Leading global mining group, Rio Tinto Group (RIO) has made a non-binding proposal to acquire ~49% shares of Canadian mineral exploration and development company, Turquoise Hill.
RIO already owns 51% of Turquoise Hill . The move comes after a comprehensive agreement between RIO, Turquoise Hill, and the Mongolian Government to take the Oyu Tolgoi project ahead, reset relations between partners, and approve the start of underground operations.
The move bolsters RIO’s copper portfolio, optimizes ownership and governance structure for the Oyu Tolgoi project, and reinforces RIO’s long-term commitment to Mongolia.
Under the proposed terms, minority shareholders in Turquoise Hill would get C$34 in cash per share, which represents a 32% premium to Turquoise Hill’s share price, and values minority share capital in the company at about $2.7 billion.
Management Weighs In
The CEO of Rio Tinto, Jakob Stausholm, commented, “Rio Tinto strongly believes in the long-term success of Oyu Tolgoi and Mongolia, and delivering for all stakeholders over the long-term. That is why we want to increase our interest in Oyu Tolgoi, simplify the ownership structure, and further strengthen Rio Tinto’s copper portfolio. We believe the terms of the proposal are compelling for Turquoise Hill shareholders.”
The transaction is expected to be conducted by way of a Canadian plan of arrangement, subject to customary closing conditions. Furthermore, this transaction is not subject to any financing conditions or due diligence.
Recently, Jefferies analyst Chris LaFemina reiterated a Hold rating on Rio Tinto while increasing the price target to $92 from $86. Overall, the Street has a Moderate Sell consensus rating on Rio Tinto based on 2 Holds and 1 Sell. The average Rio Tinto price target of $92 implies a potential upside of 26.5% for the stock.
Hedge Fund Activity
According to TipRanks data, Wall Street’s top hedge funds have increased holdings in Rio Tinto by 367.6 thousand shares in the last quarter, indicating a positive hedge fund confidence signal in the stock based on activities of 6 hedge funds. Shares are down 7.2% over the past month.
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