Rio Tinto Plc. (RIO) announced that it is exercising remaining warrants of Ivanhoe Mines Ltd (Ivanhoe) to acquire 55.1 million shares for $502 million or $9.10 per share.
Subsequent to the acquisition, the company will increase its holdings in Ivanhoe to 46.5%, up from 42%. Rio Tinto’s will also obtain the right to appoint an additional director to Ivanhoe’s board of 14 members and consequently, will be able to exercise 50% influence on Ivanhoe’s directors.
Furthermore, the company has an option to increase its stake in Ivanhoe to 49% by January 18, 2012.
The deal is related to the agreement between the companies entered last year, whereby Rio Tinto agreed to convert the warrants to shares by January 2012 for the ongoing development of Oyu Tolgoi.
Based in Mongolia, Oyu Tolgoi is a copper and gold mine in which Ivanhoe has a 66% stake and the remainder is owned by the Mongolian government. Rio Tinto is responsible for the management of the Oyu Tolgoi project.
The proceeds will be applied in the development of the Oyu Tolgoi project. Currently, the project is in progress and the estimated expenditure for 2011 is $2.3 billion.
Headquartered in London, UK, Rio Tinto Plc is engaged in exploring, mining, and processing the earth's mineral resources, producing a broad range of metals and minerals. Rio’s business activities are spread across the world with a strong base in Australia and North America, and significant foothold in South America, Asia, Europe, and southern Africa.
The company faces tough competition from Vale S.A. (VALE), BHP Billiton (BHP) and Anglo American plc.
We prefer to maintain a long-term Neutral recommendation on the stock. The company currently retains a Zacks #3 Rank, which translates into a short term (1-3 months) Hold rating.
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