TURQUOISE HILL RESOURCES LTD.

Turquoise Hill announced completion of the arrangement: Rio Tinto acquired the roughly 49% of shares it did not already own for C$43.00 per share in cash. The company intends to apply to delist its shares from the TSX and NYSE and to stop being a reporting issuer in Canada. This ends the minority shareholders' position, with those who did not dissent receiving the cash price, and Rio Tinto now owns the company.

business combination

Shareholders approved the Rio Tinto arrangement at the December 9, 2022 meeting: about 60.5% of all votes cast and about 86.6% of minority-held votes, against the required thresholds of 66⅔% of all votes and a simple majority of minority votes. Dissent notices covered less than 17.5% of outstanding shares. Final Yukon court approval is to be sought at a hearing expected December 14, and the company expects completion on or shortly after December 16, 2022, if conditions are met. The release states the approval requirement as 66⅔% of votes cast, and also reports approval of about 60.5% of all votes cast; the filing does not reconcile these two figures, so the vote tally against the stated threshold should be checked in the circular or the meeting results. This resolves the vote thread; court approval and closing were still pending.

business combination

After several postponements, the vote was reset for December 9, 2022 at 12:00 p.m. Montreal time. The filing explains that Rio Tinto had signed side agreements on November 1 with shareholders linked to Pentwater and SailingStone to settle their dissent and oppression claims in exchange for them withholding their votes. After complaints from minority shareholders and concerns raised by Quebec's securities regulator (the AMF), those agreements were terminated and Rio Tinto instead gave all minority holders irrevocable commitments. Under these, holders who dissent can elect an upfront C$34.40 per share, with any higher court-determined fair value (up to C$43.00) paid later with interest, and oppression claims can survive the deal. Rio Tinto also raised the dissent closing threshold from 12.5% to 17.5% of shares. The price stays at C$43.00 and the board still unanimously recommends the deal. The filing notes there is no floor on the fair value a dissenter may receive.

business combination

The Yukon court granted an interim order for the Rio Tinto arrangement, in which Rio Tinto International Holdings would buy the roughly 49% of shares it does not own for C$43.00 cash per share, up from the C$34.00 first proposed in March 2022. That is a 67% premium to the C$25.68 close on March 11, 2022 and 19% over the C$36.12 close on August 31, 2022. The shareholder meeting is set for November 1, 2022; approval needs two-thirds of votes cast plus a majority of minority votes, excluding Rio Tinto's 102,196,643 shares, and final court approval is also required. The vote is still pending, so minority holders' position is not yet decided.

business combination

Turquoise Hill signed a formal arrangement agreement dated September 5, 2022 with Rio Tinto International Holdings (purchaser) and Rio Tinto plc (parent), under which Rio Tinto would acquire all shares it does not already own and cancel all other equity interests. This turns the non-binding March 2022 proposal into a signed deal. The excerpt shows no price (the later filing states C$43.00 per share in cash). Approval needs two-thirds of votes cast plus a majority of minority-held votes, and the unconflicted board unanimously recommends it after a special committee recommendation and a valuation. Exhibit list also includes a Third Amended and Restated Heads of Agreement, an Early Advance Agreement and a Voting Support Agreement, whose terms are not shown in the visible text.

business combination

The filing discloses that on March 14, 2022 Rio Tinto made a non-binding proposal to buy the roughly 49% of Turquoise Hill held by minority shareholders for C$34.00 per share in cash. A special committee of independent directors is reviewing it, with BMO Capital Markets as financial advisor, Blake, Cassels & Graydon as legal counsel and TD Securities preparing a formal valuation. The funding agreement was amended: the deadline for the at least US$650 million equity offering moves from August 31 to December 31, 2022, and Rio Tinto will provide an extra bridge of up to US$400 million, to be repaid from that offering. Rio Tinto said that if the company does an equity offering it intends to withdraw the proposal and take up its pro rata share. The proposal is non-binding and there is no assurance a deal results, so minority shareholders' position is not yet decided.

