VANCOUVER – Turquoise Hill Resources Ltd. [TRQ-TSX] said Thursday it has reached an agreement in principle and entered into term sheet in relation to a transaction that will see Rio Tinto Plc [RIO-NYSE] paying $43 per share in cash for the Turquoise Hill shares it doesn’t already own.
The announcement comes after Turquoise Hill rejected an earlier offer, worth $34 a share which the company said did not reflect fair value for the company’s majority ownership of the Oyu Tolgoi copper-gold project in Mongolia.
.The transaction is the result of extensive negotiations between the special committee of independent directors of Turquoise Hill and Rio Tinto that occurred following the receipt on August 24, 2022 of an improved non-binding proposal from Rio Tinto worth $40 a share.
“These discussions ultimately culminated in the $43-per-share consideration offered pursuant to the transaction, which has the unanimous support of the special committee,’’ Turquoise Hill said in a press release.
The transaction implies an equity value for Turquoise Hill of approximately $8.7 billion, on a fully-diluted-in-the-money basis. It will require the approval of 66.67% of votes cast by the company’s shareholders (including Rio Tinto) and the approval of a simple majority of votes cast by minority shareholders of the company.
On Thursday, Turquoise Hill shares rose 13.6% or $4.92 to $41.04 on volume of 807,710. The shares are currently trading in a 52-week range of $38.92 and $12.15.
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.
The improved 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.
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.