Ivanhoe Mines Ltd. (TSX: IVN)(NYSE: IVN)(NASDAQ: IVN) -
-- Rio Tinto to immediately exercise US$300 million portion of Series B
Ivanhoe warrants
-- Rio Tinto to purchase 20 million Ivanhoe shares at market price
-- Firm cap of 49% on Rio Tinto's ownership stake in Ivanhoe Mines to
continue until January 18, 2012
-- Rio Tinto to work with Ivanhoe to secure a comprehensive project-finance
package
-- Rio Tinto to provide Ivanhoe with up to US$1.8 billion in interim
financing
-- Rio Tinto to assume management of Oyu Tolgoi Project, subject to
approval of Oyu Tolgoi LLC board
Ivanhoe Mines and Rio Tinto have reached a comprehensive
agreement covering a series of measures intended to provide funding
to complete the accelerated, full-scale construction of the first
phase of the Oyu Tolgoi copper-gold complex in southern Mongolia,
Ivanhoe Mines' Office of the Chairman announced today.
The full series of funding measures, including an interim
funding facility from Rio Tinto and cash on hand available to
Ivanhoe Mines, could increase to US$6.5 billion the pool of
development capital available to Ivanhoe to bring Oyu Tolgoi into
full production and also to finance associated investments.
As part of the new agreement, Rio Tinto has committed to
participate directly in several funding measures - including the
forthcoming rights offering announced by Ivanhoe Mines on October
18 - that could generate up to US$4.4 billion of the potential
US$6.5 billion.
In addition, Rio Tinto has agreed to work closely with Ivanhoe
Mines to complete a major project-finance package that Ivanhoe is
negotiating with a group of international financial institutions,
government credit agencies and commercial banks.
'Evolution and expansion' of four-year relationship
"The mutually beneficial evolution and expansion of the scope of
Ivanhoe's four-year relationship with Rio Tinto comes at a pivotal
time in the development of Oyu Tolgoi," said Robert Friedland,
Executive Chairman and Chief Executive Officer of Ivanhoe
Mines.
"Successful completion of all of the measures that we have
identified will give us more than sufficient capital to begin
initial production at Oyu Tolgoi in 2012."
The joint Ivanhoe Mines-Rio Tinto Technical Committee has
endorsed an estimate that a further US$4.6 billion in capital will
be required from the beginning of 2011 through to the start of
production. By the end of 2010, capital totalling US$1.4 billion
will have been invested in developing Oyu Tolgoi.
Mr. Friedland said that a 2011 budget proposal has been
presented to the Board of Directors of Oyu Tolgoi LLC, the
Mongolian company that owns and will operate the Oyu Tolgoi
Project. The budget also will be reviewed by the Ivanhoe Mines
board and details will be publicly reported in the near future.
The terms of the expanded and renewed relationship between
Ivanhoe Mines and Rio Tinto are established under a legally binding
Heads of Agreement that has been approved by the Ivanhoe Mines
Board of Directors and Rio Tinto's Investment Committee.
The agreement arranges for Ivanhoe Mines to acquire financing
for Oyu Tolgoi through a schedule of equity investments and major
financing commitments by Rio Tinto, including Rio Tinto's exercise
of all of its rights under the announced rights offering that is
expected to be completed by the end of January 2011. Following
completion of the rights offering, Ivanhoe Mines expects it will
have gained assurances of access to up to US$4.4 billion in
received, fully committed and readily or potentially available
funds. A total of up to US$3.7 billion of the projected capital
under the various investments and rights will come from Rio Tinto,
including proceeds from warrants, a subscription right, up to
US$1.8 billion in interim financing and approximately US$500
million as Rio Tinto's estimated share of the rights offering.
Rio Tinto will work with Ivanhoe Mines toward a shared goal of
successfully concluding current negotiations for a long-term,
limited recourse project-finance package of up to US$3.6 billion
during the first half of 2011, which then would replace any interim
financing advanced by Rio Tinto.
Mr. Friedland said that in exchange for its capital and
commitments, Rio Tinto will have the right to a maximum ownership
stake in Ivanhoe Mines of up to 49% during the next 13 months and,
subject to approval of the Oyu Tolgoi board, Rio Tinto will assume
management of the building and operation of the Oyu Tolgoi mining
complex.
