Pentwater Denounces Rio Tinto’s Disreputable Vote Against Independent Investigation
December 03 2020 - 09:00AM
Business Wire
Pentwater Capital Management LP ("Pentwater"), the
largest minority shareholder of Turquoise Hill Resources Ltd.
("Turquoise Hill") (TSX:TRQ) (NYSE:TRQ), has written the
attached letter to the Rio Tinto plc (“Rio Tinto” or
“Rio”) (LSE:RIO) Board of Directors:
Dear Members of the Board of Directors of Rio Tinto plc:
I am disappointed with the need to write this letter to you.
Just three short days ago I wrote to you listing a litany of
inappropriate actions that Rio Tinto has unlawfully taken against
Turquoise Hill. My intention was to open the eyes of the Board to
the unacceptable behavior of Rio’s management team. I naively
believed that no responsible Board could ever condone the
reprehensible breaches of corporate governance that Rio has imposed
upon Turquoise Hill over the years, and that you would certainly
take a stand against such behavior. It appears that your actions
this week have proven me wrong.
Within 24 hours of my original letter, the world learned that
Rio voted against allowing the owners of the Oyu Tolgoi mine from
conducting an independent investigation into the $1.5 billion cost
overrun and two-year schedule delay suffered during Rio’s
construction of the mine. There is no logical explanation for why
Rio would oppose an independent
investigation into the massive cost overruns and delays,
especially when the owners of the mine support such an
investigation, and one of the owners is a sovereign nation and
important partner for decades to come. I should say that there is
no logical explanation other than that Rio has something to
hide.
Let me refresh your memory on the Oyu Tolgoi mine. Once
constructed, it will be the third largest copper and gold mine in
the world. It is projected to produce multiple billions of dollars
of free cash flow per year once in full operation. It has a mine
life of many decades with the potential to be a hundred year mine.
Rio does not actually own the mine. The mine is 66% owned by
Turquoise Hill and 34% owned by the Government of Mongolia. Rio is
the operator of the mine and is responsible for the construction of
the underground portion of the mine. Rio owns 51% of Turquoise Hill
and has hand-picked every single management employee and board
member at Turquoise Hill since it secured control of the company.
Almost every Turquoise Hill staffer since the beginning of Rio’s
regime has either been a Rio employee while working for Turquoise
Hill or came to Turquoise Hill directly from Rio Tinto
Earlier this week, Oyu Tolgoi LLC voted to conduct an
independent investigation regarding Rio Tinto's cost overruns and
timing delays at the mine. An independent investigation serves as
clearly good business practice as well as proper governmental
accountability to the citizens of Mongolia. The Government of
Mongolia and Turquoise Hill were in accord with this common-sense
decision. However, Rio Tinto apparently voted against the
investigation. To wit, the Australian Financial Review has just
reported -- in an article entitled "Mongolian partners revolt,
force Rio into Oyu Tolgoi review (dated December 1, 2020) -- that
"[m]ultiple sources have suggested that Rio was opposed to the
creation of the committee and the independent review."
The attempt to block an independent investigation into the
undeniably material cost and time overrun is unfortunately a
confirmation that such an investigation is warranted. Voting
against the proposal to form a special committee is devoid of any
justification from a corporate governance perspective. Further, it
is impossible to explain to Turquoise Hill minority shareholders or
the people of Mongolia that you want to block such an investigation
if you truly have nothing to hide. We are left amazed yet again at
the utter audacity of Rio Tinto in disregarding the legitimate
oversight functions of the owners of the mine.
Unfortunately, there are multiple sources who suggest that you
do have facts to hide. When a whistleblower claimed that you knew
of cost overruns a year before you disclosed them, you entered into
a confidential settlement with him the day before he was set to
testify in open Court, and he is now effectively silenced. Your own
ethics coach resigned due to unethical behavior by Rio executives
and a lack of appropriate corrective response by leadership. The
SEC is investigating your lack of disclosure of the cost overruns
and delays. A class action lawsuit has been filed against you. And
if all this wasn’t enough, you have abused your hand-picked board
and management team at Turquoise Hill to the point that even they
have begun an arbitration proceeding against you because you refuse
to allow Turquoise Hill to finance your cost overruns in the most
economically efficient way. Let me repeat that: your handpicked
Board and management team is taking you to arbitration.
Good hiring and robust oversight are the hallmarks of effective
operations and good governance. With Rio CEO Jacques soon departing
“by mutual agreement,” is it your goal as a Board to hire a new CEO
who can continue acting unethically and illegally toward Turquoise
Hill, or do you aspire to hire someone who stands for good
corporate governance? If the latter, perhaps you should start anew
and reverse your vote on the independent investigation and allow
Turquoise Hill to finance the mine in the most economically
efficient way.
However, given your actions over the past eight years, I am
skeptical that you will make the correct choice. As such, I
respectfully request that Rio Tinto take affirmative steps to
preserve both all paper documents and all electronically stored
information that are in its custody or control that are relevant to
the issue of Turquoise Hill's and Oyu Tolgoi LLC's independent
investigations of the Oyu Tolgoi cost overruns and time delays as
well as to the Turquoise Hill arbitration proceeding and
negotiations leading up to such. We request that Rio Tinto preserve
all paper records and electronically stored information, including
email, electronic calendars, financial spreadsheets, phone records,
word documents and other information created and/or stored at or by
Rio Tinto and its subsidiaries.
It is important for the Board of Rio Tinto to recognize that the
company is at a crossroads. With the imminent departure of Mr.
Jacques, the Board right now has a chance to embrace good
governance. But time for Rio Tinto to do the right thing is running
short.
Regards,
Matthew C. Halbower Chief Executive Officer Pentwater Capital
Management
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version on businesswire.com: https://www.businesswire.com/news/home/20201203005286/en/
David Zirin- Chief Operating Officer Pentwater Capital
Management 312-589-6401
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