On March 14, Rio Tinto announced that it had made a non-binding proposal to the board of Turquoise Hill to acquire the roughly 49 per cent of the outstanding shares of Turquoise Hill that it does not already own. Minority turquoise Hill shareholders will receive C $34 a share in cash, a 32 percent premium to the last closing price, for a total consideration of US $2.7 billion.
The proposed deal follows a comprehensive agreement recently reached between Rio Tinto, Turquoise Mountain and the Mongolian government to advance the OT project, reset the relationship between the partners and approve the start of underground operations. It will simplify the ownership structure of the Oyu Tolgoi (OT) project, in order to create a more effective ownership and governance structure, strengthen Rio's copper portfolio and strengthen its long-term commitment to Mongolia, while giving minority shareholders the ability to develop underground operations while the inherent uncertainties remain. To achieve convincing, immediate and certain value for its shares. If the proposed deal is completed, Rio would own 66 per cent of the OT project, with Mongolia owning the remaining 34 per cent.
The OT mine is one of the largest known copper and gold deposits in the world and one of Rio's most important assets, producing nearly 500,000 tonnes of copper a year when the expansion is completed.
JakobStausholm, Rio chief executive, said:
"Rio Tinto firmly believes in the long-term success of OT and Mongolia and is committed to all stakeholders for the long term. That is why we are increasing our stake in OT, simplifying the ownership structure and further strengthening Rio's copper portfolio. We believe the terms of the proposal are attractive to Turquoise Hill shareholders.
"The proposed transaction will enable Rio Tinto to work directly with the Mongolian government to advance the OT project with a simpler and more efficient ownership and governance structure. This transaction demonstrates our clear and unambiguous long-term commitment to Mongolia as our relationship resets and underground operations begin."
Rio tinto said it looked forward to working constructively with the Turquoise Hill board to advance the proposed transaction. If turquoise Hill investors do not accept the proposed transaction, Rio welcomes them to continue investing and share future risks and financing obligations equally.
Rio owns about 51 per cent of Turquoise Mountain and has anti-dilution rights that allow it to acquire additional shares in turquoise Mountain to maintain its stake from time to time. No agreement has been reached between Rio tinto and Turquoise Mountain and there is no guarantee that any transaction will result from these discussions. The transaction will be subject to customary closing conditions and must be approved by the votes of (I) 66 2/3% or more of the holders of Turquoise Hill shares and (ii) a majority of the minority shareholders of Turquoise Hill voting at the meeting for each share.
It is worth mentioning that although Rio Tinto is the absolute majority shareholder of Turquoise Hill, the interests of the two are not exactly the same, and they even filed a lawsuit over the OT mine expansion. In April last year, after a series of legal proceedings and negotiations, Rio tinto and Turquoise Mountain agreed on a funding plan for the expansion, addressing the remaining known funding needs of about $2.3bn based on a memorandum of understanding signed in 2020. The parties agree to jointly obtain an order revoking the arbitration and provisional measures order on an equitable basis.
Pentwater Capital, a US activist investor that owns 9 per cent of Turquoise Mountain, accused Rio of hiding the true cause of the project's delays, increased its budget from $5.3bn to $6.45bn and filed a class-action lawsuit demanding damages.
In January, Pentwater wrote to a Rio board member arguing that Rio's corporate governance had continued to fail. Rio tinto said its directors would not comment. Pentwater has not commented on how it intends to vote on the proposed deal.
