TORONTO — A battle is brewing between Ivanhoe Mines Ltd. and international mining powerhouse Rio Tinto over a move by the Canadian company to protect itself against a hostile takeover.

Vancouver-based Ivanhoe said Monday a so-called “poison pill” adopted in April doesn’t violate a joint-venture contract between the two companies, despite Rio Tinto’s claims to the contrary.

David Huberman, lead independent director at Ivanhoe and chairman of its corporate governance committee, said the company will continue to support the shareholders’ rights plan, which was adopted by the board in April and approved by shareholders in May.

Rio Tinto said last week that it would initiate an arbitration proceeding against Ivanhoe (TSX:IVN) for its adoption of the poison pill, which it says breaches a joint-venture agreement to develop the huge Oyu Tolgoi copper-gold mine in Mongolia.

The mine, which is owned by Ivanhoe and the Mongolian government, is thought to be one of the top three copper and gold mines in the world. Rio Tinto has an indirect ownership interest in the mine through its 29.6 per cent stake in Ivanhoe, although the company has expressed interest in converting its equity into a direct stake.

Rio Tinto announced last week that it was also in talks with Chinese aluminum company Chinalco about buying a minority equity stake in Ivanhoe or a direct interest in Oyu Tolgoi.

Rio Tinto has the right to expand its stake in Ivanhoe to as much as 46.7 per cent.

“I’m sure what’s bothering Rio is the reality that this is a mega-project. This is going to require lots of dollars to go into the ground, because the economics of it is that it’s a very deep deposit,” said John Ing, president of Toronto-based investment dealer Maison Placements.

“So before they expend a lot of money, I think they’re going to want to make sure that they’re driving the bus.”

The mine is expected to cost US$4.6 billion to build.

Ray Goldie, base metals mining analyst at Salman Partners, said Rio Tinto appears to be looking at three ways to take the wheel at Oyu Tolgoi: converting their equity in Ivanhoe into an interest in the mine; taking an interest in the mine with Chinalco as a partner; or taking over Ivanhoe and then possibly taking Chinalco on as a partner.

He said a friendly takeover of Ivanhoe by Rio Tinto is possible, but only for the right price.

“Rio Tinto would have to pay something in the order of $20 per share of Ivanhoe” — a 34 per cent premium from Monday’s closing price of $14.93 on the Toronto Stock Exchange, Goldie said.

But Ivanhoe founder and executive chairman Robert Friedland “sees Oyu Tolgoi as being his greatest triumph, and the thing that he’ll be remembered for most, and maybe he doesn’t want to be taken over,” Goldie added.

Friedland has made billions selling world-class deposits in the past, including the Voisey’s Bay nickel-cobalt-copper mine in Labrador, which the former Inco Ltd. bought for $4.2 billion in the mid-’90s.

After Rio Tinto, Friedland is Ivanhoe’s largest shareholder, with a 22 per cent stake in the company.

Poison pills are designed to protect companies from hostile or creeping takeovers by allowing them to flood the market with shares in the face of a hostile bid, making a takeover far more expensive than it would be otherwise.

Ivanhoe’s plan gives shareholders the right to double the company’s shares outstanding.

Rio Tinto spokesman Tony Shaffer said this interferes with Rio’s anti-dilution rights, which prevent its stake in Ivanhoe from being diluted. The company said it also unilaterally extends its so-called “standstill obligation,” or a promise not to acquire more than a certain percentage of Ivanhoe, beyond the obligation’s current expiry date of October 2011.

“Despite our objections to the SRP (shareholders’ rights plan) and attempts to propose alternative language which would remedy the SRP, Ivanhoe proceeded to have the SRP ratified by its shareholders,” Shaffer said in an email.

Oyu Tolgoi is expected to produce 1.2 billion pounds of copper and 650,000 ounces of gold annually in its first 10 years.

“Ivanhoe intends to continue to work in good faith with Rio Tinto to realize our shared objective of bringing the world-class Oyu Tolgoi mine into production in 2013 and begin delivering its very substantial benefits to present and future generations of stakeholders,” Ivanhoe’s Huberman said.

Rio Tinto is a leading international mining group headquartered in the United Kingdom, combining Rio Tinto plc, a London- and NYSE-listed company, and Rio Tinto Ltd., which is listed on the Australian Securities Exchange.

Besides its stake in Oyu Tolgoi, Ivanhoe has a 57 per cent interest in Mongolian coal miner SouthGobi Resources (TSX:SGQ). It also has an 81 per cent interest in Ivanhoe Australia, an exploration and development company, and a 50 per cent interest in Altynalmas Gold Ltd., a company developing the Kyzyl gold project in Kazakhstan.

Shares in Ivanhoe added 41 cents or 2.8 per cent to $14.93 Monday on the TSX.