business combination

Turquoise Hill announced a deal with the Government of Mongolia: the OT LLC board unanimously approved starting the undercut (blasting to begin underground production), and the company expects Panel 0 sustainable production in the first half of 2023. It agreed to waive in full the US$2.4 billion carry account loan owed by Erdenes Oyu Tolgoi (US$1.4 billion invested plus US$1.0 billion accrued interest), which the filing says has an expected NPV impact of about US$1.0 billion. Formal termination of the UDP and resolution of the tax arbitration are still outstanding. Separately, a binding Amended Heads of Agreement with Rio Tinto replaces the April 2021 one, against a base-case funding requirement of US$3.4 billion: re-profiling of debt (potentially cutting up to US$1.7 billion), up to US$500 million of supplemental senior debt, a Rio Tinto co-lending facility of up to US$750 million after sustainable production, a Rio Tinto bridge of up to US$300 million, and an equity offering of at least US$650 million by August 31, 2022 (up to US$1.5 billion in total if needed), meaning possible dilution. Steve Thibeault is named Interim CEO. This largely resolves the 2021 dispute over the Defini

business combination

Turquoise Hill said it and Rio Tinto have made a joint offer to the Government of Mongolia to reset the relationship. It includes forgiving the roughly US$2.3 billion shareholder loan owed by Erdenes (the Mongolian-owned shareholder) to the company, and cancelling the Underground Plan (UDP) going forward. This follows the Government's January 2021 move to terminate and replace the UDP. The company aims to secure approval to start the undercut after a definitive agreement, with talks targeted to finish before the end of 2021 and still subject to approvals. The forward-looking statements also mention a partial, short-term bridging budget approved by the OT LLC board at end of November 2021 that is expected to be fully spent or committed by mid-January 2022.

regulatory community update

The Government of Mongolia filed its defence in the tax arbitration Oyu Tolgoi LLC brought in February 2020, asking that OT's tax claims be rejected entirely. Its counterclaim refers to earlier-reported allegations of improper payments to officials, seeks unquantified damages, and asks the tribunal to add Turquoise Hill and a Rio Tinto group member as parties. In the alternative, it seeks a declaration that the 2009 Investment Agreement is void. Turquoise Hill denies the allegations against it and will oppose being added; if added, it says it will defend itself vigorously. This escalates the arbitration thread from the January 2021 tax claim, and for the first time puts the company itself potentially in the dispute.

regulatory community update

Oyu Tolgoi received a new Mongolian tax claim of about US$228 million for 2016-2018, which also seeks to cut its carried-forward tax losses by about US$1.5 billion; it plans to add this to the existing London arbitration over the 2013-2015 assessment. The Government of Mongolia told Rio Tinto it is dissatisfied with the Definitive Estimate announced December 18, 2020 and said it may need to review whether the project can proceed, and it intends to start discussions on terminating and replacing the 2015 Underground Plan. A proposed class action in Montreal also names the company and certain current and former officers over alleged misstatements on Oyu Tolgoi schedule and cost; the company says it is without merit. This escalates the arbitration thread and puts the 2015 Underground Plan, which resolved earlier shareholder matters, back in question.

regulatory community update

On September 9, 2020, Turquoise Hill and controlling shareholder Rio Tinto signed a non-binding memorandum of understanding on funding Oyu Tolgoi, covering a re-profiling of existing project debt (deferring repayments, extending terms), which they expect could reduce funding needs by up to US$1.4 billion, and up to US$500 million of new supplemental senior debt. If these fall short, a Turquoise Hill equity offering would fill the gap: at least US$1.7 billion if re-profiling and the US$500 million succeed but nothing else, or at least US$3.6 billion if neither is achieved. Rio Tinto said it does not currently support additional debt or other non-equity funding at Turquoise Hill or Oyu Tolgoi, though it committed to consider reasonable proposals. For shareholders, this opens the possibility of dilution from a large equity raise; this builds on the earlier liquidity and interim financing discussions.

material agreement

Turquoise Hill filed the 2020 Oyu Tolgoi Technical Report (prepared with AMC Consultants), which was due after the July 2020 feasibility study and updates the October 2016 report. It also raised 2021 gold production outlook to 500,000-550,000 ounces from 450,000-500,000. The report does not reflect COVID-19 impacts (Shafts 3 and 4 on care and maintenance since April 2020); a COVID cost and schedule update is expected in Q4 2020, and the definitive estimate remains due in Q4 2020. The filing cites a disclosed incremental funding requirement of US$3.6 billion.

