Bloomberg News

Rio Tinto Doesn’t Plan Ivanhoe Bid After Arbitration Ruling

December 13, 2011

(Updates with closing share prices in fifth paragraph.)

Dec. 13 (Bloomberg) -- Rio Tinto Group, the world’s third- biggest mining company, said it won’t seek full control of Mongolian project partner Ivanhoe Mines Ltd. after an arbitrator ruled in its favor in a shareholding dispute.

Rio said today it may seek to boost its Ivanhoe stake to a “majority position” after the expiry of a Jan. 18 deadline, without any plans for a full takeover bid. Ivanhoe, 49 percent owned by London-based Rio, slumped as much as 17 percent in Toronto trading.

Ivanhoe may now rush to lure rival bidders for the 51 percent of the company not owned by Rio before the bar on Rio buying shares in the market expires, Macquarie Group Ltd. said. At stake is control of one of the world’s largest untapped copper and gold deposits in Mongolia that 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 maximize competitive tension in terms of potential bids for the remaining 51 percent,” Lee Bowers, a Macquarie analyst based in Sydney, wrote in a report today. “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 22 percent to C$16.56 in Toronto, the biggest decline since October 2008. Rio advanced 2.1 percent to 3,185 pence in London.

Future Intention

The independent arbitrator’s ruling means that from Jan. 19 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 today of its decision not to pursue a bid.

Ivanhoe said today that the company and its legal team continue to evaluate the implications of the arbitrator’s decision.

Rio is now unlikely to seek a takeover of Ivanhoe, valued at about $15 billion, following the ruling, analysts at Credit Suisse Group AG and Macquarie said before the company’s statement.

“We understand that Rio Tinto has no current intention of making a full takeover bid,” Bowers said. 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 said.

The arbitrator also decided in favor 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.

No Rio Breach

Rio said in a regulatory filing last year that Aluminum Corp. of China, that country’s biggest aluminum producer, indicated an interest in acquiring a minority stake in Ivanhoe or in the Oyu Tolgoi project. Chinalco, as the Chinese company is also known, is Rio’s biggest investor.

Rio was found not to have breached its obligations, Ivanhoe said yesterday. Ivanhoe’s shareholders’ rights plan may remain in effect until its scheduled expiry in April 2013, the Vancouver-based company said.

The purpose of Ivanhoe’s shareholder rights plan, adopted by the board of directors in April 2010, “was to protect all shareholders, while allowing takeover bids that are made to all shareholders and that satisfy certain conditions,” it said in the statement.

--With assistance from Liezel Hill in Toronto. Editors: John Viljoen, Stephen Cunningham

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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