Adding TRQ...to the special situations watch list: TRQ is a 51% owned subsidiary of and the junior investment partner with Rio Tinto as operator in a huge TRQ owned project... but shares are down 50% over the last year with project delays... and TRQ shareholders are in rebellion. Trades at just under 7 times earnings, currently, with no yield... but, if problems are resolved, strong price appreciation is possible, and future yields are likely to be counted in %'s from a higher based share price.
What risks will a trade war with China bring to bear on TRQ shares ? Risks other than declining demand in the Chinese market if expected growth fails to materialize ?
Headlines on 13 May 2019 are
Shareholder revolt puts spotlight on Rio's Oyu Tolgoi mine
Headlines from June 29, 2018:
Rio Tinto's Mongolian unit faces investor revolt over governance
The project is a massive underground copper mine... in Mongolia... with the government owning a large stake, and a 66% stake owned by Turquoise Hill Resources... which in turn is 51% owned by Rio Tinto. The other large shareholders in TRQ are unhappy with the "independent" directors that Rio Tinto has imposed on them... claiming their choices are biased to favor Rio Tinto's interest at TRQ shareholders expense. The project is having technical problems which have delayed first planned sustainable production until 2022, a year later than was originally forecast. It might be reasonable to assume that the restive shareholders are an valid indication that the delays suffered to date might not prove to be a limit in the difficulties...
Rio Tinto is the operator... and the project is a core element of their planning for growth... so they've got to have a solid interest in seeing it through...
I have not studied it enough to know what the fully diluted implications might be for TRQ holders of having Rio Tinto under-performing as the project operator...
Copper prices are in decline, now... and nothing happening in the world is suggesting that will reverse in the next couple of years... Watching this will require keeping tabs of competing projects... to observe the flow of resources to the market over time... but, note, the TRQ project is about increasing output, not establishing initial production...
The Australian article from last year notes:
Norm MacDonald, who manages resources funds at Invesco, a top-10 minority shareholder, said Turquoise Hill was set to benefit from huge cash flow and dividends in the medium term.
Mr MacDonald said Turquoise was undervalued largely because it was not promoted well enough by Rio secondees in management. “When you look at how the asset is going and how everything at the operations level is doing very well and you look at the performance of the stock, it’s so disappointing there is a big disconnect,” Mr MacDonald said.
“The cause of the disconnect, first and foremost, is corporate governance. You can say political risk is maybe a close second, but something is not lining up when you look at the quality of the asset, the strong execution of the expansion and where the stock is trading.”
Sovereign risk has been raised around the project after Oyu Tolgoi was hit by a $US150 million tax bill and two former Mongolian prime ministers were arrested and detained by Mongolian anti-corruption authorities over the signing of Oyu Tolgoi investment and project finance agreements.
In March, Rio and Turquoise Hill were told they were not the subject of the investigations.
After Mr Tygesen’s departure, the Turquoise Hill board will have two Rio directors and four independent directors, including chairman Peter Gillin.
Yesterday, Turquoise Hill said “the board is in the final stages of a robust CEO search and expects to make an announcement in the near term”.
The shares are trading at $C3.56 each and have an average analyst target price of $C5.26, according to Bloomberg.
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