Report: Rio Tinto considering making a bid for Turquoise Hill


Turquoise Hill Resources (TRQ) +4.1% AH on speculation from the Daily Mail that Rio Tinto (RIO) is preparing to bid ~$8/share for the outstanding 49.2% of the company it doesn't already own.

Billionaire Robert Friedland holds 3% of TRQ is said to have been against selling out to RIO until recently.

TRQ holds 66% of the massive Oyu Tolgoi copper and gold mine, but progress on the $6B second stage of the project has been held up by RIO’s inability to strike an agreement with the Mongolian government.

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Comments (37)
  • Compaqee
    , contributor
    Comments (17) | Send Message
     
    What would happen to current shareholders if this were to actually play out. Also, this doesn't seem like a fair valuation that most would be willing to let their shares go for.
    6 Mar 2014, 06:56 PM Reply Like
  • Shankerk
    , contributor
    Comment (1) | Send Message
     
    There is a possibility that the Mongolian govt may nationalise the mine or levy stiff royalties. So that risk will keep the share price depressed.
    7 Mar 2014, 08:19 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    Mongolian gov't will NOT nationalize the mine. They cannot because:
    - they don't have the skills to do the block cave mining
    - they don't have the economic resources to do the block cave mining
    - they don't have the haught of Rio Tinto to negotiate a half decent sale price of their product to the Chinese
    - because their government is on the brink economically, quite desperate to get more foreign FDI and their currency is nearing a death spiral despite the central bank's best efforts to intervene
    7 Mar 2014, 12:13 PM Reply Like
  • marpy
    , contributor
    Comments (1718) | Send Message
     
    Rio Tinto has an investment agreement with the GOM enforceable in world courts that runs for 30 years. I suppose that the GOM could try but they would have 2 big problems.
    1) It would put the country into the dark ages for a very long time as far as foriegn investment is concerned.
    2) No one in Mongolia is capable of operating this mine. It is deep underground (80% of the deposit) and requires block caving expertise. Only the majors are capable.
    7 Mar 2014, 12:17 PM Reply Like
  • marpy
    , contributor
    Comments (1718) | Send Message
     
    $8 if it came to be would be a very low ball offer. This deposit is a huge world class high grad deposit with a 100 years life - easy 500 billion plus of metal in the ground. I would expect that Friedland and the big institutional share holders that know what they are have will be holding out for considerably more.
    This could explain some of Freidland recent derivative trading (saw an article on an interview with him not to long ago) He stated that although his holdings in TRQ were reduced, his exposure was much higher due to derivative positions he held.
    I am long TRQ and would do well at $8 but will be holding in the expectation of considerably more. Some shareholders have been waiting years for the GOM to come to some common sense and it looks like this time is quickly approaching.
    6 Mar 2014, 07:49 PM Reply Like
  • Compaqee
    , contributor
    Comments (17) | Send Message
     
    Thanks for the input Marpy. I've been following TRQ for quite some time as well. While $8 will make me a handsome profit, I too am expecting quite a better offer considering the assets at hand.

     

    Cheers!
    6 Mar 2014, 08:02 PM Reply Like
  • Western Investor
    , contributor
    Comments (55) | Send Message
     
    I am long TRQ stock and LEAPS from just after the rights offering and this does not come as a surprise. The rumor mill has been churning these past few days and the bullish trading and call volume has been suspicious. I think this report likely has merit. Regardless, however, I think that at the current price it still represents a highly skewed risk-reward profile for new investors. Recent developments seem to be suggesting that a deal with the government is approaching and a bid from Rio (albeit a lowball one) would only be icing on the cake.
    6 Mar 2014, 08:57 PM Reply Like
  • redpepper530
    , contributor
    Comments (10) | Send Message
     
