Ivanhoe and Rio Tinto Call Truce Over Financing Pact, Reuters
Mongolia's huge Oyu Tolgoi copper-gold mine moved a step closer to getting built after Ivanhoe Mines (IVN.TO: Quote) and partner Rio Tinto (RIO.L: Quote) put aside an ongoing spat on Wednesday and agreed on a new financing plan.
Ivanhoe Mines said Rio, its largest stakeholder, has agreed to provide up to $1.8 billion in interim financing to continue development work on the $6 billion project, which is one of the world's largest untapped copper-gold deposits.
Rio has also agreed to buy 20 million Ivanhoe shares at market price and immediately exercise rights to convert $300 million of warrants.
"This is good news for Ivanhoe and is reflective of its partner's commitment to the project," said Desjardins analyst John Redstone, in a note to clients.
Stock in Ivanhoe was down more than 13 percent, or $3.83, at $25.37 on Wednesday on the New York Stock Exchange, while its shares on the Toronto Stock Exchange were down C$3.93 at C$25.64.
The $1.8 billion interim financing will allow Ivanhoe to continue construction at Oyu Tolgoi while a full project-finance package with Rio is negotiated. The two companies intend to have a comprehensive project-finance package in place by June 2011.
Ivanhoe, which is led by colorful mining financier Robert Friedland, said it will have already invested about $1.4 billion in developing Oyu Tolgoi by the end of 2010.
An Ivanhoe-Rio Tinto technical committee expects that the project will require a further $4.6 billion in capital from the beginning of 2011 through to the start of production in early 2012.
In exchange for its capital and commitments, Rio Tinto will have the right to a maximum ownership stake in Ivanhoe Mines of up to 49 percent during the next 13 months. Under previous agreements Rio's ownership stake in Ivanhoe had been limited to about 46.6 percent.
The company is in the process of taking its ownership stake in Ivanhoe to 42.3 percent from the current 34.8 percent through its exercise of $300 million worth of warrants and the direct purchase of 20 million Ivanhoe shares. Rio will purchase half these shares directly from Friedland and the remainder from Citibank.
The two companies have also agreed to suspend arbitration proceedings for six months. Rio Tinto initiated the arbitration process earlier this year after Ivanhoe adopted a shareholder rights plan. Rio contends the rights plan breaches its contractual rights under agreements with Ivanhoe.
The two sides agreed to suspend arbitration - instead of ending it outright - because there are two issues that still to be clarified, said a source close to the situation, who declined to be named.
Ivanhoe's so-called "poison pill", or shareholders rights plan, had been set to be triggered when Rio's ownership moved above 46.6 percent, but Rio wants clarification that it can go to 49 percent without the plan taking effect.
Rio also wants confirmation that the shareholder rights plan would not extend the standstill agreement beyond the new agreed expiration date of January 2012.
Ivanhoe said the suspension would be revoked if Rio makes a formal takeover bid for Ivanhoe Mines, or if either company takes any action that the other reasonably believes prejudices its rights."
"This news was provided by Monet Investment Bank."