Ulaanbaatar, Mongolia – In late November 2020, impacted communities in the Ger district of Ulaanbaatar filed two complaints to the Asian Development Bank (ADB), against the Ulaanbaatar Urban Services and Ger Areas Development Investment Program – Tranche 1 2 and 3.
In the complaints, affected families stated that the road project violated ADB’s social and environmental standards and caused numerous problems, related to inadequate land acquisition, compensation and resettlement plans; property damage; and poor road construction safety standards.
Tserendorj Oyuntugs, Director of 6 Buudal NGO, stated that “[t]he Selbe sub-center project affects peoples’ lives and residents are leaving their homes because of risks caused by cracks in the wall and in the fences.” She also added that “the project was supposed to alleviate poverty, but it is making the affected people even more destitute.”
Initially, the impacted families resettled outside the town were promised 500 sqm of land, but now they are being offered 250 sqm, half of what was promised. Aside from that, they are only provided with a land possession title for five years instead of having their ownership title restored, which is something that is granted to each Mongolian citizen for free. One cannot build a home and livelihood on land with a 5 year permit.
The resettlement plan is also threatening the Mongolian traditional way of living as a “khot ail,” where several generations of families customarily live together and share herding tasks . Instead of giving a land certificate and compensation to each family that is part of the khot ail, ADB issued a land certificate and granted compensation to only one family.
The resettlement sites are located far away from people’s original homes and business places, so their livelihoods are threatened. The Livelihood Restoration Program, which was put in place after complaints were filed in March 2018, is not proving to be effective and is barely covering those identified as poor, but not all economically displaced as a result of the resettlement.
Sukhgerel Dugersuren, Director of OT Watch Mongolia, says: “Because of the COVID-19 restrictions, it is difficult to get a clear picture of how many people are being resettled and why only cash compensation is being offered. It should be land for land or land for apartment with financial support for relocation, transition and livelihood support, where necessary. There appears to be no consistent and reliable information on the resettlement and relocation policy, the Memorandum of Understanding signed in 2018 which should apply to all affected people under this project is not being honored by the project implementers”.
COVID-19 is aggravating an already dreadful situation, with family members stuck outside Mongolia due to the pandemic who were cut from compensation. One resident stated that “ADB continues to use every possible pretext to reduce compensation. My children are not eligible since they have not lived at this address in the last six months, but they are not here because they are stranded elsewhere due to the lockdown”.
Local residents have also been complaining because some parts of the construction site are trespassing into peoples’ property. Families who were denied resettlement are now struggling to live, with a road blocking their doorsteps and construction rigs above their heads. Some families are being forced to flee without any compensation and assistance. Key concerns raised by all complainants is lack of safety and security for all but especially for children.
A local resident, Myagmarsuren Munkhzul, says: “I’ve been living for the past 15 years here, but the project is causing critical problems. The road is built right behind our plot, and since fences fall here, there is no guarantee that a car will not fall in, too.”
The complainants call upon implementers to stop physical and economic displacement during COVID-19; bring the project into compliance with the financiers’ safeguards policies as well as road standards; and honor the 2018 MoU agreements signed by all stakeholders.
 Bold, Bat-Ochir. “Socio-Economic Segmentation — ‘Khot-Ail’ in Nomadic Livestock Keeping of Mongolia.” Nomadic Peoples, no. 39, 1996, pp. 69–86. JSTOR, www.jstor.org/stable/43123494. Accessed 1 Dec. 2020.
Oyu Tolgoi Watch (Mongolia) is a CSO that monitors compliance of IFIs financed mining and development projects with the international environmental and human rights standards. OT Watch supports local communities seek redress using international nonjudicial grievance mechanisms. www.minewatch.mn
For more information please contact Sukhgerel Dugesrsuren at email@example.com or call 976-99185828.
NGO Forum on ADB is a network of civil society organizations (CSOs) that has been monitoring the projects, programs, and policies of the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB). To know more follow this link.
LARKSPUR, Calif.–(BUSINESS WIRE)–SailingStone Capital Partners (“SailingStone”), a large, long-time owner of Turquoise Hill Resources Ltd. (“Turquoise Hill,” “TRQ” or the “Company”) (TSX:TRQ) (NYSE:TRQ), has written the attached letter to the Turquoise Hill Board of Directors:
Dear Members of the Board of Turquoise Hill Resources Ltd.,
As a large, long-time shareholder of Turquoise Hill, SailingStone Capital Partners would like to commend Turquoise Hill and the Government of Mongolia (the “Government”) for the recent collective efforts to increase transparency, improve alignment, and reduce uncertainty related to the development and financing of Oyu Tolgoi’s (“OT”) immense underground copper and gold reserves. It is in the interest of all stakeholders to bring this world-class mine into production as safely and expeditiously as possible.
