Ground Breakers: Billionaire mining boss Robert Friedland calls for end of African discount in epic copper rant

Check out this epic tirade from billionaire mining boss Robert Friedland about the rebate being given to copper miners in the DRC. Friedland says Martians could see Congo is best place on earth to mine copper, flakes analysts at valuations and says nothing in BHP target OZ Minerals is ‘necessarily Tier 1’ Gold miners rise as Fed a “slight” rate hike of 25 basis points confirmed

Robert Friedland is a mining legend, a Canadian political scientist whose passion for metals led to his involvement in the discoveries of the Voisey’s Bay nickel field in Newfoundland and Labrador and the Oyu Tolgoi copper-gold mine in Mongolia.

The chairman of Ivanhoe Mines, worth $3 billion according to Forbes, is no stranger to risky, far-flung or overlooked jurisdictions and exploration plays.

And its latest development is, in some ways, its boldest yet. Capped at C$15 billion, Ivanhoe has been producing at the Kamoa-Kakula copper mine in the Democratic Republic of the Congo with its JV partner, China-based Zijin, for the past two years.

The operation is the largest Tier 1 development in years and is a copper mine with a capacity of approximately 400,000 tpa and an industry leading grade of nearly 5%.

But a proposal to develop the third and fourth stages at a total capital cost of around US$4.5 billion, including a US$906 million smelter that would produce 500,000 tonnes annually of 99% pure blister anode copper, would place it among the world leaders make the largest copper mines, which produce an average of 620,000 t of copper per year in the first 10 years.

The Phase 3 expansion, scheduled for completion in Q4 2024, would cost approximately US$3 billion, with Ivanhoe also providing capital estimates of US$490 million and US$380 million for its Platreef development in South Africa and Kipushi development in the Democratic Republic of the Congo.

The project has a net present value of US$19.1 billion at US$3.70/lb or US$23 billion at spot prices of approximately US$4.25/lb. But that includes an 8% discount rate, which Friedland struggles with.

He thinks this “African discount” — often used by analysts due to the political risks of operating in Africa — is completely bullish, telling analysts in a self-proclaimed tirade on Wednesday that the DRC is “the most desirable location in the world for copper.” mine,” and a thinly veiled jab at BHP (ASX:BHP)’s $9.6 billion cash purchase of OZ Minerals (ASX:OZL).

Where to start

Friedland’s first target is the Canadian analysts.

Take it away Bob:

“So the biggest mining companies in the world are throwing these NPV models out the window.

“They should be cremated; they should be discarded. They should never show up again.

“The management of these banks that allow analysts to create these absurd models should just change their minds. Because the real world value of a Tier 1 mine is much more than an NPV model and NPV modeling is not the only way to model a mine.

“Markets are modeling great mines at a premium.

“And I think Oyu Tolgoi will 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.” (Shots. Fired. – GB )

“But to pay a 68% premium, these buyers – BHP and Rio Tinto – must have used $6 per pound of copper in their models.

“$US6/lb copper for your model on Kamoa-Kakula and you will see how seriously undervalued this asset is right now.”

Tech companies are next on the bill.

“You know tech companies are modeled with a 0% discount rate and gold companies are modeled with a 0% discount rate, but without that copper there’s not going to be a technology revolution,” Friedland said.

“Without this copper, there won’t be an electric car industry, so it no longer makes sense for analysts to use a 10% or 8% discount rate, which doesn’t give you value for this asset.

“It took 26 years to discover and build the asset. It’s really, really hard to do this.

“It’s literally as rare as chicken teeth, so thank you for giving me the opportunity to say to everyone on the conversation that the only reasonable discount rate for this asset is zero.”

Is there really something out there?

Here’s our favorite part.

“We have no ice or snow, we have many young children who are dying to work, so I continue to insist that if I came from Mars in a flying saucer and was sent here to Katanga by my masters, I would of course do it go to mine copper,” he said.

“I’m pleased to say to all participants in this conversation that there isn’t a major mining company in the world that hasn’t contacted us, is interested in visiting the mine or finding out how to get involved in Congo.

“No exceptions.”

First off, maybe little kids aren’t the best choice of words when it comes to mining in the Congo… not that we’re blaming Ivanhoe for anything inappropriate here.

Second, the Martians!

The alien theory — often put forward by basketball expert Bill Simmons to explain well-built players who would appear to an alien as the best on the court, but often aren’t — is one of our favorites to get drunk over a can spit out bushchook at a summer barbie.

