Recently, Rio Tinto Plc (RIO - Analyst Report) acquired an additional 51% of common shares (or roughly 133.6 million shares) under Ivanhoe Mine's rights offering. The company had to shell out approximately $935 million or $7.00 per share for the transaction.
Previously, Rio Tinto owned about 377.4 million common shares of Ivanhoe, representing approximately 51% of outstanding common shares. Following the completion of the rights offering, Rio Tinto now owns roughly 511 million common shares or 51% of the outstanding common shares.
The acquisition of additional shares under Ivanhoe’s rights offering was an obligation on Rio Tinto’s part to provide adequate funds to Ivanhoe. Such funding is believed to ensure timely development of Ivanhoe's Oyu Tolgoi copper-gold mine in Mongolia.
Rio Tinto has the right to acquire additional Ivanhoe securities under its equity financing right of first offer until October 24, 2012. The company’s anti-dilution rights also permit it to acquire additional securities of Ivanhoe, thereby maintaining its proportional equity interest in the mine.
However, Rio presently has no intention of further acquiring additional securities of Ivanhoe. Any further acquisition or sell of such securities may follow evaluation of Ivanhoe’s business, prospects, financial conditions, market for Ivanhoe's securities, general economic and tax conditions as well as other factors.
Headquartered in London, UK, mining giant Rio Tinto competes with big banners like BHP Billiton Ltd. (BHP - Analyst Report) and Vale S.A. (VALE - Analyst Report) . The company’s strategy of focusing on long-life, cost-competitive and expandable assets besides its pipeline of growth projects adds value to the stock.
We have a Neutral recommendation on Rio Tinto over the long term. Also, the company has a Zacks #4 Rank, implying a short-term (1-3 months) Sell rating.