Rio Tinto share price lower despite Turquoise Hill agreement

Rio Tinto's shares are falling on Tuesday despite an acquisition update…

| More on:
Two miners standing together with a smile on their faces.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Rio Tinto's plan to acquire Turquoise Hill has been given a boost today
  • The Turquoise Hill board is recommending its offer to minority shareholders
  • Turquoise Hill is co-owner of the Oyu Tolgoi project in Mongolia

The Rio Tinto Limited (ASX: RIO) share price is edging lower on Tuesday.

That's despite the mining giant making an encouraging announcement this afternoon.

At the time of writing, the Rio Tinto share price is down almost 1% to $91.05.

Rio Tinto share price lower despite Turquoise Hill update

Last month, Rio Tinto made an improved non-binding proposal of C$40 cash per share to the Turquoise Hill board to acquire the ~49% of the issued and outstanding shares of Turquoise Hill that it does not currently own. Turquoise Hill is co-owner of the Oyu Tolgoi project in Mongolia.

This offer was then bumped up to C$43 cash per share last week, with an agreement made in principle.

What's the latest?

The good news is that the transaction has now progressed, with Rio Tinto and Turquoise Hill entering into definitive arrangement agreement today.

According to the release, the Turquoise Hill board of directors unanimously recommends minority shareholders vote in favour of Rio Tinto's best and final offer. They have also entered into voting support agreements with respect to all of the Turquoise Hill shares they own or control.

Rio Tinto revealed that it has agreed to provide Turquoise Hill with secured short-term liquidity during the transaction period of up to US$1.1 billion. This would need to be repaid from an equity raising in the first half of 2023 if the transaction is not approved by shareholders.

But that won't be enough to fund the Oyu Tolgoi project alone. Turquoise Hill has estimated that it requires US$3.6 billion of additional funding in total to complete the project. Therefore, Rio Tinto acquiring the company delivers certainty for the financing needs and alleviates any further funding risks for Turquoise Hill shareholders.

Management commentary

Rio Tinto's chief executive, Jakob Stausholm, was pleased with the news. He said:

This Transaction will simplify governance, improve efficiency and create greater certainty of funding for the long-term success of the Oyu Tolgoi project. Rio Tinto's offer guarantees Turquoise Hill's minority shareholders outstanding value through a significant allcash premium for their shares. After extensive negotiations, the terms of the transaction are final and there will be no further price increase. We look forward to working with the Turquoise Hill Board of Directors to ensure Turquoise Hill shareholders are able to realise the significant and immediate value of the Transaction.

The Rio Tinto share price is now down 18% over the last 12 months following today's decline.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Mergers & Acquisitions

A man sits in a chair hunched over a laptop and covered head to toe in frozen icicles to represent Envirosuite's trading halt
Mergers & Acquisitions

APM share price placed on ice as $1.8 billion deal goes dud

It's all question marks and raised eyebrows for shareholders of this ASX company today.

Read more »

Young man sitting at a table in front of a row of pokie machines staring intently at a laptop. looking at the Crown Resorts share price
Mergers & Acquisitions

Could Star Entertainment shares be next in line to catch a takeover bid?

Star shares have been battered, but could a buyout be coming?

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Bank Shares

Own CBA shares? Here's the tech stock the banking giant just invested in

CBA has made an interesting investment. Here's what you need to know.

Read more »

Man pointing at a blue rising share price graph.
Mergers & Acquisitions

Guess which ASX 300 stock is rocketing 10% on a $985 million cash bid!

Investors are piling into the ASX 300 stock on the back of a $985 million cash takeover bid.

Read more »

Shot of a scientist using a computer while conducting research in a laboratory.
Mergers & Acquisitions

Guess which ASX blue-chip share is throwing $202 million at another acquisition

This Aussie healthcare company is growing its presence in Switzerland.

Read more »

A man stands with his arms crossed in an X shape.
Mergers & Acquisitions

Boral share price falls after rejecting Seven Group takeover

The offer 'undervalues' Boral according to its committee.

Read more »

Miner looking at a tablet.
Materials Shares

Mineral Resources share price marching higher on new lithium project acquisition

ASX 200 investors are bidding up the Mineral Resources share price on Monday.

Read more »

A man sitting at a computer is blown away by what he's seeing on the screen, hair and tie whooshing back as he screams argh in panic.
Technology Shares

Appen shares plunges 17% after takeover collapse

Well that didn't take long...

Read more »