Friedland resigns from Ivanhoe Mines in Rio Tinto shake-up

Legendary mining financier Robert Friedland has resigned from Ivanhoe Mines Ltd. as Rio Tinto Ltd. takes greater control of the company in a broad shake-up of management and the board.

The entire senior management team has resigned, including Mr. Friedland (the chief executive) and president John Macken. Seven of the 14 directors have also resigned, and will be replaced by six Rio Tinto nominees. Rio now dominates the board.

Ivanhoe and Rio Tinto also signed a broad agreement under which Rio will support a series of funding measures to make sure Ivanhoe’s US$6-billion Oyu Tolgoi project in Mongolia is fully funded for the next four to five years. First production is expected in the second half of this year.

“This agreement sets the stage for the Oyu Tolgoi project’s transition to a major mining operation in the coming months, Mr. Friedland said in a statement.

The deal between the two sides means that Rio Tinto gets full control of Ivanhoe’s activities without having to resort to a proxy fight or any other hostile measure. When Rio acquired a majority stake in Ivanhoe last year, it made clear that it wants more control over Oyu Tolgoi as it pushes the project towards production. Rio is building the mine.

As part of the agreement between Rio and Ivanhoe, Rio will provide “full support” for Ivanhoe’s project financing package, estimated at US$3-billion to US$4-billion. Rio will also provide an immediate bridge-finance package of up to US$1.5-billion, and has committed to building a coal-fired electric power plant in Mongolia.

Ivanhoe also announced that it is proceeding with a US$1.8-billion rights offering that is open to all shareholders, and is fully supported by Rio Tinto.

Ivanhoe shares rose 8% to $12.61 in early trading on the Toronto Stock Exchange, suggesting that investors are pleased that there is now certainty about its management structure and funding for Oyu Tolgoi. The deal does suggest that an outright takeover of Ivanhoe is not imminent, but Rio made that point clear in prior comments.

The agreement still marks a huge shift in the Rio-Ivanhoe relationship, which has gone through considerable turmoil in the last couple of years.

Rio Tinto made a friendly investment in Ivanhoe back in 2006, but the two sides clashed repeatedly as Rio tried to get a bigger piece of Oyu Tolgoi. Rio was finally able to boost its Ivanhoe stake to 51% in January, which gave it effective control over the project. It is the only creeping takeover of a major Canadian company that has succeeded in recent memory.