Ivanhoe Mines (IVN) is a $14.5B miner that is trading 3.88X book value. It's principal property is the Oyu Tolgoi copper & gold mine development project in southern Mongolia. The Company announced on June 9th that construction is ahead of schedule, currently 23% complete.
Ivanhoe is partnered with Rio Tinto (RIO), a $129B miner with nearly $10B of cash on hand, and always willing to make deals. Global mining M&A should be strong moving forward for cost efficiency, and most every CEO, whether it be for Gold, Silver, Copper, or other metals, has shown confidence that metal prices are only going higher.
Ivanhoe owns 66% of the project, with Mongolia's government owning the rest, and Rio Tinto owns 42.1% of Ivanhoe, and can raise its stake to 49%. Ivanhoe's CEO also owns 15.5% of the Company, a positive sign.
Ivanhoe's chart is not a thing of beauty to say the least, breaking support o a $6 horizontal channel at $23 that would measure a move to $17, while $19 is major support as a re-test of a big breakout level from September 2010.
Ivanhoe Mines has caught my eye lately due to the options action, the January 2012 $25 calls which traded 5,585 contracts today, and buyers paying $2.20 on a $2/$2.25 bid-ask, aggressive bullish trades, and these contracts have been seeing action for more than a month.
Ivanhoe typically trades just 1,790 calls a day, but has been running well above that pace lately. The January $25 calls had open interest of 21,594 contracts going into today, and likely to increase with the volume seen today. On May 13th there were only 521 contracts in open interest and then:
1) May 16th: 3,670 contracts bought
2) May 17th: 5,411 contracts bought
3) May 20th: 1,072 contracts bought
4) June 3rd: 7,926 contracts bought
5) June 6th: 2,535 contracts bought
6) June 7th: 1,645 contracts bought
7) June 8th, 1,170 contracts bought
On May 18th a trader bought 210,000 shares of Ivanhoe, along with 15,000 January $17.50 puts in a hedged play, betting on increased volatility.
The implied volatility (IV) of that contract has jumped from 42% to 47.3% over the course of that time as well, and the September IV Skew is exhibiting a bullish smile, while January s surprisingly normal.
Logically it would make sense for Rio Tinto to acquire the rest of the Company as the Mongolian asset is seen as a crown jewel, so better to make an offer before the mine is actually producing and Ivanhoe's shares are re-valued higher.
Ivanhoe also owns part of Ivanhoe Nickel & Platinum which made majro Tier 1 copper discoveries in South Africa back in February.
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