Rio Tinto Raises Stake in Ivanhoe Mines on Copper & Gold Outlook
Rio Tinto (NYSE:RIO) has raised its stake in Canadian mineral exploration company Ivanhoe Mines by 2 percent at a price of $536 million. Rio Tinto now holds a 48.5% stake in the company with a total investment of close to $4 billion since 2006. [1] Rio Tinto is a diversified mining company, with operations spanning the globe, competing with mining giants like Vale (NYSE:Vale), BHP (NYSE:BHP), Freeport McMoran(NYSE:FCX) and other mining companies.
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Our price estimate for Rio Tinto is $97, about 40% higher than the current market price.
Ivanhoe Mines’ projects are primarily focused in the Asia Pacific regions with prime assets ranging from the Oyu Tolgoi copper-gold mine development project in southern Mongolia to investments in the companies like SouthGobi Resources, Ivanhoe Australia and Altynalmas Gold. Rio Tinto’s maximum permissible ownership of Ivanhoe Mines is capped at 49 percent until the current standstill limitation expires on January 18, 2012. Rio Tinto exercised its right to acquire an additional 27,896,570 common shares of Ivanhoe Mines.
In an official statement, the company added that the focus on Ivanhoe Mines is primarily for its 66 percent stake in the Qyu Tolgoi copper-gold project. According to estimates, the region will have a lower cost of production in addition to a long life cycle and should also hold significant expansion potential. The estimated reserves in the region total 81.3 billion pounds of copper and 46.4 million ounces of gold [2]. Production in the region is set to start by 2013 and will be increased to reach its full capacity by 2018.
Commodity prices are on the rise as industrial demand from developing nations continues to grow. Copper is already an under-supplied metal with demand growth outpacing increases in production. The metal should continue to remain in demand going forward so increasing its investment in quality copper mines is a logical step for Rio Tinto.
See our complete analysis for Rio Tinto’s stock here.
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