Rio Tinto in £2bn bid to take full control of its Mongolian copper mine in the Gobi Desert
Rio Tinto has offered to pay £2billion to buy out a company that controls its huge copper mine in the Gobi Desert in Mongolia.
The mining giant’s offer for Canadian group Turquoise Hill is an effort to draw a line under a series of problems at the project, which is one of Rio’s most important new sites.
The FTSE 100 company hopes the deal will simplify the complicated ownership structure of the £5.1billion Oyu Tolgoi mine.
Strategic: A miner at Oyu Tolgoi in Mongolia’s Gobi Desert. Rio Tinto has offered £2bn for Canadian group Turquoise Hill which currently controls the site
But it could also clear up a legal wrangle with a Turquoise Hill investor, which brought a lawsuit against Rio for allegedly lying about why the project had suffered a series of delays and ballooning costs.
At the moment, Rio owns 51 per cent of Turquoise Hill, which owns 66 per cent of Oyu Tolgoi.
Rio also runs the project on the ground. But if it can get the Turquoise Hill takeover over the line, it will directly own 66 per cent.
The remaining 34 per cent is under the control of the Mongolian government. Rio was able to begin work underground at the project in January after agreeing with Mongolian ministers to waive £1.8billion of debt and interest owed by the country’s government to fund its share of the development costs.
Rio claims a series of delays were due to ‘geotechnical issues’.
But investors – including the Mongolian government and Turquoise Hill shareholder Pentwater Capital Management – claim these problems were only part of the issue and that much of it was down to poor organisation and planning.
Turquoise Hill investors will still need to vote through the deal. It is unclear if Pentwater will support it.
And analysts said Rio may need to increase the amount it is offering to get it over the line.
Russ Mould, investment director at AJ Bell, said: ‘Like the project itself, this transaction is not expected to go smoothly.
‘Rio may have to dig a lot deeper to win over Turquoise Hill’s shareholders.’
Mould added: ‘Rio Tinto’s move on Turquoise makes strategic sense as it tidies up ownership and gives it a stronger position in the copper sector.’
Over the past couple of years, setbacks have dogged several of Rio’s major projects, complicating boss Jakob Stausholm’s plans to focus the company on green metals ahead of the renewables revolution.
In January it was blindsided by the Serbian government, which pulled the plug on a £1.8bn mine the company was planning to build there.
Rio is also struggling to get another huge copper project in Arizona off the ground.
And the firm is still battling to rehabilitate its reputation after blowing up two Aboriginal caves in 2020.
This drew international condemnation and prompted a management clear-out that included chief executive Jean-Sebastien Jacques.