For $1.2 bn funding Rio to manage Ivanhoe's Oyu Tolgoi project in Mongolia

Mining giant, Rio Tinto and Canada's Ivanhoe Mines yesterday temporarily buried the hatchet and have decided to go ahead with jointly developing the Oyu Tolgoi copper and gold project in Mongolia.

Under the agreement worked out yesterday, Anglo Australian miner Rio Tinto will provide $1.8 billion in interim financing to Ivanhoe in exchange for management of the Oyu Tolgoi project.

Rio Tinto will also increase its stake in Ivanhoe to 49 per cent by January 2012, participate in Ivanhoe's planned $1.2-billion rights offer, exercise share warrants and buy outstanding shares and acquire a total of 20 million shares at current market prices, from Citibank and Ivanhoe Mines executive chairman and chief executive officer, Robert Friedland.

The arbitration process initiated by Rio Tinto regarding its participation in Ivanhoe's shareholders rights plan has been put off by six months to June 2011.

In addition, Rio Tinto has agreed to work closely with Ivanhoe to complete a major project-finance package that Ivanhoe is negotiating with a group of international financial institutions, government credit agencies and commercial banks.

The agreement brings a temporary truce but crucially provides the means to raise funds of up to $6.5 billion to go ahead with the full-scale construction of the project and aim for commencing production by late 2012.