The Rio Tinto Limited (ASX: RIO) share price is currently down around 0.3%. That compares to a 0.55% rise in the S&P/ASX 200 Index (ASX: XJO) at the time of writing.
The underperformance looks even more surprising when considering the BHP Group Ltd (ASX: BHP) share price is currently up by almost 5%.
However, BHP has just released its FY22 result so perhaps Fortescue Metals Group Limited (ASX: FMG) shares would be a better comparison. While Fortescue was down earlier, the Fortescue share price is currently up by 2%.
What has happened?
Yesterday, after the market had closed, Rio Tinto noted that Turquoise Hill Resources had terminated its review of Rio Tinto's non-binding proposal to acquire full ownership of Turquoise Hill for C$34 cash per share.
Rio Tinto said it was disappointed by the decision. It pointed out that the offer represents compelling value, considering it's a 32% premium to the Turquoise Hill closing share price of C$25.68 on 11 March 2022.
Since the proposal on 14 March 2022, the average share price performance of Turquoise Hill's peers has declined by more than 35% in light of a "deteriorating and more uncertain external environment".
On top of that, Turquoise Hill recently disclosed that it needs to raise more than US$1 billion of equity to address its current estimate of funding requirements.
Rio Tinto said it would remain "financially disciplined" as it considers its options. If a deal doesn't happen, Rio Tinto said it "welcomes the continued investment by Turquoise Hill minority shareholders and their pro rata sharing of future risks and future obligations".
The ASX mining share viewed this deal as important because it would lead to greater ownership of Oyu Tolgoi, a large copper mine in Mongolia.
Why was the offer rejected?
The special committee of independent directors of Turquoise Hill Resources said the offer didn't "fairly reflect the fundamental and long-term strategic value of the company's majority ownership of the Oyu Tolgoi project".
The special committee utilised value analysis by TD Securities, which indicated the C$34 offer price was "well below" a range of values implied in TD's preliminary analysis.
It noted that Rio Tinto has not improved its offer despite engagement between the parties.
Management comments
Rio Tinto chief executive of copper Bold Baatar said:
Rio Tinto remains as committed as ever to the long-term success of Oyu Tolgoi. While we are disappointed by this decision, we will continue to work constructively with the board of Turquoise Hill to advance the Oyu Tolgoi project.
Interim CEO of Turquoise Hill Resources Steve Thibeault said:
The underground project is advancing better than originally anticipated. We were able to start blasting the drawbells ahead of schedule and caving operations are progressing to the point where we expect to achieve sustainable production earlier than forecast.
Oyu Tolgoi is an attractive tier one asset, and we remain highly focused on and optimistic about its transformation into one of the world's great copper mines, positioning Oyu Tolgoi to become a high-grade, low-cost, large-scale producer with a long mine life.
Rio Tinto share price snapshot
The Rio Tinto share price has fallen around 20% over the last six months.
