Turquoise Hill shares surge after Rio Tinto sweetens its takeover bid

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Shares of Montreal-based Turquoise Hill Resources Ltd. jumped by more than 20 per cent after mining giant Rio Tinto Ltd. increased its offer to acquire the nearly 49 per cent of Turquoise shares it doesn’t already own.

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The new US$3.1-billion proposal on Aug. 24 came a week after a special committee at Turquoise rejected a US$2.7-billion offer from Rio, describing it as unfair to the company’s minority shareholders. As per the new proposal, Turquoise’s shareholders would receive $40 in cash per share, up from Rio’s initial bid of $34 per share.

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“This offer not only provides full and fair value for Turquoise Hill shareholders, but is in the best interests of all stakeholders as we work to move the Oyu Tolgoi project forward,” Rio Tinto’s chief executive Jacob Stausholm said in a press release.

Turquoise said in a press release its special committee received the new proposal and “is currently considering” it.

The Quebec-based miner runs the Oyu Tolgoi mine in Mongolia, which it says is one of the world’s largest new copper-gold mines. Through five mineralized deposits, the mine, which started operating in 2013, has the potential to run for about 100 years, according to Turquoise, which owns 66 per cent of the mine. (The Mongolian government owns the rest.)

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Rio, like a number of other miners, is looking to increase its investment in commodities such as copper that will be in high demand as governments around the world seek to decarbonize their economies.

Turquoise’s shares had fallen to their lowest since March on Aug. 15 after its special committee rejected Rio’s initial deal.

Since Rio already owns 51 per cent of Turquoise, going forward, the proposal would need to follow rules set out in the Canadian Multilateral Instrument 61-101, which requires a special committee, that doesn’t include any Rio Tinto nominees, to assess the proposal.

The special committee formed to evaluate Rio’s previous offer said the proposal was “way below” the range of values given by Toronto-Dominion Bank’s TD Securities, the committee’s independent valuator.

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Bank of Nova Scotia analyst Orest Wowkodaw described the latest offer as “very positive” for Turquoise’s shares but added that a higher bid was required to “close the transaction.”

Wowkodaw advised his clients in a note that the improved offer “continues to undervalue the company,” describing Oyu Tolgoi as a “world class Tier 1 copper mine, representing an extremely valuable asset in today’s market.” He said he doubted the revised bid would result in the majority of minority shares being tendered.

In 2022, the Oyu Tolgoi mine is estimated to produce about 110,000 to 150,000 tonnes of copper and about 150,000 to 170,000 ounces of gold. Production is expected to increase next year since the Oyu Tolgoi board has approved the start of its underground operations, with first production expected in 2023.

At 10:20 a.m. ET, shares of Turquoise were trading at $37.93, up $7.74 or 25.6 per cent, on the S&P/TSX composite index. The company has a market cap of about $7.6 billion.

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