(Rewrites lead and adds details from analysts and funds managers
starting in the fourth paragraph.)
Ivanhoe Mines Ltd. (IVN) has retained advisers to help it
evaluate a range of options over the coming months to enhance
shareholder value, as it faces financing costs of more than $2
billion to develop its Oyu Tolgoi copper-gold project in
Mongolia.
The Vancouver-based mineral-development company said it will
look at potential debt/equity offerings, a credit facility, the
sale of subsidiaries, equity investments, project financing and
other corporate transactions.
The advisers are global investment-banking firm Citi and Hatch
Corporate Finance, an adviser serving the mining sector.
While there is no clear consensus, observers believe that the
likeliest moves for Ivanhoe would be to sell subsidiary stakes
and/or pursue equity and debt financings.
In September, Ivanhoe said it had received unsolicited proposals
from sovereign wealth funds to take up to a 9.9% stake in the
mining company. Subsequently, Rio Tinto PLC (RTP), an Ivanhoe
shareholder and partner, indicated it would be easy to raise the $2
billion for the Oyu Tolgoi project and it had held talks for
project financing with groups such as International Finance Corp.
and the European Bank for Reconstruction and Development.
In October, Ivanhoe said it had adequate capital for its current
development plans and spending commitments, so it was deferring
consideration of the sale of a stake totaling up to 9.9% in Ivanhoe
to one or two strategic partners.
Rio Tinto owns just under 20% of Ivahnoe and can boost its stake
further under the current financing agreement between the
companies.
Ivanhoe could go a long way to raising the necessary financing
by selling all or part of its 79% stake in SouthGobi Energy
Resources Ltd. (SBQ.T) and its 83% stake in Ivanhoe Australia Ltd.
(IVA.AU) since the aggregate market capitalization of these
holdings is roughly $3 billion, noted Adam Graf, an analyst at
Dahlman Rose & Co. in New York. Graf doesn't own Ivanhoe shares
and Ivanhoe hasn't been an investment-banking client of Dahlman in
the last 12 months.
Ivanhoe also has a 49% stake in Altynalmas Gold Ltd.
Graf estimates Ivanhoe needs to raise up to $3 billion over the
next three years to finance the project in Mongolia.
The previous suggestions by Ivanhoe and Rio Tinto that raising
money would be relatively easy raises questions about the timing of
the latest announcement. That's especially true for some investors
and analysts who had expected Ivanhoe to submit a development plan
for the project by the end of 2009, based on earlier comments by
the company.
Though Ivanhoe's release doesn't say it is considering the
outright sale of the company, it does say it is considering "other
corporate options." If Ivanhoe is facing significant hurdles in
developing the Mongolian project, that could be reason for Ivanhoe
to consider selling itself, some suggested.
An Ivanhoe spokesman couldn't immediately be reached for
comment.
Given the almost 10 years that Ivanhoe has dedicated to
developing the Mongolian project and the additional financing and
years still necessary before it's completed, John Lee of Mau
Capital argues Ivanhoe wants to sell itself outright, taking
advantage of the strong demand for resources.
Lee doesn't own Ivanhoe shares.
Patrick Potvin, a fund manager at Fiera Capital, also doesn't
own Ivanhoe stock, in part because of the political risk associated
with the Oyu Tolgoi project and the big costs required to finance
it. "It's still a long time away" before the project will start
producing, Potvin said.
In Toronto Wednesday, Ivanhoe is up 48 Canadian cents, or 2.9%,
to C$17.20 on 451,000 shares.
-By Ben Dummett, Dow Jones Newswires; 416-306-2024;
ben.dummett@dowjones.com
(Carolyn King in Toronto contributed to this article.)