Completing Oyu Tolgoi an overriding 'common objective'
"The corporate cooperation, commitments and shared purpose
represented in our new agreement are good news for Oyu Tolgoi, for
the people and government of Mongolia and for the shareholders of
Ivanhoe Mines and Rio Tinto.
"The suspension of the current arbitration procedure for six
months, agreed to by both companies, is further confirmation of our
immediate focus on the common objective of building Oyu Tolgoi and
provides potential opportunities for the companies to pursue a
permanent settlement of issues that have arisen," Mr. Friedland
added.
"In less than two years, we expect to be initiating production
at Oyu Tolgoi - more than six months earlier than previously
projected. We now have more than 5,500 people based at site, more
than 60% of them Mongolians, building what is firmly on track to
become one of the world's largest and most technologically advanced
mining operations. On-site jobs in 2011 will peak at almost 14,000,
with an additional 3,700 Mongolians receiving skills training
sponsored by Oyu Tolgoi to qualify them for work in the country's
rapidly growing mining sector."
The Heads of Agreement negotiations with Rio Tinto were
conducted for Ivanhoe Mines by the recently created Office of the
Chairman, whose principals are Mr. Friedland, Executive Chairman
and Chief Executive Officer; Peter Meredith, Deputy Chairman; and
Sam Riggall, Executive Vice President, Business Development and
Strategic Planning. Tony Giardini, Chief Financial Officer,
provided support throughout the negotiations. Citi and Hatch
Corporate Finance were advisers to Ivanhoe Mines.
Principal provisions of the Ivanhoe Mines-Rio Tinto Heads of
Agreement are summarized in this news release. The full text of the
agreement will be available on the Ivanhoe Mines website:
www.ivanhoemines.com.
Table 1. Selected Ivanhoe Mines' projected and present capital
resources
Item US$ billions
---------------------------------------------------------------------------
Series B warrants (partial exercise, Rio Tinto) $0.3
---------------------------------------------------------------------------
Remaining Series B warrants - expire Oct 2011 (1)
(Rio Tinto) $0.1
---------------------------------------------------------------------------
Series C warrants - to be exercised by Jan. 2012
(Rio Tinto) $0.4
---------------------------------------------------------------------------
Subscription right (2) (Rio Tinto) Up to approx. $0.6
---------------------------------------------------------------------------
Interim funding facility (3) (Rio Tinto) $1.8
---------------------------------------------------------------------------
Total projected potential Rio Tinto investment
(excluding share of rights offering) Up to approx. $3.2
---------------------------------------------------------------------------
Planned total from rights offering (4)(open to Up to 1.2 (target range
all Ivanhoe shareholders, incl. Rio Tinto) $1.0-$1.2)
---------------------------------------------------------------------------
Total projected potential Rio Tinto investment
plus planned total from rights offering (4) Up to approx. $4.4
---------------------------------------------------------------------------
Long-term project financing, net of repayment of
Rio Tinto interim facility (5)
(international lenders) $1.8
---------------------------------------------------------------------------
Cash available at Ivanhoe - as of
Dec. 31, 2010 (6) $0.3
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Total projected funds from Rio Tinto, rights
offering, project financing & cash Up to approx. $6.5
---------------------------------------------------------------------------
(1) Includes anti-dilution warrants previously issued to Rio Tinto.
(2) Rio Tinto is not required to exercise its subscription right, in which
case there may be no proceeds from the subscription right. The exercise
price of the subscription right will be based on the prevailing market
price at the time of exercise. For example, up to approximately US$0.6
billion of proceeds assumes a US$25.00 per share exercise price on all
shares issuable under the subscription right.
(3) Interim facility to be replaced when funds become available following
completion of the long-term project financing package now under
negotiation (see note 5).
(4) Assumes rights offering will be fully subscribed.
(5) Assumes a debt package of US$3.6 billion is secured from a syndicate of
international lenders and replaces the Rio Tinto interim funding
facility of US$1.8 billion.
