Rio Tinto terminates deals with dissident Turquoise Hill shareholders a week after Quebec watchdog raises concerns

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Rio Tinto Ltd. terminated the side deals that it had inked with two minority shareholders of Montreal-based Turquoise Hill Resources Ltd. in its bid to gain full control of the Canadian miner, a week after Quebec’s securities regulator said that the deals raised “public interest concerns.”

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The terminations increase doubts about whether Rio will be successful in its attempt to buy the remaining shares of Turquoise that it doesn’t already own.

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According to the deals struck on Nov. 1 with investment firms Pentwater Capital Management LP and SailingStone Capital Partners LLC, which had publicly opposed Rio’s US$3.3 billion takeover offer, the firms would withhold their votes and exercise their dissent rights instead.

Exercising these rights opens a door for a shareholder to sell its shares at a price it believes is fair through arbitration in the event a company makes a decision it does not agree with.

However, on Thursday, Rio said that it was going back its original proposal. The global mining giant also asked Turquoise to hold a shareholder vote on the takeover — which has already been postponed thrice — as soon as possible.

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“We have acknowledged feedback received from minority shareholders and returned to the proposal originally unanimously recommended by the Turquoise Hill Special Committee,” Rio’s copper chief Bold Baatar said in a press release. “We continue to believe that a premium of 67 per cent for their shares … is an attractive proposition for minority shareholders.”

Rio, which owns 51 per cent of Turquoise, had to improve its offer twice to end up at the $43 per share mark on Sept. 5 and reach an agreement with Turquoise’s senior executives after its initial bids of $34 and $40 were rejected.

However, the deal requires approval from two-thirds of Turquoise Hill shareholders, including Rio Tinto. It also requires a simple majority of the votes cast by Turquoise Hill’s minority shareholders, which include Pentwater and SailingStone, which own 15.14 and 2.2 per cent of Turquoise, respectively.

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“There is no assurance that any of (Pentwater or SailingStone) will continue to withhold their vote or whether any of them will vote for or against the arrangement,” Rio said in the press release.

Rio added in its statement that all minority shareholders of Turquoise would have access to the “same dissent rights and statutory process through the Yukon Courts” for the transaction.

Turquoise Hill runs the Oyu Tolgoi mine in Mongolia, which it has said is one of the world’s largest new copper and gold mines. Through five mineralized deposits, the mine, which started operating in 2013, has the potential to operate for about 100 years, according to Turquoise Hill, which owns 66 per cent of the mine. The Mongolian government owns the rest.

The mine is expected to produce 110,000 to 150,000 tons of copper and 150,000 to 170,000 ounces of gold in 2022. Production is expected to increase next year since the Oyu Tolgoi board has approved the start of the mine’s underground operations, with first production expected in 2023.

One of the world’s biggest mining corporations, Rio, like a number of other miners is looking to increase its control of metals like copper, which is likely to play a key role in the transition away from fossil fuels.

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