Trust, proper corporate governance, and a clear understanding of roles and responsibilities sit at the core of any partnership. Since there appears to be some confusion about the relationship between TRQ, the Government of Mongolia and Rio Tinto (“Rio”), please indulge our effort to set the record straight. Turquoise Hill owns 66% of Oyu Tolgoi, with the remaining 34% held by the Government of Mongolia. Turquoise Hill has agreed to fund the Government’s equity stake and pro-rata share of development capital which is to be repaid from future cash flows once the underground mine is commissioned. Rio Tinto has been hired to operate and develop the mine. In addition, Rio has provided completion guarantees as a means to facilitate a project finance facility which efficiently allocates risk based on capabilities. Sovereign risk is absorbed by the international lending syndicate while Rio Tinto, a self-proclaimed “leading global mining group,” accepts the risk of mine development. To be clear, Rio is compensated for their completion guarantee in the form of incremental support fees above and beyond the $850 million in cost recoveries and management services payments received since 2011. Rio Tinto is also the majority shareholder of Turquoise Hill, having paid approximately $6.3 billion for its 51% ownership stake.
Over the last decade, Rio has received more than $1.5 billion in compensation for its work at Oyu Tolgoi and related financings. While that sum may seem de minimis for a global mining conglomerate, it is important to note that ex-iron ore and Oyu Tolgoi, Rio has generated approximately $15 billion in negative free cash flow over the same time frame. 1 Turquoise Hill, meanwhile, has invested just over $10 billion into the project2, while OT paid the Government approximately $2.6 billion in taxes and royalties between 2010 and 2019, directly employs almost 8,200 Mongolian nationals and worked with more than 560 Mongolian businesses in 2019.3 By some estimates, Oyu Tolgoi will represent more than 30% of Mongolian GDP when the underground is at full capacity and clearly is the most important proxy for foreign direct investment into Mongolia.
While the roles and responsibilities of the OT partnership are relatively straightforward, proper corporate governance and trust have been in short supply. Thus, we are encouraged by two recent events which we believe are important first steps in creating the alignment and governance standards necessary to complete a project as complex and important as Oyu Tolgoi.
First, we applaud the decision of the OT board to move forward with a fully independent review of the cost overrun and delays associated with Shaft 2, which we have been requesting since the initial announcement last July. Since Rio Tinto is responsible for the project, is being paid for its efforts, and apparently has shareholders who are concerned about the associated risks, an independent post mortem “in a public manner in the interest of transparency, accountability and integrity” would indeed be “appropriate and fair” for all stakeholders. Of course, any effort to impede these efforts could only be cause for serious concern on behalf of Oyu Tolgoi’s owners and inevitably would lead to a further degradation of trust. Building a multibillion-dollar block cave is no mean feat, and all participants understand that there are risks involved. However, having the party responsible for mine construction be the sole beneficiary of a capital overrun and multi-year delay runs counter to the concept of “partnership.” The mere commencement of this review process, supported by all stakeholders, is a seminal step in the history of Oyu Tolgoi. We surely are not alone in our eager anticipation of the Special Committee’s findings.
Second, we believe that the decision to commence arbitration proceedings to clarify Rio’s role and obligations in supporting Turquoise Hill’s attempt to obtain the lowest cost sources of financing to meet the incremental funding requirements, caused in no small part by Rio’s own mismanagement, is not only appropriate but the only available option. Basic principles of corporate governance require that board members and management teams put the interest of their shareholders, in this case the shareholders of TRQ, ahead of their own. Rio Tinto’s cost of capital is totally irrelevant in any decision regarding Turquoise Hill. To suggest otherwise is to explicitly acknowledge an abrogation of the collective Board’s fiduciary obligations. There is no alternative interpretation. Fortunately, in this situation there are attractive financing options available – the rare occasion when doing the right thing is actually possible.
In theory, Rio Tinto should be aligned with Turquoise Hill minority shareholders and the Government of Mongolia to maximize the value of Turquoise Hill’s share price. After all, Rio paid more than $6 billion for their equity stake in the Company and Oyu Tolgoi’s success has significant positive implications for the Government and people of Mongolia. Over the past several years, however, Rio has left itself open to accusations of intentionally depressing the share price, a conclusion made all the more pointed when comparing Rio Tinto’s stock returns to TRQ’s. Supporting Turquoise Hill’s efforts to identify the lowest cost source of financing as a means to either eliminate or mitigate the amount of equity raised is consistent with first principles of corporate finance and proper corporate governance.
