The Rio Tinto Limited (ASX: RIO) share price is edging lower on Tuesday.
That's despite the mining giant making an encouraging announcement this afternoon.
At the time of writing, the Rio Tinto share price is down almost 1% to $91.05.
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Rio Tinto share price lower despite Turquoise Hill update
Last month, Rio Tinto made an improved non-binding proposal of C$40 cash per share to the Turquoise Hill board to acquire the ~49% of the issued and outstanding shares of Turquoise Hill that it does not currently own. Turquoise Hill is co-owner of the Oyu Tolgoi project in Mongolia.
This offer was then bumped up to C$43 cash per share last week, with an agreement made in principle.
What's the latest?
The good news is that the transaction has now progressed, with Rio Tinto and Turquoise Hill entering into definitive arrangement agreement today.
According to the release, the Turquoise Hill board of directors unanimously recommends minority shareholders vote in favour of Rio Tinto's best and final offer. They have also entered into voting support agreements with respect to all of the Turquoise Hill shares they own or control.
Rio Tinto revealed that it has agreed to provide Turquoise Hill with secured short-term liquidity during the transaction period of up to US$1.1 billion. This would need to be repaid from an equity raising in the first half of 2023 if the transaction is not approved by shareholders.
But that won't be enough to fund the Oyu Tolgoi project alone. Turquoise Hill has estimated that it requires US$3.6 billion of additional funding in total to complete the project. Therefore, Rio Tinto acquiring the company delivers certainty for the financing needs and alleviates any further funding risks for Turquoise Hill shareholders.
Management commentary
Rio Tinto's chief executive, Jakob Stausholm, was pleased with the news. He said:
This Transaction will simplify governance, improve efficiency and create greater certainty of funding for the long-term success of the Oyu Tolgoi project. Rio Tinto's offer guarantees Turquoise Hill's minority shareholders outstanding value through a significant allcash premium for their shares. After extensive negotiations, the terms of the transaction are final and there will be no further price increase. We look forward to working with the Turquoise Hill Board of Directors to ensure Turquoise Hill shareholders are able to realise the significant and immediate value of the Transaction.
The Rio Tinto share price is now down 18% over the last 12 months following today's decline.
