Ivanhoe shares jump on Oyu Tolgoi funding optimism

By Cameron French

TORONTO (Reuters) - Ivanhoe Mines shares jumped 20 percent on Thursday as strong demand for a $15.2 billion rights issue by partner Rio Tinto appeared to ease financing concerns for their Oyu Tolgoi copper-gold project in Mongolia.

Rio, which has been struggling to pay down billions in debt from its 2007 acquisition of Canadian aluminum producer Alcan, owns about 10 percent of Ivanhoe, but could boost that stake eventually above 40 percent by meeting funding commitments for Oyu Tolgoi.

Rio said the British leg of the rights issue -- the bulk of it -- had been successfully completed, meaning it can cover its immediate debt servicing needs.

"Rio has therefore got financing that can lead to (Oyu Tolgoi) when they get permission to go ahead," said Raymond Goldie, an analyst at Salman Partners.

Media reports in March suggested that Rio may delay funding construction of the $3 billion project, although the company denied at the time it would do so.

Just after midday, Ivanhoe stock was up C$1.31 at C$7.76 on the Toronto Stock Exchange.

Ivanhoe and Rio have been waiting for Mongolia's parliament to vote on a draft investment agreement reached in March that could allow the project to go ahead.

Under the deal -- which revives a similar agreement that fell apart early last year -- Mongolia would take a 34 percent stake in Oyu Tolgoi, which is expected to produce an average of at least 440,000 tonnes of copper and 320,000 ounces of gold over a 35-year mine life.

A report last month quoted new Mongolian President Tsakhia Elbegdorj as saying he favored taking 50 percent of the profits from the project instead of an equity stake, but it's unclear whether that idea could lead to changes to the agreement.

Goldie said it was tough to say whether such a change would have a negative impact on Ivanhoe's financials.

However, any change to the agreement would cause further delays to the approval process.

Ivanhoe officials would not comment on the status of the agreement.

($1=$1.16 Canadian)

(Reporting by Cameron French; editing by Peter Galloway)