Ivanhoe weighs options ahead of Mongolia development

TORONTO (Reuters) - Colorful dealmaker Robert Friedland, who made a fortune selling an undeveloped Canadian nickel deposit, is seeking new options for his current venture, Ivanhoe Mines (IVN.TO), as it starts building a massive copper-gold mine near Mongolia's border with resource-hungry China.

A statement said the company, which has partnered with mining giant Rio Tinto (RIO.L) in Mongolia, had hired bankers to look at possibilities "to further enhance shareholder value." That might include offering new shares or bonds, borrowing money or selling a subsidiary, as well as "various corporate transactions." The company stressed that no specific deal was under consideration.

Mongolia finally approved the Oyu Tolgoi project in 2009 after years of wrangling.

Analysts were reluctant to speculate on whether the statement meant that Ivanhoe could go on the block, but Salman Partners analyst Ray Goldie said the language of the statement left the door open for a sale.

Ivanhoe, which has a market capitalization of just over C$7 billion ($6.8 billion) "does say various other corporate transactions, so it is possible to read a sale of the company into that," Goldie said.

A source close to the Vancouver-based company also did not rule out the possibility of a sale, saying all options were possible.

Ivanhoe would not comment on whether an outright sale was being considered.

In a statement, the company said it had hired advisers from Citigroup (C.N) and Hatch Corporate Finance, a mining sector specialist, to investigate options.

"With the excellent progress that now is being made on moving the Oyu Tolgoi copper and gold project toward production, and with the strong performance of our South Gobi Energy coal subsidiary in Mongolia ... this is the right time to explore options," Friedland, Ivanhoe's chairman, said in the statement.

If the company is sold, the move would fit with Friedland's past behavior.

The Chicago-born billionaire, who owns 22.8 percent of Ivanhoe, made the bulk of his fortune by selling the undeveloped Voisey's Bay nickel-copper deposit in Eastern Canada to Inco for $3.7 billion in 1996. Inco has since been purchased by Brazil's Vale (VALE5.SA).

Ivanhoe's shares, meanwhile, have more than quintupled since the end of 2008. In October the company signed a long-delayed investment agreement with Mongolia clearing the way for development of Oyu Tolgoi, with the initial open-pit phase expected to cost $3.5 billion ($3.4 billion) to build.

Under the agreement, Mongolia took a 34 percent stake in the project.

Rio, which currently holds a 19.7 percent stake in Ivanhoe and has the right to increase the stake as high as 46.6 percent through funding commitments and purchases in the open market, declined to comment.

Ivanhoe, with its C$7 billion market capitalization, is now larger than mid-tier base metals producer First Quantum Minerals (FM.TO).

Its value has been driven by excitement over the massive deposits at Oyu Tolgoi, which is expected to produce an average of 1 billion pounds of copper and 500,000 ounces of gold a year over the first 10 years of its 35-year mine life, with commercial production expected in 2013.

The mine is located a mere 80 kilometers (50 miles) from the border with copper-hungry China.

Some have raised concern of the rise of Ivanhoe's share price, however.

Tom Meyer, an analyst Raymond James, said in a December 8 note that investors should sell the stock, saying the share price did not factor in risks for potential cost revisions, project execution and financing risk and delays.

The company's stock was up 48 Canadian cents at C$17.20 on the Toronto Stock Exchange.

Ivanhoe also owns a 80 percent stake in coal miner SouthGobi Energy (SGQ.TO), which plans to raise about $400 million from a Hong Kong initial public offering this month.

($1=$1.03 Canadian)

(Additional reporting by Euan Rocha in Toronto and Eric Onstad in London, Editing by Frank McGurty)

Source:Reuters News Agency