Turquoise Hill Resources Ltd. [TRQ-TSX] said Monday a special committee of independent directors set up to evaluate a US$2.7 billion takeover proposal by Rio Tinto Plc [RIO-NYSE] has found that the proposal does not reflect fair value.
The special committee concluded, in consultation with its financial advisor BMO Capital Markets, that Rio Tinto’s offer price of $34 per share does not fully and fairly reflect the fundamental and long-term strategic value of the company’s majority ownership of the Oyu Tolgoi copper-gold project in Mongolia.
As a result, the special committee has determined that it is not in the best interests of the company or its minority shareholders for the committee to support the Rio Tinto proposal.
“Market conditions in the equity and copper markets have changed significantly since the receipt of Rio Tinto’s privatization proposal in March (2022),’’ said Special Committee Chair Maryse Saint-Laurent.
“At the same time, the company has continued to make positive progress on the underground project,’’ she said. Saint-Laurent said the special committee will now concentrate on the other major elements of its mandate and support company management in raising at least US$650 million in new equity by year-end as required under the joint funding agreement with Rio Tinto.
On Monday, Turquoise Hill shares fell 9.7% or $3.27 to $30.27 on volume of 640,760. The shares are currently trading in a 52-week range of $38.92 and $12.15.
One of the world’s largest known copper-gold deposits, Oyu Tolgoi is held 34% by Mongolia, with the other 66% owned by Rio Tinto through its interest in Turquoise Hill. Rio is the mine operator.
The proposed transaction followed the recent comprehensive agreement reached between Rio Tinto, Turquoise Hill, and the Government of Mongolia to move the Oyu Tolgoi project forward, reset the relationship between the partners, and approve commencement of underground operations.
Rio said the acquisition of the remaining 49% stake in Turquoise Hill would simplify Oyu Tolgoi’s ownership structure, strengthen Rio Tinto’s copper portfolio and reinforce its long-term commitment to Mongolia.
At peak production, Oyu Tolgoi is expected to operate in the first quartile of the copper cash cost curve, producing around 500,000 tonnes of copper annually on average from 2028 to 2036 from the open pit and underground, plus an average of 350,000 tonnes for a further five years.
That compares with 163,000 tonnes in 2021, according to a Rio Tinto fourth quarter operations review, published on January 17, 2022.
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 g/t gold.
Turquoise Hill recently agreed to waive in full, the US$2.4 billion carry account loan of the government of Mongolia’s state-owned entity through which it owns its interest in the mine.