Ivanhoe to lay down its copper sword?
Published by MAC on 2006-05-25
Ivanhoe to lay down its copper sword?
25th May 2006
Has one of the most notorious mining companies been forced onto its back feet? Ivanhoe Mines, whose founder, Robert "Toxic Bob" Friedland, was recently elevated to executive chairman, is the largest mining company in both Burma and Mongolia.
Over the past eight years Ivanhoe has come under relentless attack from human rights campaigners for investing in Burma and now appears to be taking steps to pull out altogether - while selling to a trio of South Korean outfits. The move follows the withdrawal of the company's political risk insurance by an unnamed insurer, and backing by Amnesty Canada of a shareholder's resolution, prior to the company's annual general meeting.
In Mongolia, after a mass demonstration in the capital, Ulaanbatar, which included unsubtantiated claims of slavery and disease at Ivanhoe's Burmese operations, Friedland's previous cosy relationship with the government is also starting to weaken. Here, legislators are seeking to reverse the damaging impacts of a World Bank-sponsored "reform" of mining investment laws.
In the first of our postings noted mining commentato, Eric Snider speculates on Ivanhoe's future prospects in Burma.
Ivanhoe Mining plans to get out of Burma
Eric Snider
25th May 2006
Ivanhoe Mines announced its intention to get out of Burma in its annual report issued in March. The comments by Vice President, Ed Flood, at the annual meeting serve to confirm this.
The first step in the process of getting out is the proposed sale to a South Korean consortium of a half of Ivahoe's present stake in the mine. If that deal is finalized in July, as proposed, the military government would become the majority shareholder in the Monywa mine with a 50% stake, Ivanhoe would hold a 25% stake and the Korean consortium the other 25%.(Daewoo International: 10%, Taihan Electric Wire and Korea Resources Group, 7.5% each).
None of the the three Korean companies in the consortium deal with Ivanhoe are mining specialists. Taihan Electric Wire CL is into manufacturing wire, cable and copper rod among other things and can use their investment to sew up the Monywa mine's copper cathode for their purposes. The Korea Resources Corporation is an RoK state corporation that finances resource and other business projects in foreign countries producing materials needed for Korean industries. Daewoo International is essentially a trading company and merchant bank. Obviously, for the immediate future, they will continue to depend on the current team at the joint venture for the mining expertise that is needed. If the deal goes through they will get the copper cathode that Korea needs for its booming economy and will be poised to make a further investment, if and when the door opens to expansion of the mine.
Future developments at the mine depend on whether the military regime can come up with its share of what is needed to expand operations to the Letpadaung deposit. Right now, its credit is pretty shaky on international capital markets and until this situation is resolved, the mine will limp along, as best it can, with production at only about half the level reached last year. The amount the Korean consortium is willing to pay for its 25% stake in the mine indicates that the partners believe the expansion will eventually go ahead and that their $ 120 million investment includes a right to earn a share in that development.
IVANHOE MINES TO LEAVE MYANMAR
Courier Information Services
19th May 2006
VANCOUVER - Ivanhoe Mines has decided to pull up stakes and sell out its mining operations in military-ruled Myanmar.
The decision to withdraw from the country was revealed to representatives of a corporate watchdog group of Amnesty International at the company's annual meeting in Vancouver on May 12 by Edward Flood, company vice-president.
During the meeting Flood told shareholders that Ivanhoe's directors had decided to sell half its 50% stake in the Monywa copper mine in Myanmar to a South Korean mining consortium.
Later, Flood approached Fiona Koza and Tracy London of the Amnesty group and told them that that the decision to sell out a half interest in the Monywa mine reflected the "tricky situation" for the company in the southeast Asian country. According to Koza, Flood indicated that the company's directors had thought it best to "start to move out" of Myanmar.