resource reserve update

Turquoise Hill announced the 2020 Oyu Tolgoi feasibility study and updated reserves. The new Hugo North Lift 1 Panel 0 design adds two structural pillars, so ore in them moved from reserves to resources pending 2021 studies. Expansion capital is in line with the previously disclosed US$1.3-1.8 billion above the 2016 estimate, and the study shows NPV8 of US$10.0 billion after tax, a 31-year mine life and a 6-year payback. The study does not reflect COVID-19 impacts (Shafts 3 and 4 on care and maintenance), and the detailed cost and schedule update is expected by year-end. This follows the May 13, 2020 announcement of about a 25-month delay and an increase of about US$1.5 billion, and replaces the earlier 'no change to cost estimates' stance. The headline also mentions an improved liquidity outlook and deferral of interim financing talks, but the visible text gives no details.

resource reserve update

The Government of Mongolia and Oyu Tolgoi LLC agreed to prioritise a state-owned power plant at Tavan Tolgoi, which the Government would fund and build, replacing the earlier plan under which the plant was majority owned by Oyu Tolgoi LLC. The framework agreement was amended with milestones: a power purchase agreement by March 31, 2021, construction starting by July 1, 2021, commissioning within four years after that, and an extension of the existing power import agreement by March 1, 2021. This changes who pays for and builds the power plant, but the milestones still have to be met.

regulatory community update

Oyu Tolgoi and the Government of Mongolia signed a Power Source Framework Agreement for a Tavan Tolgoi-based power project, a binding framework for a 300 megawatt plant majority owned by Oyu Tolgoi LLC. Construction is expected to start in 2020 after further studies, with commissioning scheduled for mid-2023; technical design and commercial arrangements, including financing, are still to be finalised. This follows the February 2018 cancellation of the earlier power agreement and the requirement to source power domestically, but cost and financing remain unresolved. The CEO is now Ulf Quellmann.

regulatory community update

The Government of Mongolia cancelled the 2014 Power Sector Cooperation Agreement, saying the Tavan Tolgoi power project is no longer viable. As a result, effective February 15, 2018, Oyu Tolgoi must source its long-term power domestically within four years under the Investment Agreement. The company is evaluating options, including an Oyu Tolgoi-based power plant, with no final decision on outcome, cost or financing, and the cost of a power solution is not included in the US$5.3 billion expansion capital estimate. This ends the power tender thread begun in August 2014 and adds an unbudgeted cost risk.

regulatory community update

Turquoise Hill filed the updated independent 2016 Oyu Tolgoi technical report (by OreWin), which follows the May 2016 feasibility study. Reserves and resources changed only by open-pit mining depletion; the Reserves Case shows expansion capital of US$4.63 billion, NPV8% of US$6.94 billion after tax and a 21% IRR, at long-term prices of US$3.00 per pound copper and US$1,300 per ounce gold. The higher NPV than May's US$4.6 billion is attributed in the filing to metal prices (US$0.9 billion), the discounting start date (US$0.5 billion), operating costs (US$0.5 billion) and other changes (US$0.4 billion). It also adds preliminary, more speculative expansion cases, which carry no assurance of being realised.

resource reserve update

Oyu Tolgoi received the formal notice to proceed from the boards of Turquoise Hill, Rio Tinto and Oyu Tolgoi LLC, the final requirement to restart underground development, with construction expected to begin in mid-2016, as the August 2015 filing had targeted. The 2016 feasibility study shows expansion capital of US$5.3 billion nominal (US$5.1 billion in 2016 real terms), an 18% after-tax return and NPV8% of US$4.6 billion, with first underground production around 2021. The US$4.4 billion project finance facility, signed December 2015, is to be drawn by June 2016, with expected net proceeds of about US$4.1 billion first used to pay down shareholder loans owed to Turquoise Hill. This resolves the long-running underground approval and financing threads.

