REG - Rio Tinto - Rio Tinto issues letter to TRQ shareholders

Rio TintoAnnouncement

25/10/2022 18:30

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RNS Number : 0932E  Rio Tinto PLC  25 October 2022

Rio Tinto issues letter to Turquoise Hill shareholders

Rio Tinto has issued an open letter to the shareholders of Turquoise Hill
Resources Ltd (TSX: TRQ) (NYSE: TRQ) ("Turquoise Hill") outlining the future
of TRQ and reiterating its long-term commitment to Oyu Tolgoi.

 

Dear Turquoise Hill Shareholders,

 

Since Rio Tinto's approach in March to acquire Turquoise Hill Resources you
may have heard many views about the merits of our proposal. Today, we want you
to hear directly from Rio Tinto.

 

We are all shareholders in Turquoise Hill because we believe in the long term
potential of the Oyu Tolgoi project in Mongolia. But we must also recognise
that we have a long way to go before its full value is unlocked. Over the next
seven years we face significant technical, financial, and macroeconomic risks
while we complete the design, development and ramp-up of this major
underground block caving project. Further, to achieve this, over the next two
years Turquoise Hill needs an additional US$3.6 billion (C$4.9 billion) in
funding. A proportion of the funding burden will fall on shareholders, and we
will all need to contribute cash or face dilution.

 

Against that backdrop we have made our best and final offer of C$43 in cash
for each of your shares. That is:

·      A premium of 67% to the share price immediately before our
proposal; and

·      An implied premium of more than 150% to the price of your shares
if they had performed in line with copper company peers since 11 March
2022. 1  (#_ftn1)

 

The independent and highly qualified Directors of your Board, with the help of
leading Canadian financial advisors, reviewed our proposal and, after
extensive negotiations and analysis over six months, unanimously recommended
in favour of the transaction. That view was further endorsed by Glass Lewis, a
prominent advisor to institutional investors.

 

We acknowledge that we do not have the support of some Turquoise Hill
shareholders and ISS, another advisor to institutional investors. However, we
believe that ISS's final conclusion on Net Asset Value (NAV)  is based on
flawed logic. The average analyst NAV when the transaction was announced was
C$39 per share, giving a resultant P/NAV of our offer of 1.10x, which is a
strong premium to NAV and above precedent transactions for assets under
development..

 

There are many important issues that may affect your voting decision, but we
would like to highlight two:

·      We believe that Rio Tinto's proposal fully values the long term
potential of Oyu Tolgoi and Turquoise Hill and assumes that the near term
challenges can be overcome.

·      Whilst in the past Rio Tinto has shouldered the majority of the
funding burden on behalf of all shareholders, if our proposal does not proceed
then in future all shareholders will need to contribute proportionately. To be
clear, that means Turquoise Hill shareholders will need to contribute at least
US$1.1 billion in the first half of 2023, in the form of new equity through
placings or rights issues, or potentially face dilution.

 

If, after considering the realities outlined above, you decide not to accept
the Rio Tinto proposal, then we welcome you as ongoing investors in Turquoise
Hill. Together we will make the substantial commitments necessary to complete
the Oyu Tolgoi project over the next seven years.

 

But, if you conclude that C$43 per share represents a strong return for your
investment, taking into account the balance of risks and long term potential,
then vote FOR our proposal. If the transaction proceeds, then we look forward
to soon paying C$43 in cash for each of your shares in a market which has
otherwise deteriorated significantly since our initial proposal.

 

To learn how to vote today, go to www.turquoisehillacquisition.com
(http://www.turquoisehillacquisition.com)

 

Yours sincerely

 

Bold Baatar

Rio Tinto Copper Chief Executive

 

 

Notes to editors

 

Turquoise Hill Resources analyst consensus NAV and target prices

 

 TRQ NAVPS Estimates      24 January 2022((1))                                          11 March 2022((2))

(C$ / share)
Day before  relationship reset with Government of Mongolia
Day before Rio Tinto initial offer

 BMO                       24.88                                                         36.79
 RBC                       16.48                                                         32.24
 Macquarie Research        16.80                                                         29.50
 Eight Capital             37.04                                                         43.27
 Canaccord Genuity         29.38                                                         47.90
 Scotiabank                31.86                                                         37.28
 TD Securities             40.63                                                         48.12

