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By Sonali Paul
MELBOURNE, April 19 (Reuters) - Rio Tinto took a big step toward owning a massive copper and gold project in Mongolia and diversifying from iron ore, after agreeing to buy more shares in developer Ivanhoe Mines Ltd and guaranteeing $3.3 billion needed to open the mine.
Successful development of the Oyu Tolgoi project is crucial to reducing Rio Tinto's dependence on iron ore, which some analysts say may be in surplus within the next three years.
Ivanhoe's founder billionaire Robert Friedland is leaving the company as part of the deal announced on Wednesday.
The deal with Rio Tinto is essential for the Oyu Tolgoi project to reach commercial production on target in the first half of 2013, and should give shareholders some comfort going into Rio Tinto's annual meeting in London on Thursday.
Investors will be looking for an update on the capital and operating costs at Oyu Tolgoi, following a review released last month by Ivanhoe, and not officially endorsed by Rio Tinto, that put the capital costs at $13.2 billion, up from $9.55 billion.
Rio Tinto has invested more than $4 billion in Ivanhoe over the past six years to position itself to take over the company founded by Friedland and get its hands on the Canadian miner's 66 percent stake in Oyu Tolgoi, one of the world's largest copper discoveries.
Along the way, Friedland, best known for turning the Voisey's Bay nickel discovery in Canada into a C$4.3 billion ($4.4 billion) fortune, tried to ensure he would get a big takeover premium for Ivanhoe.
Was Friedland outsmarted by the Anglo Australian miner, which owns 51 percent of Ivanhoe?
Analysts say yes, but that was largely because falling copper prices and tight credit conditions worked against Ivanhoe as lenders balked at providing up to $4 billion to the Toronto-listed explorer.
"Events have just conspired to help Rio use its financial muscle. It's used patience and has been in a good position and should be able to get the balance of the company without having to pay a big premium," said Tim Gerrard, an analyst at Investec.
Friedland got a severance package on Wednesday and Ivanhoe agreed to sell new shares at $8.34 a piece to raise $1.8 billion to help finish digging the mine in the South Gobi desert.
"Ultimately, Friedland had always wanted someone to bid for the balance of the company that wasn't owned by Rio," said Tim Barker, a portfolio manager at BT Investment Management.
As recently as last August, Friedland argued Ivanhoe was worth at least $34 a share.
At the time, Ivanhoe was trading around $25.50. Its shares have since crumbled, after Rio Tinto won a fight against Ivanhoe's "poison pill" defence last December and most recently after Ivanhoe's cost estimates on Oyu Tolgoi soared.
"(Rio) will pay a premium at some point, but it'll be off a lower base," said Investec's Gerrard.
Rio Tinto declined to comment on the sale of Ivanhoe's stake in Mongolian coal miner SouthGobi Resources to China's Chalco, which could be derailed after the Mongolian government suspended its SouthGobi exploration licenses.
Ivanhoe's shares on Wednesday rose 16 percent to $13.64 in New York and to C$13.49 in Toronto.
Future price gains are likely to be limited, analysts said, effectively capped by the $12.79 a share that Rio Tinto has agreed to pay to convert warrants that Ivanhoe will issue to the Anglo Australian miner over a three-year period into shares. Rio Tinto stands to own as much as a 64.8 percent stake in Ivanhoe.
Rio Tinto's shares gained 3 cents to A$66.53, trailing a 0.7 percent gain in the materials sector. ($1 = 0.9888 Canadian dollars) (Reporting by Sonali Paul; Editing by Ryan Woo)