Kalgoorlie’s fleeting view of Robert Friedland

Kalgoorlie, Western Australia — He came, he spoke, he went!

That was Ivanhoe Mines (IVN-T) Executive Chairman Robert Friedland breezing in and out of this year’s Diggers & Dealers forum here in West Australia’s mining capital.

Friedland did manage to squeeze in a brief question-and-answer session after his presentation and showed the professional panache that had made him a drawcard at the past two Diggers & Dealers.

The Northern Miner asked the logical question: will Ivanhoe go it alone in developing its Oyu Tolgoi copper-gold project in Mongolia, joint venture with a major, sell out or tie up with a metals house like Mitsui?

(Ivanhoe and Mitsui already have a strategic alliance to develop big coal deposits in Mongolia and to jointly pursue a stake in the Tavan Tolgoi coal deposit.)

Friedland painted a “Star Wars” scenario: Ivanhoe could tie up with a Princess Leia (a metal house or refining company like Mitsui) or it could do a deal with a Darth Vader (one of those large companies with initials for their names) which brings to mind Rio Tinto (RTP-N) — formerly RTZ — and BHP Billiton (BHP-N), the latter rumoured to have recently had earnest talks with Ivanhoe about Oyu Tolgoi.

Then, Friedland pointed out that a development cost of about US$1 billion should not be beyond Ivanhoe anyhow.

Later he cited his earlier statement that there are “enormous quantities of Asian capital looking to finance Oyu Tolgoi.” When making that statement he had said Ivanhoe was dealing primarily with consumers of copper metal rather than producers for mine-development finance, adding, “but we are not ignoring some very interesting discussions with major mining companies.”

Many delegates sat in on Friedland’s presentation aware of reports that Ivanhoe had taken several majors to see the massive copper-gold project over the past year, with some reportedly indicating only limited interest.

Their hesitation might have been prompted by the project’s isolation and the shear weight of development costs in an infrastructure-poor country, or they may have remembered how the smooth-talking Friedland had wooed Inco (n-t) into out-bidding Falconbridge (FAL.LV-T) for the Voisey’s Bay nickel project in Canada, only to see Inco’s market capitalization fall below what it paid for Voisey’s Bay as nickel prices flatlined soon thereafter.

But many of the analysts who attended Diggers & Dealers are aware that a number of the majors do lust after the world-class Oyu Tolgoi deposit, which sits on China’s doorstep. China is, after all, the country driving up commodity prices with its thirst for metals and energy, a fact many were made aware of as early as three years ago by Friedland in his presentations in Kalgoorlie.

In his latest Kalgoorlie presentation, Friedland said Oyu Tolgoi’s measured and indicated resource stood at 1.15 billion tonnes grading 1.3% copper and 0.47 gram gold per tonne, for 32.85 billion lbs. contained copper and 17.34 million oz. gold.

In addition, the total inferred resource was 1.16 billion tonnes at 1.02% copper and 0.23 gram gold, for a 26.2 billion lbs. contained copper and 8.4 million oz. gold. All these figures used a 0.6% copper-equivalent cutoff.

The Oyu Tolgoi system is now 6.5 km long “and growing,” he added.

Split into the Southern Oyu open pits and the more deep-seated Hugo Dummett deposit (named after the Ivanhoe executive and former BHP operative who trailblazed that mining house’s diamond developments in Canada, but was later killed in a car accident in South Africa), the former has a measured and indicated resource of 917 million tonnes at 0.5% copper and 0.36 gram gold and the latter an indicated 582 million tonnes at 1.89% copper and 0.41 gram gold.

Friedland said an exploration shaft into the Western gold zone at Hugo Dummett was under way and it will likely be mined with three large, underground block-cave operations and at a peak production rate of 150,000 tonnes per day. Initial production is scheduled for 2009.

The shaft, being sunk by Canadian contractor J.S. Redpath & Co, is to be geared to hoist 22,500 tonnes per day.

Friedland ranked the proposed Oyu Tolgoi mine as second behind Freeport McMoRan Copper and Gold‘s (FCX-N) operating Grasberg mine in Indonesia’s Papua province as the world’s largest copper mine, and ahead of BHP Billiton’s and Rio Tinto’s Escondida in Chile.

He said Southern Oyu’s open pit could annually generate more than 450,000 oz. gold and 350-450 million lbs. copper, and produce an annual cash flow of US$450-550 million.

Subsequent development of Hugo Dummett could increase annual copper output beyond 1.5 billion lbs. and sustain gold output at about 400,000 oz. per year. Hugo’s underground cash flow could exceed US$1.5 billion annually.

Friedland told delegates that Mongolia’s new President Nambaryn Enkhbayar was supporting joint development with China of large railway and mining projects, specifically the Tavan Tolgoi coal deposit in the South Gobi desert.

In June, Chinese President Hu Jintao committed US$300 million for new highway and rail links with Mongolia’s South Gobi.

“Ivanhoe’s Oyu Tolgoi copper and gold and Narlin Sukhait coal will help advance economic growth in Mongolia and China,” Friedland said.

— The author is a freelance writer based in Perth, Western Australia.