UPDATE: Rio Tinto Boosts Ivanhoe Mines Stake To 22.4%

Rio Tinto PLC (RTP) said Monday it will pay C$244.7 million to up its stake in Ivanhoe Mines Ltd. (IVN.T) by 2.7% to 22.4% as the pair edge closer to completing a feasibility study into their Oyu Tolgoi copper joint venture in Mongolia.

Ivanhoe is issuing Rio with 15 million new shares for C$244.7 million at C$16.31 a share as part of an agreement dating back to 2008 that saw Rio provide funding for equipment for the project.

Rio declined to comment on any plans to further boost its stake but the miner has the right to up its holding to 44% by exercising share purchase warrants and converting a US$350 million loan.

"Our further investment in Ivanhoe Mines underlines our confidence in the quality of the world class Oyu Tolgoi deposit and its priority in our project portfolio," Rio Tinto Copper Chief Executive Andrew Harding said in a statement.

"We are working with Ivanhoe Mines on finalizing the conditions precedent for completion of the Investment Agreement with the Government of Mongolia and are looking forward to moving into the development phase of the project."

There has been speculation that Rio could look to launch a full takeover for Ivanhoe once a standstill agreement expires in October 2011, to up its exposure to the giant copper/gold project.

A spokesman for Ivanhoe declined to comment on Rio's stake increase.

Ivanhoe and Rio struck a long awaited investment agreement with the Mongolian government in October last year, which will see the government take a 34% stake in the project.

The agreement is subject to conditions that must be met by April 6, including the completion of a feasibility study currently underway on the project.

Ivanhoe also needs to raise significant funds for its share of the cost of developing Oyu Tolgoi, which Mongolian Mining Minister Dashdorj Zorigt last month said would likely total US$5 billion.

The Vancouver-based group has appointed Citi and Hatch Corporate Finance to explore options for "enhancing shareholder value".

Ivanhoe has said these options include potential debt or equity offerings, a credit facility, the sale of subsidiaries, equity investments, project financing and various corporate transactions.

Oyu Tolgoi is slated to start production in 2013, with annual output of 450,000 metric tons of copper and 330,000 troy ounces of gold.

-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094; alex.wilson@dowjones.com

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