Ivanhoe, Rio Tinto Amend Terms For Financing Deal
05/23/2012| 08:15pm US/Eastern
-- Ivanhoe, Rio amend certain terms of US$1.8 bullion rights offering
-- Subscription price will now be set in the final prospectus
-- Rio will take up its full subscription rights
-- Warrants held by Rio will be repriced
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By Robb M. Stewart
Ivanhoe Mines Ltd. (IVN) and controlling shareholder Rio Tinto PLC (RIO) have tweaked the terms of a US$1.8 billion rights offering and financing package to help fund the development of the massive Oyu Tolgoi copper-gold mine in Mongolia to reflect the fall in mining sector share prices.
Shareholders in Ivanhoe will be offered additional shares in the Canadian company at a price that will be set in the final prospectus, rather than at US$8.34 a share as the companies had agreed last month, the two companies said in statements late Wednesday. Ivanhoe's shares have fallen sharply with those of other resources companies in recent weeks.
Rio will continue to provide a standby commitment for the full amount of the US$1.8 billion offering and will buy as many new shares in Ivanhoe as its 51% shareholding allows, but said it won't reinvest a cash fee for the commitment in Ivanhoe shares. The fee had been set at 4% of the rights offering's gross proceeds.
The Anglo-Australian company also will acquire any shares not bought in the offering, and has agreed to remove a "material change" clause regarding a fall in Ivanhoe's shares from the standby commitment in exchange for Ivanhoe lowering the exercise price for warrants held by Rio to US$10.84 a share from an earlier price of US$12.79 at any time over a three-year period.
"The amended terms address conditions of regulatory approval and more closely align the terms of the proposed Ivanhoe rights offering with current market conditions," both companies said.
Rio said that if it exercised the warrants in full, its stake in Ivanhoe would rise to 54.3%. It said that it currently has no intention of buying additional Ivanhoe shares outside the rights offering, although it has the right until Oct. 24 to buy shares under the financing right of first offer.
Rio and Ivanhoe last month signed a wide-ranging agreement to ensure funding for the Oyu Tolgoi project, including plans for US$1.8 billion in equity financing and a bridge-loan and support from Rio for US$3 billion-US$4 billion in project financing being negotiated with multinational lenders. The move allowed Rio to tighten its control over Ivanhoe, appointing senior managers and replacing founder Robert Friedland as chief executive.
Production at Oyu Tolgoi is set to begin later this year, ramping up to commercial production in the first half of 2013 in the first phase of the mine's development. Oyu Tolgoi is expected to be one of the world's largest mines, with output in the first 10 years projected to average 1.2 billion pounds of copper, 650,000 troy ounces of gold and more than 3 million ounces of silver a year.
Shares in mining companies have been hit hard this month as investor worries have built over the potential fallout from Greece's potential withdrawal from the single currency and China's appetite for resources as its booming economy cools. Ivanhoe's shares have fallen almost 30% on the Toronto Stock exchange since the companies last month said they had agreed their funding package, while Rio's shares have dropped roughly 15%.
-By Robb M. Stewart, Dow Jones Newswires; +61 3 9292 2094; email@example.com