resource reserve update

Turquoise Hill noted that the Government of Mongolia signed the request for host country approval of guarantees the Multilateral Investment Guarantee Agency (MIGA) would issue for the Oyu Tolgoi project financing, which the company calls a significant milestone in the financing timeline. It says further steps remain and expects signing of project financing by the end of 2015, which moves forward the project-finance thread left open since the bank commitments expired in September 2014.

regulatory community update

Oyu Tolgoi filed revised schedules for the 2015 feasibility study with the Mongolian Minerals Council and aligned it with the Underground Mine Development and Financing Plan signed in May 2015; the Council had already tentatively accepted the study. Funding for pre-start activities has been approved, with the official notice to proceed expected in early 2016 and lateral mining development targeted to restart in mid-2016, after a capital estimate update and final board approvals. This moves the long-stalled underground thread forward, since the May 2015 plan appears to address the shareholder matters (an inference; the filing does not list the terms), though full project approval is still pending.

resource reserve update

Turquoise Hill agreed to sell its remaining 48,705,155 SouthGobi shares to Novel Sunrise Investments at CDN$0.35 per share, about CDN$8.5 million at closing and about CDN$8.5 million a year later, with closing expected by March 31, 2015. Turquoise Hill also gets a put option to make Novel Sunrise buy more shares (up to 29.99% of SouthGobi) at the same price if the July 2014 sale to National United Resources is not completed by April 30, 2015 (extendable to no later than September 30, 2015). Once both sales close it will own no SouthGobi shares; this builds on the July 2014 partial sale and adds a fallback if that deal fails.

asset acquisition disposition

Turquoise Hill filed the full independent NI 43-101 technical report (by OreWin) for Oyu Tolgoi that was due after the September 22 feasibility study. It reports Reserve Case expansion capital of US$4.9 billion (versus US$5.1 billion in 2013), proven and probable reserves of 1,530 million tonnes at 0.85% copper, and a project value cut by US$0.8 billion from delay and US$1.5 billion from more cautious cave assumptions. At the regulator's request it does not show economics for the Life of Mine case. This completes the technical report thread; underground restart is still subject to the Mongolia shareholder matters.

resource reserve update

Turquoise Hill said Oyu Tolgoi project finance and the remaining shareholder matters with Rio Tinto and the Government of Mongolia were still not resolved as of September 30, 2014, the date the bank lender commitments expired. No request to extend the commitments has been made yet, though talks with the financial institutions continue, and the shareholders will consider the timing of a request for extension in due course. This continues the open Mongolia and project-financing thread.

regulatory community update

Turquoise Hill said the 2014 Oyu Tolgoi underground feasibility study was finalized and presented to the Oyu Tolgoi LLC board. The Reserve Case shows expansion capital of US$4.9 billion (versus US$5.1 billion in the 2013 report), after-tax NPV (8%) of US$7.43 billion, 29% IRR and a 41-year life; the project value was reduced by delay (US$0.8 billion) and more cautious cave performance assumptions (US$1.5 billion). Underground development still needs resolution of shareholder issues, approval of the study by shareholders and the Mongolian Minerals Council, a funding plan including project finance, and permits. A full technical report is due within 45 days. This completes the feasibility study thread but leaves the Mongolia and financing conditions open.

resource reserve update

Oyu Tolgoi signed a Power Sector Cooperation Agreement with the Government of Mongolia to explore a Tavan Tolgoi-based independent power producer, selected through an open international tender, with Oyu Tolgoi as the main customer. The company says this meets its Investment Agreement obligation to establish a long-term power supply in Mongolia within four years of commercial production; full evaluation is expected to take nine to 12 months. The release also describes the SouthGobi stake as being in the process of divesting a majority, continuing the July sale.

regulatory community update

Turquoise Hill agreed to sell 56,102,000 SouthGobi shares (29.95%) to Hong Kong-listed National United Resources Holdings at CDN$0.455 per share, leaving it with 48,705,155 shares, about 26%. About CDN$12.8 million is paid in cash at closing and about CDN$12.8 million is deferred for one year; closing needs Hong Kong exchange approval of the circular and the buyer's shareholder approval, and is expected by November 30, 2014. This is a partial sale of the SouthGobi coal stake the company held at 56%.

