UPDATE: Ivanhoe Throws Spanner In Xstrata-Exco Copper Mine Deal

The largest shareholder in Exco Resources Ltd. (EXS.AU) is withholding its blessing from the company's planned A$175 million sale of two copper mining tenements to Xstrata PLC (XTA.LN), potentially complicating the path toward the deal going ahead.

Ivanhoe Australia Ltd. (IVA.AU), majority owned by Canadian mining baron Robert Friedland, said its chief executive Peter Reeve, a non-executive director of Exco, recused himself from board deliberations around the sale of the tenements close to Xstrata's Ernest Henry mine in Australia's Queensland state.

"No assumptions should be made as to how Ivanhoe will vote its 22.8% shareholding in relation to Exco's proposed transaction," Ivanhoe said in a statement.

Xstrata announced the deal with Exco earlier Wednesday. It said acquiring the E1 and Monakoff copper tenements in the northwestern area of Queensland will "make an incremental contribution to Ernest Henry's production profile from the second half of 2012".

The E1 and Monakoff deposits have a combined resource of 401,000 metric tons of copper and 384,000 ounces of gold, Xstrata said.

Ivanhoe added that it believes all after-tax proceeds from any sale should be returned to Exco shareholders, a condition that would limit Exco's ability to capitalize on the deal to develop its own operations.

The deal is also likely to be complicated by the interest of Sin-Tang Development Pte. Ltd., a Singapore-based iron ore trader which clashed bitterly with Xstrata during the Anglo-Swiss miner's A$514 million takeover of magnetite miner Sphere minerals last year.

Eight months after the Sphere takeover was announced and with Xstrata controlling 75% of the company, Sin-Tang is still the largest holdout against the offer with a 15% stake. Sin-Tang also holds 4.7% of Exco and had been involved in plans to fund the development of the site.

Sin-Tang wasn't immediately available for comment.

Ivanhoe and Xstrata are rivals in the Mount Isa region, which contains many of the world's largest base metals mines including BHP Billiton Ltd.'s (BHP) Cannington lead-zinc mine, Xstrata's Ernest Henry, and Xstrata's Mt Isa, one of the world's oldest copper-zinc mines.

Exco's Cloncurry Copper Project lies just 8 kilometers east of Ernest Henry.

Ivanhoe is keen to add regional projects to its portfolio to make use of its Osborne processing facility and has cited the Cloncurry project in management presentations.

-By David Fickling, Dow Jones Newswires; [phone]; [e-mail]