Please email ft@dealreporter.com or call:Europe: +44 (0)20 7059 6160 Americas: +1 212 686-3076 Asia-Pacific: +852 2158 9714 for further information on dealReporter and how to receive more articles like the one below.
--------------------------------------------------------------------------------------------------------
Ivanhoe Mines will likely pursue a sale to strategic partner Rio Tinto once an investment agreement between the two companies to develop Mongolian copper-gold assets is reached, a source close to Ivanhoe said.
Provisions under the strategic partnership made in October between listed Canadian miner Ivanhoe and the UK-listed diversified miner required Rio Tinto to make an immediate investment in the equity of Ivanhoe of approximately USD 303m (9.95% stake), an amount that will increase under defined conditions to up to approximately USD 1.5bn.
Rio will buy another 46.3m shares at USD 8.38 a share (USD 388m) when Ivanhoe receives its long-term investment agreement with the Mongolian Government that will confirm a tax, legal and fiscal framework for the development of the giant Oyu Tolgoi copper and gold projects. This will raise Rio’s equity ownership in Ivanhoe to 19.9%, making it the largest single shareholder.
“If Rio concludes what we agreed in October, their final investment...they are not interested in just a minority stake or even a majority stake, they are interested in the whole thing,” said the source. Ivanhoe was not immediately available for comment.
If exercised, the 92.1m Ivanhoe warrants granted to Rio at various exercise prices would result in additional funds to Ivanhoe of up to USD 808m. This would raise Rio’s ownership in Ivanhoe to up to 33.35%, as indicated publicly by the companies.
The source said at that point, between Rio and Ivanhoe’s founder and chairman, Robert Friedland, the company would be takeover proof. He said he suspects Rio is not making a financial investment; they want to buy the whole entity. ”[Rio] would be the logical company to take over Ivanhoe if that was going to happen,” the source said.
When asked for a timeframe for a possible buyout, the source said he assumed it would come as soon as the investment agreement between Rio, Ivanhoe and the government of Mongolia is concluded. “There will be lots of things happening after that,” he said.
He explained that the agreement, which he defined as a “standstill agreement”, guarantees that any changes within the regulatory or political environment in Mongolia will not undermine Ivanhoe’s investments in the country.
But it has been reported that since Ivanhoe and Rio penned their investment agreement with the government in April, company officials and government representatives are discussing problems created by the 68% windfall profit taxes imposed by the government.
The mine will double or even triple the GNP of Mongolia every year over a number of years, noted the source. “The Mongolians are very keen to get this agreement correct, so are taking a little bit longer, but we are in discussions with the government. There is a team out there in discussions, moving slowly, but it’s taking some time,” he added. Ivanhoe is anticipating an agreement and to begin work at the Oyu Tolgoi project this summer, the source said.
During the World Mining Investment Congress in London last week, a TSX representative sidelined Friedland asking for comment regarding potential spin-offs. Friedland confirmed that two were in the pipeline.
In addressing the same question, the source told this news service that Rio formed its investment partnership with Ivanhoe on the basis that the core holding for Rio would be Mongolia and all other assets held within Ivanhoe Mines were secondary. Ivanhoe made a decision that it would by a certain date, dispose, or otherwise transfer out of Ivanhoe, all those peripheral assets, he added.
The source said part of that effort was the transferal of the Burma copper project, which Ivanhoe has not disposed of yet, but which currently resides in an independent trust. “So it’s out of our control,” he said. In addition, Ivanhoe has a gold project in Kazakhstan called Bakyrchik, which the source said there is not much work being done presently. He said the asset is in the process of being dressed up for an IPO in 3Q07.
The second spin-off in the pipeline, according to the source, is Ivanhoe Nickel & Platinum (Ivanplats), which has two principal assets, including platinum group metals (“PGM”) assets in South Africa and a highly prospective copper/cobalt exploration property on the border of Zambia and the DRC. The source said the division has been around for over a dozen years, and has a good shareholder list. As a result, Ivanplats will probably come to the market in 4Q07, the source added.
“[Bakyrchik and Ivanplats] will appeal to different audiences, one’s in Kazakhstan and the other one is in Africa, both having different minerals. All mining, but will attract different audiences,” he said.
The source said although it has not been decided which stock exchange the new companies will be listed on, he expects simultaneous listings on the AIM and TSX. With respect to financial advisors, the source said Ivanhoe has talked to a number of people but have not yet awarded a mandate. He said he expects that process to be sealed by the end next month.
A possible deal between Rio and Ivanhoe would join the groundswell of consolidation in the global metals and mining sector. Vancouver-based Energy Metals Corporation (EMC) is one example, announcing last Friday that it is in exclusive negotiations with respect to a potential sale of the company.
A company official told this news service that the Vancouver-based uranium company is structuring a merger with an exclusive uranium party, of which details could be announced in the ”near future”.
Also, this month the sector witnessed a series of high profile deals, including Xstrata’s counterbid for the Canadian target LionOre Mining International after its Russian rival Norilsk Nickel trumped Xstrata’s bid for LionOre with a USD 4.8bn offer.
--------------------------------------------------------------------------------------------------------
dealReporter is an independent intelligence service geared towards a client base of hedge funds, proprietary trading desks, security lending and institutional fund managers providing extensive coverage of all aspects of M&A, private equity, special situations and rumors across the European, pan-American and Asia-Pacific markets.
dealReporter provides clients with articles such as the one above in real-time via personalized email and BlackBerry alerts and an online platform. For more information
please email ft@dealreporter.com or call: Europe: +44 (0)20 7059 6160 Americas: +1 212 686-3076 Asia-Pacific: +852 2158 9714
