It is apparent that fundamentals no longer seem to play a part in the markets perception of value. However, here are a few things to consider with IVA: The Bad: As this forum has discussed, IVA has a significant cash burn problem. If they keep spending as forecast without a successful raise, then theoretically they will simply run out of money. What gives me some comfort is that most of the forecast spend is discretionary. Without a suitable “strategic partner” in sight, I would assume that the newly appointed Board would put the brakes on non-essential expenditure to make that $100mm last as long as possible. With Osborne now in production, a sensible Board should be able to delay running out of money for some time.
The Good: Let’s ignore the value of the now producing Osborne project. Let’s ignore the potential of the Merlin project with a completed Feasibility study. Let’s also ignore the cash on the Balance Sheet and IVA’s investments in EXCO and Emmerson (worth about 21c ps @ Mar 31). Let’s just look at the In Ground Value (IGV) of their resources. As per their Feb 24 presentation they have: 6.1mm Oz of Gold; 7.938mm lbs of Copper; 196.2mm lbs of Molbdenum and 155k kgs of Rhenium
The current IGV is $38.5B, making the Market Cap/IGV = 0.71%. In the good ol’ days anything under 1% was a screaming buy. Whereas producing miners with a massive resource whom are operating in a politically stable country would be trading closer to 5 x this value, or approximately $3.50 per share. Even at 1% of IGV plus cash and liquid investments, the SP should be 91c. And that is rock bottom for this resource. No long term investor should accept a bid for IVA’s shares at anything less than 91c. Even if Rio are desperate to exit, they surely won’t entertain anything less than 2% of IGV, which is $1.40. This is also the approximate price for the last major capital raise. So if we assume that a bid will be forthcoming for either Ivanhoe Mine’s position or even the whole company, a price below $1.40 should NOT get a deal done. So at 50c, there is a lot more upside than downside in this stock.
IVA Price at posting:
49.7¢ Sentiment: ST Buy Disclosure: Held
