Rio Tinto is facing the latest revolt from investors in its huge copper and gold deposit in Mongolia’s Gobi Desert.
Pentwater Capital, the US hedge fund, is seeking the appointment of a new independent director to represent the interests of minority shareholders at Turquoise Hill Resources, the Rio-controlled company overseeing the Oyu Tolgoi mine. It wants other shareholders to be able to nominate three more.
Pentwater, which has a 9 percent stake in Turquoise Hill, said it had become increasingly alarmed at the mismanagement of a critical underground expansion project at Oyu Tolgoi and the timing of market disclosures.
“The tangled web that has been woven between Rio Tinto and Turquoise Hill has resulted in a lack of corporate governance controls, systemic disregard for the interests of minority shareholders, a sustained period of false and misleading disclosures and irreparable harm to the interests of all Turquoise Hill stakeholders,” Pentwater said in a statement.
While Rio operates Oyu Tolgoi, it does not have a direct shareholding. The mine is 66 percent owned by Turquoise Hill and 34 per cent by the Mongolian government. Rio’s interest comes through a 50.8 percent stake in Turquoise Hill, which has a market value of $6bn.
The mine is one of Rio’s most important growth assets. Through Turquoise Hill, Rio is ploughing more than $5bn into the underground expansion project, which is aimed at raising output to more than 500,000 tonnes a year.
When finished it will make Oyu Tolgoi the world’s third-largest source of copper, an industrial metal set to be in ever-greater demand as the green energy revolution takes hold.
However, the project has run into problems and is running 16 to 30 months behind schedule and over budget. Turquoise Hill said last week it needed to raise at least $4.5bn to finish the project.
In addition, a former Rio employee has claimed the company was aware of the problems with the underground project months before they were disclosed to inventors, and has referred his allegations to financial regulators and the UK’s Serious Fraud Office.
Pentwater has put forward a resolution calling for its chief executive, Matthew Halbower, to be appointed to Turquoise Hill’s board and for the adoption of a shareholder proposal that would give minority shareholders the right to nominate and elect three of the company’s seven non-executive directors.
“The need for effective independent representation for minority shareholders is especially critical in Turquoise Hill’s circumstances, where Rio Tinto is the controlling shareholder and responsible for the management of the company’s sole asset,” Pentwater said in a statement.
The motion will be voted on at Turquoise Hill’s annual meeting in May. The company also suffered a revolt at last year’s meeting, when 40 percent of minority shareholders voted against the re-election of its four independent directors.
Turquoise Hill said on Friday its board had “carefully considered both proposals from Pentwater and concluded, after extensive deliberation with its advisers, to recommend against the proposals, which may not be in the best interests of all Turquoise Hill minority shareholders”.
Rio declined to comment on the shareholder resolution.
Rio has previously dismissed claims that it failed to comply with its disclosure obligations in relation to the Oyu Tolgoi underground project, describing them as “completely misleading”. (Financial Times)