Why Turquoise Hill Shares Tanked
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Canadian mineral explorer Turquoise Hill Resources sank 12% today after receiving notification from the government of Mongolia that project financing for Oyu Tolgoi will now require approval by the Mongolian parliament
So what: Unfortunately for Turquoise, and parent company Rio Tinto , the Mongolian parliament is currently in summer recess and the approval process will take plenty of time even after that, so all work on the underground development will be put on hold indefinitely. Given that Oyu Tolgoi is Turquoise's primary operation -- total capital invested in the mine to March 31 was about $6 billion -- the delay represents a huge setback for management and raises plenty of uncertainty for shareholders.
Now what: Management will naturally do what it can in the meantime. "Operations of the open-pit mine, commissioning of the concentrator, and the ongoing export of concentrate from Oyu Tolgoi will continue," wrote Turquoise Hill in a statement. Of course, when you couple the Mongolian government's seemingly unstable policies with Turquoise's sector average P/E, the trade-offs between risks and rewards at this point look particularly unfavorable.
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The article Why Turquoise Hill Shares Tanked originally appeared on Fool.com.Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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