 6, 1970, police arrested Friedland -- then 19, with flowing, shoulder-length hair -- in his Volkswagen camper at a Portland, Maine, shopping center. He and another Bowdoin sophomore were accused of selling 8,000 tablets of LSD to an undercover FBI agent, the Portland Press Herald reported.

Later Friedland would describe the conviction for "unlawful disposition of LSD" as a Nixon-era miscarriage of justice, but the sentencing judge identified him as the ringleader. "You gave no thought to the consequences for others that could have resulted from this transaction," the judge said, "but only to the large sum of money that you could have obtained."

On to Reed

His six-month prison term behind him, the outgoing Friedland got into Reed, where he won a student senate seat and election as student body president.

Friedland discovered mining after graduation through an elderly McMinnville tree farmer who did some prospecting, according to "The Big Score," a 1998 book by Jacquie McNish, a Canadian journalist. Friedland searched the Northwest for mining properties, seeking Vancouver Stock Exchange cash to develop an abandoned Oregon gold mine. He met a broker who helped him reincarnate Galactic, a dormant company that Friedland told investors would resuscitate the mine.

The Oregon gold didn't pan out, but the venture made Friedland a millionaire, according to McNish's book. Friedland profited by selling the mine property in 1981 to Galactic, McNish wrote, receiving shares whose value then soared through a private stock sale.

Friedland went on to pioneer a technique of launching mining ventures that made him money whether or not he hit paydirt, says David Baines, a Vancouver Sun business columnist. Baines says Friedland would acquire an inactive company, sell the firm mineral prospects in exchange for stock, sell more cheap shares to himself and associates, and make a fortune when the company went public at a higher price.

Lucrative deals

The deals "transfer the otherwise long odds of mineral exploration to public investors," Baines says, "enabling Friedland and insiders to make money regardless of the success or failure of the project." Friedland, dismissing Baines as a purveyor of "innuendo and half-truths," says he takes honest investment risks and does not bail out at market highs.

In the Colorado case, Galactic acquired the inactive Summitville gold mine in 1984. Friedland pitched the technique of heap-leach mining, in which sodium cyanide would be poured on crushed ore to dissolve gold.

But Summitville's containment system leaked. Galactic went bankrupt.

Activists and others labeled Friedland "Toxic Bob," but he blamed former partner companies and others. He did make a $20.7 million payment under terms of a personal settlement reached in 2000 with the federal government and the state of Colorado, ending litigation. Under the settlement, the U.S. government paid him $1.25 million to halt a countersuit. Friedland, whose lawyers have recovered about $17 million from others involved in the mine, declined an oral interview for this story. In answers to e-mailed questions, he dismissed popular accounts of Summitville as "entrenched fictions and Internet garbage perpetuated by lazy reporters and truth-averse activists."

Ivanhoe's denials

Friedland's company, Ivanhoe Mines, denies that fish and all other life died in 17 miles of the Alamosa River, as maintained by Sonya Pennock, a U.S. Environmental Protection Agency communications manager, and Howard Roitman, environmental programs director for the Colorado Public Health and Environment Department.

Ivanhoe says past mining and natural acidic runoff caused contamination. The firm also blames the state of Colorado for contributing to the pollution and bankruptcy by imposing an unattainable water-treatment standard. "Ridiculous," says Colorado's Roitman. He disputes Ivanhoe's claim that Friedland had no responsibility for the mine's design and operation.

Ivanhoe accuses the EPA of mismanagement and overspending on the cleanup. "The company left a mess," says Jim Hanley, EPA Summitville remedial-project manager, "and now they think we could have done it cheaper."

Whatever the case, the cleanup has cost more than $200 million with no end in sight.

As Summitville unwound, Friedland moved on, pursuing Namibian diamonds and other ventures. But it was his handling of the Labrador nickel find that displayed what admirers describe as genius for creating value. "The Big Score" describes Friedland wooing and pressuring corporate suitors, exposing his volcanic temper -- or unorthodox negotiating tactics -- as he pounded a shoe Khrushchev-style on a marble conference table. He engineered a bidding war that culminated in one of the biggest mining deals in history, Diamond Fields Resources Ltd.'s 1996 sale to Inco Ltd. Friedland pocketed hundreds of millions in stock.

