Home > Mergers & Acquisitions > Ivanhoe escalates Rio Tinto dispute

Ivanhoe escalates Rio Tinto dispute

July 15, 2010

“A dispute between Rio Tinto and Canada’s Ivanhoe Mines over a Mongolian copper and gold mine escalated on Wednesday when the Vancouver-based company suggested it was opening the door to “third-party strategic investors

Ivanhoe said its board voted on Tuesday to terminate a clause in a 2006 pact between the two companies that prevents Ivanhoe from issuing more than 5 per cent of its shares to third parties.

The move means Rio, the financier of the Mongolian mine at Oyu Tolgoi near the Chinese border, faces the threat of dilution of its holding in Ivanhoe or the possibility that another miner may gain a foothold on the project. Rio said it was ‘very confident of its existing rights under the private placement agreement with Ivanhoe [from 2006]’. However, on Monday, the Anglo-Australian miner launched arbitration against Ivanhoe over an earlier complaint.”

Source: Financial Times, July 15, 2010

Observations:

  • Rio Tinto is owning part of the Oyu Tolgoi project, one of the richest undeveloped copper deposits in the world, via its stake in Ivanhoe.
  • A special agreement between Rio and Ivanhoe enables Rio to increase its take in the project by exercising warrants to increase Ivanhoe ownership. However, the agreement prevents Rio from obtaining a majority stake in the Mongolian project until 2011.

Implications:

  • Rio Tinto clearly wants to gain control over the development and operation of the new copper mine, which will enable the company to provide secure access to copper for the Chinese market. The company will try to buy additional shares of the project as soon as possible after the agreement with Ivanhoe expires.
  • Ivanhoe management will be driven by hopes to retain as much control as possible over the project and at the same time tries to increase the value of its stake and shares to gain more from Rio’s attempts to buy control. Inviting other companies to buy parts of Ivanhoe will increase the price Rio will eventually have to pay to buy a majority share.

©2010 – thebusinessofmining.com

Advertisements
Comments are closed.