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Post Market Wrap | Rio Tinto launches US$2.7B cash offer for full ownership of Turquoise Hill

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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Offer price is a 32 percent premium to Turquoise Hill’s last closing share price
  • Two-thirds of Turquoise Hill minority shareholders must approve the offer
  • Acquisition will strengthen RIO’s exposure to copper
  • Copper is strategically important given its application to Electric Vehicles and wind turbines. 

Rio Tinto Limited (‘RIO’ or the ‘Company’) is the world’s second largest metals and mining corporation (after BHP). The Company’s product groups are iron ore, copper & diamonds, aluminium, gold and uranium. The Company’s iron ore interests are based in the Pilbara region of Western Australia and comprise a number of large-scale integrated mines.

Cash bid for Turquoise Hill 

RIO has announced its intention to acquire the remaining 49 percent equity that it doesn’t currently own in Toronto Stock Exchange listed miner Turquoise Hill, for C$34 a share. The offer price is a 32 percent premium to Turquoise Hill’s last closing share price and values the 49 percent minority stake at US$2.7 billion. The bid price appears reasonable given RIO already has a controlling 51 percent equity stake, so it is not bound to include a change-of-control premium in the offer price. Turquoise Hill shareholders must approve the ownership change, which requires two thirds of Turquoise Hill minority shareholders to vote in favour of the proposal. 

Turquoise Hill is the majority owner of the Oyu Tolgoi copper mine in Mongolia. The acquisition will deliver to RIO a 66 percent stake in the copper mine alongside the Mongolian government, which owns the remaining 34 percent interest. RIO are already familiar with the Oya Tolgoi copper project, having spent more than US$6 billion in operating and capital costs since 2010.  A controlling interest in Oyu Tolgoi strengthens RIO’s position in copper and clears the way for it to negotiate suitable terms with the Mongolian government, before committing to funding the cost of underground mining operations. RIO believe that these negotiations are likely to be more productive once the ownership structure of Oyu Tolgoi is simplified by having just 2 parties agree to the terms under which the project expansion can proceed. 

RIO’s all-cash bid for 100 percent of Turqiose Hill appears logical before these negotiations with the Joint Venture partner in the Mongolian government proceed, given the significant amount of capital investment required to fund the underground mining extension. The offer is also well-timed because it relieves existing Turquoise Hill shareholders from having to fund a large equity raising to avoid dilution, if the RIO take-over offer is not accepted. 

Image: File

Strategic merit of 100 percent ownership of Turquoise Hill 

The economic significance of RIO’s proposed 100 percent ownership of Turquoise Hill is illustrated by the fact that Oyu Tolgoi will deliver additional production of 52,000 tonnes per annum of copper from existing mining operations. This is equivalent to an additional 9 percent of RIO’s present copper production volume. Importantly, the proposed underground expansion of Oyu Tolgoi can deliver up to another 160,000 tonnes per annum, being a 28 percent increase to existing production volume, by 2028.  This amount compares to RIO’s estimated FY2022 mined copper production of 500-575,000 tonnes. At present, underground operations are expected to deliver first production in H1 2023.

Copper is strategically significant to miners across the globe given that it is an essential commodity used in Electric Vehicles and wind turbines. The acquisition also diversifies RIO’s mining interests, which are heavily tilted to iron ore production, which represents about 76 percent of EBITDA.

RIO’s gradual diversification from iron ore to future-facing metals like lithium and now copper, which are essential commodities in a carbon-neutral world, is likely to be well supported by equity markets.   

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

Michael Kodari is one of the world's most consistent, top performing investor. A philanthropist and one of the prominent experts of the financial markets, he has been referred to as ‘the brightest 21st century entrepreneur in wealth management' by CNBC Asia and featured on Forbes. Featured on TV as the "Money Expert", on the weekly Sunday program "Elevator Pitch", he is recognised internationally by governments as he was the guest of honour for the event "Inside China's Future", chosen by the Chinese government from the funds management industry, attended by industry leaders, when they arrived in Sydney Australia, on April 2014. Michael and George Soros were the only two financiers in the world invited and chosen by the Chinese government to provide advice, and their expertise on Chinese government asset allocation offshore. With a strong background in funds management and stockbroking, Michael has worked with some of the most successful investors and consulted to leading financial institutions. He was the youngest person ever to appear on the expert panel for Fox, Sky News Business Channel at the age of 25 where he demonstrated his skillset across a 3 year period forming the most consistent track record and getting all his predictions right over that period. Michael writes for key financial publications, is regularly interviewed by various media and conducts conferences around the world.

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U.S. retailers limit emergency contraception purchases

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Demand for morning after pills have led to retailers having to limit purchases

Amazon has limited sales of morning after pills as demand spikes following the U.S. Supreme Court ruling overturning Roe v. Wade.

There is now a limit of three Plan B units per week on emergency contraceptive pills sold through its website.

Other U.S. retailers are also capping purchases of emergency contraceptive pills like chain pharmacy, CVS and Walmart.

Plan B is an emergency contraceptive that can be taken within 72 hours after sex. It is a synthetic form of the hormone progestin which delays ovulation briefly and prevents pregnancy.

Demand has surged following last week’s U.S. Supreme Court ruling overturning Roe vs Wade, ending the constitutional right to have an abortion.

Since the reversal of Roe v Wade, women have tried to find ways to control their reproductive health, by stocking up on emergency contraception.

Social media is flooding with calls to stock up on Plan B in anticipation of possible restrictions on contraceptive pills.

Meanwhile, some US companies have committed to paying staff travel expenses for those wanting an abortion.

Katerina Kostakos contributed to this article.

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Chinese investment in Australia drops

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China’s investment in Australia has plunged to its lowest levels since 2007

A new report from KPMG and the University of Sydney shows Chinese companies invested U.S. $585 million in Australia last year, which is down from a peak of U.S $16.2 billion in 2008.

It comes as relations between the two nations remain sour. Australia has previously called for an independent review into the origins of Covid-19, and a ban on foreign interference.

But Chinese officials have responded with trade sanctions, which have affected Australian wine, seafood and coal exports.

Australia was once a large destination for Chinese investment. In fact, the two nations signed an historic Free Trade Agreement in 2015, with a key focus on economic growth and creating jobs.

Australia’s Prime Minister, Anthony Albanese says he will not make concessions to China. The newly-elected Albanese is in Europe for a series of talks with NATO leaders.

“The resistance of Ukraine has brought democratic nations closer together which have a shared commitment to rules-based, international order,” he says.

But Chinese officials believe it is irresponsible to place Ukraine and Taiwan in the same basket.

Chinese Foreign Ministry spokesman Zhao Lijian says “Taiwan is by no means Ukraine,” and labelled Albanese’s comments as “irresponsible”.

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Target offers support to employees seeking abortions

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Target will help its employees living in states where abortions are banned by funding their travel

The company sent a memo to employees via email with the new policy to be enacted in July.

Target’s Chief Human Resources Officer says “A few months ago, we started re-evaluating our benefits with the goal of understanding what it would look like if we broadened the travel reimbursement to any care that’s needed and covered – but not available in the team member’s community”.

She says “This effort became even more relevant as [Target] learned about the Supreme Court’s ruling on abortion, given that it would impact access to healthcare in some states”.

This all comes amid the reversal of Roe versus Wade removing abortion as a constitutional right within the U.S.

This has sparked a range of companies to provide similar benefits with Amazon also providing travel coverage for employees.

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