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



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 Turquoise 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

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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Tech layoffs reach their highest point in over 20 years



There have been over 130,000 layoffs across the technology sector in the last five months

The technology sector was billed as the most exciting industry to work in.

Big offices, big dreams, big money were all part of the parcel for many companies attracting staff.

As many organisations caught onto the momentum of the pandemic, the same energy has not been particularly met on the other side.

Thousands of workers have since been laid off as the good times stopped rolling.

In fact, the technology sector’s layoffs are the highest since the dotcom bubble burst 22 years ago.

The BT Group is one of the latest companies cutting staff.

Fifty-five thousand have lost their jobs as part of a corporate restructure.

CEO Philip Jansen will freeze his £1.1 million salary until he retires, according to reports from Sky News.

The ground is also shifting as artificial intelligence takes hold and the economy worsens.

BT Group said it is laying off 11,000 staff because of the increased capacity for artificial intelligence in the workplace.

At the same time, companies like Apple and Goldman Sachs are among those restricting or banning the use of tools like ChatGPT amid privacy or data concerns.

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Big tech crackdown on employees using ChatGPT



Apple and Samsung are among companies restricting or banning the use of ChatGPT

Some of the world’s largest technology companies, including Apple and Amazon have banned or restricted OpenAI’s ChatGPT.

The tool relies on artificial intelligence to produce responses to prompts entered by users.

However, major brands remain concerned around the privacy risks because of the data ChatGPT uses to improve its accuracy.

Samsung has previously reported employees unintentionally leaking confidential internal source code and meeting recordings through ChatGPT.

Meanwhile, Apple has banned the web-platform over concerns surrounding data leaks.

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Can Linda Yaccarino save Twitter’s falling ad sales?



Linda Yaccarino has officially taken over as Chief Executive Officer at Twitter

Linda Yaccarino was once the head of NBC Universal’s advertising and partnerships team.

Her appointment follows a Twitter poll where Musk asked users to vote on whether he should resign.

At the time, 57.5 per cent voted ‘yes’.

Twitter is undergoing a transformation, including addressing concerns around rising hate speech and disinformation on the platform.

Mr Musk said Yaccarino is the perfect person for the job.

“I think Linda’s going to do a great job running Twitter. I’ll provide guidance on technology development.

“Twitter has released more changes in the last six months than it has in the last six years.”

Twitter said it has taken down over 6 million pieces of content in the first half of 2022, before the platform was acquired over by billionaire Elon Musk.

Benjamin Powers is a technology reporter at The Messenger, who said the platform has some issues to address.

“It’s unclear how much he’ll [Musk] be stepping back.”

The New York Times reports advertising revenue attracted US$88 million from 1 April to the first week of May—a decrease of 59 per cent from a year earlier.

“I think the big problem is revenue. The pullback is that they’ve lost about 58 per cent of advertising revenue, which is huge for a company like Twitter.

“The subscription business, which involves getting a blue check, you pay $8 a month, really hasn’t kept up with that dynamic,” he said.

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