Ivanhoe, Rio joust over copper-gold mine
Ivanhoe Mines Ltd. and Rio Tinto Ltd. continue to make separate strategic moves regarding Oyu Tolgoi, leaving the future ownership structure of the prized mining project impossible to predict.
The two companies are cooperating to develop Oyu Tolgoi, a copper-gold deposit in Mongolia that ranks among the best in the world.
Yet at the same time, they are working independently to bring more investors into the picture and maximize value for themselves. And Rio Tinto’s actions in particular have left Ivanhoe’s shareholders wondering what comes next.
Ivanhoe owns 66% of Oyu Tolgoi. Rio owns 29.6% of Ivanhoe, and can take its stake up to as much as 46.6% under an investment agreement between the two companies.
However, comments from Rio suggest it is not thrilled with the current arrangement. In an unusual regulatory filing last week, the company said it was in talks to convert its Ivanhoe shares into a direct stake in the Oyu Tolgoi project.
Rio Tinto also revealed it has spoken with a number of other companies regarding investments in Oyu Tolgoi, including the Chinese aluminum giant Chinalco.
Experts said the announcement must have seemed highly unusual to Vancouver-based Ivanhoe and its executive chairman Robert Friedland, since at last check, Ivanhoe is still the owner of the deposit.
Yesterday, Ivanhoe made its own move. The company announced it is terminating an arrangement that prevents it from drawing in strategic investors outside of Rio Tinto.
Once the measure goes into effect in 60 days, Ivanhoe will be able to issue more than 5% of its shares to “one or more” new strategic investors. That could give it some more financing as it tries to raise enough funds to cover the US$4.6-billion initial capital cost at Oyu Tolgoi.
Ivanhoe shares on the Toronto Stock Exchange jumped 14% yesterday on speculation that new investors will pay a premium to get involved with the project.
“The door is now open a bit. They’ve created a crack,” said John Hayes, an analyst at BMO Capital Markets. “I don’t think there’s anything bad in this for Ivanhoe shareholders.”
Rio had no comment on yesterday’s announcement. The company recently voiced its displeasure with Ivanhoe’s shareholder rights plan, saying it plans to fight it in arbitration proceedings.
A source close to Rio Tinto said it is unlikely Ivanhoe would be able to issue shares to anyone until the arbitration is resolved.
For years, the interest in Oyu Tolgoi was very muted, as the project had not been approved by the Mongolian government and was moving nowhere fast.
But a big turning point came last year, when Ivanhoe signed its deal with the government and started ramping up its construction work. Today, there are 3,000 people onsite and commercial production is expected in 2013.
That has drawn the attention of a lot of potential investors. But Rio Tinto still holds a lot of sway because of its 29.6% Ivanhoe stake, and investors are not entirely sure of what Rio’s strategy is.
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