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Why mining entrepreneur Robert Friedland relinquished Ivanhoe

Why the billionaire with the golden touch legend gave up Ivanhoe without a fight.

Former Ivanhoe Mines Chairman and CEO Robert Friedland addresses the Investing in Africa Mining Indaba in Cape Town February 8, 2012. (Photo: REUTERS/Mike Hutchings)

The skills that most helped mining entrepreneur Robert Friedland become a billionaire were his negotiating savvy and an ability to plot and execute the best possible outcome for himself. It was surprising, then, when Friedland resigned as chairman and CEO of Vancouver-based Ivanhoe Mines in April after a long power struggle with Rio Tinto.

Friedland, along with six board members and four senior executives, stepped down from the company he founded in 1994. Under Friedland, Ivanhoe discovered what could be the world’s largest copper and gold mine, Oyu Tolgoi, in Mongolia. Financing such a politically risky endeavour was problematic, but London-headquartered behemoth Rio Tinto ponied up with a private placement for Ivanhoe in 2006. Friedland, fearing a creeping takeover, adopted a shareholder rights plan in 2010. Rio Tinto objected and brought the matter to arbitration, which ended in its favour in late 2011. Rio Tinto had increased its stake in Ivanhoe from 5.3% to 49% during that time.

A former Ivanhoe insider suspects Friedland’s hope all along was to instigate a bidding war for the company, which is why he wanted to stop Rio Tinto from gaining control. But with the shareholder rights plan quashed, Rio Tinto boosted its stake to 51% earlier this year, killing the chances of a big payday.

On the day of Friedland’s resignation, Ivanhoe announced a financing plan with Rio Tinto to ensure further development. The agreement should “dispel any remaining beliefs that Rio Tinto has been anything but the manager of this project for the past few years,” wrote Scotia Capital analyst Tom Meyer in a note. Rio Tinto has invested US$3.5 billion directly in Oyu Tolgoi so far.

Friedland’s departure stands in contrast to the biggest victory of his career. In 1996, he played mining giants Inco and Falconbridge off one another and later sold his company, Diamond Fields Resources, which owned a massive nickel deposit in Labrador, to Inco for $4.3-billion. One needn’t feel sorry for him when it comes to Ivanhoe. “Robert is not a child, and he’s been through many ups and downs,” says Marc Faber, who stepped down from Ivanhoe’s board along with Friedland. “He took the departure in stride.”

In any event, Friedland’s interests lie with exploration and fundraising, not overseeing a working mine. He’s already hyping another venture called Ivanplats, a privately held firm developing a platinum mine in South Africa. At a conference in February, Friedland claimed Ivanplats will be the world’s lowest-cost platinum producer. “This is a highly disruptive discovery of a world-class nature that will have an extremely long life,” he said. Friedland may yet orchestrate another bidding war.