    In the Early construction & development stage Ivanhoe was trading at App $30 cdn it has since increased shares 4 fold from app 500m to app 2billion shares @ $ a share 8 offered those that bought then would see little or no profit over 3yrs
    at that time future valuations per share was well over the $100 mark and estimated at 150 to 200 each divide that by 4 = a diluted valuation of 35 to $50
    Granted gold was a little higher app1650 and copper was close to $4 lb
    given the present price of the commodities a fair price to day would be in my opinion app $20 $25 per share anything less would be trying to take unfair advantage of the present share holders. perhaps the Mongolian Government could be a suiter as it would need significantly less shares to take control
    of this company as it presently owns 34 % of the property outright.something to think about ......
    6 Mar 2014, 09:27 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    Not sure about this. For one thing, what's RIO doing with their warrants at $12.79? (http://seekingalpha.co...) For another, its PDAC right now (http://bit.ly/1cGAZOq) and this report didn't come from Canada. Mind you normally RIO/TRQ stories are broken by Aussie papers (which this is not either). Time will tell.
    6 Mar 2014, 10:15 PM Reply Like
  • Arby1
    , contributor
    Comments (3) | Send Message
     
    Jon, for the layman investor, a translation of your first 3 sentences, please? Thanks.
    6 Mar 2014, 11:04 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    Rio Tinto (RIO) owns about 51% of Turquoise Hill (TRQ) already.

     

    Among various things RIO owns are warrants they can exercise to buy TRQ shares at $12.79.

     

    There is a bunch of other errata I know, but will take long to explain and still doesn't prove anything in an airtight way.

     

    PDAC is the Prospectors & Developers Association of Canada, it is a major mining conference, and lots of people from Mongolia are there right now from gov't officials to TRQ & RIO. One would think this news would come from a report that is there.

     

    More traditionally, international news about TRQ & RIO is most often reported first by Australian papers at the start of their business day (I used to track how long it would take a news story from Mongolia to hit the international press and it usually took 2 to 3 weeks, and arrived on Australia's shores first).

     

    Lastly, Turquoise Hill has announced their annual shareholder meeting is May 8th this year today: http://1.usa.gov/1cGGc90 . That is the only FACT that I know from the reporting of the past day, the rest is speculation.
    6 Mar 2014, 11:15 PM Reply Like
  • Pepper22
    , contributor
    Comments (44) | Send Message
     
    Though call option volume exploded today the Implied Volatilty crashed as the day progressed. Covered some short calls.
    7 Mar 2014, 01:08 AM Reply Like
  • mjm102550
    , contributor
    Comment (1) | Send Message
     
    For me, $8 is a totally unexceptable offer. This massive mine is worth $20 on the short run and well over $80 for the long haul. This is one of the worlds largest proven copper and gold deposits. If RIO, or anyone else tries to steal it for less then $20, there needs to be a shareholder uprising.
    7 Mar 2014, 01:27 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    Well, as RIO owns 51% of TRQ, I'm not sure how you expect to realize those prices in the near future. If it gets to the mid-teens, I'd be impressed. There's no market-driven motivation for it.
    7 Mar 2014, 12:17 PM Reply Like
  • marpy
    , contributor
    Comments (1718) | Send Message
     
    their are some good reasons for Rio Tinto to want 100% of TRQ once they have things Ironed out with the GOM.
    1) From an accounting perspective it is to their advantage to own well over 70% if not 100% - especially once phase 2 really stars pumping up that cash flow. Has to do with how TRQ cash flow shows up on Tinto's books.

     

    2) Politics - as 100% owned, they could deal with issues and the GOM in a much quieter manner than they can with the current public status. Currently public status is to Tinto's advantage as every move is under the foriegn investors microscope and Mongolia gets to pay most of the price of their hostile approach to TRQ. Once a deal is reached with the GOM, then this changes as the Minority will put Tinto under the microscope with the expectations that Tinto deliver with dividends, by backs and effective mine operation. The minority includes some sizable institutions.

     

    JMO
    7 Mar 2014, 12:41 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    They've also got lawsuits on their hands for the low share price (which I have no legal opinion about, but they're out there).

     

    They also, according to research reports in 2012, have a Canadian regulation that limits them to accumulating no more than 5% of the company in a given year if they don't want to trigger buyout mechanisms.
    7 Mar 2014, 12:45 PM Reply Like
  • b757fo
    , contributor
    Comments (4) | Send Message
     
    Better news than the potential buyout!!!

