Rio Tinto and Turquoise Hill get serious, ink binding takeover deal

Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) has inked a definitive arrangement with Turquoise Hill Resources (TSX: TQR) to buy the 49% of the Canadian miner it doesn’t already own for US$3.3 billion.

The global miner noted Turquoise Hill’s board had unanimously recommended the $43 per share cash offer and said it would not increase its bid despite pressure from minority shareholders.

Rio said that senior officers of Turquoise Hill have entered into voting support agreements with respect to all of the Turquoise Hill shares they own or control.

“After extensive negotiations, the terms of the transaction are final and there will be no further price increase,” Rio Tinto’s chief executive Jakob Stausholm said in the statement.

The final offer represents a 67% premium from Turquoise Hill’s closing price of $25.68 a share on Mar. 11, the trading day prior to Rio Tinto’s initial proposal.

“[The transaction] brings the financial certainty necessary to ensure the Oyu Tolgoi project can be developed without having to ask minority shareholders to contribute further significant funds,” added Rio Tinto Copper boss, Bold Baatar. 

The two companies also agreed to amend financing arrangements to help the Turquoise Hill address near-term liquidity, including increasing a May advance facility to US$650 million from US$400 million and extending the deadline for a US$650 million equity raising and debt repayment until at least March 2023. 

The deal requires two thirds of shareholders, including Rio Tinto’s, to vote in favour. Additionally, more than 50% of minority shareholders must approve it.

A special meeting of Turquoise Hill shareholders is expected in the fourth quarter and the deal, if approved, will close shortly thereafter.

With the transaction, Rio will hold a direct majority stake in Oyu Tolgoi, one of the world’s largest known copper and gold deposits.

The global miner, which has mined copper from Oyu Tolgoi’s open pit for a decade, will have the task to conclude building the underground section of the mine.

Once finished, it will lift production to 560,000 tonnes at peak output from 125,000–150,000 tonnes in 2019. It expects to reach that peak by 2025 at the earliest.

This would make it the biggest new copper mine to come on stream in several years.

Rio Tinto shares were trading at US$55.43 as of Monday morning in New York, in a 52-week window of US$53.61 and US$84.69. It has a market cap of US$89 billion. 

Turquoise Hill’s equity was trading at $40.62 per share in Toronto, in a 52-week window of $12.15 and $41.57. It has a market cap of $8 billion.