Miner claims Ivanhoe proposal breaches agreed obligation
RIO Tinto has threatened to block a proposed $1 billion rights issue by its Canadian partner in Mongolian copper, Ivanhoe Mines.
Rio claims the capital raising breaches a range of obligations written into a 2006 investment agreement between the two international mining houses.
Rio's threat to either seek further arbitration or injunct the "strategic rights offering" is detailed in a prospectus Ivanhoe has lodged with the US Securities and Exchange Commission.
Any move by Rio to make good on warnings issued to Ivanhoe in private talks ahead of Monday's announcement could delay progress of their $US4.6bn Oyu Tolgoi project in Mongolia and will doubtless dramatically increase tensions in a rapidly fracturing investment relationship.
Monday's SEC filing revealed that Ivanhoe had, as required under its investment agreements, discussed with Rio plans to raise $US800 million to $US1bn through rights issues to shareholders.
"In response, a representative of Rio has communicated to us a number of assertions, including that he believes there are superior financing opportunities available to us, that the rights offering and the Friedland agreements offend a number of Rio Tinto's contractual rights, including Rio's right of first offer, and that we are obliged to make certain additional disclosures regarding the Oyu Tolgoi project, among other things," Ivanhoe said.
"Further, the representative has advised that Rio Tinto is reserving its rights to make an arbitration claim or seek injunctive relief to protect its interests."
Ivanhoe rejects each of Rio's claimed rights and bit back in its SEC filing, saying it intended to hold Rio "fully liable for any and all losses Ivanhoe may suffer as a result of Rio Tinto's actions".
The Ivanhoe prospectus makes the point that if the rights offer is not successful it "may not be able to raise the proceeds necessary to fund its anticipated cash obligations and capital expenditures". It says: "If this happens, the company may be forced to raise funds from alternative sources on less favourable terms, which may have a material adverse impact on the company and its share price."
Ivanhoe's documents make it clear the capital raising is a necessary first step to finalising negotiations with bankers over project financing for Oyu Tolgoi.
The company wants those discussions completed by the middle of next year ahead of the October 6 deadline proscribed in the investment agreement with the Mongolian government.
The Friedland agreement referred to by Rio is a separate funding arrangement between lead manager of Ivanhoe's rights issue, Citi, and the miner's founder, executive chairman Robert Friedland. Friedland owns 18 per cent of Ivanhoe and he will finance his slice of the rights issue using funds secured by Citi.
Incidentally, ahead of the rights issue being announced, Friedland reclaimed the role of chief executive in a move that might signal the stress between Ivanhoe and its senior shareholder, Rio.
Rio owns 34 per cent of Ivanhoe and, under the terms of its original investment agreement, can move to almost 44 per cent by exercising two tranches of warrants in the company.
That same agreement contains a standstill clause that prevents the Anglo-Australian miner from moving beyond a 46.4 per cent stake in Ivanhoe until October 18 next year.
Rio has invested $US1.7bn in more than three years building its stake in Ivanhoe and has appointed three directors to the 14-strong board. But with the recent increase of its stake to 34 per cent, it can appoint five.
Most importantly, Rio holds the balance of authority on the technical committee that is shaping the Oyu Tolgoi project.
Ivanhoe has invested the bulk of Rio's cash on Oyu Tolgoi, a world-class copper-gold find but one that is on the real frontier of mining both because of the lack of infrastructure and physical resources such as water, and because of the political risk implicit in large-scale investment in the emerging nation.
Needless to say, Rio's target is not Ivanhoe but Oyu Tolgoi, which is 66 per cent-owned by Friedland's company and 34 per cent-owned by Mongolia.
When Ivanhoe reports that its major shareholder reckons there are "superior financing" options to the proposed rights issue, it means Friedland & Co should sell it a chunk of Oyu Tolgoi.
Rio has been trying, without success, for the best part of a year to convince Ivanhoe to introduce it as a direct owner of Oyu Tolgoi.
Relations between Rio and Ivanhoe have been severely strained since the Canadian moved in July to extend its protection from a Rio takeover offer by the standstill through the introduction of a poison pill in the form of a shareholder rights plan.
Rio maintains, as it does with the proposed capital raising, that the shareholder rights plan is a breach of its original investment agreement and has sought resolution of its complaint through the formal legal arbitration system available under Canadian corporations law.
After more than three months of haggling, Rio and Ivanhoe have settled on who will run the process. Arbitration is now to be held between January 18 and February 5.
Given this path to arbitration is indicative, it underscores the threat Rio's objection poses to Ivanhoe's proposed 2010 time frame to complete its rights issue.
Monday's prospectus highlights that the confrontation between Rio and Ivanhoe goes much deeper than what has previously been revealed. In its SEC filing, Ivanhoe reports disagreements with Rio's three representatives on the five-strong Oyu Tolgoi technical committee.
Differences between Rio and Ivanhoe people go to the heart of the progress of the project.
"The extent to which these differences of opinion will be resolved or will become matters of disagreement depends upon the result of ongoing and future evaluations and consultations . . . but failure to reach a timely consensus by all Oyu Tolgoi Project stakeholders could delay the completion of the IDP (Integrated Development Plan) and could potentially affect the project's current development schedule," the prospectus said.
Swan intervention
MISSING from the government's new business roundtable on climate change are the three biggest critics of the original carbon pollution reduction scheme: the Minerals Council, the Australian Coal Association and Xstrata.
The word bubbling around mining circles is that Wayne Swan directly intervened to prevent Xstrata being offered a seat despite its massive coal interests. The feeling is that the"Africans" (as Swan apparently refers to them) who run the company have been rather too blunt with the Treasurer about a. collection of policy initiatives.