Similar to the independent review discussed above, the refusal to seek out the most efficient means of financing OT results in a prim facie conclusion that Rio is intentionally suppressing the stock price. This conclusion only makes sense if Rio is attempting to harm the minorities ahead of a planned take-out or to undercut the Government of Mongolia in any negotiations related to a debt for equity swap in conjunction with a tax and royalty agreement. Since yet another corporate governance failure cannot be high on Rio’s list of priorities at the moment, securing non-equity financing seems like a unique opportunity to level-set the partnership and advance the development of what everyone acknowledges is one of the most important mining assets in the world. We expect that recent events have helped Rio’s board and interim management suite better understand the significance of these decisions as well.
In summary, we are encouraged by recent events and believe that your actions will serve to further de-risk the project by enhancing governance at OT and TRQ, and by increasing the level of trust across the partnership. We thank you for your efforts on behalf of Turquoise Hill shareholders, and for working with the Government of Mongolia and other stakeholders to usher in a new era of cooperation at Oyu Tolgoi.
SailingStone Capital Partners LLC
About SailingStone Capital Partners LLC
SailingStone Capital Partners LLC is an employee-owned investment advisory firm focused exclusively on providing investment solutions in the global natural resource space with a specific focus on the commodities and services which are key enablers of the energy transition. Based in the San Francisco Bay Area, SailingStone manages concentrated, long-only equity portfolios for institutional investors.
1 Sellside model from a firm which has requested anonymity 2 Turquoise Hill financial statements 3 Turquoise Hill OTTR 2020 presentation, updated for current employment levels
Click here for source. For translation in Mongolian click here.
NAPLES, Fla.–(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.
Matthew C. Halbower Chief Executive Officer Pentwater Capital Management
David Zirin- Chief Operating Officer Pentwater Capital Management 312-589-6401
Click here for source. Click here for PDF version translated in Mongolian.
Calls for Rio Tinto to Immediately Cease Brazen Attempt to Enrich Itself at the Expense of Turquoise Hill Minority Shareholders
November 30, 2020 06:00 AM Eastern Standard Time
NAPLES, Fla.–(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), 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:
Pentwater Capital Management is the largest minority shareholder of Turquoise Hill. We are writing to you because it is our sincere hope that the Board of Rio Tinto is unaware of the oppressive and illegal actions which Rio’s current management team has taken against Turquoise Hill’s minority stockholders. It is our sincere hope that Pentwater can work with Rio’s Board to correct these actions and thereby avoid the otherwise necessary filing of an action for oppression by Pentwater against Rio Tinto.
As you are undoubtedly aware, Rio controls Turquoise Hill through its 51% ownership stake, has hand picked every director at Turquoise Hill, has chosen every management employee at Turquoise Hill, and is the manager of the mine which is Turquoise Hill’s sole asset. I assume that you are also aware that since Rio took control of Turquoise Hill in 2012, Rio has eliminated every previous Turquoise Hill employee and brought in a parade of six CEOs and CFOs who have all been existing or former Rio employees. I assume that you also know that Rio’s hand-picked directors and management team have signed contracts with Rio that have resulted in Turquoise Hill paying Rio over $1.4 billion since Rio took control.
As manager of the mine, Rio has been responsible for the construction of the underground mine at Oyu Tolgoi. Rio originally promised Turquoise Hill that the underground mine would reach first sustainable production in Q1 of 2021 with a $5.3 billion budget. Then in July of 2019, Rio shocked Turquoise Hill’s minority shareholders by communicating for the first time that there would be a massive cost overrun and enormous schedule delay. According to a former Rio employee who turned whistleblower named Richard Bowley, the budget overrun and schedule delay were largely caused by Rio’s negligent construction of Shaft 2. The whistleblower further confirmed that Rio was fully aware of the budget overruns and schedule delay a year in advance of the disclosure to the market and intentionally hid those facts from the market and the government of Mongolia. The Financial Times has reported:
“Mr. Bowley, who worked for Rio’s copper business between 2017 and 2019 as head of strategic projects in Mongolia, claims he first alerted senior executives to problems with the project in February 2018. According to Mr. Bowley, he continued to express his concerns to senior executives until he was dismissed in March 2019 after making whistleblowing disclosures. ‘I indicated [delay] to the schedule in the early part of 2018, which would lead to serious risk related to capital required to complete the project. This risk only grew throughout 2018, but was not disclosed to investors,’ he said in the statement. ‘Clear evidence exists through the project reporting, email correspondence and other documents [that] Rio Tinto were fully aware of the delays to the project and the effects these would cause.’” Financial Times, March 23, 2020.
