Turquoise Hill sinks 26%

Blue sky potential not being realized at the moment

Shares in Turquoise Hill (TSE:TRQ) operator of the massive Oyu Tolgoi copper and gold mine in Mongolia, dropped sharply on Wednesday as the rights issued under its recent $2.4 billion offering began trading in Toronto

By midday Turquoise Hill stock was changing hands at $3.44, down 26% in an anticipation of the more than one billion shares to be issued under the rights offering, doubling the number of shares outstanding.

The Vancouver-based firm decided on the rights offering to help the company repay a $600 million bridge loan and a $1.8 billion interim funding facility after talks with the Mongolian government over financing for the mine went nowhere.

Investor confidence in Mongolia has been shaken by the impasse over Oyu Tolgoi with foreign direct investment in the country dropping by almost half this year compared to last year.

Oyu Tolgoi – turquoise hill in the vernacular – which could have a final bill of as much as $14 billion if an underground expansion goes ahead  is 34% owned by the Mongolian government with Rio Tinto-controlled Turquoise Hill owning the rest.

Talks over Oyu Tolgoi’s expansion and the reworking of the initial 2009 deal which first unleashed the Mongolian investment boom, have dragged on for the better part of a year.

Both sides provided fresh faces for the Oyu Tolgoi board in September to break the impasse.

Talks on financing arrangements with the Mongolian government including a World Bank-led $4.5 billion debt package – the largest in the history of mining – have gone nowhere forcing Turquoise Hill’s hand to launch the right offer.

The disputes are centred on costs with Rio’s management fees and the Mongolian government’s share of funding of surrounding infrastructure proving particular sticking points.

Production at Oyu Tolgoi’s open pit began this year and the mine is now operating at nameplate capacity of 100,000 tonnes of ore processed per day.

The giant copper, gold and silver mine is set to contribute as much as a third of the nation’s economy if the underground expansion – where some 80% of the value of the deposit is situated – in put into production.

Turquoise Hill – then called Ivanhoe Mines – was founded by mining financier Robert Friedland after making the Oyu Tolgoi discovery in 2001.

Friedland, who lost control of the miner to Rio Tinto in 2012 and still owns 8-9% of the company, told CEO.ca he plans to take up his rights, which means the colourful billionaire will have to fork out at least $200 million for the privilege.

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