Ivanhoe reassures minorities after Rio says to seek changes

TORONTO (miningweekly.com) – Ivanhoe Mines, now majority owned by Rio Tinto, said on Friday an agreement with the diversified major stipulated that a majority of its 14-member board had to be independent directors.

Rio Tinto bought an additional 2% of Ivanhoe’s stock this week, lifting its ownership to 51%, and said it expected use that to seek to replace some of the company’s senior management.

The Anglo-Australian miner said it also expected to try to replace “at least a majority” of the Ivanhoe directors it had not nominated, giving it a majority of boardroom seats.

As matters stand, Ivanhoe has 14 board members, seven of which Rio Tinto nominated, including four independent directors.

Rio Tinto said it was conducting a "thorough review" of Ivanhoe's businesses, and a spokesperson said the process "could take a bit of time", with no timeline having yet been set.

"It wouldn't surprise me" if the company sought to make changes to Ivanhoe's board at the annual general meeting set for May, the Rio Tinto spokesperson said in a telephone interview.

Ivanhoe said a 2010 heads of agreement between the two companies said eight of the TSX-listed firm’s board needed to be independent, and that these directors would nominate an independent chairperson.

An independent director is not part of a company’s executive management team, is not an employee of the company and is not affiliated to it in any other means. Their purpose is to challenge a board’s strategy and oversee governance.

Ivanhoe deputy chairperson Peter Meredith praised Rio Tinto’s current independent directors’ contributions to the company.

“The four incumbent independent directors nominated to the Ivanhoe Mines board by Rio Tinto have done an outstanding job representing the interests of all shareholders of Ivanhoe Mines,” he said.

“We look forward to maintaining a highly capable and motivated board to ensure that the company is managed in the best interest of all shareholders, even as new independent directors may be added,” added Meredith, Ivanhoe’s former CFO.

He also said that while Rio Tinto, as a majority shareholder, had the right to suggest changes to Ivanhoe’s senior management, ultimately it was the board’s decision.

Meredith made the comments in response to shareholders' questions after Rio Tinto signalled its intentions to seek changes at Ivanhoe in a regulatory filing late on Thursday.

The mining giant said it had the right to make proposals to Ivanhoe “alone or jointly with a third party, concerning the long-term structure of their existing investment, a direct ownership interest in the Oyu Tolgoi project or other changes to the capitalisation, ownership structure or operations of the company”.

One source close to Ivanhoe said its majority shareholder was simply covering its legal bases, and that the wording was so broad "they covered the waterfront with that statement".

Rio Tinto has previously said it would consider bringing in Chinalco, the State-owned Chinese giant, as a partner in Oyu Tolgoi, the $6-billion copper-gold project that is now 70% complete.

To do so, it would need permission from the government of Mongolia, where the project is located. Chinalco owns 9% of Rio Tinto, making it the biggest shareholder.

Ivanhoe owns 66% of Oyu Tolgoi and the government the rest. Last year, 20 members of Parliament petitioned the State to increase its ownership of the mine, but the government squashed this.

Rio Tinto in December won an arbitration ruling that effectively killed Ivanhoe's shareholder rights plan, clearing the path for the mining giant to take majority ownership in the Vancouver-based junior.

Although it is already the  operator at Oyu Tolgoi, it is no secret that Rio Tinto wants direct ownership of Ivanhoe's 66% in the project, set to start commercial production next year.

The two most likely ways to get there would be to make an offer to Ivanhoe's minority shareholders, or to strike a deal with the company to swap its Ivanhoe ownership and cash for direct ownership in Oyu Tolgoi.

Ivanhoe's second-biggest shareholder, with 14%, is Robert Friedland, who is also its CEO. The Caisse de dépôt et placement du Québec, the province's public servant pension fund, the Ontario Teachers' Pension Plan, and Fidelity are the company's other major investors.