The context is that Friedland thinks that the DRC, which ranks third from bottom, ahead of only Spain and Zimbabwe, on the Mining Investment Attractiveness Index released last year by the Fraser Institute in its annual survey of mining companies, is a better choice for copper than Chile or Peru.

(As an aside, ask AVZ (ASX:AVZ) investors about the predictability of doing business in the DRC.)

The world’s two biggest producers, Chile and Peru, have been hit by a series of suspensions and unrest as a new leftist government in Chile and political unrest threatened to curb supply. The Las Bambas mine in Peru notably entered a suspension on Wednesday.

“When I first said I would rather mine copper in Congo than Chile, I got a lot of laughs. The Financial Times in London wrote about it as an absurd statement,” Friedland said.

“But under the young 35-year-old member of the Communist Party in Chile (President Gabriel Boric), one can see that Chilean industry has not been able to develop any significant expansion.

“The grid in Chile is not green, they are burning most of the grid with coal, they are desperately trying to get some solar power there, but there is water shortage. The same applies to Peru.

“As we’ve said 100 times before; If my mine is ten times the height of your mine—and our mine is ten times the height of Escondida, the world’s largest copper mine—we’ll use a tenth the steel, a tenth the concrete, a tenth the water, and a tenth the electricity , and we automatically produce a tenth of the greenhouse gas per unit of copper.

“It makes no sense to apply a 10% discount rate to Congolese copper production when it’s the greenest place on earth to mine copper.”

He says this will continue to improve with the development of a new transport network, known as the Lobito Corridor, being developed by a Trafigura-led consortium. Friedland comes back to the subject later.

“We’re going to fix that by hosting tours of the mine and speaking at conferences like BMO and Bank of America, and finally we’re going to make people realize that this is exactly the type of asset we need if your children ever live.” in a greener and cleaner world,” Friedland said.

“And it’s not just your children in rich countries, but also Africans and South Americans and people in developing countries who have to live, eat and survive. So I think this company needs a lot more financial support and a much more mature and smart valuation method.

“I recently tweeted a chart showing how absurdly small the market cap of the mining industry is compared to the tech companies and that’s simply because the miners are burdened with these crazy NPV models that don’t value them after 10 years to count .”

I repeat… We’ve had over 40 years where all the money has gone into broadband, internet, Netflix or the cloud and no money has gone into basic #metals production capacity. pic.twitter.com/HTartdKlCT

— Robert Friedland (@robert_ivanhoe) January 30, 2023

“It is almost impossible to develop a new BHP or a new Rio Tinto. These companies have 50 year reserves. They should not be modeled on an NPV basis. That makes no sense.”

“If anything needs a discount, it’s something south of the Panama Canal.”

searing.

Copper slide on Chinese real estate, Caterpillar

It is certainly true that the copper supply side has been severely impacted by Chile’s and Peru’s post-Covid recovery efforts amid a strained political and investment landscape.

Codelco, Chile’s state-owned copper miner and the world’s largest standalone producer, saw production fall about 10%, or 172,000 metric tons, in 2022, with three major development projects falling well behind schedule and budget — the $5.6 billion El Teniente -Mine rate of 75%.

However, copper prices fell by 1.5% overnight to US$ 9087/t due to a poorer demand profile.

“Copper led the complex lower as the market shifted its focus from supply disruptions to signs of weakening demand. Caterpillar, one of the world’s largest manufacturers of heavy equipment, warned that demand in China would not recover this year,” ANZ’s John Bromhead said in a statement this morning.

“This comes after data showed China’s home sales fell further in January. According to China Real Estate Information Corp. The top 100 real estate developers saw sales fall 32.5% year-on-year to CNY325.3 billion.

“Nevertheless, problems on the supply side appear to be intensifying. China’s MMG has completely shut down its Las Bambas operations amid social unrest in Peru.”

Big iron ore miners were normal, but the materials sector rallied 0.22% after Federal Reserve Chairman Jerome Powell announced a modest 25 basis point rate hike, a sign that last year’s hawkish stance has helped curb inflation.

Gold miners went crazy, the All Ords Gold sub-index was up 4.87% at 12:30pm AEDT as prices rose a staggering 1.46% to $1955.34 ($2736/oz AUD).

Evolution Mining (ASX:EVN) climbed 7.41% and led the large-cap miners, with Northern Star (ASX:NST) up 5.1%.

NST shares are up nearly 65% over the past six months to a market cap of over $15 billion.

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