Rio Tinto invests in Ivanhoe project
Wed Oct 18, 10:19 AM
ca.news.finance.yahoo.com
OTTAWA (Reuters) - World No. 2 miner Rio Tinto will pay $303 million for a nearly 10 percent stake in Ivanhoe Mines Ltd. , the companies said on Wednesday, an investment in the huge Oyu Tolgoi copper-gold mining complex in Mongolia that could swell to $1.5 billion.
Under the arrangement, the two companies will jointly engineer, construct and operate the project, located in the south Gobi desert.
Ivanhoe shares shot up on the news, surging about 24 percent to $8.09 on the New York Stock Exchange and 25 percent in Toronto to C$9.25. Rio Tinto shares rose about 3.7 percent in London.
Ivanhoe has said Oyu Tolgoi will become one of the world's largest mining complexes and create thousands of jobs.
There has been speculation for several years about who would make a bid for the project, after Ivanhoe said that some major miners had initiated talks on partnership proposals.
"We said in a formal statement three years ago that Ivanhoe was evaluating strategic partnerships with qualified companies that had relevant experience and resources to help ensure completion of a successful mining complex at Oyu Tolgoi," said Ivanhoe founder and chairman Robert Friedland in a statement.
"Today's announcement marks the realization of that vision."
London-based Rio Tinto will take an initial private placement of 37.1 million Ivanhoe shares at a price of $8.18 a share. That represents a 30 percent premium over Ivanhoe's 20-day moving average of $6.29, the companies said and will give Rio Tinto 9.95 percent stake in Ivanhoe.
A second tranche of 46.3 million shares, priced at $8.38 a share, will follow the conclusion of an investment agreement between Ivanhoe and the Mongolian government. Rio Tinto has an option to exercise the tranche sooner.
Rio Tinto will join Ivanhoe in talks with the Mongolian government on a tax, legal and fiscal framework to develop the project. A group of government officials was appointed in September to work with Ivanhoe to prepare a draft investment agreement for cabinet consideration.
Under Mongolia's new minerals law, the length of the investment contract has doubled to 30 years for projects requiring an investment of more than $300 million.
The law also includes a new 5 percent, single-rate royalty for all metals. That is double the previous 2.5 percent that applied to copper and gold.
Rio Tinto will also be granted non-transferable warrants over about 92 million shares, in two equal tranches of about 46 million shares at various exercise prices. The warrants entitle Rio Tinto to increase its interest in Ivanhoe to up to 33.35 percent of the company's equity.
Exercise of the warrants requires approval of Ivanhoe shareholders at a special meeting that will soon be held.
The private placements and warrants total about $1.5 billion, the two firms said.
Ivanhoe has agreed to use at least 90 percent of the proceeds from Rio Tinto to finance the development of Oyu Tolgoi. |
