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Rio Tinto's topsy-turvy takeover of Turquoise Hill set for shareholder vote on Dec. 9

The Oyu Tolgoi Copper-Gold Mine From Above And Below
The Oyu Tolgoi Copper-Gold Mine From Above And Below

Turquoise Hill Resources Ltd.‘s shareholders will vote on Rio Tinto Ltd.’s attempt to take full control of the Montreal-based miner on Dec. 9, signalling a potential close to a topsy-turvy saga that includes the postponement of three previous votes, multiple takeover offers from Rio, and side deals with minority owners abruptly terminated.

Rio, one of the world’s dominant miners, already owns about 51 per cent of Turquoise, but hopes to gain full control so it can claim Turquoise’s Oyu Tolgoi mine in Mongolia — one of the world’s largest new copper and gold mines — as its own.

Copper is likely to play a key role in the transition away from fossil fuels, and miners such as Rio are keen to get in on the action.

The vote was initially postponed from Nov. 1 to Nov. 8 by Turquoise in light of new information that Rio was in talks with two of the Turquoise’s minority shareholders, investment firms Pentwater Capital Management LP and SailingStone Capital Partners LLC, which had publicly opposed Rio’s US3.3 billion offer to take over the company.

According to the side deals that Rio struck with the two shareholders, the firms would withhold their votes and exercise their dissent rights instead. Exercising these rights would open a door for a shareholder to sell its shares at a price it believes is fair through arbitration in the event a company makes a decision it does not agree with.

However, the vote was shifted for a second time from Nov. 8 after Quebec’s securities regulator Autorité des marchés financiers (AMF) got involved. The vote was then postponed indefinitely on Nov. 9 after the Quebec watchdog said that the side deals raised “public interest concerns.”

On Nov. 17, Rio said that it had terminated the side deals with the two minority shareholders and returned to the original proposal to take over Turquoise, raising doubts about whether the deal will go through.

Rio raised its takeover offer twice to end up at the current $43 per share mark and reach an agreement with Turquoise’s senior executives. Its initial bids of $34 and $40 were rejected.

However, the deal requires approval from two-thirds of Turquoise Hill shareholders, including Rio Tinto. It also requires a simple majority of the votes cast by Turquoise Hill’s minority shareholders, which include Pentwater and SailingStone, which own 15.14 and 2.2 per cent of Turquoise, respectively.

Turquoise’s Oyu Tolgoi mine in Mongolia, which started operating in 2013, has the potential to operate for about 100 years, the company has said. The Canadian miner owns 66 per cent of the mine. The Mongolian government owns the rest.

The mine is expected to produce 110,000 to 150,000 tons of copper and 150,000 to 170,000 ounces of gold in 2022. Production is expected to increase next year since the Oyu Tolgoi board has approved the start of the mine’s underground operations, with first production expected in 2023.

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