Rio Tinto’s plan to take direct ownership of a copper mine in Mongolia has hit the buffers after its $2.7bn buyout proposal was rejected.
Turquoise Hill Resources said a special committee had “terminated” its review of Rio’s C$34 per share cash offer, saying it did not “fully and fairly reflect” the value of its holding in Oyu Tolgoi.
“A transaction at the price proposed by Rio Tinto would not fairly compensate minority shareholders for the fundamental, long-term value of the company’s interest in Oyu Tolgoi,” said Maryse Saint-Laurent, chair of the special committee.
Located in the Gobi desert, Oyu Tolgoi is one of the world’s biggest copper deposits. Once an underground expansion project is completed, it will be one of the world’s biggest copper mines, with production in its early years of about 500,000 tonnes per year, just as demand for the metal increases because of the energy transition.
It is one of several projects that Rio chief executive Jakob Stausholm is trying to sort out as he looks to position the group for the shift to a low-carbon economy.
Although Rio operates Oyu Tolgoi and is overseeing the underground expansion project, it does not have a direct stake in Oyu Tolgoi. Instead, it holds a 51 per cent stake in Toronto-listed Turquoise Hill, which in turns owns 66 per cent of Oyu Tolgoi. The rest is owned by the government of Mongolia.
Turquoise Hill said on Monday that engagement between the parties had “not resulted in a consensus on value and price or in any improved proposal from Rio Tinto”.
Rio declined to comment.
The company launched its offer for Turquoise Hill in March just as the copper price hit a record high above $10,600 a tonne. Turquoise Hill responded by establishing the special committee of independent directors to review and consider the Rio proposal.
At the time, Bold Baatar, head of Rio’s copper division, said the offer, which was pitched at a 32 per cent premium, would create a “simpler and efficient ownership” structure for Oyu Tolgoi.
The price of copper has since fallen back to about $8,000 a tonne, although many analysts remain bullish on its long-term prospects.
When Rio reported half-year results last month, Stausholm was asked about the buyout offer, which he described as a “full-priced proposal”. He also noted copper assets had fallen 40 per cent since March.
Saint-Laurent said the committee would now support Turquoise Hill in its efforts to raise at least $650mn in new equity by the year-end to shore up its finances. Shares in the Canadian group closed at C$32.80 on Friday.