A Singaporean blogger Pat Low, who runs the blog “Chempost: Going down the rabbit hole”, shares how Temasek Holdings “possibly US$1.1b [billion] lost in mining gamble” following its investment into Canadian mining company, Turquoise Hills, in 2012.
Pat Low described himself as a “Merdeka generation NSman” who only blogs “for the fun of it”.
Based on the About section of his blog, he had spent a major part of his career in the banking industry and eventually became a channel partner of an electricity retailer after retirement.
On Wednesday (23 Sept), the blogger published an article titled “Temasek Tracking – Turquoise Hills, possibly US$1.1b lost in mining gamble”, revealing how the Government-owned company ends up in losses due to its investment on the mining company.
He started off the article with the background of Ivanhoe Mines, which was the original name of the mining company before it was changed to Turquoise Hills.
“This was the background when Temasek invested into Turquoise Hills in 2012. It is a company with tremendous wealth still locked underground. The operations were initially open pit mining. It is going for phase II which is underground mining.”
Ivanhoe’s subsidiary, SouthGobi, owns and operates Ovoot Tolgoi coal mine in Mongolia. The mining company then developed interests in the Oyu Tolgoi copper-gold mine development project, said Pat Low.
Oyu Tolgoi is located in the South Gobi region of Mongolia, approximately 550km south of the capital, Ulaanbaatar, and 80km north of the Mongolia-China border, as stated in Turquoise Hills’ website.
“Ivanhoe found the copper and gold deposits in Oyu Tolgoi in 2001. It is considered the worlds largest copper and gold deposits. In 2010 the reserves were placed at 81.3 billion pounds for copper and 46.4 million ounces for gold,” he wrote.
Ivanhoe’s negotiations with the Mongolian Government took “an arduous journey” as it involved issues like corruption, social, political, environmental impacts, power supply and the financing worth US$6 billion for phase 1, said Pat Low.
Ultimately, both parties reached an agreement with the Government taking 34 per cent of the equity and Ivanhoe earns 66 per cent.
The blogger went on to explain that Oyu Tolgoi coal mine started operation in 2008, but its operation was curtailed in 2012 due to adverse market condition.
“In 2013 the company revised its annual reports for 2010, 2011 & 2012 due to change in accounting statements at its subsidiary SouthGobi. It’s share price tanked.
“This led to a class suit action against the company for inflating its earnings and misleading investors. The case was dismissed in Dec 2014 by District Court.”
In 2012, miner Rio Tinto boosted its stake in Ivanhoe Mines to 51 per cent, from 49 per cent. Financial Post reported on 24 January 2012 that Ivanhoe and Rio first partnered in October 2006, as Ivanhoe needed help in terms of capital and local political support to develop Oyu Tolgoi copper-gold project.
Pat Low indicated Rio’s major stakes in Ivanhoe had caused some changes in the mining company, such as Ivanhoe changed its name to Turquoise Hills and the divestments of the Ovoot Tolgoi coal mine.
As such, Turquoise Hills was left with Oyu Tolgoi mines as its primary operation.
“Note the Ivanhoe Mines currently listed on the stock exchange is another metal company which later took over this name,” he added.
However, Pat Low indicated that Oyu Tolgoi is “beset with huge cost overruns and high sovereign risks”.
The blogger explained that Rio had to write off about US$1 billion impairment on their investment and was facing investor revolt in the handling of the Oyu Tolgoi project. While Turquoise Hills faces investor investigation as it had “lied” about the Oyu Tolgoi’s cost of development.
“Turquoise Hills’ inability to move forward and produce results bear heavily on its share price. Currently, it is at risk of being delisted as its price has fallen below US$1.00.”
Pat Low also shows Temasek’s investment and divestments in the article, which was based on valuation shown in SEC Filling.
Market Screener reported in 2012 that Temasek Holdings has acquired a 5.5 per cent stake and bought 40.86 million shares in Ivanhoe Mines, which is controlled by Rio Tinto PLC (RIO).
“As at 31 Dec 2013 Temasek was holding 172 m shares costing more than US$1.3b. It seems by Jan 2014, 71m shares have been sold which booked a realised lost of between US$392m – US$401m,” Pat Low added.
“SEC filing show as at 14 Jan 2019 balance of share was 100,254,432. It is not clear if this balance has been divested.”
Although Temasek was not listed as a major shareholder in the Turquoise Hills’ SEC Filling 2020, Pat Low noted that the balance shares might have been “disposed”.
“[If] that’s the case, it should have realised additional loss in the US$700m ballpark figure. This makes the total realised loss of the investment at about US$1.1b.”
He continued, “If the balance of 100,254,432 shares are still in Temasek’s books, the unrealised loss as of to date is about US$697m.”