Pentwater Urges a Halt to Rio Tinto’s Attempt to Obstruct Turquoise Hill’s Financing and Governmental Discussions
January 29 2021 - 8:30AM
Business Wire
Pentwater Capital Management LP ("Pentwater"), the
largest minority shareholder of Turquoise Hill Resources Ltd.
("Turquoise Hill" or the "Company") (TSX:TRQ)
(NYSE:TRQ), urges regulators, including the U.S. Securities
Exchange Commission (“SEC”), to carefully consider Rio Tinto’s
alleged breach of securities laws and continued improper actions
involving Turquoise Hill.
Just over a week ago, a Federal District Court in the Southern
District of New York appointed Pentwater as lead Plaintiff in a
class action lawsuit against Rio Tinto. That lawsuit outlines how
Rio Tinto violated federal securities laws by failing to timely
disclose its knowledge of the massive cost overrun and schedule
delay at the Oyu Tolgoi mine which is 66% owned by Turquoise
Hill.
In the short period of time since Pentwater’s appointment, Rio
has taken additional action to harm Turquoise Hill. Just yesterday,
Turquoise Hill announced that Rio Tinto is ordering Turquoise Hill to: (1) stop all
conversations with the Government of Mongolia, its fellow
shareholder in the Oyu Tolgoi mine, and (2) stop attempting to
finance the cost overrun overseen by Rio with project bonds.1
Additionally, just one short week ago, Rio unilaterally declared
that it will not proceed with the
undercut at the mine unless its own self-serving mine finance plan
is implemented. Even Rio’s hand-picked board of directors at
Turquoise Hill knows that acceding to Rio’s demands would be
inconsistent with their and Rio’s fiduciary obligations owed to
Turquoise Hill and all of its shareholders.
Why would Rio (in its capacity as operator of the mine) possibly
think it is good business practice or good government relations to
forbid Turquoise Hill (the 66% owner of the mine) from having
direct, one-on-one communication with the government of Mongolia
(the 34% owner of the mine)? Why would Rio possibly think it is
good business practice or good government relations to order
Turquoise Hill to accept a value destructive financing option to
finance the very cost overruns overseen by Rio Tinto? Why would Rio
think it is good business practice or good government relations for
Rio Tinto (the mine operator) to dictate to the mine owners that
the undercut should only proceed after Rio gets its way on the mine
financing plan? These questions answer themselves. Of course, Rio’s
perspective might be influenced by the $1.4 billion in fees that it
has already been paid by OT and Turquoise Hill.
Rio’s recidivist disregard for its legal obligations is
alarming. It has been reported that the cost and schedule overruns
at Oyu Tolgoi are under investigation by the SEC, the UK Serious
Fraud Office, the Australian Securities and Investment Commission,
and the Government of Mongolia. Rio was fined by the United
Kingdom’s Financial Conduct Authority for breaching Disclosure and
Transparency Rules in reporting its activities at a mine in
Mozambique, and is under a separate investigation by the U.K.
Serious Fraud Office for corruption and bribery in its conduct of
business in the Republic of Guinea. Rio has been reprimanded due to
its destruction of the Juukan Gorge, where an Australian government
inquiry has found its actions inexcusable and emblematic of a
flawed corporate culture.
Rio’s new CEO has been on the job for less than a month after
its previous CEO departed after unforgivable corporate misdeeds.
Unfortunately, rather than cleaning house and putting Rio on a path
toward becoming a good corporate citizen, Jakob Stausholm is
perpetuating Rio’s flawed corporate culture. He promoted Arnaud
Soirat to Chief Operating Officer despite the fact that Mr. Soirat
was identified by whistleblower Richard Bowley as having knowledge
of the fraud to hide Rio’s cost overruns and schedule delays from
Turquoise Hill shareholders and the Government of Mongolia. Now,
Mr. Stausholm is personally orchestrating Rio’s actions against
Turquoise Hill and the Government of Mongolia disclosed
yesterday.
On December 22, 2020, Turquoise Hill issued a press release
informing shareholders of the progress being made in its
comprehensive funding review process. Turquoise Hill disclosed that
market testing and continued negotiations confirmed that multiple
sources of competitively priced non-equity capital are available
that would create significant value for Oyu Tolgoi’s shareholders
and not require any “completion support” from Rio Tinto. But any
solution that does not enable Rio to continue profiting at the
expense of other Oyu Tolgoi stakeholders does not seem to be
amenable to Rio.
Rio Tinto is now using seemingly every tactic at its disposal to
prevent Turquoise Hill from securing a financing solution that
benefits all of its shareholders, not just Rio alone. This cannot
be allowed. Pentwater urges regulators to consider Rio’s ongoing
improper activities across the globe.
1 Rio is utilizing a special committee of the OT board in its
attempt to control Turquoise Hill. This special committee is
compromised of just Rio and Turquoise Hill. Rio, however, is the
only entity that has the right to cast a vote on this committee.
Rio’s proposal on financing and governmental communication has been
put forward to this committee. Rio plans to cast its vote in favor
of this proposal. Once Rio has so voted, Turquoise Hill is arguably
contractually obligated to support this proposal when it is then
introduced at the next OT Board meeting. It is through this
mechanism that Rio is overriding Turquoise Hill’s right and
fiduciary obligation to finance the mine in the most economically
efficient manner and work with the government of Mongolia to create
the greatest amount of value for all OT shareholders.
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version on businesswire.com: https://www.businesswire.com/news/home/20210129005112/en/
David Zirin- Chief Operating Officer Pentwater Capital
Management 312-589-6401
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