Details of the move to sell to the South Korean consortium began to emerge in April when a government official in Seoul told business reporters that Robert Friedland, chairman of the Ivanhoe board, had exchanged a memorandum of understanding about the partial sale of Ivanhoe's stake in the Monywa mine with KRC president Park Yang-soo after visiting Myanmar in January. A final agreement on the sale to the Korean group is slated for signing in July.
The KRC consortium will consist of Daewoo International, the Korea Resources Group, and Taihan Electric Wire. It will eventually hold a 25 per cent stake in the Monywa operation with Daewoo taking a 10 per cent stake and Taihan and Korea Resources 7.5% each. The sale to the Korean consortium was said to be worth US $ 120 million. After the final agreement is signed, the majority shareholder in the Monywa operation will be Myanmar's military government which already owns 50% of the mine.
The Myanmar Times reported last week that ten representatives of the South Korean consortium had visited Yangon in late April to discuss the sale. An unnamed diplomat told the Times that the delegation had studied survey data from the mine. He said that the contract was still in the discussion stage with Ivanhoe and that final agreement to approve the sale rested with the Myanmar government.
The future of the Monywa mine, currently producing about 35,000 tonnes of copper cathode annually, lies in the development of the nearby Letpadaung deposit. It is reported to contain almost a billion and a half tonnes of high grade copper ore which will need an extensive capital outlay to reach the production stage. Ivanhoe, which is close to starting up what is billed as the world's largest copper and gold mine at Oyu Tolgoi in Mongolia, is looking to attract other partners to join it in developing the Mongolian mine. Earlier this year, it revealed that U.S. sanctions against Myanmar and the financial difficulties of the country's military government were seriously affecting the Monywa mine and the future of its operations there. It is believed that the decision to eventually leave Myanmar is primarily dictated by Ivanhoe's need to attract other partners for its Mongolian prospects.
AMNESTY INTERNATIONAL HOLDS IVANHOE MINES ACCOUNTABLE
Courier Information Services
10th May 2005
VANCOUVER -- Amnesty International Canada will seek support for a shareholder proposal relating to Ivanhoe Mine's investment in military-ruled Myanmar at the company's Annual General Meeting in Vancouver on Friday.
A letter sent to 50 of the company's largest shareholders on April 21 by Fiona Koza of the Business and Human Rights Section of AI Canada has drawn attention to the refusal by the company's Board of Directors to circulate a proposal calling on Ivanhoe to account for management practices protecting human rights at a mine near Monywa that Ivanhoe operates in partnership with Myanmar's military regime.
The proposal, sent to the company earlier this year by company shareholder Joie Warnock, requested Ivanhoe to prepare a report outlining security arrangements the company has with the government and the military in Myanmar. It also called on Ivanhoe to detail for investors the corporation's policies that preclude it from benefiting from forced labour that is widely used on public projects throughout Myanmar.
In a reply to Warnock, company secretary Beverly Bartlett denied that Ivanhoe had any direct or indirect security arrangements with the Myanmar government and military or that it was benefiting in any way from forced labour. All that was needed to be known about the company's respect for human rights was fully disclosed on Ivanhoe's website, Bartlett wrote.
The company was under no obligation to publish Warnock's proposal, Bartlett said, since it was clear that it had been submitted for the purpose of promoting political, racial, religious, social and similar causes and that it was designed to secure publicity.
In support of Warnock, Amnesty Canada's Koza wrote to Ivanhoe shareholders that her proposal underscored the liabilities many companies face when operating in countries with appalling human rights records such as Myanmar. The company itself had admitted that the copper mine that Ivanhoe operates in joint venture with the Myanmar government had been forced to temporarily close down operations in March 2006, after the company's bank and insurance broker cut off relationships with the joint venture.
According to the annual report issued by the company the breach occurred as a result of U.S. economic sanctions against Myanmar.
Koza said that Amnesty itself had raised "deep concerns" with Ivanhoe about doing business in Myanmar on several occasions without ever receiving an adequate response from the company.
Amnesty members and supporters, as well as friends from other organizations, are planning to be on hand in front of the Terminal City Club in downtown Vancouver on Friday morning as the Ivanhoe AGM gets underway.
