Rio Tinto needs to boost Turquoise Hill offer

Macquarie sell-side analysts reckon Rio Tinto’s $C34 cash offer for Turquoise Hill Resources will have to go up to win over the target’s minority shareholders.

In a note sent to clients, the analysts said Turquoise’s Mongolian Oyu Tolgoi was a world-class asset and justified a premium for Rio Tinto to become its sole owner.

“RIO’s initial offer of C$34.00 implies a long-term copper price of just US$3.00/lb. Our price target of C$44.00 implies of long-term copper price of <US$3.40/lb,” the note said.

Macquarie’s added a 20 per cent takeover premium to its valuation for Turquoise Hill, taking the price target 45 per cent higher to $C44.

The Canadian miner’s copper-gold asset Oyu Tolgoi in Mongolia is expected to produce more than 500ktpa copper and more than 350kozpa gold from 2027, when it reaches full production. It has a 60-year mine life.

Macquarie’s analysts take is in line with American hedge fund Pentwater Capital, which owns 9.36 per cent of Turquoise Hill and is the second-largest shareholder.

Pentwater’s chief executive Matt Halbower previously said Rio’s offer was priced at “a fraction” of what shares in Turquoise Hill were truly worth.