Rio Tinto has made a non-binding proposal to the Turquoise Hill Board to acquire the approximately 49% of the issued and outstanding shares of Turquoise Hill that Rio Tinto does not currently own for approximately $2.7 billion in cash. The proposal follows the comprehensive agreement reached in January between Rio Tinto, Turquoise Hill and the Government of Mongolia to move the Oyu Tolgoi (OT) project forward (earlier post), reset the relationship between the partners and approve commencement of underground operations.
By 2030, OT is expected to be the fourth-largest copper mine in the world. It is a complex greenfield project comprising an underground block cave mine and copper concentrator as well as an open pit mine which has been successfully operating for almost ten years. At peak production, OT is expected to operate in the first quartile of the Wood Mackenzie copper equivalent cash cost curve.
OT is expected to produce around 500,000 tonnes of copper per year on average from 2028 to 2036 from the open pit and underground, and an average of around 350,000 tonnes for a further five years, compared to 163,000 tonnes in 2021. The underground Ore Reserve has an average copper grade of 1.52%, which is more than three times higher than the open pit Ore Reserve, and contains 0.31 gram per tonne of gold.
Rio Tinto says that the purchase would simplify the Oyu Tolgoi ownership structure, strengthen Rio Tinto’s copper portfolio, and reinforce its long-term commitment to Mongolia. Oyu Tolgoi is jointly owned by the government of Mongolia (34%), and Turquoise Hill Resources (66%). Rio Tinto currently owns 50.8% of Turquoise Hill Resources and manages the operation on behalf of the owners.
In addition, the proposal provides Turquoise Hill minority shareholders with the ability to realize 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.
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.
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.—Rio Tinto Chief Executive Jakob Stausholm
Should Turquoise Hill investors not accept the proposal, Rio Tinto says it welcomes their continued investment and equal share of future risks and funding obligations.