Rio Tinto ups stake in Ivanhoe Mines to 34.9 percent

TORONTO Mon Sep 13, 2010 6:19pm EDT

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TORONTO (Reuters) - Anglo-Australian miner Rio Tinto (RIO.L) (RIO.AX) said on Monday it has raised its stake in Ivanhoe Mines (IVN.TO) to 34.9 percent, following the conversion of a matured convertible credit facility.

Rio Tinto has now invested about $1.73 billion in Canada's Ivanhoe, and it holds additional rights to subscribe for common shares in the company, which controls the big Oyu Tolgoi copper-gold project in Mongolia.

Ivanhoe, led by well known mining financier Robert Friedland, is developing Oyu Tolgoi in partnership with Rio Tinto and the government of Mongolia. The $5 billion project was finally approved in 2009 after years of negotiations with Mongolian authorities.

Rio has invested $1.73 billion in Ivanhoe over the last four years as part of a private-placement agreement that was signed by both parties back in 2006.

Rio Tinto now owns 184.75 million common shares of Ivanhoe. If Rio were to exercise all of its share purchase warrants it would own about 267.2 million common shares, or roughly 44 percent of the company.

Ivanhoe has been using the funds from Rio to invest in the development of Oyu Tolgoi. Earlier this year Ivanhoe said it has also signed a preliminary agreement with two international financial institutions to secure up to $1.8 billion in financing.

ONGOING DISPUTE

While Ivanhoe and Rio continue to work on the development of Oyu Tolgoi, the two companies have also locked horns over a shareholder rights plan that was adopted by Ivanhoe's shareholders earlier this year.

The plan protects Ivanhoe's shareholders against any one party, such as Rio, slowly accumulating a majority stake. It also gives Ivanhoe's board time to explore alternative transactions in the event of an unsolicited bid.

However, Rio contends that the plan breaches some of its rights under the October 2006 private placement agreement.

In early July, Ivanhoe said it would defend the rights plan in arbitration proceedings, but the process has not yet begun as Ivanhoe has yet to appoint an arbitrator.

The tussle is of particular interest given the interest shown by Rio's largest shareholder, China's Chinalco, in acquiring a minority equity stake in Ivanhoe, or a direct minority interest in the Oyu Tolgoi project.

(Reporting by Euan Rocha; editing by Peter Galloway and Rob Wilson)

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