Turquoise Hill Resources has a majority share in Oyu Tolgoi based in Mongolia and the new bid would further boost Rio Tinto’s plan of gaining direct ownership to Oyu Tolgoi. Rio Tinto reportedly offered C$40 (US$31) per share to buy out the Canadian copper mining giant. Turquoise Hill holds 66% on Oyu Tolgoi while Mongolia owns 34%.
Earlier, the Canadian copper mining giant rejected Rio Tinto’s offer citing a low offer of C$34 (US$26.67) per share. The initial proposal was sent to Turquoise Hill Resources Ltd. in March 2022. An independent committee was established by Turquoise Hill in order to know and determine if the move was good for its minority stakeholders. Turquoise Hill is a single-asset entity that holds about 66% of one of the world’s biggest known gold and copper deposits in the Asian country. Its mine is located 550 km (342 miles) south of Ulaanbaatar in Mongolia.
Jakob Stausholm, Chief Executive Officer of Rio Tinto said that the new deal has “full and fair value for all Turquoise Hill Resources shareholders.”
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As the world is slowly veering away from fossil fuels, copper is poised for strong demand as an important component used in electrical wiring in E-vehicles. Moreover, copper is also seen as a valuable and key resource in charging stations and other renewable energy infrastructures. Aside from copper, nickel is also viewed as a major ingredient for the green energy transition. And although the demand may look brighter for these ores, long-term supply and the lack of new mines may pull high hopes down.
The buyout plan has caused Rio Tinto’s share to sink 2% in London while Turquoise Hill Resources Ltd. improved to 24%. The unexpected surge was the biggest intraday spike the Montreal-based company may have experienced since March.
Earlier this year, the Mongolian government and Rio Tinto have stopped their long running dispute over a $7billion mine expansion. The deal between Rio Tinto and Mongolia saw $2.4 billion written off. The government of Mongolia owns about 34% of the Oyu Tolgoi Mine. At one time, the Mongolian government threatened to revoke the 2009 investment agreement between them and Rio Tinto.
The Ulaanbaatar-based copper mine will be the world’s fourth largest copper mine once its underground component is done. The expansion project has suffered delays and massive cost overruns for more than 3 years. Turquoise Hill Resources Ltd. and its partners are working doubly hard in order to achieve a production rate of no less than half a million metric tons of the material every year. Initial production was expected in the late 2020. It was, however, moved to October of this year and then rescheduled to the first half of next year.
During the middle of the last decade, a lot of mining companies have turned away from big deals due to the crash of the commodity. Today, the scenario may have changed as more and more big mining companies are pushing to increase their presence to commodities like copper, gold and nickel. Companies like the BHP Group want to increase their exposure by bidding $5.8 billion to Oz Minerals Ltd. However, the bid of the world’s biggest miner got rejected by the latter.
Rio Tinto’s Buyout Bid Wants Turquoise Hill Resource Ltd Not to Raise More than $1b Equity
The Canadian company first received an offer from Rio Tinto after the commodity saw a record high. But despite a decline in the price of copper since then, Turquoise Hill Resources Ltd set up a committee and turned down the offer of Rio Tinto.
Maryse Saint-Laurent who chairs this committee said, “Market conditions in the equity and copper markets have changed significantly since the receipt of Rio Tinto’s privatization proposal.” She added, “at the same time, the company has continued to make positive progress on the underground project.”
Three months ago, Rio Tinto gave the green light to provide interim debt funding to Turquoise Hill Resources Ltd. of up to $400 million.
Major shareholders within the Canadian company, however, are not totally keen with the said offer. Activist investor Pentwater Capital Management is one of the major shareholders who are opposing the buyout plan by Rio Tinto. Pentwater, the largest minority shareholder, has a 10% stake in the company. Also sharing Pentwater’s sentiment is SailingStone Capital Partners which has a share of 2.2%.
With Rio Tinto increasing its offer for Turquoise Hill Resources Ltd.,the mining giant is expecting that they will gain more control of the latter and eventually gain direct ownership to the Oyu Tolgoi copper mine in Mongolia.