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Turquoise Hill: Successful Coup For Rio Tinto

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Ore trucks successful an open-pit mine

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What this intends for Shareholders?

On 6 September, 2022 - Rio Tinto (RIO) entered into a definitive statement to get Turquoise Hill (NYSE:TRQ). The connection astatine C$43 represents a 67% premium to nan Canadian miner's closing price of $25.68 connected 11 March,2022. It provides for a coagulated superior summation for equity holders. This article explores further nan strategical move for Turquoise Hill and its underlying value successful Rio Tinto's early copper portfolio.

General Overview

Boom clip for copper intends a pursuit for dependable long-life assets has been a elaborate talking constituent for boardrooms from London to Melbourne. Global copper depletion has accelerated pinch user equipment specified arsenic electrical vehicles, mobile phones, laptops, and homes each requiring important quantities.

According to nan United States Geological Survey, nan Americas predominate nan world's 21m tons produced annually pinch nan region location to 15 of nan largest copper mines globally. Included conspicuously successful that database is Chile's immense copper loop - its production, pinch Escondida and Collahuasi mines astatine nan forefront, equates to almost a 4th of full output.

Copper Prices

Trading Economics

Copper prices proceed to bounce backmost pursuing value moderation driven by China induced lockdowns.

BHP's (BHP) 66% liking successful nan gargantuan Escondida property, mixed pinch copper's expanding value arsenic a artillery mineral, assured Rio Tinto would make a strategical play to bolster its copper portfolio. That was precocious achieved pinch nan acquisition of Turquoise Hill. The Montreal, Quebec based miner had until precocious a 66% liking successful nan plentiful Oyu Tolgoi Copper Gold excavation successful Southern Mongolia. In a savvy tactical gambit, nan Australian mining elephantine made a $3.3B bid to bargain each outstanding shares and spot it firmly among nan who-is-who of copper mining behemoths.

It was a risky coup that yet put paid to a lengthy acrimonious committee room conflict while providing Rio Tinto CEO Jakob Stausholm a firm triumph thigh focused connected rekindling a damaged narration pinch nan Mongolian government. In 1 foul swoop, Rio Tinto's caller plus has thrust it to nan forefront of world sustainability. Let's find retired much astir Turquoise Hill and its prized Oyu Tolgoi asset.

Global Copper Production

Visual Capitalist

Chile dominates world copper production.

Takeover by Rio Tinto

Rio Tinto's takeover bid for Turquoise Hill, a calculated play for its prolific Mongolian copper producing asset, was finalized successful December 2022. In speech for power of nan immense copper and golden producing tenement, Rio Tinto forked retired $3.3B from rate reserves allowing it power (66% nonstop interest) pinch nan Government of Mongolia (34%) making up nan remainder.

For nan woody to beryllium finalized, extended owed diligence had to beryllium completed, some by nan Yukon tribunal successful Canada and Turquoise Hill shareholders. The last transaction represented a 67% premium connected closing value of Turquoise Hill 1 time anterior to nan Australian mining giant's nationalist non-binding connection to get nan Canadian firm.

Oyu Tolgoi is an outstanding plus pinch unthinkable group that will present important semipermanent worth for Rio Tinto and Mongolia

Rio Tinto Chief Executive - Jakob Stausholm.

The acquisition was challenging arsenic Rio Tinto had to raise its connection for nan institution doubly to appease hawkish Turquoise Hill equity holders. The 2 largest number shareholders, SailingStone Capital and Pentwater Capital, had been vocal proponents of nan woody citing a low-ball valuation.

At 1 stage, Pentwater Capital had been nan instigator of a people action suit claiming nan Australian miner had grounded to pass investors of blow-out costs and schedule creep linked to nan ongoing improvement of shaft 2.

With almost 40,000 bolts and astir 95% of alloy successful nan shaft's headframe requiring rework, costs overruns yet hampered underground copper production, delaying nan task by 16 to 30 months, and culminating successful $1.2B to $1.9B of excess cost. With nan takeover now finalized, Rio Tinto tin afloat attraction connected unleashing nan mine's immense copper producing asset.

Oyu Tolgoi Asset

The Oyu Tolgoi golden & copper excavation is simply a mixed unfastened pit and underground cognition showcasing immoderate of nan world's largest proven reserves. Originally discovered successful 2001, nan cognition is located successful nan South Gobi region of Mongolia, wherever first unfastened pit useful commenced successful 2011 on pinch improvement of nan copper concentrator.

Life of excavation is presently successful nan decades and nan operation's output will meaningfully effect Mongolian gross home merchandise for years to come. Underground operations were developed only recently, pinch nan Australian mining elephantine pouring astir $5B successful nan hold task to nutrient an further 500,000 tons annually.

Oyu Tolgoi Project

Green Car Congress

The Oyu Tolgoi Project will beryllium predominantly focused underground.

Most of nan worth lies heavy underground pinch nan Australian earthy resources' elephantine commissioning a 200km labyrinth of underground tunnels, comprised of 5 shafts pinch nan deepest reaching 1.3km.

Block caving, a exertion consisting of tunnelling nether nan ore assemblage and letting it progressively illness nether its ain weight, has been nan chosen methodology for bringing ore to market. The squad successful Mongolia are supported by Rio Tinto Underground mining expertise successful Brisbane, Australia.

The constrictive vein mineral deposits dishonesty complete a 26km strike, moving astir North to South and are comprised of copper, gold, and silver. Conventional drill and blast, load and haul methods are being utilized for nan unfastened pit, aboveground mining operation.

Oyu Tolgoi

Google Maps

Satellite View

Google Maps

Satellite position of nan Oyu Tolgoi plus successful Southern Mongolia.

Future for Rio Tinto

While nan acquisition of Turquoise Hill by Rio Tinto has been a rollercoaster ride, nan finalization of nan woody is apt to supply affirmative tailwinds for nan Australian elephantine for years to come. The statement provides for a simplification of nan operating structure, improved superior allocation and financing mechanisms, on pinch a rebuilding of relations pinch nan authorities of Mongolia. It has undoubtedly been a triumph for Rio Tinto arsenic it now looks to get complete nan committee room wrangling, firm rivalries and disruption, to attraction afloat connected bringing nan plus online. It allows Rio Tinto to meet its sustainability ambitions will strategically positioning it neatly among nan world's largest proponents of decarbonization.

Key Takeaways

The Turquoise Hill acquisition has been a awesome coup for Rio Tinto, ending a plethora of firm and authorities disruption, while providing nan Melbourne headquartered miner nan opportunity to rebuild surgery relations and fortify its societal license. Its awesome news for Turquoise Hill shareholders that recognize intrinsic worth to their finance while shoring-up nan early of nan plus for decades to come.

This article was written by

ZMK Capital floor plan picture

ZMK Capital is simply a Southeast Asian based prop trading table focusing connected long/ short macro group ups globally. Additionally, nan table publishes equity circumstantial research, ETF overviews, net plays and macro-economic analysis. Current focal points see nan world power market, earthy resources, macro-economics, liking rates and Fx. Beyond managing money successful these markets, interests see information subject linked to securities markets, crippled mentation & master sports.Feel free to nonstop connection maine if you are willing successful being portion of a organization of prop traders, investors & money managers.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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