Canada-based Turquoise Hill has rejected diversified miner Rio Tinto’s C$34-a-share cash bid for the company, concluding that the offer does not “fully and fairly” reflect the value of its majority interest in the Oyu Tolgoi project, in Mongolia.
A special committee of independent directors of Turquoise Hill concluded that Rio Tinto’s offer price was “well below” a range of values implied by a value analysis conducted by TD Securities.
The committee had terminated its review and consideration of the Rio Tinto proposal, the TSX- and NYSE-listed company said on Monday, stating that the parties could not reach a consensus on value and price or on any improved proposal from Rio Tinto.
In March, Rio Tinto proposed to buy the 49% of Turquoise Hill that it did not already own, which would have paved the way for direct ownership of the Oyu Tolgoi copper/gold project.
“Market conditions in the equity and copper markets have changed significantly since the receipt of Rio Tinto’s privatisation proposal in March. At the same time, the company has continued to make positive progress on the underground project.
“The special committee has considered all relevant factors in reaching its decision, including TD’s preliminary indications of value analysis. Ultimately, we concluded that a transaction at the price proposed by Rio Tinto would not fairly compensate minority shareholders for the fundamental, long-term value of the Company’s interest in Oyu Tolgoi,” said chairperson of the special committee Maryse Saint-Laurent.
Interim CEO Steve Thibeault said that the funding agreement that Turquoise Hill had with Rio Tinto remained in effect and that it would provide sufficient liquidity to meet its funding requirements.
Rio Tinto in May agreed to provide Turquoise Hill with up to $400-million in interim debt funding.
The special committee would concentrate on the other major elements of its mandate and support company management in raising at least $650-million in new equity by year-end as required under its funding agreement with Rio Tinto.
Turquoise Hill chairperson Peter Gillin stressed that Rio Tinto was a “valued and trusted shareholder and partner to Turquoise Hill”.
“Although we are ceasing further engagement with respect to Rio Tinto’s proposal, we look forward to continuing our relationship as we work together to realise the full potential of the Oyu Tolgoi project for the benefit of all shareholders, stakeholders and owners.”
Rio Tinto said in a statement that it was disappointed by the decision of the special committee and that it continued to believe that the terms of the proposed transaction would deliver compelling value for Turquoise Hill minority shareholders.
The major also noted that its proposal provided the certainty of an all-cash offer at an attractive premium.