Rio Tinto share price dips despite $4.9b Turquoise Hill deal

Rio Tinto is set to acquire the remaining stake in Turquoise Hill.

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Key points
  • Rio Tinto shares are backtrack 1.82% to $92.78 during late afternoon trade
  • China's slowing economy and property crisis has led the price of iron ore to tumble below US$100 per tonne
  • Rio Tinto reached an agreement to acquire the remaining 49% interest in Turquoise Hill

The Rio Tinto Limited (ASX: RIO) share price is losing ground today despite the company announcing it has reached an agreement with Canadian-listed Turquoise Hill Resources.

Throughout the day, the mining giant's shares have been trading lower as its key commodity, iron ore, fell below the US$100 level. It is the first time in more than a month that the price of the steel-making ingredient has dipped below the psychological barrier.

The Chinese economy is reeling from a slowing economy amid the property sector facing the largest crisis in its history.

In response, authorities in the key centre of Tangshan recently decided to cut steel production by more than 8 million tonnes in the second half.

Currently, Rio Tinto shares are swapping hands at $92.78 apiece, down 1.82%.

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price

Image source: Getty Images

Rio Tinto set to acquire Turquoise Hill

In an effort to work directly in partnership with Erdenes Oyu Tolgoi and the Mongolian government, Rio Tinto will acquire the remaining 49% stake in Turquoise Hill.

Under the agreement, Rio Tinto will pay C$43 (A$48) for each outstanding common share it doesn't own in Turquoise Hill. This represents a 67% premium to the last closing price of C$25.68 (A$28.65) on 11 March 2022, the day before Rio Tinto made an initial bid.

The deal is valued at US$3.3 billion ($4.8 billion) and has the unanimous approval of Turquoise Hill's board of directors.

Both companies are expected to quickly finalise an 'arrangement agreement', with more detail available once executed.

Turquoise Hill will also require 66.67% of votes from its shareholders to approve the deal. A special meeting will be held sometime in the fourth quarter of this year.

In addition, Rio Tinto and Turquoise Hill agreed for the Heads of Agreement (HoA) to become effective with the execution of the Arrangement Agreement. This will support Turquoise Hill in addressing its near-term liquidity.

Rio Tinto chief executive Jakob Stausholm commented:

Rio Tinto is committed to moving Oyu Tolgoi forward in direct partnership with the Government of Mongolia to realise its full potential for all stakeholders. This agreement represents another significant step following the recent commencement of the underground operations, and will simplify governance, improve efficiency and create greater certainty of funding for the long-term success of the Oyu Tolgoi project.

Rio Tinto share price snapshot

For the majority of the year, the Rio Tinto share price has moved in circles to register a loss of 6%.

In comparison, the S&P/ASX 200 Resources (ASX: XJR) sector is flat over the same time frame.

Rio Tinto has a price-to-earnings (P/E) ratio of 6.04 and commands a market capitalisation of approximately $35.08 billion.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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