Ivanhoe Mines (NYSE: IVN) was broadly lower Wednesday after mining giant Rio Tinto (NYSE: RTP) boosted its stake in the company from 9.9% to 19.7%. Rio Tinto raised its interest in Ivanhoe by purchasing 46.3 million common shares for $388 million. The proceeds will be used to help build and commission Ivanhoe's Oyu Tolgoi project in Mongolia.
Thanks to the capital infusion, Ivanhoe now has roughly $610 million in cash on its balance sheet. However, traders are hardly cheering the news -- perhaps because Rio Tinto snapped up the stock at a bargain price of $8.38 per share, representing a steep discount to Tuesday's closing price of $11.51.
Under the terms of the partnership struck between the two commodity concerns, Rio Tinto has the right to purchase up to 43.1% of Ivanhoe's common shares during the next two years. Rio Tinto also has the option to increase its stake to 46.6% through open-market purchases.
IVN beat a hasty path lower in morning trading, down more than 6% in the first 90 minutes of the session. As a result, the stock is now poised to finish the week below support at its 10-week moving average for the first time since late June. However, the $10.50 region could provide a technical floor -- this area served as support for IVN back in late August and early September.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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