(6) Projected available cash position as of December 31, 2010 (excludes cash
associated with SouthGobi Resources and Ivanhoe Australia).
Rio Tinto to exercise nearly US$800 million in remaining
warrants, beginning with US$300 million in Series B warrants upon
closing
-- Rio Tinto immediately will exercise US$300 million worth of Series B
warrants, representing approximately 75% of the Series B warrants
granted to Rio Tinto as part of the 2006 private-placement agreement
governing Rio Tinto's original investment in Ivanhoe Mines. The US$300
million payment, covering the purchase of 33.8 million shares each
priced at US$8.88, will be received approximately 10 months ahead of the
scheduled October 2011 expiry of the Series B warrants.
-- Rio Tinto has committed to complete the exercise of its remaining Series
B warrants by their scheduled October 2011 expiry, for a total payment
to Ivanhoe Mines of approximately US$110 million, plus additional
proceeds that result from the anti-dilution adjustment for the planned
rights offering, subject to the final terms of the rights offering.
-- Rio Tinto also has committed to exercise its entire allotment of Series
C warrants, progressively as required, by January 2012 - nine months
ahead of their scheduled expiry. This will provide payments to Ivanhoe
Mines totalling approximately US$350 million, plus additional proceeds
that result from the anti-dilution adjustment for the planned rights
offering, subject to the final terms of the rights offering.
Exercise of warrants and share purchases to increase Rio Tinto's
ownership in Ivanhoe Mines
-- The exercise of US$300 million worth of Series B warrants and the direct
purchases of 10 million Ivanhoe Mines shares from each of Citibank and
Mr. Friedland are expected to increase Rio Tinto's ownership stake in
Ivanhoe to approximately 42.3%, from the current level of 34.8%, before
the record date for the rights offering.
-- Mr. Friedland announced in October that he would participate in the
rights offering to the maximum extent permitted to maintain his level of
ownership in Ivanhoe Mines after completion of the rights offering. Rio
Tinto has agreed to purchase from Mr. Friedland 10 million Ivanhoe Mines
shares at a prevailing market price equal to the 20-day average closing
price of the stock ending December 8, 2010. Proceeds received by Mr.
Friedland from the sale of shares to Rio Tinto may be used by Mr.
Friedland to help finance the potential acquisition of any rights that
become available in the secondary market during the subscription period.
-- Rio Tinto also has agreed to purchase 10 million Ivanhoe Mines shares
from Citibank at a prevailing market price equal to the 20-day average
closing price of the stock ending December 8, 2010. Settlement is
expected to take place at the close of the rights offering and the 10
million shares will be subject to the anti-dilution adjustment for the
rights offering. The arrangement between Citibank and Rio Tinto relates
to hedging a cash-settled contract between Citibank and Mr. Friedland.
As previously disclosed, Mr. Friedland has entered into a loan agreement
and a cash-settled contract with Citibank to finance his participation
in the rights offering. Citibank may obtain the shares to be sold to Rio
Tinto through a stock loan or other private arrangement.
Rio Tinto's interest in Ivanhoe Mines capped at 49% until
January 18, 2012
-- The Heads of Agreement establishes a firm cap of 49% on Rio Tinto's
maximum interest in Ivanhoe Mines that may be achieved through the
exercise of all warrants, the exercise of the right to subscribe, from
time to time, for additional Ivanhoe shares and permitted open-market
purchases of common shares. In addition, the expiry of the standstill
limitation, including the firm 49% cap, is extended for three months,
from October 18, 2011, to January 18, 2012.
-- The original standstill provision of the 2006 private-placement
agreement between Ivanhoe Mines and Rio Tinto, as subsequently amended,
limited Rio Tinto to the ownership of a maximum interest of 46.6% in
Ivanhoe Mines until October 2011.
-- Since October 2006, Rio Tinto has acquired shares, exercised warrants,
converted a debt facility and sold equipment amounting to a combined
investment of US$1.7 billion in Ivanhoe Mines. Rio Tinto presently owns
34.8% of Ivanhoe Mines.
