Monsters of Rock: Rio stumps up US$3.3 billion to double its control over Mongolian copper giant

Rio Tinto beefs up offer for Turquoise Hill to US$3.3 billion
The deal has been accepted by a special board committee and will consolidate Rio’s ownership stake in the Oyu Tolgoi mine to 66%
Oyu Tolgoi will be the fourth largest copper mine in the world by 2030, production 500,000tpa

We are moving into that stage of the cycle when the world’s largest miners are getting greedy for growth projects.

Some analysts have noted on the side (they don’t love saying it on the record) that BHP’s (ASX:BHP) as yet unsuccessful $8.4 billion offer for OZ Minerals (ASX:OZL) could be a canary in the coal mine for the top of the cycle.

Big acquisitions by the world’s mega miners often signal less bullish times could be on the horizon.

Rio Tinto (ASX:RIO) has finally blinked in its own takeover battle, ironically with its own company.

The world’s second biggest miner, like BHP, also wants more copper on account of the bright demand outlook for the commodity from the oncoming energy transition.

Its easiest route to secure it was by buying out the 49% it didn’t own in Turquoise Hill, the Canadian subsidiary through which Rio owns its stake in the Oyu Tolgoi copper and gold mine in Mongolia.

Minority shareholders baulked at the initial C$34 bid floated by Rio in March, despite its premium to Turquoise Hill’s last closing price at the time of C$25.68.

It has now upped that bid to C$43 in cash, a number Turquoise Hill’s independent special committee has unanimously accepted.

That comes in at a 67% premium to Turquoise Hill’s trading price back in March and a 125% premium to the C$19.12 on January 24, the day before Rio nutted out a deal to rebuild relations with the Mongolian Government and approve a long delayed US$7 billion underground expansion of the giant mine.

All about that copper

Oyu Tolgoi produced around 163,000t of copper in 2021 from an open pit, but has failed to reach its potential amid years of delays from Rio and furore at the global miner from its one-third partner in the Mongolian Government.

With those issues sorted back in January, Rio has been freed to develop what will by 2030 be the world’s fourth largest copper mine.

A giant underground block cave, the underground ore reserve boasts an impressive grade of 1.52%, around three times the current open pit, along with 0.31g/t of gold.

Between 2028 and 2036 OT will produce around 500,000t of copper annually, with production of 350,000tpa for a further five years after that.

Rio’s biggest in to expand its copper production, logically was to take out Turquoise Hill and secure the extra third of production minority shareholders indirectly held.

Copper has become the focus of a string of expensive mining deals in recent years, amid expectations demand will boom from the expansion of renewable technology and electric vehicles.

Alongside Rio and BHP’s corporate moves in the space, South32 (ASX:S32) and Sandfire Resources (ASX:SFR) each paid in excess of US$1.5 billion to secure stakes in the Sierra Gorda and MATSA mines in Chile and Spain respectively last year.

Rio CEO Jakob Stausholm said the deal would provide greater funding certainty for the project, with Turquoise Hill likely having to otherwise dip into equity markets to fund its share of the expansion costs.