Rio claims the capital raising breaches a range of obligations written into a 2006 investment agreement between the two international mining houses.
Rio's threat to either seek further arbitration or injunct the "strategic rights offering" is detailed in a prospectus Ivanhoe has lodged with the US Securities and Exchange Commission.
Any move by Rio to make good on warnings issued to Ivanhoe in private talks ahead of Monday's announcement could delay progress of their $US4.6bn Oyu Tolgoi project in Mongolia and will doubtless dramatically increase tensions in a rapidly fracturing investment relationship.
Monday's SEC filing revealed that Ivanhoe had, as required under its investment agreements, discussed with Rio plans to raise $US800 million to $US1bn through rights issues to shareholders.
"In response, a representative of Rio has communicated to us a number of assertions, including that he believes there are superior financing opportunities available to us, that the rights offering and the Friedland agreements offend a number of Rio Tinto's contractual rights, including Rio's right of first offer, and that we are obliged to make certain additional disclosures regarding the Oyu Tolgoi project, among other things," Ivanhoe said.
"Further, the representative has advised that Rio Tinto is reserving its rights to make an arbitration claim or seek injunctive relief to protect its interests."
Ivanhoe rejects each of Rio's claimed rights and bit back in its SEC filing, saying it intended to hold Rio "fully liable for any and all losses Ivanhoe may suffer as a result of Rio Tinto's actions".
The Ivanhoe prospectus makes the point that if the rights offer is not successful it "may not be able to raise the proceeds necessary to fund its anticipated cash obligations and capital expenditures". It says: "If this happens, the company may be forced to raise funds from alternative sources on less favourable terms, which may have a material adverse impact on the company and its share price."
Ivanhoe's documents make it clear the capital raising is a necessary first step to finalising negotiations with bankers over project financing for Oyu Tolgoi.
The company wants those discussions completed by the middle of next year ahead of the October 6 deadline proscribed in the investment agreement with the Mongolian government.
The Friedland agreement referred to by Rio is a separate funding arrangement between lead manager of Ivanhoe's rights issue, Citi, and the miner's founder, executive chairman Robert Friedland. Friedland owns 18 per cent of Ivanhoe and he will finance his slice of the rights issue using funds secured by Citi.
Incidentally, ahead of the rights issue being announced, Friedland reclaimed the role of chief executive in a move that might signal the stress between Ivanhoe and its senior shareholder, Rio.
Rio owns 34 per cent of Ivanhoe and, under the terms of its original investment agreement, can move to almost 44 per cent by exercising two tranches of warrants in the company.
That same agreement contains a standstill clause that prevents the Anglo-Australian miner from moving beyond a 46.4 per cent stake in Ivanhoe until October 18 next year.
Rio has invested $US1.7bn in more than three years building its stake in Ivanhoe and has appointed three directors to the 14-strong board. But with the recent increase of its stake to 34 per cent, it can appoint five.
Most importantly, Rio holds the balance of authority on the technical committee that is shaping the Oyu Tolgoi project.
Ivanhoe has invested the bulk of Rio's cash on Oyu Tolgoi, a world-class copper-gold find but one that is on the real frontier of mining both because of the lack of infrastructure and physical resources such as water, and because of the political risk implicit in large-scale investment in the emerging nation.
Needless to say, Rio's target is not Ivanhoe but Oyu Tolgoi, which is 66 per cent-owned by Friedland's company and 34 per cent-owned by Mongolia.
When Ivanhoe reports that its major shareholder reckons there are "superior financing" options to the proposed rights issue, it means Friedland & Co should sell it a chunk of Oyu Tolgoi.
Rio has been trying, without success, for the best part of a year to convince Ivanhoe to introduce it as a direct owner of Oyu Tolgoi.
Relations between Rio and Ivanhoe have been severely strained since the Canadian moved in July to extend its protection from a Rio takeover offer by the standstill through the introduction of a poison pill in the form of a shareholder rights plan.
Rio maintains, as it does with the proposed capital raising, that the shareholder rights plan is a breach of its original investment agreement and has sought resolution of its complaint through the formal legal arbitration system available under Canadian corporations law.
After more than three months of haggling, Rio and Ivanhoe have settled on who will run the process. Arbitration is now to be held between January 18 and February 5.
Given this path to arbitration is indicative, it underscores the threat Rio's objection poses to Ivanhoe's proposed 2010 time frame to complete its rights issue.
Monday's prospectus highlights that the confrontation between Rio and Ivanhoe goes much deeper than what has previously been revealed. In its SEC filing, Ivanhoe reports disagreements with Rio's three representatives on the five-strong Oyu Tolgoi technical committee.
Differences between Rio and Ivanhoe people go to the heart of the progress of the project.
"The extent to which these differences of opinion will be resolved or will become matters of disagreement depends upon the result of ongoing and future evaluations and consultations . . . but failure to reach a timely consensus by all Oyu Tolgoi Project stakeholders could delay the completion of the IDP (Integrated Development Plan) and could potentially affect the project's current development schedule," the prospectus said.
Swan intervention
MISSING from the government's new business roundtable on climate change are the three biggest critics of the original carbon pollution reduction scheme: the Minerals Council, the Australian Coal Association and Xstrata.
The word bubbling around mining circles is that Wayne Swan directly intervened to prevent Xstrata being offered a seat despite its massive coal interests. The feeling is that the"Africans" (as Swan apparently refers to them) who run the company have been rather too blunt with the Treasurer about a. collection of policy initiatives.
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