Ivanhoe shareholders hopeful for a sale to Rio

Ivanhoe Mines' options show investors are becoming more convinced the copper and gold explorer will be a takeover candidate by March. Ivanhoe holds a 66 percent interest in the Oyu Tolgoi copper and gold project.


Rio Tinto, however, has slowly been increasing its stake in the firm, and currently holds 49 percent of all shares in Ivanhoe.

Option traders are betting Ivanhoe will resolve arbitration with Rio Tinto Group, clearing the way for founder and Chief Executive Officer Robert Friedland to sell the company. “That really has been the exit strategy for Friedland all through his career,” said Barry Schwartz, who oversees CAD 420 million at Baskin Financial Services in Toronto, Canada. “He starts these companies, finds a terrific play and cashes out. It wouldn’t surprise me for Rio Tinto to come in.” Friedland controls about 14 percent of Ivanhoe with a market value of USD 12.9 billion. Open interests for Ivanhoe calls has surged 25 percent to 168,052 contracts this month, compared with puts dropping 13 percent to 84,671. Rio and Ivanhoe are in arbitration over a shareholder rights plan Ivanhoe instituted, and its claim that Rio broke an agreement not to discuss selling a stake in Ivanhoe or in the Mongolian mine with potential buyers without Ivanhoe’s permission. Rio is barred from making a hostile bid for Ivanhoe under an agreement that expires 18 January. “Clearly what Friedland is trying to do is prevent Rio from going to 51, 52, 53 percent of Ivanhoe without paying a control premium,” said John Stephenson of First Asset Investment Management “He’ll probably get it.” Although investors are hopeful for an acquisition, analyst Ophir Gottlieb, called gambles on takeovers “the single worst investment in finance.” Ivanhoe agreed in 2000 to pay USD 5 million to acquire the exploration license for Oyu Tolgoi from BHP Billiton (then known as Broken Hill Proprietary). Ivanhoe paid USD 37 million to buy out BHP’s remaining royalty from the mine in 2003. Currently Friedland has an ownership stake in Ivanhoe, but how well he can leverage that for a significant takeout premium from Rio Tinto has yet to be seen.

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Source : Business Council of Mongolia

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