Table 2. Potential Rio Tinto investments in Ivanhoe Mines and
resulting levels of ownership
% interest
Investment in IVN
Item (US$ billions) (1)
---------------------------------------------------------------------------
Total of Rio Tinto investments
prior to Dec. 2010 $1.7 34.8%
---------------------------------------------------------------------------
Series B warrants (immediate
partial exercise) $0.3 38.7%
---------------------------------------------------------------------------
Purchase of 20 million Ivanhoe
Mines shares from Robert Friedland
and Citibank (2) $0.5 42.3%
---------------------------------------------------------------------------
Participation in planned rights
offering (3)(to be completed in
Jan. 2011) $0.5 42.3%
---------------------------------------------------------------------------
Remaining Series B warrants -
expire Oct. 2011 (4) $0.1 43.5%
---------------------------------------------------------------------------
Series C warrants - to be exercised
by Jan. 2012 $0.4 46.8%
---------------------------------------------------------------------------
Subscription right (5) Up to approx.
$0.6 48.5%
---------------------------------------------------------------------------
3.7 million shares purchased in
open market (6) $0.1 49.0%
---------------------------------------------------------------------------
Total Potential Rio Tinto investment Up to approx.
(before Interim Funding Facility) $4.2 49.0%
---------------------------------------------------------------------------
(1) Based on 532.4 million shares outstanding as of December 7, 2010.
(2) Price per share will be based on the 20-day average closing price ending
December 8, 2010. For example, US$0.5 billion assumes a US$25.00 per
share purchase price. Ivanhoe Mines will not receive any proceeds from
the transactions.
(3) Assumes rights offering will be fully subscribed.
(4) Includes anti-dilution warrants previously issued to Rio Tinto.
(5) Rio Tinto is not required to exercise its subscription right, in which
case there may be no proceeds from the subscription right. The exercise
price of the subscription right will be based on the prevailing market
price at the time of exercise. For example, up to approximately US$0.6
billion of proceeds assumes a US$25.00 per share exercise price on all
shares issuable under the subscription right.
(6) If acquired, the per share purchase price will be based on the
prevailing market price at the time of acquisition. For example, US$0.1
billion assumes a US$25.00 per share purchase price on all 3.7 million
shares. Ivanhoe Mines will not receive any proceeds from the
transactions.
Ivanhoe's expanded rights offering to receive Rio Tinto's full
support and participation
-- Rio Tinto has committed to fully participate in the strategic rights
offering that was announced by Ivanhoe Mines on October 18, 2010. Rio
Tinto will exercise all of the rights to which it is entitled, thereby
maintaining, at a minimum, what is expected to be its 42.3% level of
ownership in Ivanhoe on the record date for the rights offering.
-- The expanded rights offering is expected to generate between US$1.0
billion and US$1.2 billion in proceeds, an increase of 20% over the
original estimate provided in October. Ivanhoe Mines is preparing to
file a final prospectus, containing terms of the rights offering, with
Canadian and US securities regulators in the near future.
-- The previous declaration by Mr. Friedland that he will participate in
the rights offering to the maximum extent possible, combined with the
new assurance of support from Rio Tinto, ensures that almost 60% of the
total issued rights will be exercised, creating a strong foundation of
support for the launch of the rights offering. Rio Tinto and Mr.
Friedland are Ivanhoe Mines' two largest shareholders.
Rio Tinto to work with Ivanhoe Mines to complete international
project-finance package of up to US$3.6 billion
-- Ivanhoe Mines and Rio Tinto have committed to work together to achieve a
comprehensive project-finance package for Oyu Tolgoi, which the
companies intend to have in place by June 2011. Ivanhoe Mines announced
earlier this year that discussions are progressing with a group of
international financial institutions on a proposed long-term, limited-
recourse, project-financing package of up to US$3.6 billion. The package
is being considered by a core lending group comprised of the European
Bank for Reconstruction and Development, the International Finance
Corporation, Export Development Canada, BNP Paribas and Standard
Chartered. Other government credit agencies and commercial banks are
expected to be added to the core group of lenders.
-- The companies have agreed that final terms of a third-party project-
finance package for the Oyu Tolgoi Project remain subject to the
approval of the Oyu Tolgoi LLC Board of Directors, the Ivanhoe Mines
Board of Directors and the joint Ivanhoe Mines-Rio Tinto Technical
Committee.
