Rio Tinto Group has offered to buy out Turquoise Hill Resources Ltd. for US$2.7 billion in attempt to gain more control of a giant copper mine it’s developing in Mongolia.
The No. 2 mining company is looking to increase its exposure to so-called future facing commodities, the natural resources such as copper and nickel that are key for the green energy transition. A deal could also ease many of the problems at the flagship Oyu Tolgoi growth project, where Rio has faced spiraling costs and long running disputes with both the Mongolian government and Turquoise Hill.
Earlier this year Rio struck a deal with the government to start work on a long-delayed US$6.9 billion underground expansion of Oyu Tolgoi after agreeing to write off US$2.4 billion owed by the state. Rio owns 51 per cent of Turquoise Hill, which in turn holds a two-thirds share in Oyu Tolgoi.
“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,” Rio’s Chief Executive Officer Jakob Stausholm said in a statement Monday.
Rio said Monday it was offering $34 (US$26.60) a share to Turquoise Hill’s minority shareholders, a 32 per cent premium to Friday’s closing price. Rio said no agreement has been reached between the company and Turquoise Hill.
The mining sector had largely turned away from big acquisitions after a series of deals at the height of the last commodities boom went spectacularly wrong. Excess cash has been returned to shareholders in massive dividends and buybacks. But as the global energy transition gathers pace, there’s a growing recognition that deals will be essential to replace fossil fuel assets with mines that can produce the materials needed for decarbonization.
In December, Rio agreed to buy a lithium mine in Argentina for US$825 million, while rival BHP Group earlier this year bought a stake in a nickel project in Tanzania.
For the deal to go through, Rio will need support from a majority of Turquoise Hill’s minority shareholders.
The miner has had a troubled relationship with Turquoise Hill around how it will fund its share of the cost of developing the project. Rio has also drawn criticism from some of Turquoise Hill’s minority shareholders over the control it exerts over the company.
Rio fell as much as 4.2 per cent in London trading.
What Bloomberg Intelligence says
“Rio’s CUS$34 a share bid for Turquoise Hill to consolidate its ownership of Oyu Tolgoi to 66 per cent is well-timed for all stakeholders, improving the likelihood of success, we believe. Robust copper prices and the recent agreement with the Mongolian government -- which greenlit the underground development -- may limit pushback from Turquoise Hill shareholders.
-- Grant Sporre, BI metals and metals analyst
Advertisement