TURQUOISE HILL'S RESPONSE TO PENTWATER CIRCULAR REINFORCES NEED FOR EFFECTIVE MINORITY SHAREHOLDER REPRESENTATION ON TURQUOI...
April 08 2020 - 11:25AM
Pentwater Capital Management LP ("
Pentwater"), a
long-term supportive investor and the largest minority shareholder
of Turquoise Hill Resources Ltd. ("
Turquoise Hill"
or the "
Company") (TSX:TRQ) (NYSE:TRQ), owning,
together with its affiliates and associates, approximately 9.09% of
the Company's issued and outstanding common shares, today responded
to Turquoise Hill’s April 6, 2020 press release.
Pentwater believes that Turquoise Hill’s release
not only fails adequately to address the important concerns voiced
in Pentwater’s recently filed proxy circular, but is both
misleading and inaccurate in its attempt to deflect accountability
for the self-inflicted wounds that have been an overhang on the
Company's otherwise world-class asset base away from the Company’s
management team and board of directors (the "Board").
A fundamental problem here is that Rio Tinto
plc. (NYSE:RIO:US)(LON:RIO:L)(ASX:RIO:AX) ("Rio"
or "Rio Tinto") controls the nomination and
election of the entire Board. The directors serve at Rio's
discretion and at the same time they are responsible for overseeing
multi-billion dollar transactions between Rio and Turquoise
Hill. Pentwater seeks minority shareholder support in
demanding effective minority shareholder representation on the
Board, which is imperative to achieve appropriate oversight of the
varied and conflicted financial transactions between Rio and
Turquoise Hill.
Turquoise Hill’s press release states that its,
“management and Board have the requisite experience and judgment to
oversee the successful development of this world-class
asset.” The facts tell a different story.
- Turquoise Hill’s limited
resources directly contradict the Board’s
assertions. Pentwater believes that
there are not many large-scale developments of any kind that can be
overseen successfully with only five dedicated employees, let alone
a highly technical underground block cave development of one of the
largest known copper/gold deposits in the world. Yet that is the
total number of full time Turquoise Hill employees tasked with
overseeing Rio Tinto, as the project manager, along with the
thousands of contractors and workers on the project.
- Turquoise Hill’s reliance
on Rio – which itself has limited pertinent experience – directly
contradicts the Board’s assertions.
If the Turquoise Hill Board and management team have the requisite
experience and judgment to oversee the successful development of
this world class asset, why would they need to pay Rio to oversee
development of a power plant despite Rio’s limited expertise in
developing power plants? Pentwater became alarmed last year
upon learning that Rio Tinto requested “several hundred million
dollars of fees for managing and overseeing the construction of the
Tavan Tolgoi power plant.” Pentwater wrote a letter1to the
Board at the time voicing its concerns. To this day, shareholders
have received no substantive disclosure or explanation from
Turquoise Hill regarding Rio Tinto’s potential involvement in this
project. Turquoise Hill should explain to its shareholders
what role Rio Tinto is slated to play in this project and how much
it will be compensated. If Rio Tinto is in fact going to be paid to
oversee the project, Turquoise Hill must explain why Rio Tinto was
the best choice over and against other potential
power-plant-construction oversight managers.
_________________________________1 Please see
the copy of the letter attached to the version of this press
release filed on SEDAR.
Also in its press release, Turquoise Hill states
that it, “has retained independent third party experts to review
cost and schedule reporting.” Who are these supposed
“experts” and what did they say?
- If true, they are certainly not
doing a good job. On March 14, 2019, Turquoise Hill issued a
press release which stated that it expected, “that project cost was
expected to remain within the US$5.3 billion budget.” Exactly
four months later on July 15, 2019, Turquoise Hill issued another
press release which stated that, “the development capital spend for
the project may increase by US$1.2 to US$1.9 billion over the
US$5.3 billion previously disclosed.” Is it credible to
believe that this board and management team are knowledgeable and
in control when they go from reaffirming costs to disclosing a
US$1.2 to US$1.9 billion budget overrun in four months?
