NAPLES, Fla., April 08, 2020 (GLOBE NEWSWIRE) -- 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:
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.