Rio Tinto seems to be willing to wait out the recalcitrant minority shareholders in Turquoise Hill who have rejected its $C34 a share, $$US2.7 billion offer.
Turquoise Hill said on Monday its special board committee terminated the review and consideration of Rio Tinto proposal to buy the rest 49% for $US2.7 billion as it did not reflect the Canadian company’s full and fair value.
The committee determined that Rio’s offer of $C34 ($US26.57) per share was not in the best interests of Turquoise Hill or its minority shareholders.
“Engagement between the parties has not resulted in a consensus on value and price or in any improved proposal from Rio Tinto,” Turquoise said in a statement.
In a statement on Monday night, Rio made it clear it will remain “financially disciplined as it considers its options” and that it will not consider any other type of transaction for Turquoise Hill and its stake in Oyu Tolgoi.
“Financially disciplined” means no more money (and remember that Rio has advanced $US400 million to Turquoise Hill to allow it to continue contributing to spending on the current expansion of the Mongolian mine).
It doesn’t rule out a higher price is Rio can justify that financially but while the future for copper looks very solid thanks to the green metals boom, the immediate outlook is not encouraging with prices weak, demand, especially from China stuttering and the world economy facing a big slow down in 2023 and 2024.
In its Monday night statement, Rio said it “is disappointed by the decision of the Special Committee and continues to believe that the terms of the Proposed Transaction would deliver compelling value for Turquoise Hill minority shareholders and provide the certainty of an all-cash offer.”
Rio repeated that its offer of $C34 a share was a 32% premium to Turquoise Hill’s closing price of $C25.68 per share on March 11, 2022; and a 78% premium to Turquoise Hill’s closing price of $C19.12 a share on January 24, 2022, the day before agreeing a path forward between Government of Mongolia, Turquoise Hill and Rio Tinto that enabled commencement of the underground mine at Oyu Tolgoi.
Rio pointed out that since it made its offer for the minorities on March 14, 2022, “the average share price performance of Turquoise Hill’s peers has declined 35% in light of a deteriorating and more uncertain external environment.”
“Furthermore, Turquoise Hill has disclosed in its latest earnings results that it needs to raise equity proceeds of more than $US1 billion to address its current estimate of funding requirements.
“Rio Tinto will remain financially disciplined as it considers its options. Should a transaction not proceed, Rio Tinto welcomes the continued investment by Turquoise Hill minority shareholders and their pro rata sharing of future risks and funding obligations.”
Rio Tinto Chief Executive Copper Bold Baatar said: “Rio Tinto remains as committed as ever to the long- term success of Oyu Tolgoi. While we are disappointed by this decision, we will continue to work constructively with the Board of Turquoise Hill to advance the Oyu Tolgoi project.”
And Rio again made it clear that it “is not interested in pursuing any alternative transaction, including any such transaction which would result in the sale of Rio Tinto’s interest in Turquoise Hill or the acquisition by a third party of Turquoise Hill or Oyu Tolgoi in partnership with or independent of Rio Tinto.”
Rio shares rose 0.7% on Tuesday to $95.93. Turquoise Hill shares dropped more than 11% on Monday in the wake of the rejection of the Rio offer.
