Ivanhoe cuts jobs at project in Mongolia
ANDY HOFFMAN
From Wednesday's Globe and Mail
December 2, 2008 at 9:13 PM EST
Citing the global financial crisis and plunging metal prices, Ivanhoe Mines Ltd. and its partner Rio Tinto PLC are slashing spending and jobs at the massive Oyu Tolgoi copper and gold project in Mongolia.
Oyu Tolgoi, which represents one of the world's largest undeveloped mines, has languished in uncertainty for years because it has yet to win the go-ahead from the Mongolian government.
Ivanhoe and its chairman, Robert Friedland, have been trying for more than five years to secure an investment agreement needed to tap the mineral riches.
Oyu Tolgoi, which is likely to cost more than $3-billion (U.S.) to build, is cutting 250 jobs representing 40 per cent of the work force. Ivanhoe shares, which are down 75 per cent this year, fell 7 per cent on the Toronto stock market Tuesday.
Rio Tinto, which currently owns just under 10 per cent of Ivanhoe, has agreed to increase its stake in the Vancouver company to 19.9 per cent, when and if an investment agreement is reached. It has the right to raise its stake to 46.65 per cent.
London-based Rio Tinto is straining under $40-billion in debt it took on last year to acquire Canadian aluminum giant Alcan Inc. Analysts and investors have raised concerns about the debt and say Rio Tinto may be forced to write down the Alcan assets by as much as $7-billion, due to slumping aluminum prices and waning demand.
Mongolia has indicated that “draft resolutions,” which would give Mongolia's Prime Minister the authority to negotiate an investment agreement for Oyu Tolgoi, will be introduced into parliament soon, perhaps this week. Any deal needs approval by Mongolia's fractious parliament.
Some industry sources have suggested the Oyu Tolgoi cutbacks could be a move to gain bargaining leverage with Mongolia, but a source close to Ivanhoe said this wasn't the case.
Under a previous draft agreement, Mongolia was to acquire a 34-per-cent interest in the Oyu Tolgoi project. It may also seek a production-sharing deal and it is unclear if it will impose a windfall profit tax on the project.
Ivanhoe (IVN)