"Never owned up"

U.S. officials tried to seize a chunk of Friedland's Labrador bonanza to help pay for the Summitville cleanup. But a Canadian judge rebuffed them, lambasting the U.S. government for exaggerating his Summitville role.

In 2000, Friedland flew to Colorado in his company jet to see the damage. Cindy Medina, a local activist, picked up the executive and his lawyer in her Toyota. She recalls showing him the orange-green river where she had camped and fished as a girl. "He never owned up to it," Medina says, "that he had any part in it."

Later Medina drove four hours to Denver to meet Friedland, believing he planned to support her town's community center. Instead, she says, he rebuked her for publicly calling him an environmental rapist, turned on his heel and left on the jet.

These days Friedland crisscrosses the globe in a Boeing 737 business jet on mining ventures ranging from Congo to Kazakhstan. The lifestyle leaves him little time to enjoy a historic, recently restored San Francisco Bay island mansion. It's listed for sale at $68 million.

Critics such as Roger Moody, a London-based activist who has studied Friedland mining projects in Burma and elsewhere, fault him for operating in loosely regulated areas. "He's the most dangerous mining financier," Moody says, because "he has the capacity and the charisma to raise money for projects which are out of the purview of environmentalists." An Ivanhoe spokesman responds by saying that lenders require compliance with international environmental standards.

Altruistic goals

Supporters say Friedland has altruistic goals. "Robert doesn't wake up in the morning thinking about how he is going to add to his personal fortune," says Ben Johnson, a Portland money manager and First Securities Northwest president.

Johnson, who has invested with Friedland since the early 1980s when they co-owned a four-seater Mooney airplane, says his close friend has fallen for Mongolia and its people. "That's his higher calling and what drives him now."

Friedland continues to recruit investment and partners for the Mongolia project. At 8 a.m. one Wednesday last spring, company managers and mining-exploration workers filled a charter flight in Ulan Bator, flying south above a barren landscape.

An hour and a half later, the Fokker 50 bounced along a gravel strip at Turquoise Hill, named for the formation where colored rock hinted at riches below. The passengers emerged at a settlement that appeared lunar, with row after row of bright-white yurts.

"One nice thing about it here is that nobody shoots at you," said Larry Lobdell, the affable, gray-bearded construction manager, who said he couldn't say the same for previous postings in Colombia and Indonesia.

More than 650 workers brave blistering sandstorms and subzero winter temperatures at the claim, which BHP Exploration sold to Ivanhoe after coming up dry.

Buried ore bodies

Friedland was away rainmaking. But Charles Forster, an Ivanhoe geologist, explained the project using a computer-graphics display that superimposed a tiny Eiffel Tower on colossal subterranean ore bodies.

Friedland shows similar visuals to potential investors. At a conference earlier this year in Tampa, Fla., he said the Mongolian deposit could be worth more than $100 billion during four decades of production. No people, no jungles and no activist groups clutter the landscape, he said.

Investors who got in early bet that adjacent coal reserves could power a plant that would process copper on the site using water from deep aquifers Ivanhoe discovered. One of them, George Ireland, chief investment officer of Boston-based Geologic Resource Partners, says: "The key question, and one of the key risks, is does Bob have the smarts and the willingness and greed factor to say, 'The best thing I can do is put this together and know when to exit the game.' "

Mongolians express wary support for the project that an independent study says could boost the nation's gross domestic product, currently $5 billion, by a third each year. But local activists say that instead of the standard 2.5 percent royalty, their nation should get a 50-50 share, a split that Ivanhoe officials laugh off.

Building good will

Ivanhoe is building good will in Mongolia, subsidizing a hospital, kindergarten and orphanage, restoring a monastery and buying a one-year $50 million government treasury bill to help reduce the country's

Soviet-era foreign debt.

Mercy Corps runs small development projects in the area. The Portland-based relief-and-development agency has helped herders gear up to make furniture and other items for Ivanhoe's settlement. Last year a Mercy Corps' partner, XacBank, coordinated an Ivanhoe-backed event around Ulan Bator in which Nike Inc. provided a free pair of shoes for each participant.

Researcher Lynne Palombo contributed to this report.