Rio Tinto’s $3.3bn bid to buy Turquoise Hill has suffered significant setbacks, after minority shareholders expressed opposition and Canadian financial regulators raised concerns.
The date for shareholders in the Canadian mining company to vote on Rio’s offer has been postponed indefinitely while the financial regulator in Quebec, Autorité des Marchés Financiers, examines the deal.
The regulator “considers the transaction as currently structured to raise public interest concerns”, according to a statement from Turquoise Hill.
The delay is a blow to Rio’s eight-month effort to solidify control over Oyu Tolgoi, the Mongolian copper mine that is one of its most important assets. Rio already owns 51 per cent of Montreal-based Turquoise Hill, which in turn owns 66 per cent of Oyu Tolgoi.
In September Rio Tinto had offered C$43 per share to purchase the remaining shares of Turquoise Hill it did not already own. That offer was recommended by Turquoise Hill’s board but opposed by its biggest minority shareholders, Pentwater Capital and SailingStone.
After failing to secure enough votes to approve the transaction outright, Rio struck a special agreement with Pentwater and Sailing Stone that allows them to register dissent, and then takes dissenting shares through a special arbitration process after the overall transaction is complete.
“Unsurprisingly, the Quebec regulator is taking a dim view of the side deal done between Rio and two of TRQ’s larger shareholders that could see those two shareholders receiving much higher payouts than other minorities,” said Peter Mallin-Jones, analyst at Peel Hunt. “This suggests that the Oyu Tolgoi soap opera has several more twists to come,” he added.
A meeting for Turquoise Hill shareholders to vote on the transaction was originally scheduled for November 2, then rescheduled twice, before being postponed indefinitely.
A special committee of Turquoise Hill’s independent directors had expressed “concerns with respect to the differential treatment of the company’s minority shareholders” in the deal, according to a company statement on November 9.
For Rio Tinto, securing greater control over the Oyu Tolgoi mine is a strategic priority, as the company works to expand its production of metals such as copper and lithium that are necessary for the transition to low-carbon energy.
Earlier this year, Rio started to expand the mine’s underground operations, which will significantly boost copper output and also increase the project’s capital needs.
Rio estimates Turquoise Hill will need an addition $3.6bn over the next two years to support the expansion. Some of that will need to be paid by shareholders.
Once the underground project is complete, Oyu Tolgoi will be one of the world’s biggest copper mines, with production in its early years of about 500,000 tonnes per year, just as demand for the metal increases because of the energy transition.