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Rio Tinto PLC's deal to acquire Turquoise Hill Resources Ltd could be hit by legal opposition, a top investor in the Canadian miner threatened on Friday.
Pentwater Capital Management LP, which has recently topped up its stake in Turquoise to 12%, said it will explore an ‘exercise of dissent rights or other legal action’ in a bid to block Rio's buyout.
The FTSE 100-listed miner earlier in September said it struck a binding agreement to take full ownership of Turquoise Hill. Turquoise Hill owns 66% of the massive Oyu Tolgoi copper-gold mine, with the Mongolian government holding the remaining 34%. Rio currently holds a 51% stake in Turquoise Hill.
Rio Tinto reached an agreement with Turquoise Hill on an improved C$43-per-share, around $33.00, takeover offer.
Pentwater on Friday hit out at that sum. It said the C$43 per share figure implies an equity value of C$8.65 billion, about $6.64 billion. This is a ‘fraction’ of the free cash flow Pentwater expects Turquoise Hill to generate over the next 10 years.
‘Pentwater expects Turquoise Hill to generate over C$10.5 billion of free cash flow through 2030 assuming $3.50 copper and almost C$14.2 billion of free cash flow assuming $4.00 copper. Pentwater believes that as the world transitions to a green economy, the demand for copper will continue to increase and that there is a high probability that the price of copper will be in excess of $4.00 over the next decade,’ Pentwater said.
‘Pentwater further believes that the proposed premium is unacceptable for a mine that Pentwater expects to be the third-largest copper and gold mine in the world, with a mine life in excess of 90 years.’
Pentwater added: ‘Pentwater does not support the proposed plan of arrangement. Pentwater is evaluating its legal alternatives with respect of Turquoise Hill, Rio Tinto, and the proposed plan of arrangement, including but not limited to the possible exercise of dissent rights or other legal action.’
Rio Tinto shares were 3.3% higher at 4,879.97 pence each in London on Friday. Turquoise Hill fell 3.0% to C$40.73 each in Toronto on Friday. It has a market capitalisation of C$8.20 billion.
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