TNM’s 2006 Mining Person of the Year: Robert Friedland

The world’s top athletes, scholars, artists and gurus all talk one way or another about the importance of finding and then living in that narrow zone that exists at the very limits of your intellect and abilities. But “working your edge” is a trickier thing in practice: staying too close to the familiar may lead you to stagnation and complacency, while transgressing too far across your normal boundaries can leave you broken and disconnected.

The business world, too, has its share of people who’ve lived and prospered “at the edge,” and we can think of no better example in our own industry than The Northern Miner‘s “Mining Person of the Year” for 2006: Ivanhoe Mines (IVN-T, IVN-N, IVN-Q) executive chairman and founder Robert M. Friedland.

While there were other worthy candidates in this very busy year for the minerals industry, Friedland’s luring of British major Rio Tinto (RTP-N) in October into a partnership to develop Ivanhoe’s Oyu Tolgoi copper-gold project in Mongolia’s South Gobi region struck us as a defining moment in one of the world’s biggest mineral-development success stories of the past decade.

(We’ve been covering Oyu Tolgoi’s astonishingly rapid advancement under Friedland’s direction since we first visited it in 2001. Look in early January for another in-depth, on-site report.)

Growing out of his counter-culture roots in North America’s West Coast and evolving into today’s larger-than-life, globe-trotting Asiaphile, Friedland has been a dynamic force for a quarter century in the minerals industry through a host of private and public-company vehicles.

Friedland launched his first mining venture, Galactic Resources, in the early 1980s, taking it into various joint ventures that included a share in the Far South East gold project in the Philippines. In 1990, the company sold its stake in Far South East to Rio Tinto and descended into the mire of Summitville, a failed heap-leach gold mine in Colorado.

Owing to his connection to Summitville, Friedland was subjected to unwarranted harassment in the mid-1990s from an incompetent U.S. Environmental Protection Agency, which badly bungled a “remediation” of the Summitville site. The EPA unfairly tried to blame the whole fiasco on Friedland and attempted to seize US$152 million of his Canadian assets in 1996.

At the end of the day, Friedland agreed to make payments totalling US$27.75 million over 10 years, admitted no responsibility for the disaster, and the U.S. paid Friedland US$1.25 million in costs and legal fees.

The substantial asset base Friedland had in Canada at the time stemmed, of course, from the early 1990s discovery of the Voisey’s Bay nickel-copper-cobalt deposit in Labrador by his junior company Diamond Fields Resources. For this, Friedland had taken home the Developer of the Year award at the Prospectors and Developers Association of Canada convention in 1996.

Friedland happily pocketed his half-billion dollar payout from Voisey’s and redirected it in the late 1990s into a myriad of resource gambits that spanned the globe and encompassed all the major commodities, including gold in China, Russia and Alaska, iron ore in Australia, diamonds in Namibia, platinum and nickel in South Africa, copper in Myanmar, and oil in China.

Entering the Oyu Tolgoi project before the turn of the millennium, Ivanhoe’s excellent technical team sensed a potential dismissed by then-owner BHP Billiton, which eventually unloaded a 100% interest in the project to Ivanhoe in 2002 in return for just US$3 million in exploration work and US$5 million in cash (an underlying 2% NSR held by BHP was also later acquired by Ivanhoe).

Ivanhoe’s ultimate faith in Oyu Tolgoi was rewarded in 2004 with the discovery of the huge, deep and higher-grade Hugo Dummett deposit, which dramatically transformed the project from just a low-grade, open-pit scenario into one that will some day include underground bulk mining on a scale unprecedented in Mongolian history.

So far, Ivanhoe has poured some US$400 million into developing Oyu Tolgoi, and construction of a scaled-up mining complex could require another US$2-billion capital infusion.

These kinds of heady mine-construction negotiations may lie in the near future, but Friedland has already been amply rewarded for his years of effort and good luck: he is now ranked by Fortune magazine as the world’s 645th richest person, with a net worth of US$1.2 billion.

Friedland and his Ivanhoe colleagues may have led a wild charge by Canadians and Australians into Mongolia’s underdeveloped and newly liberalized minerals sector earlier this decade, but the mood darkened considerably this year as Mongolian opposition to foreign investment in mining reached a fever pitch. An effigy of Friedland was even burned by protesters in the capital, Ulaanbaatar.

The Mongolian government responded to the resurgent nationalism this summer with an unexpected and exorbitant 68% profits tax of copper and gold mining, the details of which are still fuzzy at best.

While Friedland is widely acknowledged as one of the industry’s most-skilled promoters, he will need to summon all his talents of persuasion in 2007 to finally land a fair agreement with the Mongolian government for Oyu Tolgoi’s development.

Ivanhoe and Rio Tinto are already signalling that they’re willing to keep jobs in Mongolia by further processing and refining Oyu Tolgoi ore in-country and not just trucking raw concentrate to China.

Given that the recent Rio Tinto deal was forged under the most difficult circumstances, we’re betting Friedland can once again “work his edge” and pull off a good development agreement for Oyu Tolgoi, in spite of the new political uncertainty in Mongolia.