On September 1, Rio Tinto and Turquoise Hill announced that they had reached an agreement in principle for Rio Tinto to acquire 49% of the outstanding shares of Turquoise Hill that it does not currently own for C $43 per share in cash, for a total consideration of US $3.3 billion (22.8 billion yuan). The deal implies an equity value of about 45.6 billion yuan (C $8.7 billion) for Turquoise Mountain, which will become a wholly owned subsidiary of Rio Tinto upon completion of the proposed transaction. Rio will take a 66 per cent stake in the Oyu Tolgoi copper project, with Mongolia owning the remaining 34 per cent.
The transaction is the result of extensive negotiations between the special committee of Turquoise Hill's independent directors and Rio Tinto after receiving a revised non-binding proposal of C $40 per share from Rio Tinto on August 24, 2022, which resulted in an increase in the consideration to C $43 per share.
The purchase price of C $43 per share reflects:
A 67% premium to Turquoise Mountain's closing price of C $25.68 per share on March 11, 2022;
A 26 per cent premium to the C $34.00 per share that Rio first made a public offer for Turquoise Hill on March 13;
An 8 per cent premium to Rio's revised C $40.00 per share on August 24;
That represents a 19% premium to Turquoise Hill's closing price of C $36.12 on August 31.
The parties have also agreed in principle to amend the financing Agreement, effective concurrently with the execution of the Arrangement Agreement, to support Turquoise Mountain in addressing near-term liquidity issues.
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. In December, Rio proposed to write off $14.6 billion of Mongolia's debt in order to advance the OT expansion, which was followed by a comprehensive agreement with Turquoise Mountain and the Mongolian government in January. World Mining has made an introduction:
Rio Tinto has offered to write off $14.6 billion in debt to Mongolia to push ahead with the expansion of its Oyu Tolgoi copper mine
On March 13 this year, Rio Tinto announced that it had made a non-binding proposal to the board of Turquoise Hill to acquire approximately 49% of the outstanding shares of Turquoise Hill that it did not currently own for $2.7 billion, which was subsequently rejected by Turquoise Hill:
Rio Tinto to privatize Turquoise Hill for $17.2 billion to boost OT copper mine expansion
The transaction will be implemented through a Plan of Arrangement under the Yukon Business Act, and the parties will finalize and sign an arrangement agreement as soon as possible. The transaction is subject to the approval of 66.67 per cent of votes cast by Turquoise Hill shareholders, including Rio Tinto, and a simple majority vote by minority shareholders. Turquoise Hill is expected to convene an extraordinary meeting of shareholders to consider and vote on the transaction in the fourth quarter of 2022. If approved, the transaction is expected to close shortly thereafter.
Jakob Stausholm, Rio Tinto's chief executive, said: "Rio Tinto is committed to working directly with the Mongolian government to take the OT project forward to realise its full potential for all stakeholders. This agreement is an important step following the recent start of underground operations and will simplify governance, improve efficiency and create greater funding certainty for the long-term success of OT projects."
Bold Baatar, Chief Executive Officer of Rio Tinto Copper, said: "This transaction simplifies the ownership structure of the OT project and allows Rio Tinto to focus on working directly with Erdens OT and the Mongolian government to create long-term value for all stakeholders. While the uncertainty inherent in the development of the underground business remains, Turquoise Hill's minority shareholders will immediately realise a substantial cash premium for their shares. Turquoise Mountain will also refrain from issuing any equity component as part of its $3.6bn incremental funding requirement until completion of the OT project. Following extensive negotiations, securing the Special Committee's approval in principle of our agreement is essential for Rio Tinto to proceed with this proposed transaction."
