The Rio Tinto Limited (ASX: RIO) share price is falling on Tuesday morning despite announcing acquisition plans.
At the time of writing, the mining giant's shares are down 4% to $106.36.
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Rio Tinto share price lower despite acquisition proposal
The Rio Tinto share price is falling on Tuesday despite announcing a proposed acquisition.
According to the release, the company has made a non-binding C$34 per share proposal to acquire the remaining ~49% of the issued and outstanding shares of Turquoise Hill that it doesn't already own. This equates to a total consideration of ~US$2.7 billion in cash.
If the deal were to complete, it would mean Rio Tinto's share of the Oyu Tolgoi copper operation in Mongolia increases to 66%.
The release notes that the proposed transaction follows the recent comprehensive agreement reached between Rio Tinto, Turquoise Hill, and the Government of Mongolia to move the Oyu Tolgoi project forward, reset the relationship between the partners, and approve commencement of underground operations.
Management believes it would simplify the Oyu Tolgoi ownership structure, strengthen Rio Tinto's copper portfolio, and reinforce its long-term commitment to Mongolia.
In addition, Rio Tinto highlights that the proposed transaction provides Turquoise Hill minority shareholders with the ability to realise compelling, immediate and certain value for their shares at a time when uncertainties inherent in the development of the underground operations and funding of such development remain.
However, it warned that no agreement has been reached between Rio Tinto and Turquoise Hill, and there can be no assurance that any transaction will result from these discussions. Furthermore, it stressed that even if a transaction is agreed, there can be no assurances as to its terms, structure or timing.
Management commentary
Rio Tinto's Chief Executive, Jakob Stausholm, commented: "Rio Tinto strongly believes in the long-term success of Oyu Tolgoi and Mongolia, and delivering for all stakeholders over the long-term. That is why we want to increase our interest in Oyu Tolgoi, simplify the ownership structure, and further strengthen Rio Tinto's copper portfolio. We believe the terms of proposal are compelling for Turquoise Hill shareholders."
"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. With our relationship reset and the underground operations commenced, this transaction demonstrates our clear and unequivocal long-term commitment to Mongolia," he added.
Response
Analysts at Goldman Sachs have responded to the news. And despite what the Rio Tinto share price performance may indicate, the broker appears to believe the deal is a good one and at a sizeable discount to its true value.
It commented: "OT [Oyu Tolgoi] is one of RIO's most important growth assets as the project will double RIO's earnings from copper to over 25% on our estimates, will be long life (+40yrs), low cost (1st quartile), has +50% expansion potential, and in our view is under explored."
"We value OT at US$23.8bn (before capex revisions/project finance) on a 100% basis at our long run copper price (US$4.12/lb real $ from 2026), and RIO's current 34% effective share at US$9.1bn (A$8.1/sh; incl. fees). The ~US$2.7bn offer equates to an EV of US$9bn including TRQ's net debt as at 31 Dec of US$3.6bn, which implies a valuation of US$13.6bn for 100% of OT; the offer therefore represents a 43% discount to the valuation contained in our price target," it adds.
