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Why Turquoise Hill Shares Bounced Back

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 mineral explorer Turquoise Hill Resources (TSX: TRQ) climbed 12% today after signing a binding term sheet with majority shareholder Rio Tinto for a new funding agreement.

So what: Rio Tinto agreed to provide Turquoise Hill with a much-needed $600-million bridge funding facility, putting the company one step closer to production at its key Oyu Tolgoi copper and gold mine in Mongolia. Specifically, the loan is designed to help Turquoise Hill refinance an existing $225 million loan from Rio Tinto made in June and assists in meeting its cash costs through the end of 2013, preventing the need for a dilutive placement of common shares.

Now what: The stock tanked last week on news that the Mongolian government will need to approve financing for the project, so there’s still plenty of uncertainty over the stock. “The Company remains committed to project financing and is engaging with the Government with a goal of completing the transaction and beginning to draw from the facility by the end of 2013,” wrote the company in a statement. Given the political and production risks that remain, however, I’d be cautious about buying too heavily into that optimism.

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Fool contributor Brian Pacampara does not own shares in any company mentioned at this time.  The Motley Fool doesn’t own shares in any of the companies mentioned.

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