Turquoise Hill Resources advised Rio Tinto that it had reviewed and rejected its proposal to acquire all of the company shares that it does not already own for cash consideration of C$34 per share. Turquoise Hill does not believe that it fairly reflects the long-term strategic value of the company’s majority ownership of the Oyu Tolgoi mine in Mongolia.

Delays and cost overruns were an issue for Oyu Tolgoi’s underground operations, but the company has fired the first three drawbells ahead of a revised schedule and Turquoise Hill believes that sustainable production will be achieved earlier than previously forecast.

“Market conditions in the equity and copper markets have changed significantly since the receipt of Rio Tinto’s privatization proposal in March,” said Maryse Saint-Laurent, chair of the special committee that evaluated the Rio Tinto proposal. “At the same time, the company has continued to make positive progress on the underground project. The committee has considered all relevant factors in reaching its decision. 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. The committee will now support management in raising at least $650 million in new equity by year-end as required under our funding agreement with Rio Tinto.”

Turquoise Hill achieved a number of significant milestones in the year last year including a reset with the Government of Mongolia, which de-risked the project and enabled it to start the blasting of the undercut in January.

“The underground project is advancing better than originally anticipated,” said Steve Thibeault, interim CEO for Turquoise Hill. “We were able to start blasting the drawbells ahead of schedule and caving operations are progressing to the point where we expect to achieve sustainable production earlier than forecast. The funding agreement with Rio Tinto remains in effect and the company is executing on those commitments, which we expect will provide us with sufficient liquidity to meet our funding requirements.”

The proposed transaction would have valued Rio Tinto’s stake in Turquoise Hill at approximately $2.7 billion. Rio Tinto said that since it made its proposal on March 14, 2022, the average share price performance of Turquoise Hill’s peers has declined 35% in light of a deteriorating and more uncertain external environment. Furthermore, Turquoise Hill has disclosed in its latest earnings results that it needs to raise equity proceeds of more than $1 billion to address its current estimate of funding requirements.

“Rio Tinto remains as committed as ever to the long-term success of Oyu Tolgoi,” said Rio Tinto Chief Executive Copper Bold Baatar. “While we are disappointed by this decision, we will continue to work constructively with the Board of Turquoise Hill to advance the Oyu Tolgoi project.”

Turquoise Hill’s ownership of the Oyu Tolgoi mine is held through a 66% interest in Oyu Tolgoi LLC; Erdenes Oyu Tolgoi LLC, a Mongolian state-owned entity, holds the remaining 34% interest. Rio Tinto holds a 51% stake in Turquoise Hill.