Rio Tinto has hit a roadblock in its bid to acquire the remaining 49 per cent stake in Turquoise Hill Resources after the Canadian company terminated its review of the $C34 ($37.6)-per-share proposal.
The $US2.7 billion ($3.85 billion) offer represented a 32 per cent premium on Turquoise Hill’s closing share price on the Toronto Stock Exchange on March 11.
Rio Tinto said it was “disappointed” by the result and demonstrated that since it made its proposal on March 14, the average share price performance of Turquoise Hill’s peers had declined 35 per cent “in light of a deteriorating and more uncertain external environment”.
“Furthermore, Turquoise Hill has disclosed in its latest earnings results that it needs to raise equity proceeds of more than $US1 billion to address its current estimate of funding requirements,” Rio Tinto said in a statement.
In January, Rio Tinto, Turquoise Hill and the Government of Mongolia came to a comprehensive agreement to resolve historical issues and reset their relationship concerning the Oyu Tolgoi copper-gold mine in Mongolia.
Underground operations at Oyu Tolgoi commenced in late January and the operation produced approximately 30,600 tonnes of copper and 47,600 ounces of gold in the second quarter of 2022.
Copper production guidance for 2022 is 110,000–150,000 tonnes, while 2022 gold production guidance is 150,000–170,000 ounces. Sustainable production at Oyu Tolgoi is targeted in the first half of 2023.
Maryse Saint-Laurent, who chaired a special committee tasked with reviewing Rio Tinto’s offer, said the proposal did not reflect Turqouise Hill’s current attributes.
“Market conditions in the equity and copper markets have changed significantly since the receipt of Rio Tinto’s privatisation proposal in March,” she said. “At the same time, the company has continued to make positive progress on the underground project.
Saint-Laurent said the special committee considered all relevant factors in reaching its decision, including the preliminary indications of value analysis from independent valuator TD Securities.
“Ultimately, we concluded that a transaction at the price proposed by Rio Tinto would not fairly compensate minority shareholders for the fundamental, long-term value of the company’s interest in Oyu Tolgoi,” she said.