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Rio Tinto increases stake in Ivanhoe Mines to 22.4%

Diversified mining giant Rio Tinto (LSE: RIO, ASX:RIO) has upped its interest in Toronto and New York listed Ivanhoe Mines (TSX: IVN, NYSE:IVN, NASDAQ:IVN) to 22.4% through a private placement.  Ivanhoe has issued 15 million shares to Rio Tinto at a subscription price of CDN$16.31 per share, raising net proceeds of CDN$224.7 million.

The additional cash will be used to mining and milling equipment from Rio Tinto to be used in the development of the world class Oyu Tolgoi Copper-Gold complex in Mongolia.  Equipment to be purchased by Ivanhoe Mines include a 100,000 tonnes per day copper-gold concentrator, two SAG mills, four ball mills and several other large pieces of equipment.

"We are positioning Ivanhoe Mines and our strategic shareholder, Rio Tinto, to begin full-scale construction of the Oyu Tolgoi Mine as we approach the start of the construction season in Mongolia and the completion of all conditions precedent to the approved Oyu Tolgoi Investment Agreement that we signed with the Mongolian Government last October," Robert Friedland stated this morning.

Most of the equipment mentioned today was initially ordered by Ivanhoe Mines and subsequently transferred to Rio Tinto while the company waited to complete an investment agreement with the government of Mongolia. The equipment-sale agreement with Rio Tinto was designed to ensure that the procurement and delivery schedules for critical, long lead items were protected while Ivanhoe and Rio Tinto worked with the Mongolian Government to conclude “the mutually-acceptable, long-term Investment Agreement” which was compoleted in October 2009.

"We are positioning Ivanhoe Mines and our strategic shareholder, Rio Tinto, to begin full-scale construction of the Oyu Tolgoi Mine as we approach the start of the construction season in Mongolia and the completion of all conditions precedent to the approved Oyu Tolgoi Investment Agreement that we signed with the Mongolian Government last October," Mr. Friedland said.

"The joint Ivanhoe Mines-Rio Tinto Oyu Tolgoi Technical Committee has conditionally approved a US$758 million budget for 2010 that includes Ivanhoe's repurchase from Rio Tinto of major items of mining and milling equipment. Acquisition of the equipment is another significant step in building one of the world's largest copper-gold mines. Having this equipment available now, rather than being forced to wait behind competitors in a delivery queue, is vital to our plan to begin commercial production from Oyu Tolgoi in 2013."

Rio Tinto also holds various rights which could increase its stake in Ivanhoe to up to 46.6% during the next 19 months.


Disclosure: The author holds no positions in the company