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Rio Tinto and Turquoise Hill: A $3.3 billion timeline

Tuesday, December 13th, 2022

Rio has said it will terminate agreements with dissenting minority Turquoise Hill shareholders, raising further questions about the takeover.

The extended back-and-forth between Rio Tinto and Turquoise Hill Resources for ownership of one of the world’s most lucrative copper mines has surpassed its second-to-last hurdle, with the deal effectively complete pending final approval from the Supreme Court of Yukon.

The Australian major has made a series of moves in 2022 to acquire a full stake in the operations in order to maintain consistent development of the project as copper increases in importance amid the global push for decarbonisation.

Located in Mongolia’s South Gobi region, the Oyu Tolgoi is estimated to deliver production from five mineralised deposits for 100 years. The mine’s first deposit entered production in 2013 as an open-pit operation, and the mine is expected to produce more than 500,000 tonnes of copper per year from 2028–2036.

Rio Tinto had held a 51 per cent stake in Turquoise Hill and was long seeking to acquire the remaining 49 per cent in the Canadian miner.

The major miner opened buyout discussions in March with an offer of $US2.7 billion that was ultimately turned down. That initial offer would have seen shareholders receive $C34 per share. Turquoise Hill special committee chair Maryse Saint-Laurent noted that changing conditions were partly responsible for the decision.

“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 time.

“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.”

Rio wasted no time coming back with an offer of $US3.1 billion in August, but that was also rejected. The improved proposal included an 18 per cent increase to the original asking price of $C34 per share, leaving the improved offer standing at $C40.

In a statement following this proposal, Rio Tinto chief executive Jakob Stausholm justified the marked-up price as being in the best interest of all shareholders involved.

“Rio Tinto believes this offer not only provides full and fair value for Turquoise Hill shareholders but is in the best interests of all stakeholders as we work to move the Oyu Tolgoi project forward,” Stausholm said.

“We will continue to take a disciplined approach to capital allocation and strongly encourage the board of Turquoise Hill to engage constructively, and to support and recommend in favour if Rio Tinto’s improved proposal.”

The third time seemed to be the charm when yet another offer of $US3.3 billion was put on the table in September and confirmed by the two companies. The in-principle agreement saw Rio Tinto offer to pay $C43 per share in cash, a deal that was initially a success before being declined by Turquoise Hill shareholder SailingStone Capital, who asked for a minimum of $C56 per share instead.

SailingStone Capital, which held 2.2 per cent of all Turquoise Hill shares, released a statement describing the $C43-per-share offer as inadequate, saying it contained flawed data.

“The proposal does not adequately compensate minorities for their economic interest in Oyu Tolgoi,” SailingStone said. “(The proposal) is consistent with Rio’s opportunistic attempt to take advantage of a situation that is its own creation.

“The facts are clear: Rio Tinto holds its interest in Turquoise Hill on the Rio balance sheet at $US41 per share, the equivalent of $C56 per share at current exchange rates and a more than 30 per cent premium to the revised offer. This should be the bare minimum for any attempt at price discovery.

“As large, long-term holders of Turquoise Hill, we are not interested in selling our stake at a massive discount to intrinsic value as we sit on the precipice of a wall of free cash flow.”

Rio issued an open letter in October detailing concerns for the future of the Oyu Tolgoi mine, while also reiterating its long-term commitments to the project.

Rio highlighted that design and development of the mine would be met with “significant technical, financial and macroeconomic risks”, noting that the project would need an additional $US3.6 billion to reach full development and production.

Rio Tinto has spent more than eight months working with Turquoise Hill to settle on a final bid in 2022 alone. A planned November 1 meeting to discuss the transaction was delayed until December 9 for potentially raising public concern.

On November 17, Rio announced it would terminate then-recent agreements with Turquoise Hill due to dissent and dispute-resolution provisions in the agreement. Rio said it had considered all concerns raised by minority shareholders and would present its original arrangement suggested by the Turquoise Hill Special Committee.

Rio Tinto copper executive Bold Baatar said the company had heard the feedback given and emphasised Rio’s commitment to completing the deal.

“We have acknowledged feedback received from minority shareholders and returned to the proposal originally unanimously recommended by the Turquoise Hill Special Committee,” Baatar said.

“We will work with the Turquoise Hill Special Committee to secure a new shareholder meeting date so that the proposed transaction can be voted on by minority shareholders as soon as practicable.

“We continue to believe that a premium of 67 per cent for their shares and removal of financial uncertainty is an attractive proposition for minority shareholders.”

During the special meeting held on December 9, Rio Tinto was finally granted approval to acquire the remaining 49 per cent of Turquoise Hill by a majority shareholder vote.

The final $3.3 billion deal required an approval rate of 66.6 per cent of shareholder votes and a simple majority of votes made by minority shareholders. In a statement announcing the approved deal, Turquoise Hill shared that Rio’s proposal received 86.6 per cent of shareholder votes and 60.5 per cent of minority shareholder votes.

Following Turquoise Hill’s statement, Bold Baatar shared thoughts on the milestone achievement.

“We welcome the support of minority shareholders, which is a key milestone in our acquisition of TRQ (Turquoise Hill),” Baatar said.

“This transaction will deliver significant benefits for all shareholders and allow us to progress the Oyu Tolgoi project in partnership with the Government of Mongolia with a simpler and more efficient governance and ownership structure.”

As the transaction is being conducted by way of a Canadian plan of arrangement, it remains subject to the final approval of the Supreme Court of Yukon, with a hearing scheduled for December 14.

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