Billionaire Robert Friedland resigned as chief executive officer of Ivanhoe Mines Ltd. (IVN) as the company struck a deal with its majority shareholder Rio Tinto Group (RIO) on funding for its $6 billion Mongolian copper mine.
Rio, which boosted its stake in Ivanhoe to 51 percent in January, will provide an immediate credit facility of as much as $1.5 billion to ensure construction at Oyu Tolgoi isn’t interrupted, Vancouver-based Ivanhoe said yesterday in a statement. Rio also will support the completion of a syndicated loan of $3 billion to $4 billion. Ivanhoe plans a $1.8 billion rights offer to repay the facility and a previous loan.
The accord, announced in tandem with the resignation of Friedland and other top executives, may foreshadow Rio’s acquisition of the Ivanhoe shares it doesn’t own, said Adam Graf, a New York-based analyst at Dahlman Rose & Co.
“It appears that Rio is now closing in on taking over Ivanhoe,” Graf said in a note to clients.
Ivanhoe has clashed with London-based Rio, which is managing construction of the Mongolian project that will be one of the world’s largest copper mines. In December, an arbitrator ruled in favor of Rio in a dispute, effectively nullifying a shareholder-rights plan that Ivanhoe adopted in April 2010 to block any unsolicited takeover bid.
Rio, the world’s third-biggest mining company, had said it may replace Ivanhoe’s senior executives, according to a regulatory filing on Jan. 27.
Executives, Directors Resign
Ivanhoe said yesterday six other Ivanhoe directors and four senior management members resigned. Independent directors will hold a majority of seats on the 13-member board.
Kay Priestly, chief financial officer of London-based Rio’s copper group and an Ivanhoe director, was appointed Ivanhoe’s interim CEO, according to the statement.
Ivanhoe rose 15 percent to close at C$13.41 in Toronto, the biggest gain since Sept. 27. The shares have declined 26 percent this year.
Ivanhoe said that Rio may advance loans to Oyu Tolgoi as an alternative, or in addition to, the syndicated loan. Ivanhoe has already drawn down about $1.3 billion of an existing $1.8 billion facility provided by Rio.
The Canadian company said it’s in active talks about potential asset sales that may generate additional funds for the mine. Aluminum Corp. of China Ltd. said April 2 it agreed to buy Ivanhoe’s controlling stake in Mongolian coal producer SouthGobi Resources Ltd. (SGQ) as part of a C$925 ($935 million) tender offer for as much as 60 percent of the company.
SouthGobi said this week the government asked for a suspension of mining while it reviews the proposed sale.
Capital spending on Oyu Tolgoi is forecast by Ivanhoe at $2.1 billion this year. The company had $917.7 million of cash as of March 19.
The financing pact marks the conclusion of direct efforts by Friedland, 61, to develop the project in southern Mongolia after buying rights to the deposit from BHP Billiton Ltd. (BHP) for $37 million in 2003. Most recently the company and Rio fended off an attempt by Mongolia in October to boost the country’s stake in the project from 34 percent.
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