Rio Tinto strikes $3.3bn deal with Turquoise Hill
miningweekly.com
1st September 2022
By: Esmarie Iannucci
Creamer Media Senior Deputy Editor: Australasia
PERTH (miningweekly.com) – Diversified miner Rio Tinto has reached an in-principle agreement to acquire the remaining 49% interest in TSX- and NYSE-listed Turquoise Hill, which it does not already own.
Rio late in August increased its takeover offer for Turquoise Hill from C$34 a share to C$40 a share after the takeover target rejected its initial bid.
Rio said on Thursday that the increased offer has now been unanimously approved by the independent Special Committee of Turquoise Hill’s board of directors, valuing the Turquoise Hill minority share capital at approximately $3.3-billion.
The C$43-a-share cash offer is Rio’s best and final offer, the company said.
“Rio Tinto is committed to moving Oyu Tolgoi forward in direct partnership with the government of Mongolia to realise its full potential for all stakeholders,” said Rio CEO Jakob Stausholm.
“This agreement represents another significant step following the recent commencement of the underground operations, and will simplify governance, improve efficiency and create greater certainty of funding for the long-term success of the Oyu Tolgoi project.”
Rio Tinto copper CEO Bold Baatar said the transaction simplified the ownership structure of Oyu Tolgoi and enabled Rio to focus on working in partnership directly with Erdenes Oyu Tolgoi and the government of Mongolia to create long-term value for all stakeholders.
“Turquoise Hill minority shareholders will realise a significant and immediate cash premium for their shares at a time when uncertainties inherent in the development of the underground operations remain. Turquoise Hill will also avoid the issuance of any equity component as part of the $3.6-billion incremental funding requirement through to the completion of the Oyu Tolgoi project.
“Securing the approval of the Special Committee to our agreement in principle, following extensive negotiations, was essential for Rio Tinto to progress this proposed transaction,” said Baatar.
Turquoise Hill told shareholders on Thursday that in approving the takeover offer, the company’s Special Committee took into consideration a number of factors, including advice from its financial adviser, its independent valuer, the risk facing the company’s investment in the Oyu Tolgoi project, including the requirement to raise $650-million prior to the end of December, and current market conditions, as well as the progress achieved at the underground project.
“Our discussions with Rio Tinto resulted in material increases from the price first offered by Rio Tinto to the minority shareholders of Turquoise Hill while also ensuring Turquoise Hill’s additional funding needs will be met pending the consideration by shareholders of the proposed Transaction,” said Special Committee chairperson Maryse Saint-Laurent.
“The Special Committee has diligently considered these and a wide variety of other factors in reaching its determination to unanimously approve entering into the agreement in principle.”
The transaction will be implemented by way of a plan of arrangement under the Business Corporations Act and both companies intend to expeditiously finalise an arrangement agreement.
The transaction will require the approval of 66.67% of votes cast by Turquoise Hill shareholders and the approval of a simple majority of the votes cast by minority shareholders of Turquoise Hill. A special meeting of shareholders of Turquoise Hill is expected as early as possible in the fourth quarter of 2022 and, if approved, the transaction is expected to close shortly thereafter.
Rio and Turquoise Hill have also agreed in principle to amendments to the financing heads of agreement, to become effective concurrently with the execution of the arrangement agreement, to support Turquoise Hill in addressing near term liquidity.
These amendments will include increasing the early advance facility agreed in May from $400-million to $650-million, provided that if there is an anticipated funding shortfall for March 2023, the parties will in good faith discuss increasing the early advance facility by up to an additional $100-million.
The amendments also extend the outside date by which the initial equity of $650-million must be raised and gthe early advance facility repaid from the end of December 2022 to the end of March 2023, and potentially to the end of May 2023, in the event of regulatory delays to the arrangement agreement.
Furthermore, in the event the transaction has not been approved when the December 2022 principal repayment obligation of $362-million by Turquoise Hill under the Oyu Tolgoi project finance facility arises, Rio has committed to ensuring funds are available to Turquoise Hill. |
