Recently, Rio Tinto Plc. (RIO) has taken a majority stake in Ivanhoe Mines Ltd, having purchased 51% of the shares, thus attaining a control of the gold and copper miner.
Rio Tinto bought 15.1 million shares, following the recent transaction, from two sellers through a privately negotiated transaction for C$302 million ($301 million). The additional 15.1 million common shares of Ivanhoe represented 2% of Ivanhoe’s outstanding common shares.
The shares were purchased for an aggregate of C$302 million at a price per share of C$20.00. After the completion of the share purchase, Rio Tinto will own 377.4 million common shares of Ivanhoe.
The transaction is anticipated to ensure forthcoming development prospects of an important phase of the Oyu Tolgoi mine, which has already completed 70% of the construction. Moreover, the first ore in the second half of 2012 from Ivanhoe is expected to mark an important milestone in the path towards commercial production of copper concentrate, slated for the first half of 2013.
Rio Tinto has anti-dilution rights permitting the company to acquire additional Ivanhoe securities in the coming years under its equity financing right of first offer. The attainment of added securities would depend upon Rio’s assessment of Ivanhoe’s business prospects and financial condition, market for Ivanhoe’s securities, general economic, tax conditions, and other factors.
However, the company has no intention at present to purchase additional securities of Ivanhoe. Rio Tinto also reserves its right to take any permitted action as the majority shareholder of Ivanhoe.
Headquartered in London, UK, Rio Tinto is engaged in exploring, mining and processing of the earth’s mineral resources, producing a broad range of metals and minerals. The company competes against global mining giants like BHP Billiton Ltd. (BHP) and Vale S.A (VALE). Rio Tinto has extensive uranium mining experience worldwide and controls widespread operations in mining and manufacturing of alumina, aluminium, iron ore, diamonds and titanium dioxide in Canada.
The global demand for the company’s key products such as iron ore, copper, and aluminum are expected to double in 15 to 20 years, primarily driven by China, India, and other rising economies based on their policies of industrialization and urbanization. Under such a scenario, we believe the company’s expansion programs are conducive to maintaining a balanced financial position, going forward.
We currently maintain a long-term Neutral recommendation on the stock. RIO has a Zacks #5 Rank, which translates into a short-term Strong Sell rating (1-3 months).
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