Ivanhoe Mines upgraded to Buy

Ivanhoe Mines Ltd. was upgraded to Buy from Hold at Desjardins Securities following a new agreement with Rio Tinto to fund the Oyu Tolgoi mine.

Analyst John Redstone also hiked his price target on Ivanhoe shares to $29.30 from $29.15 after using Desjardins’ long-term gold price of US$1,000 per ounce in his net asset value estimate for the Mongolia-based copper-gold project.

He also estimates that Ivanhoe will be able to raise approximately US$1.2-billion through a global rights issue. That assumes 42 million shares (600 million currently) will be issued at a price of roughly US$29 per share, while actual pricing is expected to take place in the first quarter of 2011.

The deal for further funding of Oyu Tolgoi will see Rio Tinto immediately exercise US$300-million of warrants, purchase 20 million Ivanhoe shares at market price from CEO Robert Friedland and Citigroup, and see its ownership limit in the company move to 49% (until Jan. 28, 2012). Rio Tinto will also provide Ivanhoe with about US$1.8-billion in interim financing and assume management of the project.

This should increase the pool of development capital available to Ivanhoe to approximately US$6.5-billion, Mr. Redstone told clients. He noted that roughly US$1.4-billion will have been invested in the mine by the end of 2010, while total capital expenditures for phase one of production will reach roughly US$6-billion.

“This is good news for Ivanhoe and is reflective of its partner’s commitment to the project,” he said.

The analyst believes the mine will achieve commercial production in 2014 and eventually reach capacity of 900,000 ounces of gold annually.
Read more: http://business.financialpost.com/2010/12/13/ivanhoe-mines-upgraded-to-buy/#ixzz182uKWo6u