 Average                   28.15                                                         39.30

 

 TRQ Target Price Estimates      24 January 2022((1))                                        11 March 2022((2))

(C$ / share)
Day before relationship reset with Government of Mongolia
Day before Rio Tinto initial offer

 BMO                              10.50                                                       20.00
 RBC                              15.00                                                       32.00
 Macquarie Research               16.80                                                       29.50
 Eight Capital                    16.00                                                       30.00
 Canaccord Genuity                12.50                                                       31.00
 Scotiabank                       22.00                                                       30.00
 TD Securities                    24.00                                                       32.00

 Average                          16.69                                                       29.21

 

Source:

(1) 24 January 2022 estimates include research notes as of: BMO (17 Jan 22),
RBC (03 Nov 21), Macquarie Research (18 Jan 22), Eight Capital (03 Nov 21),
Canaccord Genuity (03 Nov 21), Scotiabank (17 Jan 22), TD Securities (17 Jan
22).

(2) 11 March 2022 estimates include research notes as of: BMO (03 Mar 22), RBC
(03 Mar 22), Macquarie Research (03 Mar 22), Eight Capital (03 Mar 22),
Canaccord Genuity (03 Mar 22), Scotiabank (03 Mar 22), TD Securities (04 Mar
22).

 

Additional Disclaimers

 

General

The information contained in this press release is for informational purposes
for the shareholders ("Shareholders") of Turquoise Hill Resources Ltd. ("TRQ")
in order to provide the views of Rio Tinto plc ("Rio Tinto") and its
affiliates regarding the arrangement agreement entered into between Rio Tinto,
Rio Tinto International Holdings Limited ("RTIH") and TRQ, pursuant to which,
RTIH would acquire the approximately 49% of the issued and outstanding common
shares of TRQ ("Common Shares") that it and its affiliates do not currently
own for C$43.00 in cash per common share (the "Arrangement") and other matters
which Rio Tinto believes to be relevant to Shareholders. The views expressed
in this press release represent the views and opinions of Rio Tinto as of the
date hereof.

 

Forward-Looking Statements

The information provided in this press release includes "forward-looking
statements" and "forward looking information" within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995 and under Canadian securities
law, respectively. All statements other than statements of historical facts
included in this release, are forward-looking statements or information. The
words "intend", "forecast", "project", "anticipate", "estimate", "plan",
"believes", "expects", "may", "should", "will", "target", "pursue", "seek" or
similar expressions, commonly identify such forward-looking statements or
information. More particularly and without restriction, this press release
contains forward-looking statements and information regarding: statements and
implications about the anticipated benefits of the Arrangement for Rio Tinto,
TRQ and their respective shareholders, Shareholder and court approvals, the
anticipated timing of the completion of the Arrangement and the anticipated
funding and other risks for TRQ and the Shareholders if the Arrangement does
not proceed.

 

Such forward-looking statements and information involve known and unknown
risks, uncertainties and other factors which may cause actual results,
performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements or information. These risks and uncertainties
include, but are not limited to, the failure of the parties to obtain the
necessary Shareholder and court approvals or to otherwise satisfy the
conditions to the completion of the Arrangement; failure of the parties to
obtain such approvals or satisfy such conditions in a timely manner or at all;
significant transaction costs; failure to realize the expected benefits of the
Arrangement and general economic conditions. Failure to obtain the necessary
Shareholder and court approvals, or the failure of the parties to otherwise
satisfy the conditions to the completion of the Arrangement or to complete the
Arrangement, may result in the Arrangement not being completed on the proposed
terms, or at all. Consequently, all of the forward-looking statements and
information contained in this press release is qualified by the foregoing
cautionary statements, and there can be no guarantee that the results or
developments that we anticipate will be realized or, even if substantially
realized, that they will have the expected consequences or effects on our
business, financial condition or results of operation.

 

Rio Tinto expressly disclaims any obligation or undertaking (except as
required by applicable law, the UK Listing Rules, the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority and the Listing Rules of
the Australian Securities Exchange) to release publicly any updates or
revisions to any forward-looking statement or information contained in this
press release to reflect any change in its expectations with regard thereto or
any change in events, conditions or circumstances on which any such statement
or information is based.

