Ivanhoe Mines to Scrap Rights Plan as Rio Seeks Larger Stake

Ivanhoe Mines Ltd. decided to scrap a so-called shareholder rights plan, clearing the way for Rio Tinto Group to increase its stake and gain control of the developer of the Oyu Tolgoi copper mine in Mongolia.

Ivanhoe will recommend investors vote to end the rights plan at its annual meeting on May 11, the Vancouver-based company said yesterday in a statement. Rio has been restricted to holding a 49 percent stake in Ivanhoe by a standstill agreement, which was set to expire yesterday, Ivanhoe said.

At stake is control of one of the world’s largest untapped copper and gold deposits that Rio estimates will cost about $6 billion to develop. The London-based company has advised Ivanhoe it intends to acquire more shares to raise its stake above 50 percent, regardless of the rights plan, Ivanhoe said.

“Rio’s first step would be to go past 50 percent and that’s the urgency,” said Prasad Patkar, who helps manage about $1 billion, including Rio shares, at Platypus Asset Management Ltd. in Sydney. “From a shareholders point of view, you’d prefer them not to go hostile so that there’s no risk of overpaying, so the creep aspect is clearly better.”

Shares in Rio, the world’s third-biggest mining company, rose 0.7 percent to A$67.06 as of 11:33 a.m. in Sydney trading today, poised for their highest close since Nov. 17. Ivanhoe rose 0.1 percent to C$19.31 in Toronto yesterday.

It’s unlikely that a third party will emerge as a rival bidder for Ivanhoe, Platypus’s Patkar said. Ivanhoe has a market value of C$14.3 billion ($14.1 billion).

Plan Trigger

“We welcome Ivanhoe’s decision to suspend immediately the shareholder rights plan,” Rio said yesterday in an e-mailed statement. “We are free to increase our shareholding as we see fit, without triggering the plan.”

Ivanhoe owns 66 percent of Oyu Tolgoi and the Mongolian government controls the remainder. The project will be one of the world’s five-biggest copper mines, according to Rio, which controls Oyu Tolgoi’s management.

“This is very good news in terms of Ivanhoe being taken over by Rio,”, a Toronto-based analyst at Salman Partners Inc., said in a telephone interview. “It makes it a lot easier for Rio or anyone else.”

Arbitration Ruling

An arbitrator ruled last month that Rio would be allowed to maintain its ownership level in Ivanhoe if Rio’s actions triggered the rights plan. Rio had said the plan contravened a 2006 agreement between the two companies.

The so-called poison pill would have allowed Ivanhoe to issue new shares to block an attempted takeover.

Ivanhoe’s board adopted its rights plan in April 2010 “to protect all shareholders, while allowing takeover bids that are made to all shareholders and that satisfy certain conditions,” the company said last month.

Founder and Chief Executive Officer Robert Friedland controls about 14 percent of Ivanhoe stock, according to data compiled by Bloomberg.

Ivanhoe also said yesterday its board approved a $1.8 billion bridge financing that could be used to complete the first phase of Oyu Tolgoi.

Ivanhoe and Rio are working toward arranging as much as $4 billion of financing for the project, according to the statement. Their plan is to complete the financing in the second quarter.

Oyu Tolgoi, which is 80 kilometers (50 miles) north of Mongolia’s border with China, contains an estimated 81 billion pounds of copper and 46 million ounces of gold, according to Ivanhoe’s website.

Construction is now more than 70 percent complete and initial production is expected in the middle of this year, Ivanhoe said yesterday.

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