HomeBlogFinanceRio Tinto raises offer to take direct control of Mongolia copper mine Oyu Tolgoi

Rio Tinto raises offer to take direct control of Mongolia copper mine Oyu Tolgoi

Mining group Rio Tinto has raised its offer to take direct control of the huge Oyu Tolgoi copper mine in Mongolia, weeks after its initial bid was rebuffed.

The FTSE 100 group said on Wednesday it had increased its offer for the stake it does not already own in Turquoise Hill Resources, which owns two-thirds of the Oyu Tolgoi project, to $3.1bn.

Rio offered to buy out minority shareholders in the Canadian vehicle in March for $2.7bn, an offer that was rejected this month by a special committee of independent directors set up by the Toronto-listed group.

Rio, flush with cash from soaring commodity prices, came back on Wednesday to offer C$40 (US$30.79) a share, an 18 per cent improvement on the previous offer and a 56 per cent premium to Turquoise Hill’s closing price the day before the original bid in March.

The project is vital for Rio, which generates most of its revenue from steelmaking ingredient iron ore, to pivot towards metals needed in a low-carbon economy.

Chief executive Jakob Stausholm said the company “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”.

Shares in Turquoise Hill jumped 21 per cent on Wednesday, while those in Rio in London dropped 2 per cent.

While Rio operates Oyu Tolgoi, it does not have a direct stake in the project, instead holding a 51 per cent stake in Turquoise Hill, which in turn owns 66 per cent of Oyu Tolgoi. The remainder is owned by the Mongolian state.

Located in the Gobi desert, Oyu Tolgoi is one of the world’s biggest deposits of copper, a metal vital for the energy transition since it is used in vast quantities in electric vehicles and renewable projects.

Starting with initial production volumes of 500,000 tonnes of copper a year, the project will be one of the world’s biggest mines for the base metal once an underground expansion is completed.

Large diversified mining companies are keen to get their hands on copper projects since production needs to double by 2035 to electrify the global economy and meet emissions targets, according to S&P Global. But they have been hesitant to spend big to acquire projects after a decade of discipline on capital spending.

In a sign of change, BHP Group had a $5.8bn bid to acquire Oz Minerals rejected this month. The world’s largest mining group made the offer after copper prices had fallen sharply from a record high in March above $10,600 a tonne to their current level of about $8,000 a tonne.

Turquoise Hill is set to raise equity proceeds to fund the underground expansion, which in total is expected to cost $7bn to develop, should Rio fail to take it over.

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