Serious cracks have emerged in the much-vaunted relationship between Rio
Tinto and Canadian billionaire Robert Friedland that could threaten the
development of the 5 billion US dollar (5.7 billion US dollar) Oyu Tolgoi copper-gold project
in Mongolia.

Rio at the weekend instigated arbitration with the Friedland-controlled
Ivanhoe Mines over a decision by Ivanhoe”s board to introduce a shareholder
rights plan which Rio claims could substantially dilute its shareholding.

Ivanhoe is a Canadian-listed company. Its main asset is Oyu Tolgoi, one of
the world”s biggest undeveloped copper-gold projects, located in the Gobi
desert in Mongolia. Rio invested in Ivanhoe to get exposure to Oyu Tolgoi,
which is a key component of Rio”s global base metals growth strategy.

Rio claims the shareholder rights plan breaches its 2006 contract with
Ivanhoe, drafted when it moved on to Ivanhoe”s share register.

The plan restricts Rio”s ability to buy shares in Ivanhoe and protect its
stake, currently at 29.6 per cent (with warrants to increase it to 44 per cent)
in the event of dilutionary share issues by Ivanhoe.

Ivanhoe said the plan would ensure “fair treatment of all Ivanhoe Mines
shareholders during any takeover bid for Ivanhoe”s outstanding common shares,
or any other transaction that would involve a change of control”.

The shareholder rights plan was ratified by Ivanhoe shareholders two months
ago, despite Rio”s opposition. Rio has since tried to reach an agreement with
Ivanhoe before instigating arbitration.

The warring factions are likely to spend at least a month deciding on a
suitable, Vancouver-based arbitrator. Failure to settle on an arbitrator is
likely to prompt Rio to pursue its grievances through the court system.

Rio is hoping a speedy development of Oyu Tolgoi will deliver first
production in 2013, ramping up to 450,000 tonnes of copper and 330,000 ounces
of gold a year within five years.

Ivanhoe owns 66 per cent of Oyu Tolgoi and the Mongolian
Government owns the balance. Rio is in talks with Ivanhoe to convert some of
its Ivanhoe stock into equity in Oyu Tolgoi.

Information from www.thewest.com.au