Pentwater weighs legal action over Rio Tinto-Turquoise Hill deal

Oyu Tolgoi open pit has been producing since 2012. (Image courtesy of Turquoise Hill.)

Pentwater Capital Management LP, the second-largest shareholder of Turquoise Hill Resources Ltd, said on Friday it opposes Rio Tinto’s acquisition of the Canadian miner, and was weighing legal options to thwart the deal.

The activist investor added that it now owns 11.67% of Turquoise Hill’s shares, after buying a further 1.73% stake on the open market.

Rio Tinto agreed on Sept. 1 to take over the 49% stake it doesn’t already own in Turquoise Hill after sweetening an initial offer by around 20% to “a best and final” $3.3 billion, hoping to boost the Anglo-Australian mining company’s chances of gaining direct ownership of the massive Oyu Tolgoi copper-gold mining project in Mongolia.

“The proposed price implies an equity value of $8.65 billion CAD, which is a fraction of the free cash flow that Pentwater expects Turquoise Hill to generate over the next decade,” it said in a release.

“Pentwater expects Turquoise Hill to generate over $10.5 billion CAD of free cash flow through 2030.”

Shares of Turquoise Hill, which fell 3% after Pentwater’s announcement, have gained more than 50% since Rio’s initial offer in March. Turquoise Hill’s minority shareholders are expected to vote on the proposed deal around the end of October.

Pentwater joins another minority shareholder, SailingStone Capital Partners, in publicly opposing Rio Tinto’s offer as too low.

Future demand for copper is expected to be strong due to the growth of electric vehicles, their charging stations and other renewable energy infrastructure, as the world gears up to decarbonize.

But prices of the metal have retreated from all-time highs on worries about slower demand from leading consumer China and global inflationary pressures.

Pentwater said it was evaluating legal options concerning the proposed deal.

(By Clara Denina and Ruhi Soni; Editing by Krishna Chandra Eluri and Paul Simao)

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