     

    http://bit.ly/NDR9Cp
    7 Mar 2014, 01:40 AM Reply Like
  • utah72
    , contributor
    Comments (220) | Send Message
     
    Now that is good news.... hope its accurate.
    7 Mar 2014, 07:21 AM Reply Like
  • rjj1960
    , contributor
    Comments (1472) | Send Message
     
    The mine is worth zero, is in Mongolia. If the mine was in lets say Canada, then a totally different story. If TRQ offers 8.00, investors should count their lucky stars.
    7 Mar 2014, 08:17 AM Reply Like
  • utah72
    , contributor
    Comments (220) | Send Message
     
    Obviously everything outside of North America is worth zero - thanks for the insight.
    7 Mar 2014, 08:28 AM Reply Like
  • rjj1960
    , contributor
    Comments (1472) | Send Message
     
    Your welcome, glad I could help.
    7 Mar 2014, 08:57 AM Reply Like
  • pat45
    , contributor
    Comments (461) | Send Message
     
    Agreed. One of these years China, Russia, and little countries like Mongolia will learn to do honest business, but I am not holding my breath.
    7 Mar 2014, 08:27 AM Reply Like
  • b757fo
    , contributor
    Comments (4) | Send Message
     
    I tried posting an article here, but for whatever reason it didn't go through...

     

    Please google Oyu Tolgoi News and look for a Mining News article, dated March 6. The article states that RIO, TRQ, and the Mongolian government have come to a mining agreement! This is a long time coming...

     

    Regardless of what may transpire with the possible RIO takeover news, the news of this article is a big, positive event for TRQ.
    7 Mar 2014, 09:31 AM Reply Like
  • b757fo
    , contributor
    Comments (4) | Send Message
     
    http://bit.ly/NDR9Cp

     

    This is better news than the potential buyout!!
    7 Mar 2014, 10:11 AM Reply Like
  • Mbat
    , contributor
    Comments (7) | Send Message
     
    To Shankerk. Why would the Mongolian Government nationalize the mine. That is absolutely senseless speculation. On the other hand the normally extremely nationalistic Mines Minister of Mongolia attended the PDAC and made very investor- friendly remarks. Unbelievable. Given that the Mongolian Government is facing credit crunch it is high time they become more reasonable and less greedy.
    7 Mar 2014, 11:04 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    Yes, the gov't has been working overtime to bring back foreign investors and FDI as I have been writing about this year:
    http://onforb.es/1gy9AkB
    &
    http://onforb.es/1muvpbJ

     

    However, it is not working yet. The currency hit new all time lows prior to recent interventions.

     

    Don't think the OT agreement being sorted out will do that much actually (should give a little pop; but don't think it will necessarily set the market - or share price - on fire). There are other issues to sort out with China, FDI and the block caving yet.
    7 Mar 2014, 12:28 PM Reply Like
  • marpy
    , contributor
    Comments (1718) | Send Message
     
    Actually, the OT agreement is everything as far as how foreigners see Mongolia. With Over 30% of GDP dependent on OT, you could say that as OT goes Mongolia goes. Also if a well seasoned major like Tinto can not make a go of it in Mongolia, then other need not waste their time. The money is better spent elsewhere. OT means everything to Mongolia's future and a positive resolution would be the turning point.
    7 Mar 2014, 12:45 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    I disagree. Going back to 2006, the government of Mongolia has burned people too many times. They go back and forth like a yo-yo between laws that are negative and positive toward foreign investment; dating back to the 2006 68% windfall tax that was repealed in 2010. Say the word Mongolia to people in Hong Kong and Singapore and the conversation usually isn't going to be very long these days except for those interested in distressed assets.

