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Rio Tinto confirms Mongolian mine interest

July 9, 2010

“Rio Tinto has ended months of speculation by confirming plans to swap its shares in Ivanhoe Mines for a direct stake in Mongolia’s Oyu Tolgoi copper and gold project, which is 66 per cent owned by the Canadian miner.

Rio owns an indirect interest in Oyu Tolgoi, one of the world’s largest undeveloped copper deposits, through its 29.6 per cent stake in Ivanhoe.

The group also confirmed in a US Securities and Exchange regulatory filing on Wednesday that Chinalco, the Chinese aluminium producer that is its largest shareholder, was interested in investing in the Mongolian project, either directly or through buying an equity stake in Ivanhoe.

The end result of the talks could be a two-way or three-way agreement between Ivanhoe, Rio and the Chinese company, Rio said in the filing.”

Source: Financial Times, July 8, 2010

Observations:

  • Rio Tinto could increase its stake of the Oyu Tolgoi operation to 47%, leaving Ivanhoe with 19%. 34% of the remaining shares are owned by the Mongolian government.
  • The mine is planned to start operation in 2013, helping Rio Tinto to secure access to copper volumes, one of the key priorities in the company’s portfolio balancing.

Implications:

  • Teaming up with Chinalco would both enable Rio Tinto to undertake more development projects with its restrained $5bln capital budget for the year and would strengthen the ties with Chinalco. Rio’s management has been working on strengthening the links with the Chinese state controlled company since early 2009.
  • Rio Tinto is clearly more interested in Oyu Tolgoi than in the other Ivanhoe assets (Ovoot Tolgoi coal operations, Kazakh Kyzyl gold, Mt. Isa & Tennant Creek). As takeover options for Ivanhoe are limited, gaining direct control over Oyu Tolgoi appears to be the best option to increase control over operations.

©2010 – thebusinessofmining.com

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