RIO TINTO, the world’s third-biggest mining company, says it will not seek full control of Mongolian project partner Ivanhoe Mines after an arbitrator ruled in its favour in a shareholding dispute.
Rio said it may seek to boost its Ivanhoe stake to a “majority position” after the expiry of a January 18th deadline, without any plans for a full takeover bid.
Ivanhoe, which is 49 per cent owned by London-based Rio, slumped as much as 17 per cent in Toronto trading.
Ivanhoe may now rush to lure rival bidders for the 51 per cent of the company not owned by Rio before the bar on Rio buying shares in the market expires, Macquarie said.
At stake is control of one of the world’s largest untapped copper and gold deposits in Mongolia which Rio estimates will cost about $6 billion to build and has been forecast to make up one-third of Mongolia’s economy by 2020.
“We believe Ivanhoe will rapidly seek to maximise competitive tension in terms of potential bids for the remaining 51 per cent,” Lee Bowers, a Macquarie analyst based in Sydney, wrote in a report yesterday. “Whether there is a credible bidder ready to move on such a time-frame at a sufficiently definitive price is the key question.”
Ivanhoe fell 14 per cent to Can$14.24 in morning trade in Toronto after earlier slumping the most in more than two months. Rio advanced 2.7 per cent to 3,202 pence in London.
The independent arbitrator’s ruling means that from January 19th, Rio will be able to buy Ivanhoe stock without being diluted by the Vancouver-based company’s shareholder rights plan, Rio said.
“Rio Tinto reserves the right to change its intention in the future,” it said of its decision not to pursue a bid. Ivanhoe said the company and its legal team continue to evaluate the implications of the arbitrator’s decision.
Rio has first right of refusal on any new issue of Ivanhoe shares as well as the sale of Ivanhoe’s stake in the Oyu Tolgoi asset, Macquarie added.
The arbitrator also decided in favour of Rio in a dispute in which Ivanhoe claimed Rio broke covenants in the 2006 agreement not to engage in activities without Ivanhoe’s permission that could affect control of Ivanhoe. – (Bloomberg)
