Rio Tinto CEO Jakob Stausholm made it clear his company will not be lifting its offer for the 49% of Turquoise Hill it doesn’t own.
Rio has already lifted its offer three times for Turquoise Hill which is the direct shareholder in the huge and expanding Oyu Tolgoi copper gold mine in Mongolia with a 66% stake.
Rio wants to take direct control of that stake so it and the Mongolian government (34%) can control the huge mine (which has proven to be a cost sink with the cost of the original open cut and now underground expansion running heavily over budget).
Stausholm told Bloomberg that Rio will not make any more offers if it’s rejected by minority shareholders, despite criticism from two minority investors which claim the final offer undervalued the project.
His comments came weeks after Rio finally agreed to buy out the 49% stake in Turquoise Hill it doesn’t already own in an offer valued at $US3.3 billion or $C43 a share. The original offer was valued at $US2.4 billion.
“What individual shareholders want to achieve, I don’t know, but I feel pure at heart that we’ve offered a very full price,” Stausholm said.
“Fundamentally I believe we’ve offered the shareholders a choice,” Rio’s CEO was quoted by Bloomberg as saying.
Of the two minority shareholders, hedge fund Pentwater Capital Management is the noisiest. It argues Rio’s price offer undervalues Turquoise Hill given that there’s a high probability copper prices will be more than $US4 a pound over the next decades amid growing demand for the metal in the evolving renewable landscape.
Pentwater last week put its money where its mouth is and bought 2.5 million Turquoise Hill shares to take its stake to 14%.
The takeover will require the approval of 66.67% of votes cast by shareholders of Turquoise Hill (including Rio Tinto) and the approval of a simple majority of the votes cast by minority shareholders of Turquoise Hill. Pentwater will have to round up another 11% of minorities to get the Rio offer rejected at the meeting.
A special meeting of shareholders of Turquoise Hill to approve the Transaction is expected as early as possible in the fourth quarter of 2022 and, if approved, the Transaction is expected to close shortly thereafter.
Stausholm said there’s about $US3.6 billion that needs to be refinanced at Oyu Tolgoi over the next 2-1/2 years, which will have to be proportionally financed by Rio and Turquoise Hill, leaving minority shareholders on the hook if they don’t approve the deal.
Rio has already lent or will lend Turquoise Hill around $US650 million (with an extra $US100 million available under certain circumstances) to enable it to continue to contribute to the funding needs of the underground expansion at the mine. Turquoise Hill will need to raise money from shareholders in an issue to repay Rio and continue funding its stake if the Rio bid fails.
That will leave the likes of Pentwater and other minorities to find much of the extra money, especially if Rio wants to argue that its loan is its contribution.
