Turquoise Hill falls 15% as Mongolia project delayed


Turquoise Hill (TRQ -15.6%) sinks to a 52-week low after saying it will delay developing its Oyu Tolgoi copper project in Mongolia due to the government's financing process; TRQ's primary operation is its 66% interest in the Rio Tinto (RIO -0.1%) mine.

BMO downgrades shares to Market Perform, as it expects no real progress on government talks this year and sees more downside risk if the underground project is deferred indefinitely.

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Comments (5)
  • marpy
    , contributor
    Comments (1517) | Send Message
     
    This should not be real news to anyone that has been following this story. The problem with this project has always been the government of Mongolia due to unstable policy, their anti foreigner and foreign corporation stand, a gullible public that buys into the government rhetoric, and the high degree of corruption in Mongolia and in the GOM.
    Mongolia is acting more like a banana republic than the democracy it is pretending to be. While most governments collect royalties, taxes and other fee's while letting companies own and operate mines, Mongolia has decided that it wants ownership in OT (something to do with nationalist pride and charting their own destiny but in reality all they have done is show the rest of the world what a joke they are). Their actions have greatly damaged the Mongolian economy as foreign investment has shrunk dramatically with many projects being put on hold or cancelled completely.
    As the government of Mongolia has proven over and over again that it can not be trusted, Rio Tinto has taken the correct action here as it makes no sense to invest billions of dollars while Mongolia continues to show that it can not honor past agreements and keeps wanting to change the rules.
    With respect to the Oyu Tolgoi investment agreement, Mongolia hired some of the best mining and finance consultants, spent over 2 years negotiating this agreement which leaves over 70% of proceeds in Mongolia and yet they are still not happy. Rio Tinto and TRQ have invested over 6 billion dollars on the basis of this agreement and have a very solid contract enforceable in world courts.
    This is not the first time that the GOM has tried to shake down a foreign corporation and it will not be the last (see Khan resources and South Gobi coal for other examples - both well covered in SA). The difference here though is that Rio Tinto is a very large well experienced miner that can handle the situation better than the smaller companies the GOM usually picks on.
    This should IMO be a positive for TRQ as Tinto is telling the GOM that the buck stops here - end of the games.
    29 Jul 2013, 03:19 PM Reply Like
  • Compaqee
    , contributor
    Comments (17) | Send Message
     
    @marpy - I'm assuming in summation what your saying - GoM is greedy & trying to bully RIO but RIO is basically saying, "We ain't having none of this. We're going to stop going forward until you are ready to play fair - your move GoM."

     

    I'd like to hope so, seeing a huge decline hurts but I am still relatively comfortable with this investment considering its RIO backing it and the undeniable leverage it has with regards to the mine (30% of Mongolia's GDP).

     

    I just see it as a setback...again.

     

    Anyone else able to chime in and see if my logic makes sense?
    29 Jul 2013, 03:40 PM Reply Like
  • marpy
    , contributor
    Comments (1517) | Send Message
     
    IMO - As far as dealing with the GOM goes, being in Rio Tinto's camp is a pretty good place to be as they are well experienced a dealing with the likes of the GOM and Walsh is not putting up with any nonsense.
    As for being comfortable with the investment, I suspect that those holding $2.00 shares are far more comfortable than those holding $20.00 shares. It is also a complex situation politically as you have China and Russia just sitting there waiting for someone to blink so that they can then jump in. You also have the corrupt GOM that officially says that it wants foreign investment but who's actions say otherwise. Lots of strings being pulled from many different places and a gullible Mongolian public makes for a very erratic situation. If TRQ hits $2.00 as it did the last time the GOM made the situation look dismal, then I will be a buyer as I was then. It really is an uncomfortable situation for most investors (big and small) and that is why they are staying away from Mongolia and the longer this goes on, the longer and harder it will be for Mongolia to repair the damage.
    29 Jul 2013, 09:20 PM Reply Like
  • marleydog
    , contributor
    Comments (12) | Send Message
     
    TRQ is really hitting the perfect storm this past month in a bad way. It seems that they are dependent on the sale on Altynalmas Gold to fund on going operations in Mongolia. Since this did not go through at the end of June like forecast they are dependent on the bridge agreements with Rio. TRQ made statements that the are investigating "private placement of common equity securities" which is another way of saying they are exploring the possibility of issuing preferred stock to selected investors which would be most likely dilutive to current shareholders. Then the bomb with the delay with the underground mine. Nothing is going right with TRQ at the moment and it is going to take a string of positive news to get the stock turned around.

     

    The GoM is also going to have to realize that they are losing out on future revenues if they continue changing the rules. I give Rio credit for saying enough is enough. Nothing like some financial pain to get people motivated.
    29 Jul 2013, 11:39 PM Reply Like
  • badoy
    , contributor
    Comments (5) | Send Message
     
    You cannot trust the government of Mongolia, never has been, never will. Rio Tinto cannot be bullied, and with its resources, it can wait until GoM wakes up to the reality that they have to play fair. GoM needs this partnership to survive and thrive so other investors can come in. It will be a game of hide and seek for awhile until somebody blinks and I am confident that Rio Tinto will not.
    30 Jul 2013, 06:34 PM Reply Like
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