     

    It will take more than OT to gain investor trust back. There needs to be bigger longer-term signs that stability is in place and the 2016 election wouldn't be mayhem for foreign investors, again.
    7 Mar 2014, 12:48 PM Reply Like
  • marpy
    , contributor
    Comments (1718) | Send Message
     
    I understand what you are saying as I have been following this story and your articles on the subject in SA for some time. In a way, the situation does give Rio Tinto the upper hand as they are the only big game in town and they know it. The GOM is on the ropes and in dire need of money and the only way they will get it in the short term is to behave with respect to OT. Yes the rest of the investing world will not believe them for quite some time but this just keeps giving Rio Tinto the upper hand. I suspect that what is going on to some extent amounts to growing pains within a new democracy and also suspect that the people are quickly wising up to the tactics of the GOM. The next time they go to the polls, they may not be as likely to believe big nationalistic chest thumping hollow talk from the politicians that take that route. I suppose time will tell. JMO
    7 Mar 2014, 05:18 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    I know you do marpy and have appreciated your comments over the years. I'm just expressing caution here as this company and its situation has burned quite a few people, myself included, a number of times.

     

    The other factor besides the government of Mongolia (GOM) and Rio Tinto (RIO) to be mindful of is China. China has a big say in the profitability and viability of Oyu Tolgoi.
    7 Mar 2014, 05:33 PM Reply Like
  • Jay-Dawg, CDA
    , contributor
    Comments (22) | Send Message
     
    The Daily Mail published the article on Rio wanting to acquire the rest of TRQ. That newspaper has about the same level of credibility as National Enquirer Magazine; Therefore, I would not put too much money on the deal happening imminently. However, I do feel that an agreement with the GOM is on its way, so that should spark the stock.
    7 Mar 2014, 04:19 PM Reply Like
  • marpy
    , contributor
    Comments (1718) | Send Message
     
    To expect any deal before an agreement with the GOM would really be putting the cart ahead oh the horse!
    7 Mar 2014, 05:19 PM Reply Like
  • Rffa
    , contributor
    Comments (5) | Send Message
     
    You can feel that? Good for you.
    7 Mar 2014, 05:22 PM Reply Like
  • Rffa
    , contributor
    Comments (5) | Send Message
     
    You can feel that the agreement is on its way? Good for you, I don't have such feelings.
    7 Mar 2014, 05:23 PM Reply Like
  • Compaqee
    , contributor
    Comments (17) | Send Message
     
    The one positive out of all this news is the noise. By that I mean the attention the stock is now receiving. Trading volumes are huge and I suspect as more investors begin evaluating this company's potential we can expect more buyers to drive the stock up.

     

    Timeline wise I had planned to hold for several years given the growth potential of the company as underground assets are mined and sold. With a more regular and growing operation we can expect a more operational oriented firm and begin to possibly pay dividends and the obviously expected capital gains.

     

    This stock can only go up from here. Be it today, tomorrow or in a year from now, it's going to go up!

     

    IMO.

     

    Cheers.
    7 Mar 2014, 05:01 PM Reply Like
  • Pepper22
    , contributor
    Comments (44) | Send Message
     
    OT is one of the lowest cost producing mines in the world. A major fund companies team only purchases "low cost producers" in the commodities space. Why? Volatility in the underlying like Gold and Copper doesn't affect profitability like a company that is "down stream" like Exxon Mobil.
    8 Mar 2014, 10:21 AM Reply Like
  • Alien8w8
    , contributor
    Comments (15) | Send Message
     
    I agree that this stock has nowhere to go but up at this point. they paid off their outstanding loan from RIO and have been in operation for half a year now. This entire sell off is rather silly because I recall reading a press release about TRQ having buyers for their product. Let's not forget they are also a gold and silver mine not just copper so the decrease in copper is automatically hedged by the gold deposits that will be mined. As far as the government of Mongolia, I still feel that a steady cash flow of 33% of total profits will make them push forward; Especially, with their currency in free fall from those bonds. I'm no expert, but with the valuations that TRQ was talking about and with current valuations this stock should still hit $10 before the underground part is even finished. My goal is to get out at that level and walk away with a healthy profit. een long on this for about two years now and have been buying on the dollar dips every time. Up to 4420 shares but hey who's counting?
    13 Mar 2014, 08:55 PM Reply Like
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