• Rio Tinto faces fresh opposition to US$3.3b Mongolian copper deal, with another dissident Turquoise Hill shareholder emerging
  • Miners prosper as mood turns bullish on commodities

 

Best of luck to Rio Tinto (ASX:RIO), which is staring down the barrel of another bruising public relations exercise to convince minority shareholders of copper subsidiary Turquoise Hill Mining they should have over their one-third stake in the Oyu Tolgoi mine in Mongolia for US$3.3 billion.

The storm erupted back in March, two months after Rio made good with the Mongolian Government to get its US$7 billion development in the Gobi Desert back on track.

The mine will be the fourth largest copper mine in the world when the giant block cave is ramped up, converting what is currently a low grade open pit churning out 163,000t a year into a high grade UG op delivering 500,000t.

Rio offered C$34 a share to minority shareholders, something knocked back quick smart by an independent board committee, before upping its bid to C$40 and subsequently an accepted C$43 per share.

That hasn’t pleased instos who make up a large portion of the 49% of Turquoise Hill not owned by Rio Tinto.

After SailingStone Capital Partners came out swinging in early September, accusing the independent board directors of being patsies for TRQ’s big brother Rio.

They say TRQ’s shares are sitting on Rio’s own accounts at US$41 a share, meaning anything under the equivalent C$56/sh won’t do for the 2.16% holder.

Now a second, larger dissident has emerged in Pentwater Capital, which after paying C$41.74 a pop for another 1.73% stake in TRQ boasts an 11.67% ownership interest.

It says it is evaluating legal options against the Rio bid.

 

Copper to the moon?

Underlying it all is the expectation that decarbonisation and electrification will spark a radical uptick in demand for copper that could push prices past the record highs seen last year as ongoing shortages emerge.

Prices have fallen from over US$10,000/t to US$7857/t this year as Chinese demand has collapsed amid a wave of Covid related lockdowns that have stymied the world’s manufacturing centre.

But few analysts see prices remaining at these levels as EV production and renewable energy installations accelerate through the rest of the decade.

Pentwater is very bullish, saying Rio’s offer represents a fraction of free cash flow coming to Oyu Tolgoi’s owners over the coming decade.

“Pentwater expects Turquoise Hill to generate over $10.5 billion CAD of free cash flow through 2030 assuming $3.50 USD copper and almost $14.2 billion CAD of free cash flow assuming $4.00 USD copper,” it said.

“Pentwater believes that as the world transitions to a green economy, the demand for copper will continue to increase and that there is a high probability that the price of copper will be in excess of $4.00 USD over the next decade.

“Pentwater further believes that the proposed premium is unacceptable for a mine that Pentwater expects to be the third largest copper and gold mine in the world with a mine life in excess of 90 years.

“Pentwater does not support the proposed plan of arrangement. Pentwater is evaluating its legal alternatives with respect of Turquoise Hill, Rio Tinto, and the proposed plan of arrangement, including but not limited to the possible exercise of Dissent Rights or other legal action.”

Them’s fighting words. Rio and BHP (ASX:BHP), which last month made an $8.4b bid for OZ Minerals (ASX:OZL) have both preached capital discipline when it comes to their copper M & A.

But each have shown their hand with their willingness to part with cash to upscale their production. The question is how far they’ll go.

 

Rio Tinto (ASX:RIO), BHP (ASX:BHP) and OZ Minerals share prices today:

 

 

Miners rise like dolphins out of the ocean as iron ore gains

Sentiment in iron ore is doing its weird flip-floppy thing where clear signals are hard to find and hope feels like it has taken the wheel.

Prices were back above US$100/t late last week and continued moving north, sending iron ore miners sharply higher today, despite some pretty rough economic data out of China.

We’re moving into the traditional peak construction season now, with steel makers restarting in the hope Government stimulus to support China’s property sector improves demand for industrial products.

Fortescue and BHP were up more than 3% each, driving the ASX materials sector to a 2.16% gain while energy was flat.

A lower US dollar and supply shortages assisted gold, base metals and battery metals, with Sayona (ASX:SYA), Gold Road (ASX:GOR), De Grey (ASX:DEG), Nickel Industries (ASX:NIC) and Syrah Resources (ASX:SYR) all among the mid-cap standouts.

 

Monstars share price today: