Rio Tinto has come out on top in a long-running dispute with potential takeover target Ivanhoe Mines after an independent arbitrator ruled against Ivanhoe’s efforts to prevent the Anglo-Australian mining company from climbing up its share register.
Rio is the largest shareholder in Canada-listed Ivanhoe, which controls Mongolia’s massive Oyu Tolgoi gold and copper mines. The arbitrator’s ruling against Ivanhoe’s attempt to block Rio from raising its stake, which is currently 49 per cent, clears the way for Rio Tinto to make a bid for full control of the company.
“It was a fairly straight forward victory for Rio,” said one analyst.
The arbitrator on Tuesday ruled that Rio is protected from having its stake in Ivanhoe diluted if the Canadian company issues additional shares or a bid by Rio or another party triggers Ivanhoe’s shareholder rights plan. The decision means Rio would be entitled to buy up enough to maintain its position, according to Ivanhoe.
Ivanhoe in July last year enacted a shareholder rights plan that would have allowed it to dilute Rio’s holding through the issuance of shares to third parties, seeking to stop Rio gradually climbing the share register. Rio challenged the plan, landing the two mining companies in arbitration.
Tuesday’s ruling means it will be extremely unappealing for another company to bid for Ivanhoe against Rio’s near-majority stake. Minority shareholders, including founder Robert Friedland, could thus find their shares worth less than they might be worth were there to be an auction for Ivanhoe.
Rio could begin to increase its stake in January, after the expiry of a standstill agreement dating back to 2006 putting a cap on its stake in the group. After a recent renegotiation, that cap was set at 49 per cent.
However, analysts who have been in touch with company management say they do not expect Rio will make a bid for the entirety of Canadian miner.
They note that Rio already effectively has operational control of the Mongolian operations. It provides the funding – including a $4.3bn pledge last December – for the Oyu Tolgoi project, and its undilutable 49 per cent holding will dissuade other companies from attempting to bid against it.
While Rio Tinto could take advantage of dips in Ivanhoe’s share price to build its stake by buying in the market without needing to pay a takeover premium, analysts say, it is under no commercial pressure to do so.
Rio Tinto declined to comment on its plans and said only that it is “currently examining the [independent arbitrator’s] decision.”
Ivanhoe’s Toronto-listed shares have fallen over 10 per cent since the agreement last December that allowed Rio to strengthen its control of Ivanhoe by increasing its stake in the group to 49 per cent. Rio’s shares closed down 2.1 per cent at A$62.76 in Sydney on Tuesday.
Oyu Tolgoi is expected to be one of the world’s biggest new sources of copper and gold. The lucrative mine, still under development, is near Mongolia’s border with China, the world’s largest consumers of copper.