Zacks_Analysts' Blog : Rio Tinto Buys Stake in Ivanhoe - Analyst Blog

In order to directly manage the Oyu Tolgoi project, RioTinto Plc. (RIO) recently increased its stake in Ivanhoe Mines Ltd. (IVN) by 2% to 48.5%.

Based in Mongolia, Oyu Tolgoi is a copper and gold mine in which Ivanhoe has a 66% stake and the remainder is owned by the Mongolian government.

Rio Tinto would exercise its right to subscribe and  acquire an additional 27.9 million shares in Ivanhoe Mines for C$529.5 million, through its wholly-owned subsidiary, Rio Tinto International Holdings Limited.

The company also provided a financial package to Ivanhoe Mines including the $1.8 billion interim loan facility. In doing so, the project is expected to be completed by early fiscal 2012 instead of late fiscal 2012.

Management stated that investment in Ivanhoe underscores Rio Tinto’s commitment to the Oyu Tolgoi project. Moreover, the Oyu Tolgoi project suits the company’s strategy of focusing on low-cost, long-life assets providing growth potential.

On the basis of the contractual agreement, the company can acquire a 49% stake in Ivanhoe Mines.

Rio Tinto may obtain the rights to buy additional securities of Ivanhoe, based on Ivanhoe's business, financial condition, the market for Ivanhoe's securities, general economic and tax conditions.

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. Rio Tinto competes against global mining giants like BHP Billiton Ltd. (BHP) and Vale S.A (VALE).

We currently have a Neutral recommendation on the stock. Rio Tinto has a Zacks #3 Rank, which implies a short-term (1-3 months) Hold rating.