Rio Tinto to Buy Remaining Turquoise Hill Shares

Rio Tinto (LON: RIO) (NYSE: RIO) announced Monday it has made a proposal to buy 49% of the Canadian company Turquoise Hill for approximately $2.7 billion.

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Strengthens Rio Tinto’s Copper Portfolio

This acquisition will accelerate the Oyu Tolgoi copper-gold mining project in Mongolia. The deal will also strengthen Rio Tinto’s copper portfolio and simplify the ownership structure of the mine.

The informal offer at C$34 per share represents a premium of more than 32% to Turquoise Hill’s closing price on Friday.

Turquoise Hill’s board of directors will set up a special committee to assess the proposal.

The offer follows an agreement between the company, Turquoise Hill and the Mongolian government in January to advance the Oyu Tolgoi project, restore the relationship between the partners and approve the start of underground operations.

Management Commentary

Rio Tinto chief executive Jakob Stausholm said, “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.”

Wall Street’s Take

Six days ago, Jefferies analyst Chris LaFemina kept a Hold rating on RIO and set a price target of $92. This implies 32.3% upside potential.

Overall, consensus on the Street is that RIO is a Moderate Sell based on two Holds and one Sell. The average Rio Tinto price target of $92 implies 32.3% upside potential to current levels.

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