Rio Tinto Agrees to Take Over Remaining Turquoise Hill Resources Ltd’s Stake for $3.3 Billion

Some minority of Turquoise Hill Resources Ltd’s Stake-holders, like Pentwater Capital and SailingStone Capital, have been vocal in their opposition to Rio’s plan to takeover Turquoise Hill Resources Ltd.

Turquoise Hill Resources Ltd’s stake

Rio Tinto agreed to purchase the remaining Turquoise Hill Resources Ltd’s stake for $3.3 billion thereby paving the way for giving the Anglo-Australian group more control over Mongolia’s Oyu Tolgoi copper mine.

The move will allow Rio Tinto to have full ownership of the mine. The latest development resolved a six-month-long deadlock between Rio Tinto and the Quebec-based group. It is expected to give the former more exposure to copper. Copper is projected to improve in value as more and more governments try to switch to renewable energy. Metal is a major component for electric vehicles and a vast quantity of the material is needed to meet the demand.

Rio Tinto had initially offered $2.7 billion in March 2022 to take over the minority of Turquoise Hill Resources Ltd’s stake. In August 2022, Rio Tinto increased this offer to $3.1 billion which Turquoise Hill declined. The current purchase price of C$43 per Turquoise Hill Resources Ltd’s stake represents a 67% premium from the day before the initial offer was made.

The Canadian mineral exploration and development company Turquoise Hill has a 66 per cent share in the Mongolian copper mine. Situated in the Gobi desert, the Oyu Tolgoi mine is said to have one of the world’s largest copper and gold deposits. The mine is state-owned with Mongolia owning 33 per cent of the project.

Jakob Stausholm, Chief Executive Officer of Rio Tinto, said that “the move will simplify governance, improve efficiency and create greater certainty of funding for the long-term success of the Oyu Tolgoi project.”

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From a record high above $10,600 in March, copper has dipped sharply to below $7,800. The drop is largely attributed to soaring energy prices which threaten to push much of the world towards an economic downturn. Current global health concerns (Covid-19) have also curbed the demand in China thereby affecting the price of the metal.

However, as more and more governments try to turn towards renewables and green energy, the demand for copper is expected to pick up. Production of the metal will have to double by 2035 in order to meet this demand. S&P Global said that copper production should be able to achieve these targets and meet the needs of the global economy.

It is this expectation of growing demand that has prompted large mining companies to increase their exposure to copper and diversify their respective portfolios from the usual iron ore and coal. However, many big companies have lamented the lack of quality projects in which they could invest.

The Anglo-Australian Rio Tinto has mined copper in the Gobi desert for a decade. Earlier this year, the company and the Mongolian government struck a $7 billion deal for an underground expansion of the Oyu Tolgoi mine. Certain issues hindered the plan but these were eventually ironed out. Once finished, the project will be one of the biggest copper mines in the world. It is believed to be capable of producing more than 500,000 tons of copper every year at its peak.

Rio Tinto offers a “sensible price” to Turquoise Hills Resources

Berenberg’s analyst Richard Hatch stated that the latest deal offered by Rio Tinto to Turquoise Hills Resources Ltd. was a “sensible price”. He further added that the move would give the Australian mining company the “lowest-risk exposure to a meaningful equity increase” in the production of copper. Rio Tinto had previously stated that the move would simplify the ownership organization of the company structure while boosting its copper portfolio.

Some minority of Turquoise Hill Resources Ltd’s Stake-holders, like Pentwater Capital and SailingStone Capital, have been vocal in their opposition to Rio’s plan to takeover Turquoise Hill Resources Ltd. However, they have yet to give their official statements regarding the latest proposed deal between Rio Tinto and Turquoise Hill.

Eight Capital’s Ralph Profiti noted that the new buffed deal between the two companies “may be just enough to clear the hurdle of majority-of-minority shareholder support”. However, he didn’t rule out the high degree of risk that minority shareholders could still vote the deal down.

Scotia Capital’s Orest Wowkodaw said that the Mongolia-based copper mine was a very big, high-grade, long-life, expandable, world-class Tier 1 copper mine. Wowkadow added that Oyu Tolgoi was an extremely valuable asset in today’s market. The analyst said that a higher bid of $50 per share would have been closer to fair value.

Initially, Turquoise Hill Resources Ltd. had offered to purchase a 49% stake in the company. They had also planned to take the company private around mid-March. In the original offer, Rio Tinto would have paid $34 per share for the 99 million shares owned by Turquoise Hill Resources Ltd.’s minority shareholders.

A special committee set by Turquoise Hill was established following the original offer. By mid-August, the committee turned down the $34 per share offered by Rio Tinto. They said that the amount did not fully and fairly reflect the fundamental and long-term strategic value of the project.

As things currently stand, a special meeting to vote on the new proposal is expected in the fourth quarter of 2022 and, if approved, the deal is expected to close shortly thereafter.

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