Rio Tinto Offers $2.7 Billion to Buy Rest of Turquoise Hill Stake

Rio Tinto Chief Executive Jakob Stausholm said a takeover of Turquoise Hill would strengthen the company’s copper portfolio.

Turquoise Hill controls Oyu Tolgoi, a gold-copper mining operation in Mongolia’s Gobi desert that Rio Tinto expects will be the fourth-largest copper mine in the world by 2030.

Rio Tinto has an almost 34% indirect interest in the mine through its stake in Turquoise Hill, which is listed on the Toronto Stock Exchange. Turquoise Hill has a 66% stake in Oyu Tolgoi LLC, which owns the mine, with the remainder held by the Mongolian government.

Rio Tinto on Monday said it would pay other Turquoise Hill investors 34 Canadian dollars, equivalent to about 26.68 U.S. dollars, in cash for each share. That is a 32% premium to the stock’s last closing price on Friday, before Rio Tinto disclosed the offer.

A takeover would simplify Oyu Tolgoi’s ownership structure, improving efficiency, Rio Tinto said Monday. If the deal goes ahead, Rio Tinto would hold a 66% interest in Oyu Tolgoi, with the rest owned by Mongolia.

“The proposed transaction would enable Rio Tinto to work directly with the Government of Mongolia to move the Oyu Tolgoi project forward with a simpler and more efficient ownership and governance structure,” said Mr. Stausholm.

Rio Tinto, the world’s second-biggest mining company by market value, wants to boost its production of commodities such as copper, lithium and aluminum as it seeks to play a key role in the world’s transition away from fossil fuels to cleaner alternatives. Currently, the company relies on iron ore, used in steel, for the bulk of its earnings.

Many analysts expect supply of copper will fall short of demand in the years ahead. The metal is used in higher quantities in electric cars and renewable energy compared with conventional vehicles and power generation.

Russia mines almost 4% of the world’s copper, according to the U.S. Geological Survey.

The proposal would also increase Rio Tinto’s exposure to Mongolia, a landlocked country sandwiched between Russia and China, amid heightened geopolitical tensions between those countries and the West.

Rio Tinto said last week it was terminating all commercial relationships with Russian businesses in response to the conflict in Ukraine. Rio Tinto buys fuel and other products from Russia for Oyu Tolgoi.

Riding commodity price tailwinds, the company is in its strongest fiscal position in years. In February, it reported a record profit for 2021 and said it would nearly double its full-year payout to shareholders.

But it has been running into problems on several projects it is developing. A proposed copper project in Arizona that could meet up to a quarter of U.S. copper needs has stalled. Serbia recently revoked permits for a large lithium project following community protests. Lithium is a key battery material.

Oyu Tolgoi had been beset by delays and complicated negotiations between the owners as well.

Rio Tinto, Turquoise Hill and Mongolia’s government recently renegotiated agreements to advance a late and overbudget underground expansion of the mine. One provision included Turquoise Hill waiving $2.4 billion of debt owed by Mongolia’s state-run company, Erdenes Oyu Tolgoi.

Rio Tinto and Mongolia have been mining copper from an open pit at Oyu Tolgoi for almost a decade, but much of the deposit lies deep below the Earth’s surface.

“The size and the complexity [of the project] requires an aligned way forward,” Mr. Stausholm said in an interview earlier this year.

Rio Tinto said it wants to work constructively with Turquoise Hill directors to seal the deal. Turquoise Hill said it will establish a special committee of independent directors to review the proposal.

Write to Rhiannon Hoyle at [email protected]