On March 14, Rio Tinto announced a non-binding proposal made to Turquoise Hill Resources, offering to buy the 49 per cent of the company’s shares it does not already own – effectively making a move to acquire full ownership of Turquoise Hill. The proposed transaction would compensate minority shareholders of the Canadian company at the price of $34 a share in cash, representing a 32 per cent premium on the share value, for a total US$2.7 billion value.

Both companies already work together closely on the Oyu Tolgoi mine in the South Gobi Desert in Mongolia, with Turquoise Hill having ownership of a 66 per cent interest in the mine. The remaining 34 per cent interest is held by a Mongolian state-owned entity, with Rio Tinto in charge of operating the mine itself. Oyu Tolgoi is Turquoise Hill’s only mine.

Open-pit mining began at the mine in 2011, but underground operations were only recently approved to start in January 2022, due in part to changes in its mining plan after underground stability risks were uncovered in 2019. Those risks, along with the cost for mitigation, delays in production, reductions in assessed mineral reserves and accusations of mismanagement have all been sources of contention between the Mongolian government and both mining entities.

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Due to rising operations cost estimates, the government saw its anticipated economic benefits dwindle, especially considering the US$22 billion debt it will incur and with dividend payments not expected until 2051. Although the approval for underground operations to start was a breakthrough in relations between the three entities, Rio Tinto notes that inherent uncertainties remain in its development and funding.

According to Rio Tinto, the deal would simplify Oyu Tolgoi’s ownership and governance structures, enabling the company to work directly with the Mongolian government. If successful, Rio Tinto will control a 66 per cent interest in the mine, with Mongolia controlling the remaining 34 per cent.

The first sustainable production underground is now expected in the first half of 2023. At peak production, Oyu Tolgoi is expected to produce 500,000 tonnes of copper per year on average between 2028 and 2036 from both open-pit and underground operations.  

Turquoise Hill have acknowledged the proposal and will be establishing a special committee of directors not affiliated to Rio Tinto to review and consider it. Shareholders will be notified if the proposal moves further along, as the deal will require a two-thirds majority vote in favour to be accepted.