Friedland resumes helm of Ivanhoe

Robert Friedland will resume his position as CEO of Ivanhoe Mines as the company nears completion of its massive copper and gold project in Mongolia, the company announced Monday.

Robert Friedland will resume his position as CEO of Ivanhoe Mines as the company nears completion of its massive copper and gold project in Mongolia, the company announced Monday.

Friedland, currently executive chairman of the company he founded, will replace John Macken, who will remain Ivanhoe’s president.

Macken was hired to replace Friedland as CEO in 2006 in order to lead development of the massive Oyu Tolgoi project, which is thought to be one of the top three copper and gold mines in the world. He will continue to head up construction of Oyu Tolgoi, which is jointly owned by Ivanhoe and the Mongolian government.

“The most important contracts of the entire Oyu Tolgoi construction project will be awarded in the coming months, when the on-site workforce will expand from 5,300 today to more than 7,000 as we reach peak, full-scale activity,” Friedland said in a news release.

“John will fully devote his time to overseeing the progress being made in Mongolia and ensuring that Oyu Tolgoi begins producing its first copper and gold in late 2012, well ahead of the schedule previously set in the 2010 integrated development plan.”

Adam Graf, an analyst with Dahlman Rose in New York, said Friedland wants to take over the strategic side of the business while Macken focuses all his efforts on bringing Oyu Tolgoi to production ahead of schedule.

“I think if there is M&A going forward or deal-making or accessing the equity markets, the debt markets, what have you, I think Friedland wants to be the single voice there,” Graf said.

“(Friedland) is certainly the best equipped, as history has shown us, to deal with the strategic side of the business.”

Friedland made a name for himself in the international mining community when he sold the still undeveloped Voisey’s Bay nickel deposit in Labrador to Inco for more than $4 billion. Inco was later acquired by Brazilian mining giant Vale.

Ivanhoe is also creating a new office of the chairman that will evaluate strategic initiatives and find ways to further enhance value from the company’s projects.

The company also announced Monday that it is planning a conditional rights share offering to raise US$800 million to US$1 billion for development of the $4.6-billion Oyu Tolgoi project.

Full terms of the offering were not disclosed, but the company said each new common share of Ivanhoe Mines available for purchase by rights holders will be at a discount to the company’s current market price.

Ivanhoe shares (TSX:IVN) closed down 53 cents at C$24.24 Monday on the Toronto Stock Exchange.

“The goal of the offering is to ensure that Ivanhoe Mines remains in a strong financial position to bring the Oyu Tolgoi copper-gold mining complex into operation ahead of schedule in 2012 and to reinforce the company’s independence to pursue strategic alternatives to protect and enhance shareholder value,” Friedland said.

Ivanhoe said discussions were progressing with a group of international financial institutions on a separate debt-financing package that is expected to close in the first half of 2011.

Friedland, the company’s largest individual shareholder, intends to participate in the rights offering to the maximum permitted level to maintain his 18.3 per cent stake, it said.

“It’s not a surprise that they need to raise additional capital,” Graf said.

“Their alternatives to raise the capital they need are equity, debt, or selling down of their subsidiaries, so it’s not a surprise that they want to raise equity as part of that.”

International mining giant Rio Tinto, a key partner of Ivanhoe’s on Oyu Tolgoi, is contributing about $1.5 billion to the project, and Ivanhoe has to cover the rest.

Rio Tinto “will be fully entitled to exercise its rights in the offering announced today,” Ivanhoe said.

However, the company said it believes that the rights offering is “exempt from Rio Tinto’s right of first offer to acquire shares issued by Ivanhoe Mines under terms of Ivanhoe’s 2006 five-year private-placement agreement with Rio Tinto.”

The relationship between Ivanhoe and Rio Tinto has been rocky since the Canadian mining company adopted a so-called poison pill, designed to prevent it from a hostile or creeping takeover by allowing it to flood the market with shares.

Rio Tinto, which owns 34.9 per cent of Ivanhoe and has the right to acquire as much as 46.7 per cent, said the plan breaches the companies’ joint-venture agreement.

The companies’ relationship further deteriorated when Ivanhoe announced in July that it would lift restrictions on its ability to issue shares to strategic investors, potentially diluting Rio Tinto’s stake in the company.

Rio Tinto has an indirect ownership interest in Oyu Tolgoi through its stake in Ivanhoe, although the company has expressed interest in converting its equity into a direct stake.

Ivanhoe Mines, an international mining company with operations focused in the Asia-Pacific region, has assets that include the company’s 66 per cent stake in Oyu Tolgoi, a 57 per cent interest in Mongolian coal miner SouthGobi Resources (TSX:SGQ), a 62 per cent interest in Ivanhoe Australia and a 50 per cent interest in Altynalmas Gold Ltd., a private company developing the Kyzyl gold project in Kazakhstan.