Rio Tinto PLC (RIO) has been successful in its challenge of certain provisions in a poison pill defense adopted by Canadian mining concern Ivanhoe Mines Ltd. (IVN.T), following a ruling Tuesday by an independent arbitrator.

The decision allows Rio to maintain its 49% stake if any bid for Ivanhoe triggers the smaller company's shareholder rights plan adopted last year, Ivanhoe said in a statement. It also frees Rio to increase its stake beyond the 49% cap agreed between the companies under a five-year-old pact due to expire Jan. 18, something many analysts have said is likely at some point.

Ivanhoe is majority owner of the massive Oyu Tolgoi copper and gold project in Mongolia, which founder and Chief Executive Robert Friedland has said could become one of the world's largest mines and a major driver of the small Asian country's economy for decades.

"Rio Tinto is currently examining the decision but can confirm an independent arbitrator has upheld our claim in respect of Ivanhoe Mines' shareholder rights plan," a spokesman for the Anglo-Australian company said in an emailed reply to questions.

Rio already is Ivanhoe's largest shareholder, having steadily increased its holding over the past two years, and is manager of the Oyu Tolgoi project. It also effectively controls the Vancouver-based company's board, with three employees and four nominees among the 14 directors.

The companies had turned to arbitration after Rio claimed the so-called poison pill adopted by Ivanhoe's board in May 2010 breached its rights under a 2006 agreement between the companies.

Ivanhoe said its shareholder rights plan can remain in effect until April 2013, but if it is triggered it will be subject to Rio's right to maintain the relative size of its holding if Ivanhoe issues shares. Ivanhoe had argued the scheme was necessary to give its board time to consider any bid and to explore alternatives, which analysts have said was an attempt to create a bidding war if Rio launched a takeover bid.

Ivanhoe said the arbitrator also ruled against its counterclaim that Rio had breached certain obligations under their agreement.

"We will continue to strive to ensure that all Ivanhoe shareholders are treated fairly," said David Huberman, chairman of Ivanhoe.

Ivanhoe owns 66% of Oyu Tolgoi, which is due to start commercial production in the middle of 2013, and the Mongolian government owns the remaining 34% stake. Ivanhoe also owns a 58% interest in Mongolian coal miner SouthGobi Resources Ltd. (SGQ.T) and a 59% interest in exploration firm Ivanhoe Australia Ltd. (IVA.AU).

Oyu Tolgoi, located 80 kilometers north of China, is expected to be one of the world's largest mines when fully operational. Annual output in the first 10 years is projected to average 1.2 billion pounds of copper, 650,000 troy ounces of gold, and more than three million ounces of silver.

-By Robb M. Stewart, Dow Jones Newswires; +61 3 9292 2094; robb.stewart@dowjones.com

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