Ivanhoe sees more Mongolia talks, stock plunges

ULAN BATOR/OTTAWA (Reuters) - Ivanhoe Mines (IVN.TO) on Thursday predicted further talks with Mongolia on developing its flagship Oyu Tolgoi copper and gold deposit, and the stock plunged despite a parliamentary vote that inched the deal closer to completion.

The company said it is reviewing the Mongolian parliament resolution that gave the government authority to conclude a long-term investment deal.

It said it anticipates further negotiations will be held with the Mongolian government in the "near future" to finalise a deal and it expects to be able to comment in more detail in the near future.

The parliamentary resolution moves the two sides one step closer to settling terms that have already been negotiated for more than four years. But uncertainty about the timing of a final agreement sent Ivanhoe shares down 15 percent to C$8.54 on the Toronto Stock Exchange and down to $7.64 on New York.

"I think the market is getting nervous," said Salman Partners analyst Pat Donnelly, adding that Ivanhoe's press release raised questions about what happens next.

"If Ivanhoe's saying we may have to negotiate more, that means it's getting delayed."

The stock has whipsawed in recent months as investors alternate between optimism and uncertainty.

Last week, shares climbed on speculation that a final deal was close at hand. One month earlier, the stock dropped when a Mongolia's president-elect said he wanted to change the investment deal with Ivanhoe to profit sharing from an equity stake, according to a Bloomberg News report.

The Mongolian government wants an agreement in order to ensure a steady flow of revenue from the mining sector.

But parliament is more reluctant, fearing that foreigners will benefit more than Mongolia from the deposit.

Under the terms of the current draft investment agreement -- which revives a similar deal that fell apart early last year -- the state would take a 34 percent stake in Oyu Tolgoi, which is expected to produce around 440,000 tonnes of copper a year, and 320,000 ounces of gold over its 35-year life.

Ivanhoe's fortunes depend to a great extent on the success of Oyu Tolgoi and the financial strength of its partner, Rio Tinto (RIO.L) (RIO.AX), which owns about 10 percent of Ivanhoe.

Rio could boost that stake to above 40 percent by meeting funding commitments for the Mongolian project.

(Additional reporting by Lucy Hornby in Beijing; Editing by Jon Boyle and Janet Guttsman)