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Turquoise Hill Resources Is Still Cheap

The stock has value potential even after Rio Tinto's buyout offer

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Mar 14, 2022
Summary
  • The stock is below book value.
  • It has a low price-earnings ratio.
  • Earnings are good.
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Even after Rio Tinto PLC’s (

RIO, Financial) offer to buy out the shares at $26, Turquoise Hill Resources Ltd. (TRQ, Financial) is still a cheap stock. It wouldn’t be at all surprising to see another larger mining operation make a bid at a higher price. Whether it’s likely or not is another question, but if it happened, it wouldn’t be surprising if you examine Turquoise’s basic financials.

Based in Montreal, copper miner Turquoise is working on expanding its Mongolian Oyu Tolgoi Mine. According to the company’s website, once that expansion is complete, the mine will be “one of the world’s largest copper mines.”

At the higher price offered by Rio, the book value for Turquoise sits at 53% of the bid. While Turquoise has acknowledged receipt of Rio’s buyout offer, it must occur to management that the price could be higher than it is. Besides the discount to book, the price-earnings ratio represents value at just 10.34.

Earnings per share this year increased by 29.20% and the past five-year rate of earnings per share growth is 20%. Turquoise’s shareholder equity exceeds its long-term debt and the current ratio of 1.20 is another basic positive.

The short float was sitting at 2.95% – it’s likely that many of these shorts may be forced to cover with the bid from Rio Tinto.

In January, Canadian investment firm Macquarie upgraded its opinion of Turquoise Hill Resources from “neutral” to “outperform.”

Before the buyout offer, the GuruFocus summary of its financials found two good signs, two medium warning signs and two severe warning signs.

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Rio Tinto’s offer for Turquoise Hill Resources is a signal that publicly traded copper companies may be in play, especially with the recent strength in the metal. If a larger outfit such as Freeport McMoRan (

FCX, Financial) got the same idea as Rio, it could be an interesting period for smaller miners in the same sector.

Let's see if Turquoise Hill accepts the Rio Tinto offer.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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