Inside, Ivanhoe company president John Macken is expected to explain to shareholders the company's decision to sell off half its stake in the Myanmar copper mine to a South Korean mining consortium. In its annual report Ivanhoe management predicted that production of copper cathode at the Monywa mine would be less than half of the record 34,400 tonnes produced in 2005. It blamed the cutback on the military government's refusal to issue import permits for mining equipment and heavy duty trucks needed to expand operations in one of the pits at the Monywa mine.
Mners reel on Mongolia tax grab
Toronto Globe and Mail
16th May 2005
WENDY STUECK
MINING REPORTER
VANCOUVER -- Mongolia has joined a growing list of countries trying to keep more of their resource wealth, slamming foreign miners in the East Asian country with a 68-per-cent tax on gold and copper production after prices for the metals pass certain levels.
The news sent shares of Canadian miners with interests in Mongolia reeling, especially Ivanhoe Mines Ltd., which dropped 21.7 per cent to $8.03 yesterday on the Toronto Stock Exchange.
The surprise tax was approved by the Mongolian parliament last Friday evening but could still be vetoed by President Nambaryn Enkhbayar.
It caused a storm of protest among companies that have assets in Mongolia and raised the question of whether mining companies that do business in poor parts of the world could come under increasing pressure to take less wealth out of countries in which they operate.
"We are surprised and disappointed that legislation might be passed without consultation with the industry, and that a lack of openness and transparency seems to have marked the process," Ivanhoe said in a letter from the company's board to the Mongolian ambassador in Canada.
Nor were miners alone in their reaction.
"This came along as quite as a surprise," said Jim Cambon, the Vancouver-based honorary consul for Mongolia, adding that the Mongolian government has likely underestimated the potential chill its latest move could have on foreign investment.
The new law was designed primarily to wring more money for Mongolia from Erdenet Mining Corp., Mr. Cambon said. The state-run copper mining venture has been in production since 1978. Mongolia owns 51 per cent of Erdenet and Russia owns the other 49 per cent. With copper prices climbing to giddy heights in recent weeks, Mongolia wanted to realize more benefits from its share of the venture and rushed the new law into effect, he said.
Canadian companies will likely try to persuade Mr. Enkhbayar to veto the law, Mr. Cambon said.
UBS Securities Canada Inc. analyst Tony Lesiak, in a note to investors, questioned the wisdom of investing in the country.
"The key point is not the specifics of the proposed tax law but the stability of the investment climate in Mongolia -- and the Congo, Bolivia, Peru and all nations where mining is a large source of the [gross domestic product]," he wrote.
Ivanhoe founder and chairman Robert Friedland has been a vocal supporter of Mongolia and its emerging mining sector, describing the country as a Buddhist, democratic regime that just happens to be right next door to China, a voracious metals consumer.
But efforts to strike a stability agreement for its Oyu Tolgoi project have taken longer and been more demanding than expected, as the size and scope of the project have made it a flashpoint for debates and protests over what benefits Mongolia can expect from its resource wealth. In a recent regulatory filing, the company said it expects the agreement can be concluded within a time frame that will not unduly delay the development of the Oyu Tolgoi project.
Ivanhoe has spent more than a year trying to strike a stability agreement with the Mongolian government for Oyu Tolgoi.
The first phase of the $1-billion-plus copper-gold mine was expected to be in production by 2008.
Ivanhoe studies say the project could produce an annual average of more than one billion pounds of copper and 330,000 ounces of gold for at least 35 years.
The company has spent about $370-million to date on Oyu Tolgoi.
Other companies with projects in Mongolia also took a hit: shares of QGX Ltd., which has copper-gold and coal projects in Mongolia, fell 27.1 per cent to $2.55.
In a statement, QGX chief executive officer David Anderson said the company was surprised and disappointed to learn of this new law and is working closely with other Mongolian and foreign companies affected by the new law to have it repealed.