Analyst Actions: Turquoise Hill "Leaner and More Focused" with Sale of Non-Oyu Tolgoi Assets


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Event: "TRQ announced that it has signed a binding agreement with Sumeru Gold BV for the sale of TRQ's 50% interest in Altynalmas Gold for cash proceeds of $300Mln. Altynalmas holds a 100% interest in the Kyzl Gold Project located in north-eastern Kazakhstan."

View: "We view a leaner, more focused TRQ through the sale of non-Oyu Tolgoi assets as a constructive strategy. We previously carried TRQ's interest in Altynalmas at $370Mln, or $0.36/share in our TRQ net asset value ( NAV ) - so the transaction valuation is a slight discount. On an resources basis, the transaction values Altynalmas Gold at ~$37/oz of contained gold (incl. Inferred) - which is also a slight discount to precedent transactions for development-stage projects of ~$40-50/oz. The transaction is expected to close in 2Q13, and is subject to customary closing conditions, including regulatory approvals from the Republic of Kazakhstan's competent authorities."

Catalysts: "A higher degree of uncertainty has surrounded Oyu Tolgoi (OT) and the OT Investment Agreement since October 2012, following a request from the Minister of Mining to renegotiate the IA (subsequently rejected by TRQ/RIO), Mongolia's budget proposal to increase mining royalties and taxes, and more recently, unsupportive commentary from Mongolia government officials over financing arrangements. Currently, OT is under a stability agreement whereby 34% is owned by the GOM (increasing to 50% in 2030, our assumption) and subject to a 25% corporate tax rate and a 5% royalty. At this time, we do not forecast significant changes to the IA."

Valuation: "Maintain Outperform. Our TP of C$12 is unchanged and based on 1x our revised cash-adjusted NAVPS of C$11.30 (from C$11.35)."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

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