Ground Breakers: Rio takes latest bet on copper, inking earn in with junior explorer

Rio Tinto shows its burning desire for copper with new Paterson Province farm in deal
Big miners are desperate for more of the metal, key to the energy transition
Mining stocks lift despite pressure on commodity prices from China lockdowns

Rio Tinto’s (ASX:RIO) efforts to woo minority shareholders of partial Canadian subsidiary Turquoise Hill Mining in a US$3.3 billion bid double its stake in the Oyu Tolgoi copper-gold mine in Mongolia looks to be just one limb of its strategy to add to its stores of the industrial metal.

With copper’s role in decarbonisation and energy transmission leading to major demand growth forecasts, its has become the “future facing” metal of choice for the Rios and BHPs (ASX:BHP) of the world if you can buy the spin.

Copper prices have tumbled from more than US$10,000/t earlier this year to US$7633/t at the end of last week.

But a new farm in deal from Rio is further demonstration that mining giants want to take a long-term and tentacular approach to get their hands on the red metal.

Rio’s latest attempt to snare some copper on the cheap comes in the form of a $3m farm in and JV deal to ASX tiddler Techgen Metals (ASX:TG1).

Rio can elect to pick up an 80% stake in Harbutt Range by spending $3m over five years including a minimum of 3000m of drilling.

The project is located in the Paterson Province. Important that, because it is within the same domain as Rio’s massive Winu copper-gold discovery, slated for development some time in the middle of this decade pending the outcome of discussions with traditional owners.

That’s not all that’s around; Cyprium’s (ASX:CYM) Nifty copper mine and Newcrest’s (ASX:NCM) Havieron and Telfer gold mines are along the same road.

Rio facing pressure on Oyu Tolgoi

Rio Tinto (ASX:RIO) is facing pushback from one of the top investors in its partially owned Canadian subsidiary Turquoise Hill Mining despite the acceptance of its third C$43 per share offer to mop up the 49% of the Oyu Tolgoi owner it does not hold.

That would give Rio a 66% stake in the Gobi Desert mine alongside the Mongolian Government. The project will be the fourth largest copper mine in the world, producing 500,000tpa from 2028 to 2036.

Alas, Rio has burnt its fair share of bridges over the years, many of them because of the Oyu Tolgoi mine.

SailingStone Capital Partners, a 2.16% holder of Turquoise Hill, is a vocal critic of Rio’s (mis)management of OT and it has come out swinging again, insisting Rio’s balance sheet valuation of its Turquoise Hill holding of C$56/sh should be the bare minimum for any deal.

“The facts are clear: Rio Tinto holds its interest in Turquoise Hill on the Rio balance sheet at US$41/share, the equivalent of C$56/share at current exchange rates and a more than 30% premium to the revised offer,” it said in a statement.

“This should be the bare minimum for any attempt at price discovery. Furthermore, the independent directors (effectively appointed by Rio Tinto) continue their pattern of acquiescing to Rio Tinto at the expense of minority shareholders, agreeing to support a proposal at the low end of a deeply flawed valuation range.

“As large, long-term holders of Turquoise Hill, we are not interested in selling our stake at a massive discount to intrinsic value as we sit on the precipice of a wall of free cash flow.”

Fireworks.

What’s happening on the market?

Commodity prices were hammered last week on the back of Covid-19 cases and lockdowns in China, where the response to the virus is not getting any less austere.

A wave of acid-tinged optimism has come over the ASX mining sector, with coal miners again leading the way as $8.2 billion capped Whitehaven Coal (ASX:WHC) rose 7.15% to yet another record share price.

China is expected to ramp up coal imports as winter emerges, alongside the debilitating effects of this year’s historic drought on its hydropower sector.

Prices for energy coal have been above US$400/t for weeks as a ban on Russian coal in Europe takes shape.

But BHP and Rio were also up 2.06% and 1.04% respectively, with gold, lithium and base metals stocks well bought, leading the materials sector to a more than 1.2% gain despite FMG (ASX:FMG) sinking on its ex-div day.