Rio Tinto unveils US$2.7 billion Turquoise Hill bid

Rio Tinto unveils US$2.7 billion Turquoise Hill bid
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TORONTO – Rio Tinto Rio Tinto Plc [RIO-NYSE] said Monday it has made a non-binding proposal to acquire the 49% stake in Turquoise Hill Resources Ltd. [TRQ-TSX] it does not already own for US$2.7 billion.

Under the all-cash proposal, Turquoise Hill minority shareholders would receive $34 per share, an amount that represents a 32% premium on the last closing price of the shares on the TSX.

On Monday, Turquoise Hill shares jumped 32.3% or $8.29 to $33.97 on volume of 1.09 million. The shares previously traded in a 52-week range of $27.84 and $12.15.

In a news release, Turquoise Hill acknowledged receipt of the proposal, but said shareholders do not need to take any action at this time. “The board of directors of the company will be establishing a special committee of independent directors to review and consider Rio Tinto’s proposal,’’ the company said.

News of the proposed transaction 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.

Rio said the acquisition of the remaining 49% stake in Turquoise Hill would simplify Oyu Tolgoi’s ownership structure, strengthen Rio Tinto’s copper portfolio and reinforce its long-term commitment to Mongolia.

One of the world’s largest known copper-gold deposits, Oyu Tolgoi is held 34% by Mongolia, with the other 66% owned by Rio Tinto through its interest in Turquoise Hill. Rio is the mine operator.

At peak production, Oyu Tolgoi is expected to operate in the first quartile of the copper cash cost curve, producing around 500,000 tonnes of copper annually on average from 2028 to 2036 from the open pit and underground, plus an average of 350,000 tonnes for a further five years.

That compares with 163,000 tonnes in 2021, according to a Rio Tinto fourth quarter operations review, published on January 17, 2022.

The underground ore reserve has an average copper grade of 1.52%, which is more than three times higher than the open-pit ore reserve, and contains 0.31 g/t gold.

Turquoise Hill recently agreed to waive in full, the US$2.4 billion carry account loan of the government of Mongolia’s state-owned entity through which it owns its interest in the mine.

The loan consists of the amount of equity invested (US$1.4 billion) in the mine by Turquoise Hill on behalf of Mongolia to date, plus US$1.0 billion of accrued interest.

The parties have also agreed to improve co-operation with Mongolia in monitoring the underground development and enhancing environmental and social governance matters.

As well, the Oyu Tolgoi board of directors approved the signing of an electricity supply agreement to provide the mine with a long-term source of power from the Mongolian grid on terms fully agreed with the government of Mongolia.

While the Mongolian national grid prepares to connect to the mine, Oyu Tolgoi will continue to import its power from Inner Mongolia, China.

 

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