What’s up with Ivanhoe Energy? (IVAN)

Ivanhoe Energy IVAN  $1.58

Market Cap ─ $527million

Over the last few weeks I've had an extraordinary number of contacts from individual investors and institutions regarding Ivanhoe Energy (IVAN) - wondering, "What’s up?"

One wonders...

Thoughts:

There’s been a dearth of "meat on the bone" news released over the last several months by (IVAN)'s management. Investors had been advised* of numerous new business opportunities in different parts of the world and deals with potential strategic partners for financings. Obviously, investors in (IVAN) have waited and waited and are getting downright itchy, especially as the stock has sold of significantly, for something to manifest regarding one of these, what would be, market moving events. Giving (IVAN) the benefit of the doubt here let me muse on a regarding these wished-for and oft alluded to events.

The nature, size and scope of the company’s highly market disruptive heavy oil to light oil [HTL] technology and the existing and proposed projects lend themselves, (so to speak) to government or quasi-government entities for the most part. That being the case, one can imagine the necessary "ducks lined up in a row" to complete an agreement with some, say foreign country. Think multiple layers in these foreign government entities and the signatures necessary from their highest supervisory levels. They're dealing with allegedly the most senior levels of government which exercise control of the oil...think Pemex in Mexico as a possible example. Again, consider the divisions of administration, bureaucracy agencies, environmental, indigenous peoples, transport, storage, pipeline etc. etc. that would need to be signing off on such an agreement, much like (IVAN)'s Ecuador deal that took about a year to complete I believe.

Next, would be the strategic partnership financing that has also been referenced several times. Once again, we’re dealing with what could be foreign governments, sovereign wealth funds, etc. who would wish to set up agreements where "the country" would have "first call" access to the oil. The financing arrangements may be country specific and are templates for future financings in which investments are offset by guaranteed supplies of oil for a generation or longer.

I'm reminded of Ivanhoe Mines (IVN) 57% owned subsidiary coal project SouthGobi Resources where China's sovereign wealth fund helped fund that deal to the tune of $500 million; China became the big buyer of that coal. I published a report about five years ago  (The Beluga Caviar of Coal.) on that incredible coal seam that's 60 or 70 meters wide and runs for over 100 km. Presumably, something like this could be underway with (IVAN) and possibly sovereign wealth funds from a couple of countries that come to mind. A Mideast sovereign wealth fund has already invested in (IVAN) so one can realistically create a scenario where this could be done.http://www.ivanhoemines.com/s/Coal_Projects.asp

And: www.southgobi.com 

Clearly, the clock ticks on, and (IVAN)’s cash hoard of $113 million will be depleted at some point. Hopefully, an all-encompassing financing deal to cover their numerous projects (or financing for single project, but best case, the former) will occur soon, with any luck by the end of the year. I think it would have a major and lasting impact on the stock.

Despite months of what appears to be a void of news of new deals, major institutions continue to invest in (IVAN). Obviously they have with confidence in senior management, in the size and breadth of the resources, what they see on the horizon, their breakthrough HTL technology and in IVAN's proven ability to execute. “Sister” Friedland company; Ivanhoe Mines IVN is an excellent example / prototype of an uncommon success and return on investment.

Patient’s is the operational word here... or perhaps —worst case —there is nothing developing at all on any of these fronts. I think not. Robert Friedland thrives on these long drawn negotiations, i.e. the long drawn out Ivanhoe Mines (IVN) & Mongolian government agreement comes to mind; its success has been spectacular for the country of Mongolia and for shareholders, but there are several other examples too.

Their business is sound.

* The below comments on the conference call last March.

1.       “(IVAN) has been busy supporting and evaluating numerous additional business opportunities in different parts of the world; these relate to integrated HTL opportunities.”

2.       “In addition the (IVAN) team has been busy hosting numerous potential strategic partners who are performing due diligence on the technologies and the process is working very, very well.”

Cash position:

(IVAN) has $113.8 million in cash as of 6-30-2010 (Q2 financial results – reported on 8-10-2010)

Institutional current coverage overview:

 Byron Capital Markets:      Spec. Buy,       Price Tgt C$3.50      08/12/10
 Macquarie:                           Outperform    Price Tgt  US$4.70   05/14/10 
 UBS:                                      Buy                  Price Tgt   C$2.50     08/11/10 

 

 PREVIOUS COVERAGE

 

 Raymond James:                 Mkt Perform  Price Tgt   C$3.75      04/12/10 
 Salman Partners:                 Buy                  Price Tgt US$3.15     10/01/09

MACQUARIE RESEARCH  > Ivanhoe is story largely driven by catalysts. The company continues to evaluate joint ventures to access heavy oil resources globally, while also progressing with financing agreements with international companies to help funds its initiatives. Success on this front would be upside to our current estimates. With exploration in Ecuador and Asia a free option, we recommend the story for investors looking for exposure to international exploration. We reiterate our Outperform rating. Monday, 17 May, 2010

UBS started coverage of Ivanhoe Energy Inc with a "buy" rating, citing the efficacy of the Canadian heavy oil producer's proprietary cracking technology.UBS analyst George Toriola who set a C$3.80 price target on Ivanhoe stock, said the company's Heavy to Light (HTL) technology promises about twice the capital efficiency, over other cracking methodologies.”The technology is central to the company's near-term strategy, with its performance remaining a key (but low) risk into the future.”

Notes from the last annual meeting:

Ivanhoe Energy CEO, Robert Friedland, said that they have one of the best oil fields (the size of Kuwait) in all of Mongolia. The drilling in Mongolia will commence in Q4 2010. The wells would be about 1500 feet deep which he called “child's play.” Mr. Friedland said that the Russians were drilling holes blind there in the middle of the last century without any meaningful seismic measurements or data and were hitting oil 50% of the time!

For a further (IVAN) update re Q2 financial results and operational highlights:

http://www.ivanhoe-energy.com/s/NewsReleases.asp?ReportID=413666&_Type=News-Releases&_Title=Ivanhoe-Energy-reports-second-quarter-2010-financial-results-and-operationa...

 

I own shares in (IVAN).