MAC: Mines and Communities

Spoiling over Mongolia's hoards

Published by MAC on 2011-10-10
Source: National Post,

First it was off- and now it's apparently on again.

At the end of last month, under considerable pressure from some members of its own parliament, the Mongolian government said it would re-negotiate the Oyu Tolgoi agreement in order to increase its interest to 50%, in one of the world's biggest copper-gold lodes.

Not surprisingly, the Oyu Tolgoi partners, Ivanhoe Mines and Rio Tinto, bridled at the announcement.

Now the Mongalian administration seems to have backed down.

Meanwhile, the relationship between Ivanhoe and its leading shareholder, Rio Tinto, isn't  exactly improving.

There's a minor spat over guaranteeing the security of power supplies for Oyu Tolgoi.

But, more important, Ivanhoe's head honcho, Robert Friedland, is worried that Rio Tinto may gain over weaning control of Ivanhoe itself.

And he won't be able to stop it.

For earlier story, see: Rio Tinto battles for new copper, gold and coal

Ivanhoe gains 13% after Mongolia backs down on Oyu Tolgoi

By Andrew Topf

6 October 2011

Shares of Ivanhoe Mines and Rio Tinto both gained today on news that Mongolia has backtracked on a demand for a greater share of the massive Oyu Tolgoi copper-gold complex.

Rio was up 4.94% on the ASX while Vancouver-based Ivanhoe jumped 13.06% on the Toronto exchange.

The two companies and the government of Mongolia issued a joint release yesterday saying that all parties have "reaffirmed their continued support" for the 2009 Oyu Tolgoi Investment Agreement.

The statement ends two weeks of tumult for investors, in particular owners of Ivanhoe stock, who had to endure a 21% crash in the stock price at the end of September after the company failed to reassure the markets that the Mongolian government was not going to renege on the deal that Ivanhoe and Rio spent five years putting together.

Mongolia was demanding to increase its stake in Oyu Tologi from 34% to 50%. Ivanhoe and Rio, having spent $2.6 billion to construct the mine to the half-way completion point, refused to renegotiate.

Ivanhoe strikes trouble in Mongolia

By Peter Koven

National Post

26 September

TORONTO - All of a sudden, Robert Friedland is finding renewed trouble on key fronts in Mongolia.

Less than two years after his company, Ivanhoe Mines Ltd., finalized an investment agreement to develop the US$6-billion Oyu Tolgoi project, politicians want to renegotiate it. And problems are also re-surfacing with joint venture partner Rio Tinto Ltd., as the two sides are sending mixed messages ahead of an important arbitration hearing.

The long-simmering issues bubbled to the surface on Monday as Ivanhoe shares fell as much as 21% and ended that day at $15, the lowest closing price in more than a year. Investor confidence in Mongolia took a beating, and Ivanhoe’s low share price raised speculation that Rio could attempt a takeover bid. Rio is keen on having direct ownership of Oyu Tolgoi, and buying Ivanhoe would allow it to get that.

The renewed political risk could also make it tougher for Mr. Friedland to finalize a US$4-billion financing package that he is putting together for development of Oyu Tolgoi, a massive copper-gold project.

In October 2009, Ivanhoe and the government struck an investment agreement on Oyu Tolgoi after years of difficult negotiations. Under the terms of the deal, Ivanhoe got 66% of Oyu Tolgoi and Mongolia got 34% (a separate arrangement allows Rio Tinto to acquire up to 49% of Ivanhoe’s shares, which it maxed out Monday).

This month, 20 members of the Mongolian parliament petitioned the government to claim a bigger stake in the project. The move appeared to be politically motivated ahead of elections next year. Last week, a senior government minister confirmed that Mongolia wants to discuss potential changes to the deal. The government can boost its stake to 50% from 34% under the current arrangement, but not until 2039. Some politicians now want to speed up that timeline.

Ivanhoe issued a tensely worded statement saying that it expects the government to honour the current agreement, and Rio Tinto made similar comments.

“I think what we are demonstrating is that the investment agreement is a contract, and we’re going to honour our commitments and we expect the government to honour its commitments,” said Cameron McRae, president of Oyu Tolgoi LLC and Rio’s Mongolia country manager.

Ivanhoe and Rio have spent more than US$2.5-billion on construction so far, and the first phase of the mine is 50% complete. That money would never have been spent without a firm investment agreement.

Meanwhile, trouble is once again flaring up between Mr. Friedland and Rio Tinto (which is building the mine). It started last week, when senior Rio executive Andrew Harding suggested that commercial production at Oyu Tolgoi, scheduled for 2013, could be delayed if power supply from China is not secured. Ivanhoe retorted by claiming that a deal to secure power is progressing as expected.

Sources close to Rio said there was “nothing new” in this sudden dispute. They said that Mr. Harding’s comments reflect the fact that there is always risk when trying to strike a deal between Mongolia and China, where relations are always a little tense.

Another issue coming to a head is the arbitration hearing between Rio and Ivanhoe over the latter’s shareholder rights plan (or “poison pill”). The arbitration is scheduled for next month, and Rio hopes to strike the pill down and prevent Ivanhoe from issuing more shares if it receives a takeover bid.

Rio has a standstill agreement that prevents it from raising its Ivanhoe stake past 49% until Jan. 18 of next year, unless it makes an offer for the whole company.

Rio Tinto pays Can$73 million for 49% of Ivanhoe Mines

By Michael Allan McCrae

27 September 2011

Rio Tinto announced today that it paid Can$73 million for 49% of Ivanhoe Mines.

Rio Tinto acquired an additional 3,700,000 common shares in Ivanhoe Mines Ltd. through a wholly-owned subsidiary, Rio Tinto International Holdings Limited, increasing Rio Tinto's ownership in Ivanhoe Mines by 0.5 per cent to a total of 361,858,442 common shares or 49 per cent through a privately negotiated share purchase agreement.

Shares in Ivanhoe Mines dipped as much as 21% yesterday after the Mongolian government sought a bigger share of the Oyu Tolgoi project.

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