Rio Tinto doubles down on Ivanhoe

Ivanhoe Mines’ (IVN-T) largest publicly traded shareholder wants a bigger piece of the copper pie in Mongolia.

Rio Tinto (RTP-N, RIO-L) —  widely credited with bringing the heft Ivanhoe needed at the bargaining table with the Mongolian government — is doubling its investment in the Vancouver-based company.

Rio is adding to its 37.1 million Ivanhoe shares by buying another 46.3 million shares at $8.38 per share, taking its stake in the company to 83.4 million shares, or to 19.7% from 9.9%.

Ivanhoe chairman Robert Friedland remains the junior’s largest shareholder, with 96.9 million Ivanhoe shares in his hands at last count, worth $1.26 billion at presstime.

That will net Ivanhoe roughly US$388-million, money that will go to work towards developing the massive Oyu Tolgoi copper and gold project. The plan is to first mine via an open-pit mine before moving on to underground mining for the massive Hugo Dummett deposit.

Rio Tinto first came into the fray when it reached an agreement with Ivanhoe for a stake in the company back in 2006. At the time it was thought the deal would speed up the process of getting an investment agreement signed with the government.

While it took much longer than many analysts thought, the companies finally announced that such an agreement was reached with the government on Oct. 6.

The investment agreement paves the way for construction of the mine, and encouraged Rio to take a greater stake in Ivanhoe, in accordance with parameters laid out in the original deal between the two companies.

Rio’s investment will bring Ivanhoe’s cash position to the tidy sum of $725-million.

The investment agreement was a hot topic throughout Mongolian society, as it was widely held as establishing the benchmark for all other mining deals.

The deal gives the government a 34% stake in the mine and gives it a $250-million advance payment against royalties and taxes.

On Oct. 13 – the day the news was released — Ivanhoe shares finished the day down 5¢ at $12.95 while Rio shares were up US$1.04 to US$182.29 on the New York Stock Exchange.