Follow up Report #1

There are traders and investors. Gold and commodities do attract traders. The potential appreciation of the "minute" EGI, could be a great attraction.

After all, EGI is so small in market cap, that "hedge fund" type of investors must concentrate on EGI.

Meanwhile Rio Tinto and Ivanhoe independently purchased $16 million via warrants in EGI. Together they put $30 million into EGI's treasury, but each holds 16 percent in EGI, suggesting firm confidence in EGI's mineral holdings in Mongolia.

Let us look again at the numbers. Ivanhoe holds 14.9%, Rio Tinto holds 16.1%.

Rio Tinto Investment in Ivanhoe

On October 18, 2006, Rio Tinto announced its plans to invest up to US$1.5 billion to acquire a 33.35% equity interest in Ivanhoe, for the purpose of funding the joint development of the Oyu Tolgoi copper-gold project in Mongolia. This is a major vote of confidence by one of the world’s pre-eminent mining companies in both the Oyu Tolgoi project and in Mongolia. Ivanhoe now has a strategic partner with sufficient capital resources to take the world’s richest porphyry copper-gold project to production.

Rio Tinto has also announced that it intends to join Ivanhoe in negotiations with the Mongolian government for a long-term investment agreement. Such an agreement would provide the basis for the financing and development of Oyu Tolgoi. The Mongolian Government appointed a “working group” in September 2006 to work with Ivanhoe for the preparation of an agreement for submission to the Mongolian government’s cabinet.

A guideline for EGI's importance to Ivanhoe and to EGI's stockholders is as follows.

Ivanhoe has the right to earn an 80% interest in mineral rights on the project area below a depth of 560 m. Accordingly, Entrée’s 20% interest is estimated to be 23.4 million tonnes (indicated), containing approximately 928 million pounds copper and 460,000 ounces gold, and 19.1 million tonnes (inferred), containing approximately 484 million pounds copper and 190,000 ounces gold. Mineral resources are not mineral reserves and do not have demonstrated economic viability. The possible finalization of the Mongolian–Ivanhoe agreement obviously will give meaning to the mineral deposits. While production is unlikely to start until 2010 the Financial Times of London has recently highlighted the value of mineral deposits in general in the commodity starving world.

With a comparatively small capitalization EGI can become the trading vehicle as the capitalization of just over $250 million (with $30 M cash) will reflect the corresponding mineral value very rapidly.

Since EGI is listed in Toronto, the American Stock Exchange and Frankfurt, these will be the reflection of the importance of copper and gold deposits. Various interpretations could create the trading stock that speculators like when faced with open-ended possibilities.

A one percent purchase of IVN is $60 M. Such sum represents 25 percent of EGI's total capital structure. The volubility is obvious.

(a) IVN is a $15 stock
(b) EGI is only $3

 

This is leverage No. 1.

 

(a) IVN market cap $6,000 M
(b) EGI market cap $250 M

 

If IVN is a solid long-term investment—What is EGI?

Andrew Racz

(Article 58 - posted July 24, 2007)

e-mail: mlikar@aol.com

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