Rio Tinto gets six-month ban from compulsory acquisition of ERA

Rio Tinto responded to the Australian Takeovers Panel’s findings surrounding the Energy Resources of Australia entitlement offer on Thursday.

The FTSE 100 mining giant owns 68.4% of Energy Resources of Australia (ERA), which itself was currently undertaking the AUD 476m entitlement offer in a bid to raise cash for the closure and rehabilitation of the Ranger Project Area in the country’s Northern Territory.

ERA had finalised its closure feasibility study for Ranger rehabilitation in February, which resulted in a material increase in anticipated rehabilitation costs, following which it advised the market it needed extra funding to meet its rehabilitation obligations, leading to the entitlement offer.

However, the Takeovers Panel said that as the offer was “highly dilutive” and would need shareholders to “invest substantial additional capital to avoid dilution”, it said it was unlikely minority shareholders would be participating.

Rio Tinto has agreed to subscribe to its full entitlement and to underwrite the offer of 6.13 shares for each ERA share already owned, at 15 Australian cents each.

If no other shareholders took up their entitlement, the company would then hold 95.6% of ERA - well beyond the 90% compulsory acquisition threshold.

“The terms of the underwriting agreement grant Rio Tinto ... effective control over the management of ERA and dealings with a major asset of ERA over the medium to long term, inhibiting the acquisition of control over ERA taking place in an efficient, competitive and informed market,” the Takeovers Panel said in its statement.

It also said that the measures taken to ensure the independence of the committee considering ERA’s funding options from Rio Tinto and other conflicts of interest were insufficient.

It was still allowing the offer to proceed, however, but extended its closing date by 20 days and barred Rio Tinto from launching a compulsory acquisition within six months of reaching the 90% threshold.

“Rio Tinto agreed to fully subscribe to and underwrite an entitlement offer in the absence of any other commercially viable solution being available to ERA for the rehabilitation of the Ranger Project Area,” said the company’s group executive of energy and minerals, Bold Baatar.

“We will now consider our options in light of the Panel's orders so that ERA can fulfil its important rehabilitation obligations and commitments to the communities in which it operates and relevant authorities.”

Under the terms of its mining approvals, ERA is required to end mining and processing activities at Ranger by January 2021, and complete final rehabilitation by January 2026.

At 0910 GMT, shares in Rio Tinto were up 0.44% at 4,337p.