 

Additional Information

The information contained in this press release does not constitute an offer
to buy or sell or the solicitation of an offer to sell or buy any securities.

 

As disclosed in the management proxy circular of TRQ dated September 27.2022
(the "Circular"). Rio Tinto and RTIH may also participate in the solicitation
of proxies on behalf of TRQ management for the special meeting of Shareholders
of TRQ scheduled to be held on November 1, 2022. Notwithstanding the
foregoing, Rio Tinto is hereby voluntarily providing the disclosure required
under Section 9.2(4) of National Instrument 51-102 - Continuous Disclosure
Obligations and has filed a document containing the disclosure required under
Section 9.2(4)(c) of NI 51-102 in compliance with securities laws applicable
to public broadcast solicitation.

 

All costs of this press release will be borne by Rio Tinto. Rio Tinto has
entered into agreements with each of Laurel Hill Advisory Group and Innisfree
M&A Incorporated in respect of certain consulting and related services,
the aggregate cost of which is anticipated to be US$0.5 million, plus
ancillary payments and disbursements. Rio Tinto may participate in the
solicitation of proxies, including through websites, press releases,
advertisements, speeches, town halls or publications, and by any other manner
permitted under applicable Canadian corporate and securities laws. Proxies may
be revoked as described under the heading "Information Concerning the Meeting
and Voting - Changing Your Mind (Revoking Your Proxy)" on pages 72 and 73 of
the Circular.

 

Other than as disclosed in the Circular or TRQ's public filings, neither Rio
Tinto nor, to its knowledge, any of its associates or affiliates, has any
material interest, direct or indirect, by way of beneficial ownership of
securities or otherwise, (i) in any matter proposed to be acted upon in
connection with the special meeting of Shareholders of TRQ to be held in
connection with the Arrangement or (ii) in any transaction since the beginning
of TRQ's most recently completed financial year or in or in any proposed
transaction which has materially affected or would materially affect TRQ or
any of its subsidiaries.

 

Rio Tinto currently beneficially owns 102,196,643 Common Shares, representing
approximately 50.8% of the issued and outstanding Common Shares. Upon the
closing of the Arrangement, Rio Tinto would hold 100% of the outstanding
Common Shares.

 

TRQ's head office is located at 1 Place Ville-Marie, Suite 3680, Montreal, QC,
H3B 3P2.

 

The person responsible for arranging the release of this announcement on
behalf of Rio Tinto plc is Steve Allen, Group Company Secretary.

 

 

 

 Contacts  Please direct all enquiries to media.enquiries@riotinto.com

 

 Media Relations, UK         Media Relations, Australia

 Matthew Klar                Matt Chambers

 M+ 44 7796 630 637          M +61 433 525 739

 David Outhwaite             Jesse Riseborough

 M +44 7787 597 493          M +61 436 653 412

 Media Relations, Americas

 Simon Letendre
 M +514 796 4973

 Malika Cherry

 M  +1 418 592 7293

 Investor Relations, UK      Investor Relations, Australia

 Menno Sanderse              Tom Gallop

                           M +61 439 353 948
 M: +44 7825 195 178
Amar Jambaa

                             M +61 472 865 948

 David Ovington

 M +44 7920 010 978

 Clare Peever

 M +44 7788 967 877

 Rio Tinto plc               Rio Tinto Limited

 6 St James's Square         Level 43, 120 Collins Street

London SW1Y 4AD

United Kingdom             Melbourne 3000

 T +44 20 7781 2000          Australia

Registered in England

 No. 719885

                             T +61 3 9283 3333

                             Registered in Australia

                             ABN 96 004 458 404

 

This announcement is authorised for release to the market by Steve Allen, Rio
Tinto's Group Company Secretary.

 

riotinto.com

 

 

 1  (#_ftnref1) Since Rio Tinto's initial public proposal, Turquoise Hill
copper peers First Quantum, Freeport, Lundin, and Southern Copper have fallen
by 35%, which would imply an unaffected Turquoise Hill share price of C$16.70
today without the Rio Tinto transaction.

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