Rio Tinto’s attempts to take out the minorities in Canadian miner Turquoise Hill Resources is turning into a mess. So much so that Rio is in danger of botching its move to tidy up the ownership of a huge copper and gold mine in Mongolia and give it a direct 66% direct ownership stake.
Rio Tinto’s plan last week to excise dissenting votes from the result of a shareholder meeting to sign off on a $US3.3 billion bid for the minorities in Turquoise Hill has now run aground after a Canadian regulator raised questions about it.
AMF, the key corporate regulator in the Canadian province of Quebec has indicate there were public interest concerns over an arrangement that may have resulted in Rio paying some Turquoise Hill investors more than others for their shares.
Rio has twice raised its offer for the 49% of Turquoise Hill shares it does not currently own, but the $C43 price has still been deemed too low by some proxy advisors and minority shareholders.
Last week it asked for a Turquoise Hill shareholder meeting on November 1 on the deal to be postponed a week (that meeting was put off to November 15 and has now been delayed) for no reason. Analysts said it was to avoid a possible negative result from the minorities because of opposition from two funds that held nearly 17% of the shares between them.
Rio Tinto said later struck a deal with the dissenting shareholders, Pentwater Capital Management and SailingStone Capital Partners.
Under the deal, both investors would be paid out 80% of the takeover amount being offered to all Turquoise Hill shareholders and, after a ruling from an arbitrator, the remaining 20% plus interest, and potentially much more.
Rio’s deal agreed to treat the two funds as dissenters and placed their votes outside the meeting, with the issue to be arbitrated at a later date.
Some analysts claimed that could open the way for the two funds to receive more than the $C43 a share than other minorities, a view the regulator has seeming backed.
That upset a third Turquoise minority shareholder, Caravel Capital Investments which said it had lodged complaints with regulators claiming the agreement gave the dissidents preferential treatment over smaller holders.
Caravel filed complaints with both the Ontario Securities Commission and the AMF on fairness grounds.
Turquoise Hill (which is based in Montreal) said Quebec corporate regulator, the AMF (the Autorité des marchés financiers), is investigating the side deal between Rio and the funds.
“The AMF considers the transaction as currently structured to raise public interest concerns,” Turquoise Hill said in a statement on Wednesday.
The delay adds more uncertainty over the $US3.3 billion deal that would see Rio Tinto get direct ownership of 66% of the giant Oyu Tolgoi copper-gold mine in Mongolia.
With the decision now to be made at a “date to be determined”, Turquoise Hill is holding talks with Rio representatives to address what it qualifies as “differential treatment of minority shareholders” and if an agreement that satisfies the independent directors committee views can be reached, a statement will be made to the market.
Turquoise Hill is being kept alive by hundreds of millions of dollars in investor loans from Rio Tinto which are enabling Turquoise to continue paying its 66% share of the cost of the current massive expansion of the mine into a huge underground operation. Without that Rio money, Turquoise Hill would be in desperate financial straits.
When completed, the underground mine at Oyu Tolgoi will lift copper production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, which is now expected by 2025 at the earliest.
Rio shares eased 0.3% to $98.30 yesterday as local investors ignored what could become a major problem for Rio.