-- Part of the project-finance package would be used to refinance any
drawdowns under the interim funding facility, outlined below, if funds
from the interim facility have been required. With project financing
secured, total resources available to finance the Oyu Tolgoi Project,
including foreseen expansions and associated investments, would be up to
US$6.5 billion - not including sunk costs, which will total an estimated
US$1.4 billion at the end of 2010, and future cash-flow generation from
early production.
Rio Tinto to provide unsecured, US$1.8 billion interim funding
facility to Ivanhoe Mines
-- Rio Tinto has committed to provide Ivanhoe Mines with an initial, non-
revolving interim funding facility of US$1.8 billion to sustain Oyu
Tolgoi construction while a project-finance package is being negotiated.
The interim facility will be drawn upon only after all the proceeds
allocated for the development of Oyu Tolgoi from the rights offering and
from the exercise of warrants have been utilized for the development of
Oyu Tolgoi and if the project-finance package has not yet become
available for disbursement. The interim facility will be on arm's-length
terms, with funds to be advanced to the project on a month-to-month
basis, if and when required.
-- The function of the interim funding facility is to ensure that Ivanhoe
Mines has the required financial resources to continue building the
project without interruption, even if there is an unexpected delay in
securing the project-finance package. The interim funding facility, if
drawn upon, is intended to be refinanced with funds to be provided under
the project-finance package.
Arbitration proceedings suspended for six months
-- Ivanhoe Mines and Rio Tinto have agreed to suspend the current
arbitration between the companies for six months. An arbitrator had
scheduled hearings to begin on January 18, 2011. Ivanhoe Mines had
submitted a statement of defence in October that rejected a claim made
by Rio Tinto in July this year that a Shareholders' Rights Plan approved
by Ivanhoe's minority shareholders on May 7, 2010, had breached Rio
Tinto's contractual rights under its agreements with Ivanhoe. Ivanhoe
Mines also had initiated a counter-claim as part of the arbitration
proceeding, contending that Rio Tinto had breached certain covenants in
its October 2006 private-placement agreement with Ivanhoe. Rio Tinto has
filed a statement of defence to the counter-claim.
The arbitration suspension will end immediately if a formal
take-over bid for Ivanhoe Mines is announced or commenced, or if
either company takes any action that the other reasonably believes
prejudices its rights.
Rio Tinto to assume management of Oyu Tolgoi Project
-- The Oyu Tolgoi Project is owned by Oyu Tolgoi LLC, a Mongolian company.
Ivanhoe Mines owns 66% of Oyu Tolgoi LLC and the Mongolian Government
owns the remaining 34%. Ivanhoe Mines presently appoints six of the nine
Oyu Tolgoi LLC directors; the other three directors are appointed by the
Mongolian Government. Under the Heads of Agreement, Ivanhoe Mines will
select three directors and Rio Tinto will select three of the six
directors allocated to Ivanhoe.
-- Ivanhoe Mines and Rio Tinto have agreed on terms for a contract, subject
to approval of the Oyu Tolgoi LLC board, under which Rio Tinto will
assume the right to manage the Oyu Tolgoi Project. It is proposed that
the Rio Tinto Project Manager will have full authority over the
remaining construction, mining, production of concentrate and future
smelting/refining, including the nomination of senior management to be
appointed by the Oyu Tolgoi LLC board.
-- Ivanhoe Mines will continue to directly manage ongoing exploration on
the Oyu Tolgoi licences outside the projected life-of-mine area, with
budgets greater than US$30 million a year (escalated for inflation)
requiring approval of the Rio Tinto Project Manager.
-- Ivanhoe Mines and Rio Tinto have agreed to jointly establish a working
group to study proposals for electrical power, infrastructure and
smelting for Oyu Tolgoi. The working group will consult with
representatives of Erdenes MGL, Mongolia's state-owned resources company
that holds Mongolia's 34% stake in Oyu Tolgoi, in developing proposals
to be submitted to the Oyu Tolgoi LLC board.
