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Rio Tinto (RIO) to Buy Residual Stake in Turquoise Hill for $3.3B

·4 min read

Rio Tinto plc RIO has finally won the approval of Turquoise Hill’s board of directors to acquire nearly 49% of the issued and outstanding shares in the latter at C$43 per share.  RIO currently holds a 51% stake in Turquoise Hill.

The deal now valued at $3.3 billion, is subject to Turquoise Hill shareholders’ approval upon which, RIO can hold a 66% interest in Oyu Tolgoi, one of the largest known copper and gold deposits in the world.

Rio Tinto made its first offer on Mar 14, 2022 at C$34 of cash per share. Last month, RIO had sweetened its bid to C$40 per share. Both companies confirmed that the deal is finally settled at C$43 per share. The agreed-on price represents a premium of 67% to Turquoise Hill’s closing share price on the Toronto Stock Exchange on Mar 11, 2022, a day prior to RIO’s first proposal.

Oyu Tolgoi in the South Gobi region of Mongolia is jointly owned by the government of Mongolia (with 34% ownership) and Turquoise Hill Resources (with the remaining 66%). The deal will help simplify the Oyu Tolgoi ownership structure, while augmenting Rio Tinto’s copper portfolio. It will also help RIO work directly with the government of Mongolia to expedite the Oyu Tolgoi project.

Following the comprehensive agreement reached between Rio Tinto, Turquoise Hill and the government of Mongolia in January this year, underground operations are now underway at the Oyu Tolgoi project hub. The agreement unlocks the most valuable portion of the mine, with the first sustainable production expected in the first half of 2023. Once the underground project is complete, Oyu Tolgoi will be one of the biggest copper mines in the world. Production in its early years is estimated at around 500,000 tons.

This will aid Rio Tinto in capitalizing on growing demand for copper. Copper prices have been affected lately by heightened concerns of a global economic slowdown and resurgent COVID-19 restrictions in China,  top consumer of the metal. Nevertheless, the long-term outlook for copper remains positive as copper demand is expected to grow, driven by electric vehicles and renewable energy plus infrastructure investments. However, grade decline, rising input costs, water constraints and scarcity of high-quality developmental opportunities continue to disrupt the industry's supply. This demand-supply imbalance will shoot up copper prices.

Price Performance

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In the past year, shares of Rio Tinto have fallen 25.3% compared with the industry’s decline of 18.4%.

Zacks Rank

Rio Tinto currently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the basic materials space are Albemarle Corporation ALB, Daqo New Energy Corp. DQ and Sociedad Quimica y Minera de Chile S.A. SQM.

Albemarle has a projected earnings growth rate of 425.7% for the current year. The Zacks Consensus Estimate for ALB's current-year earnings has been revised 67.9% upward in the past 60 days.

Albemarle’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. ALB has a trailing four-quarter earnings surprise of 24.2%, on average. ALB has gained around 10% in a year and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Daqo New Energy, currently flaunting a Zacks Rank of 1, has an expected earnings growth rate of 177.5% for the current year. The Zacks Consensus Estimate for DQ's earnings for the current fiscal year has been revised 20.8% upward in the past 60 days.

Daqo New Energy’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, missing the mark in one, the average beat being 10.8%. DQ has gained around 3% over a year.

Sociedad has a projected earnings growth rate of 517.6% for the current year. The Zacks Consensus Estimate for SQM’s current-year earnings has been revised 33.4% upward in the past 60 days.

Sociedad’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, missing the mark in the remaining two, the average beat being 28.2%. SQM has rallied roughly 101% in a year. SQM carries a Zacks Rank #2 (Buy) at present.

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Rio Tinto PLC (RIO) : Free Stock Analysis Report
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Sociedad Quimica y Minera S.A. (SQM) : Free Stock Analysis Report
DAQO New Energy Corp. (DQ) : Free Stock Analysis Report
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