The Rio Tinto Limited (ASX: RIO) share price went up slightly today after the mining giant made another play to increase its exposure to copper.
Rio Tinto already owns 51% of Turquoise Hill Resources Ltd (TSE: TRQ), a Canadian copper business that owns a majority of Oyu Tolgoi, a major copper project in Mongolia.
Rio Tinto aims to land knockout bid
The ASX mining share had already bid C$34 per share to buy the rest of Turquoise Hill Resources, but this was rejected.
Today, Rio Tinto announced that it has increased that bid by 18% to C$40 to buy out the rest of the Turquoise Hill Resources minority shareholders. This bid values the minority share capital at approximately US$3.1 billion.
This improved offer represents a 56% premium to Turquoise Hill’s closing share price on the Toronto Stock Exchange on 11 March 2022, the day before Rio Tinto’s initial proposal.
Rio Tinto pointed out that since Rio Tinto made its initial offer on 14 March 2022, the average share price performance of Turquoise Hill’s peers has declined 35% in light of a deteriorating and more uncertain external environment.
Turquoise Hill also disclosed in its latest earnings result that it needs to do a capital raising of more than US$1 billion to address its current estimate of funding requirements.
The ASX mining share says that the improved offer reflects “full and fair value” for the Turquoise Hill minority shareholders and “delivers certainty of cash” at a material premium.
Rio Tinto said that it is prepared to discuss with Turquoise Hill about its financing needs and provide it with the necessary liquidity to operate through to the completion of the transaction.
If the offer is successful, Rio Tinto will hold a 66% interest in Oyu Tolgoi, with the remaining 34% owned by the Government of Mongolia.
Managemenet comments
Rio Tinto CEO Jakob Stausholm said:
Rio Tinto believes this offer not only provides full and fair value for Turquoise Hill shareholders, but is in the best interests of all stakeholders as we work to move the Oyu Tolgoi project forward.
We will continue to take a disciplined approach to capital allocation and strongly encourage the board of Turquoise Hill to engage constructively, and to support and recommend in favour of Rio Tinto’s improved proposal.
Final thoughts
An 18% improvement in the offer price is a hefty bid and I think it’s very likely to be accepted. The copper project could be an important gamechanger for Rio Tinto as it looks to diversify its portfolio and gain greater access to greener-focused commodities like lithium and copper.
I think the Rio Tinto share price looks attractive at the current level. However, there is still a lot of exposure to the iron ore price, and to China.
