Small negative – Friedland’s strength in the past has been raising project-level funds at anti-dilutive valuations. As such, although the company stated today that talks are ongoing with strategic partners, a positive, it is a shame that ~10% dilution was required before then. On the flipside, this should strengthen the company’s ability to negotiate. Of note, given the proposed C$2.00/sh price is well under recent C$2.56/sh price, we think the market will take the news negatively in the short term.

Ivanplats has announced that terms have been agreed on a C$100m equity raise (up to $108m) at C$2.00/sh. Robert Friedland will subscribe for $25m of the offering, effectively proportionate to his holding in the company. In addition to this, Ivanhoe indicated that talks are ongoing with strategic investors.

We have long held the view that Ivanhoe has the best undeveloped copper and PGM assets in the world, bar none, a view we maintain today. However, in our initiation we flagged that the single biggest risk to per share value was “pre-mine-funding financing for exploration / engineering studies”, as announced today. Stepping back, we remain positive on the company given the asset quality and potential for anti-dilutive strategic funding going forward, but put simply, any potential deal will now be shared between an additional 50m shares causing ~10% dilution.

Looking in more detail at the funding, we do see one interesting point. Previously we expected a single fundraise ahead of Kamoa mine-build / strategic investment funding given the triple requirements of (i) taking Kamoa to Development Study stage, (ii) starting the Kamoa decline in 1Q14, and (iii) completing the Kipushi dewater, shaft refurbishment, development to access the Big Zinc, and drilling on the main ore body and Big Zinc. We don’t think the current raise covers all this, so interpret the fact that it went ahead anyway as, hopefully, indicative of management confidence in concluding a strategic investment earlier than we had previously expect (from ~2H14 post Development Study). In addition, this should strengthen the company’s ability to negotiate any such deal.

Looking at the requirement for the raise – we again had hoped that Kipushi would be dewatered by now as per the original schedule, which would have the double benefit of reducing burn, and opening the door to sale to avoid diluting the value of the world class Kamoa and Platreef projects, both of which declined in per share value by ~10% today. As such, although that opportunity has been missed, we do see potential for such a sale next year to fill any further funding gaps / reduce burn.