Rio Tinto takes bigger stake in Ivanhoe Mines, will manage Oyu Tolgoi project
Rio Tinto ( NYSE :RIO) and Ivanhoe Mines have called a truce, which will result in the international mining giant providing billions of dollars in financing and assuming management of Ivanhoe’s Oyu Tolgoi copper-gold project in Mongolia. The mining companies had been in a fight over Ivanhoe’s institution of a so-called “poison pill” plan to protect against a hostile or creeping takeover.
“The mutually beneficial evolution and expansion of the scope of Ivanhoe’s four-year relationship with Rio Tinto comes at a pivotal time in the development of Oyu Tolgoi,” Ivanhoe executive chairman and chief executive Robert Friedland said in a statement Wednesday.
The company also said David Huberman, the lead independent director on the Ivanhoe Mines board, will take over as chairman at Ivanhoe’s next annual meeting. Friedland will remain a director and chief executive.
Ivanhoe shares fell $4.29 or more than 14 per cent to close at $25.28 on the Toronto Stock Exchange after news of the plan that will see the company issue millions of new shares. Rio Tinto shares closed down US$1.39 at $69.63 on the New York Stock Exchange .
Ray Goldie, base metals mining analyst at Salman Partners, said the chances of a takeover of Ivanhoe next year are much lower with the deal in place.
“A lot of people had a list drawn up of companies that will be taken over in 2011 … and Ivanhoe was one of those companies and now it is not going to be,” he said.
“So they had to take it off their list and so if they were holding Ivanhoe soley as a way of playing a takeover story next year, they’ve sold it.”
Rio Tinto said the deal will help speed development of the mine, with first production now expected to start in late 2012, six months ahead of schedule.
“We are looking forward to bringing Rio Tinto ‘s world-class operating and technical capability to the development of one of the world’s greatest copper-gold mines of tomorrow,” Rio Tinto Copper’s chief executive, Andrew Harding, said in a statement.
“Together with Ivanhoe and the Government of Mongolia, we are determined to develop Oyu Tolgoi in a sustainable, mutually beneficial manner for the people of Mongolia.”
Ivanhoe holds a 66 per cent stake in the Oyu Tolgoi copper and gold mine, while the Mongolian government holds the remaining 34 per cent.
The agreement clears the way a rights offering announced by Ivanhoe earlier this year. The company hopes to raise up to $1.2 billion.
Terms of that deal are expected to be finalized in the coming weeks.
Under the deal announced Wednesday, Rio Tinto has agreed to provide up to $1.8 billion in interim financing while the companies work together to complete funding of the project.
Rio Tinto has also committed to invest roughly $1.3 billion in Ivanhoe in the coming months through the rights offering and the exercise of warrants. It will also buy about $500 million worth of shares from Friedland and Citibank.
In addition, Rio Tinto has been given the option to invest another $600 million though subscription rights it will hold as a result of the deal.
Rio Tinto currently owns 34.8 per cent of Ivanhoe Mines. That is expected to increase to 42.3 by January under the deal and may rise even further if Rio Tinto continues to exercise its warrants and rights.
London-based Rio Tinto ’s interest in Ivanhoe Mines will be capped at 49 per cent until Jan. 18, 2012, up from an earlier cap of 46.6 per cent until October 2011.
If Rio Tinto exercises all of its warrants and rights for Ivanhoe shares it would hold a 48.5 per cent stake in the company.