- If there are independent
third-party experts who review costs, why won’t the Turquoise Hill
board report that information to its shareholders? Turquoise
Hill stated in numerous filings that the final fit-out of Shaft 2
was scheduled to be completed by the end of 2018, reaffirming this
timing as late as July of 2018, just 10 weeks prior to the
announcement of material delays that would result in Shaft 2 being
delayed a full year, until October of 2019. How much of the
delay was Rio’s fault? How much did the delay of Shaft 2
contribute to the cost overruns? Turquoise Hill refuses to
share this information with its shareholders.
Turquoise Hill states that The Board “has a
strong record of refreshment,” exemplified by the addition of two
independent directors in the past three years. “Refreshment”
is an odd word for surprise resignations.
- Turquoise Hill fails to mention
that the reason the need arose for these two new directors to be
added and for the Board to be “refreshed”, is the fact that the two
independent directors who resigned in the past four years both
resigned abruptly and outside of the regular board election
process, with no new board members ready to replace them and
without any publicly disclosed reason. One of the directors, James
Gill, who had served on the Board for over five years and received
the most votes in favour at Turquoise Hill's most recent annual
general meeting, resigned just five days before Turquoise Hill
first announced material cost overruns and delays at the Oyu Tolgoi
Project on July 15, 2019. Despite repeated shareholder requests, no
credible reason has been given for these abrupt resignations. Far
from “refreshing,” such abrupt, mid-term, unexplained director
resignations are very concerning.
Finally, Turquoise Hill states that the Board
has implemented “a long-term TRQ stock-based incentive plan to
align executives’ interests with those of all shareholders.”
The Board’s is aligned with Rio, period.
- This statement belies reality. When the entirety of the
executive team and the Board of Directors collectively own common
shares worth less Cdn$151,000 based on current trading prices, the
only shareholder with whom their interests are aligned is the
majority shareholder that hired them and can at any moment fire
them, Rio Tinto. Aside from the CEO, the largest holding by any
member of the executive team or Board is the 30,000 shares held by
the Board Chair Peter Gillin which are worth Cdn$18,600 based on
current trading prices. To be clear, he owns Cdn$18,600 worth of
shares after eight years of serving as an independent
director.
Pentwater does not take lightly the idea of
criticizing the management and corporate governance of any company
in which it owns a significant equity stake. But Pentwater believes
that a world-class asset deserves a world class Board that
represents the interests of all shareholders, and not just the
interests of its controller, Rio Tinto. Pentwater believes
that the right changes, if enacted swiftly at the upcoming
shareholder meeting, will redound to the benefit of Turquoise Hill
and its shareholders.
We Need Your Support
We are seeking your support at the Company's
upcoming annual and special meeting of shareholders to be held on
May 12, 2020 to restore accountability at Turquoise Hill, and give
minority shareholders back their voice.
We encourage our fellow shareholders to consider
the facts and take action against the current culture of
entrenchment, value destruction and misconduct at Turquoise Hill.
The interests of the Company's minority shareholders have been
disregarded for far too long. Your vote is critical to initiate
much-needed change, to restore accountability and to safeguard
minority shareholder interests in Turquoise Hill.
Shareholders are urged to vote only the GOLD
proxy:
- FOR the election of Matthew Halbower to the board of directors
of the Company;
- WITHHOLD in respect of the election of all of the management
nominees to the board of directors of the Company; and
- FOR the adoption of the shareholder proposal submitted by
Pentwater to amend the Company's articles to provide minority
shareholders of the Company with the exclusive right to nominate
and elect three of seven directors to the Board.
Shareholders are urged to read the full text of
Pentwater's proxy circular, related press releases and the April 3,
2019 Letter to the Turquoise Hill Board, which are being filed and
made available under Turquoise Hill's issuer profile at
www.sedar.com.
For further information contact:
MacKenzie Partners, Inc. Daniel Burch – 1-212-929-5748 Jeanne
Carr – 1-917-648-4478Email: SaveTRQ@mackenziepartners.com
About Pentwater
Pentwater is a private investment firm focused on investing in
event driven strategies with expertise across the capital
structure. Founded in April of 2007, the firm’s experienced team
uses a dynamic, disciplined approach to mitigate risk and optimize
returns.
The head office of Pentwater is located at 1001 10th Ave South,
Suite 216, Naples, FL 34102.
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