asset acquisition disposition

Turquoise Hill said Oyu Tolgoi's 2013 gross revenue was US$55 million on 26,400 tonnes of concentrate sold, that sales have fallen short of expectations with some deferred into Q2 and Q3 2014, and that tailings thickener rake blade failures will shut one processing line for six to eight weeks. The 2014 targets of 150,000-175,000 tonnes of copper and 700,000-750,000 ounces of gold are kept, though production may be matched to customer needs. On Mongolia, an option to restart the underground, subject to conditions, has been proposed, but further delays may occur if shareholder issues and project finance are not resolved before lender commitments expire; this continues the open Mongolia and financing thread.

regulatory community update

The rights offering closed with about US$2.4 billion in gross proceeds and 1,006,116,602 new shares issued, 100% of the maximum. The money is being used to repay in full the US$1.8 billion Interim Funding Facility and US$600 million bridge facility owed to Rio Tinto, with any remainder going to Oyu Tolgoi funding and corporate costs. The offering was over-subscribed, so Rio Tinto did not have to buy under its standby commitment and its stake stayed at 50.8%. This resolves the rights offering and Rio Tinto debt repayment threads; shareholders who did not exercise were diluted.

capital raising announcement

Turquoise Hill said the Oyu Tolgoi board approved the 2014 operating budget on December 12, 2013, and set 2014 expectations of 150,000-175,000 tonnes of copper and 700,000-750,000 ounces of gold in concentrate, about US$1 billion of operating cash costs and US$160 million of capital spending. The 15 commercial banks extended their project-financing commitment letters to March 31, 2014, and the underground restart still depends on resolving shareholder issues with the Mongolian Government, finishing the feasibility study (on track for the first half of 2014), financing and permits. This continues the unresolved Mongolia and project-financing threads.

production update

Turquoise Hill filed the final prospectus for its rights offering, aiming for about US$2.4 billion gross: each share held on December 6, 2013 gets one right to buy one share at US$2.40 or CDN$2.53, about a 42% discount to November 25 closing prices. About 1,006 million new shares (100% of those currently outstanding) are expected, the offer expires January 7, 2014, and Rio Tinto backstops unsold shares for a 3% fee. Proceeds repay the Rio Tinto facilities; shareholders who do not exercise will be diluted.

capital raising announcement

Turquoise Hill said it cannot complete Oyu Tolgoi project financing in 2013 because of uncertainty in talks with the Mongolian Government, and so filed a preliminary prospectus for a rights offering to repay Rio Tinto's US$1.8 billion Interim Funding Facility and US$600 million New Bridge Facility. Rio Tinto agreed to extend both maturities to no later than January 15, 2014, and to backstop any unsold shares (3% standby fee). Shareholders who do not take up their rights will see their ownership percentage fall. It also reported a Q3 2013 net loss of US$94.0 million, cash of US$102.5 million at September 30, restated 2012 statements already filed, and the completed sale of its 56.1% Inova Resources stake on November 1.

capital raising announcement

Turquoise Hill said it will restate its 2010, 2011 and 2012 results and affected 2013 quarters, because its subsidiary SouthGobi changed when it counts coal sale revenue. Revenue will be pushed out of 2010-2011 (and early 2012) into later periods, and earlier financial statements should not be relied on. The company says it may face Canadian regulator disclosure-default steps, including a possible management cease trade order restricting insiders' trading; the SEC staff has not told the company its view on the accounting.

financial restatement

The sale of the company's 50% stake in Altynalmas Gold (Kazakhstan) to Sumeru Gold, first announced February 13, 2013, was re-priced: cash falls to US$235 million from US$300 million, conditional on Sumeru paying US$235 million in advance by August 9, 2013. The release cites changes in the gold market; completion still needs customary conditions including Kazakhstan regulatory approvals.

asset acquisition disposition

Turquoise Hill (formerly Ivanhoe Mines) announced that the Oyu Tolgoi mine in Mongolia has started shipping copper concentrate, with a first sale of about 5,800 tonnes to customers in China over roughly two weeks. The company calls it a significant milestone and says the permits needed for ongoing shipments are in place; the release also notes the Altynalmas Gold stake is in the process of being sold.

asset acquisition disposition