Mining giant Rio Tinto makes full offer for Turquoise Hill

Rio Tinto's all-cash proposal represents an investment of US$2.7bn and raises its interest in the Oyu Tolgoi copper project to 66%

Rio Tinto has made a full ownership offer for Turquoise Hill in a bid to break the impasse with the Oyu Tolgoi copper project.

The all-cash proposal to buy the remaining 49% stake represents an investment of US$2.7bn, and would increase its overall interest in Oyu Tolgoi to 66%, with the balance held by Mongolia.

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. 

The move 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. Since the restart of the underground project in 2016, the project has not yet generated a positive free cash flow, and not generating enough operating cash flow to cover the costs of the underground development.

The new deal would simplify the Oyu Tolgoi ownership structure, strengthen Rio Tinto’s copper portfolio, and reinforce its long-term commitment to Mongolia. In addition, the Proposed Transaction 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.

Rio Tinto Chief Executive Jakob Stausholm said 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," he said.

"We believe the terms of proposal are compelling for Turquoise Hill shareholders.

“The Proposed Transaction 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. With our relationship reset and the underground operations commenced, this transaction demonstrates our clear and unequivocal long-term commitment to Mongolia.”

Rio Tinto’s proposal to the Turquoise Hill Board will be filed promptly with the Securities and Exchange Commission in accordance with applicable laws and regulations in the United States.

The proposed transaction, which is expected to be conducted by way of a Canadian plan of arrangement, will be subject to customary closing conditions, including approval by a majority of the votes cast by Turquoise Hill minority shareholders. The Proposed Transaction is not subject to any financing condition or due diligence.

Credit Suisse, RBC Capital Markets and Rothschild & Co are acting as financial advisors to Rio Tinto, and McCarthy Tétrault and Sullivan & Cromwell are acting as legal advisors. 

Last month, a report found bullying and sexism are ‘systemic across Rio Tinto’s worksites’. The eight-month study, involving 10,303 workers covering online, audio and written submissions, found almost half of workers experienced bullying (click here).

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