October 18, 2010 / 1:46 PM / in 8 years

UPDATE 2-Ivanhoe offering may raise tensions with Rio Tinto

* Rio may take legal action to block rights offering

* Friedland to replace John Macken as CEO of Ivanhoe

* Ivanhoe shares down 2.4 percent on the NYSE (Adds details on rights offering; share price move; in U.S. dollars unless noted)

TORONTO, Oct 18 (Reuters) - Ivanhoe Mines (IVN.TO) said on Monday it is launching a rights offering worth up to $1 billion, to raise funds for its Oyu Tolgoi copper-gold project in Mongolia, but the plan may well escalate hostilities between company and its partner Rio Tinto (RIO.AX).

Vancouver-based Ivanhoe is developing the nearly $5 billion Oyu Tolgoi project in partnership with the Anglo-Australian miner and the government of Mongolia. The long-delayed project finally got a go-ahead from Mongolian authorities in October 2009, following years of negotiations. [ID:nSP495396]

Earlier this year, Rio launched arbitration proceedings to resolve a dispute over a shareholder rights plan adopted by Ivanhoe in May. Rio alleges that the plan is in breach of its contractual rights. [ID:nSGE66B0JD]

While the shareholder rights plan and the rights offering are not directly connected, the offering may well spark a new tussle between the companies.

In a prospectus filed with regulators, Ivanhoe says that Rio has expressed concerns in regard to the rights offering, which is set to raise between $800 million and $1 billion. Rio, which is the largest shareholder in Ivanhoe, with a roughly 35 percent stake, believes that there are superior financing options available.

A representative of Rio Tinto has advised Ivanhoe that the company is reserving its right to make an arbitration claim, or seek injunctive relief to protect its interests, in light of the proposed rights offering.

Ivanhoe said it has informed Rio and its board that it does not believe that the other financing opportunities suggested by Rio are superior to the rights offering.

The completion of the offering is conditional on at least 85 percent of the rights being exercised by holders, but this condition can be waived at the sole discretion of Ivanhoe.

A spokesman for Rio declined to comment on the dispute with Ivanhoe, but said the company expects the development of the project to proceed as planned.


Ivanhoe also said on Monday that Executive Chairman Robert Friedland will re-assume job of chief executive as part of a series of organizational changes.

Friedland, who was CEO for 10 years until 2006, made a fortune selling the undeveloped Voisey’s Bay nickel-copper deposit in Eastern Canada to Inco in 1996 for C$4.3 billion ($4.2 billion). Inco was later bought by Brazil’s Vale VALE5.SA.

Friedland, the founder and largest individual shareholder of Ivanhoe, intends to participate in the proposed rights offering to the maximum permitted level to maintain his present 18.3 percent ownership stake.

Macken, who has been CEO of Ivanhoe since 2006, will continue to lead the ongoing construction of the flagship Oyu Tolgoi copper-gold project in southern Mongolia.

The company said it is also establishing the office of the chairman as part of an ongoing commitment to maximize shareholder value. Joining Friedland in the office of the chairman will be Peter Meredith, Ivanhoe’s deputy chairman and Sam Riggall, who is executive vice-president of Ivanhoe Australia.

Shares of Ivanhoe were down 2.4 percent at $23.89 on the New York Stock Exchange on Monday afternoon, and off 2.1 percent in Toronto at C$24.24.

$1=$1.01 Canadian Reporting by Euan Rocha; editing by Rob Wilson

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