Corporate governance measures provide assurance of
independence
-- Rio Tinto has committed to not seek representation on the Ivanhoe Mines
board in excess of its proportional ownership in Ivanhoe Mines until the
standstill covenant expires in January 2012. Rio Tinto has further
committed to maintain a majority of independent directors on the Ivanhoe
Mines board until January 2014. One incumbent director selected by
Ivanhoe Mines senior management, and two incumbent directors selected by
Mr. Friedland - on condition that Mr. Friedland continues to own at
least 10% of Ivanhoe - will remain directors on the Ivanhoe board until
January 2014. The board believes that this assurance of independence
will enable it to continue its assessment of strategic initiatives to
maximize value for all shareholders.
-- Mr. Friedland will continue to serve as Executive Chairman and Chief
Executive Officer of Ivanhoe Mines, and as head of the company's
recently established Office of the Chairman, which is leading the
assessment of potential strategic initiatives and directing negotiations
to create and enhance value for shareholders. To help maintain the
highest standard of corporate governance, David Huberman, the lead
independent director on the Ivanhoe Mines board, will be nominated to
assume the title and responsibilities of Chairman of the Board following
Ivanhoe's next annual general meeting to be held in May 2011. Mr.
Friedland then will remain Chief Executive Officer and continue as a
director on the Ivanhoe Mines board.
About Ivanhoe Mines (www.ivanhoemines.com)
Ivanhoe Mines (TSX: IVN)(NYSE: IVN)(NASDAQ: IVN) is an
international mining company with operations focused in the Asia
Pacific region. Assets include the company's 66% interest in the
world-scale, Oyu Tolgoi copper-gold mine development project in
southern Mongolia; its 57% interest in Mongolian coal miner
SouthGobi Resources (TSX: SGQ; HK: 1878); a 62% interest in Ivanhoe
Australia (TSX & ASX: IVA), a
copper-gold-uranium-molybdenum-rhenium exploration and development
company; and a 50% interest in Altynalmas Gold Ltd., a private
company developing the Kyzyl Gold Project in Kazakhstan.
Forward-looking statements
Certain statements made herein, including statements relating to
matters that are not historical facts and statements of our
beliefs, intentions and expectations about developments, results
and events which will or may occur in the future, constitute
"forward-looking information" within the meaning of applicable
Canadian securities legislation and "forward-looking statements"
within the meaning of the "safe harbour" provisions of the United
States Private Securities Litigation Reform Act of 1995.
Forward-looking information and statements are typically identified
by words such as "anticipate," "could," "should," "expect," "seek,"
"may," "intend," "likely," "plan," "estimate," "will," "believe"
and similar expressions suggesting future outcomes or statements
regarding an outlook. These include, but are not limited to whether
or not the above contemplated rights offering or project-finance
package will be successfully completed in the future, and other
statements that are not historical facts.
All such forward-looking information and statements are based on
certain assumptions and analyses made by Ivanhoe Mines' management
in light of their experience and perception of historical trends,
current conditions and expected future developments, as well as
other factors management believes are appropriate in the
circumstances. These statements, however, are subject to a variety
of risks and uncertainties and other factors that could cause
actual events or results to differ materially from those projected
in the forward-looking information or statements. Important factors
that could cause actual results to differ from these
forward-looking statements include those described under the
heading "Risks and Uncertainties" included in the preliminary
prospectus or in the Company's Annual Information Form, which are
filed on Sedar and EDGAR. The reader is cautioned not to place
undue reliance on forward-looking information or statements.
The issuer has filed a registration statement (including a
prospectus) with the SEC for the rights offering to which this
communication relates. Before investing, individuals should read
the prospectus in that registration statement and other documents
the issuer has filed with the SEC for more complete information
about the issuer and the rights offering. The documents are
available free of charge by visiting EDGAR on the SEC website at
www.sec.gov. Alternatively, the issuer or dealer managers
participating in the rights offering will arrange to send you the
prospectus if you request it by calling toll-free
1-877-858-5407.
Contacts: Ivanhoe Mines Ltd. Bill Trenaman Investors
+1.604.688.5755 Ivanhoe Mines Ltd. Bob Williamson Media
+1.604.331.9830 www.ivanhoemines.com
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