C$100m raise at C$2.00/sh dilutes holders by ~10%, but strategic investment looming
C$100m raise for Kamoa and Kipushi

Ivanplats has agreed terms on a C$100m equity raise (up to $108m) at C$2.00/sh. Robert Friedland will subscribe for $25m proportionate to his holding in the company. We estimate this is a ~9% discount to the 5 day C$2.33/sh VWAP, which itself is somewhat offset by the ~5% saving being a non-brokered placement. In addition to this, Ivanhoe indicated that talks are ongoing with strategic investors.

Dilutive
We have long held the view that Ivanhoe has the best undeveloped copper and PGM assets in the world, bar none, a view maintained 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 stock 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 of course.

Not enough in our view...could signal strategic sooner than expected
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 access and drilling. We don’t think the current raise covers this. As such, we interpret the fact that the raise went ahead anyway as, hopefully, indicative of management confidence in concluding a strategic investment earlier than we had previously expected (from ~2H14 post Development Study). In addition, the raise should strengthen the company’s ability to negotiate any such deal.

Retain BUY rating, lower PT to C$4.80/sh from C$5.15/sh
We update our model to reflect the additional cash and shares, as well as for revised cash per the second quarter financials. The reduced cash mid-year (US$297m to US$239m) lowers our valuation by C$0.05/sh, while the dilution lowers our 0.7xNAV valuation by 30c/sh. As such, we lower our target to C$4.80/sh from C$5.15/sh. We retain our 0.7xNAV valuation, high compared to pre-production peers, because put simply whether a mine is built on top of an undeveloped asset is in our opinion less relevant to an e.g. US$10bn NPV asset (the NPV for Ivanhoe projects at spot commodity price at first production in 2018) than to a marginal small mine. With the stock at 0.39xNAV at pre-open C$2.56/sh, we would see any price dips today as an opportunity to purchase.