Don’t count Ivanhoe out yet

As Rio Tinto takes a victory lap in the international press over an arbitrator’s decision in a lengthy dispute over its Ivanhoe stake, Ivanhoe Minerals hasn’t conceded defeat.

Vancouver-based Ivanhoe says it is consulting with its lawyers to examine the ramifications of the arbitrator’s decision on Ivanhoe’s Shareholder Rights Plan.

Ivanhoe enacted a shareholder rights plan in July of last year that would have allowed the company to dilute Rio’s holdings through the issuance of shares to third parties. An independent arbitrator Tuesday determined that Rio is protected from having its stake diluted if Ivanhoe issues additional shares, or a bid by Rio or a third party triggers Ivanhoe’s Shareholder Rights.

The arbitrator’s decision is not available to the public or news media.

Rio Tinto says that it will no longer be subject to a standstill agreement with Ivanhoe, and therefore, has the right to prevent its 49% Ivanhoe shareholdings from being diluted. Ivanhoe concurs that the decision entitles Rio to buy up enough shares to maintain its position.

However, a larger question remains–if Rio attempted to make a takeover bid for 100% control of Ivanhoe, could the price tag prove too steep for its shareholders? Analysts have suggested that Rio Tinto could take advantage of dips in Ivanhoe’s share price without paying an expensive takeover premium.

In its statement, Rio Tinto says it “may seek opportunities to increase its shareholding in Ivanhoe to a majority position but currently has no intention of making a full takeover bid for Ivanhoe’s shares.”

Rio is the manager of the massive Oyu Tolgoi project although Ivanhoe owns 66% of the copper-gold-silver operation. The mega-miner effectively has operational control of the Mongolian operations, which are expected to average 1.2 billion pounds of copper, 650,000 ounces of gold, and more than three million ounces of silver in annual production during Oyu Tolgoi’s first decade.

With three employees and four nominees among Ivanhoe’s 14-member board, Rio also effectively controls the Ivanhoe Board of Directors.

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