Rio Tinto [LSE:RIO] has made a non-binding proposal to acquire the approximately 49% of the issued and outstanding shares of Turquoise Hill mine [NYSE:TRQ] that Rio Tinto does not currently own.
Under the terms of the proposed transaction, Turquoise Hill minority shareholders would receive C$34 in cash per Turquoise Hill share, representing a premium of 32% to Turquoise Hill’s last closing share price on the Toronto Stock Exchange. This proposal would value the Turquoise Hill minority share capital at approximately US$2.7 billion.
The proposal follows the recent comprehensive agreement reached between Rio Tinto, Turquoise Hill and the Government of Mongolia to move the Oyu Tolgoi project forward, reset the relationship between the partners and approve commencement of underground operations. It would simplify the Oyu Tolgoi ownership structure, strengthen Rio Tinto’s copper portfolio, and reinforce its long-term commitment to Mongolia.
In addition, it provides Turquoise Hill minority shareholders with the ability to realise compelling, immediate and certain value for their shares at a time when uncertainties inherent in the development of the underground operations and funding of such development remain.
Turquoise Hill flagged by The Armchair Trader in November
Turquoise Hill Resources was flagged up by The Armchair Trader in November as a copper stock to watch. We liked the fact that copper production for Q3 was up 16% year on year and that the mine also managed to produce over 130,000 oz of gold over the same period. We also noted that revenues were up 256% y-o-y and that gold volumes were also soaring. While mining operations in Mongolia had been hampered by the pandemic, we were optimistic for the future of this asset in 2022. It seems Rio Tinto shares our view.
Rio Tinto Chief Executive Jakob Stausholm explained: “Rio Tinto strongly believes in the long-term success of Oyu Tolgoi and Mongolia, and delivering for all stakeholders over the long-term. That is why we want to increase our interest in Oyu Tolgoi, simplify the ownership structure, and further strengthen Rio Tinto’s copper portfolio. We believe the terms of proposal are compelling for Turquoise Hill shareholders.”
Deal would help Rio Tinto move project forward
The deal would enable Rio Tinto to work directly with the government of Mongolia to move the Oyu Tolgoi project forward with a simpler and more efficient ownership and governance structure, Rio Tinto said. “With our relationship reset and the underground operations commenced, this transaction demonstrates our clear and unequivocal long-term commitment to Mongolia,” Stausholm said this morning.
No agreement had been reached between Rio Tinto and Turquoise Hill at time of writing, and there can be no assurance that any transaction will result from these discussions. Even if a transaction is agreed, there can be no assurances as to its terms, structure or timing.
If the deal is successful Rio Tinto will hold a 66% interest in Oyu Tolgoi with the remaining 34% owned by Mongolia. The valuation of Turquoise Hill minority shareholdings at US$2.7 billion is based on a Canadian dollar exchange rate of US$0.7874 as at 11 March.