Rio Tinto chose to hide the cost and schedule overruns in the underground project beginning in 2018.
“Mr. Bowley claims he first alerted senior executives to problems at the mine in February 2018. That was followed by a second warning – to an HR executive – in July 2018 that the mine was $300m over budget and a year behind schedule. Yet, in a presentation to US investors on October 2, 2018, the head of Rio’s copper business Arnaud Soirat said the project was ‘on budget and on schedule’”. Financial Times, February 16, 2020.
“In one email, sent just weeks after Mr. Soirat’s October 2018 presentation, Mr. Bowley told his local manager there would be a ‘12-18 month delay in the underground project, with substantial cost implications.’ He also outlined his concerns to board members at Rio.” Financial Times, February 16, 2020.
You may or may not be aware that Mr. Bowley was scheduled to provide live testimony in open Court last month that would have been very embarrassing to Rio, but the day before that Court hearing was scheduled to take place, Rio agreed to an undisclosed settlement with Mr. Bowley presumably to buy his silence. Pentwater certainly hopes that it was Rio’s current management team rather than Rio’s Board making these decisions. Obviously, it was Rio’s management team that decided to destroy sacred aboriginal sites in Australia as well take actions which have resulted in numerous foreign corrupt practices investigations, bribery investigations, as well as financial disclosure investigations around the world by agencies such as the US Securities Exchange Commission and the Serious Fraud Office in the UK. It is Pentwater’s understanding that Rio’s Board finally took the correct action to eliminate Rio’s CEO after these numerous improprieties.
Unfortunately, the elimination of Mr. Jacques occurred one day too late. Literally the day the Board asked for his resignation, Mr. Jacques attempted to force Turquoise Hill to pay for the cost overruns caused by Rio’s own mismanagement of the construction of the underground mine through an equity rights offering instead of accessing cheaper, readily available financing. It is unacceptable that Rio, through a recently announced Memorandum of Understanding (MOU), is preventing TRQ from seeking the financing solutions that are most optimal for TRQ shareholders. Rio is attempting to force Turquoise Hill to conduct an equity raise despite the fact that the current equity price severely undervalues the Company and despite the fact that there are much cheaper and more advantageous financing options available to the Company, such as streaming and bond financing. The fact that Rio has already notified Turquoise Hill that it will oppose any additional debt or hybrid financing options beyond the amount in the MOU, exposes Rio’s oppressive tactic to enrich itself and expand its holdings in Turquoise Hill at bargain basement prices through the backstop.
The complete and utter lack of financial logic in Rio’s current position is so blatantly corrupt that it has forced Rio Tinto’s own hand-picked Board at Turquoise Hill to initiate arbitration against Rio. Turquoise Hill’s Board is convinced that the cost overruns caused by Rio can all be funded by supplemental financing or a stream. Both options would be at reasonable costs and interest rates. Why would you as the Board of Rio not want a company that Rio owns 51% of to finance the construction of the underground mine in the most capital efficient manner?
Pentwater hopes that the answer to this question is that you want efficient financing for Turquoise Hill. Pentwater hopes that it was your lame duck CEO Mr. Jacques who duped Rio into proceeding down this value destructive path. Pentwater hopes that once you understand the facts, you will agree that the only rational path forward is to allow supplemental financing to move forward. Hopefully you understand that all Turquoise Hill’s current financing agreements are written to allow for $1.6 billion of supplemental financing.
Pentwater hopes that you understand that there is near universal belief that Rio has not engaged in appropriate corporate governance with respect to Turquoise Hill. Rio has not allowed any minority representation on Turquoise Hill’s Board. Earlier this year, I ran for a seat on the Turquoise Hill Board. I received 88% of the votes from minority shareholders who voted at the meeting.Of course, Rio Tinto saw to it that minority shareholder voices were silenced by casting its votes against me. I can only assume that it was Mr. Jacques who didn’t want minority shareholders to be able to investigate Rio’s reported misfeasance and malfeasance committed in construction of the underground mine. I assume it was Mr. Jacques who didn’t want minority shareholders to have any oversight into the $1.4 billion that Turquoise Hill has already paid Rio. I assume it was Mr. Jacques who didn’t want minority shareholders to be able to push Turquoise Hill to investigate Rio’s reported lack of candor and disclosure in reporting delays and cost overruns.
The leading corporate governance firm in the United States, Institutional Shareholder Services (ISS) supported minority shareholder representation on the Turquoise Hill Board. On July 15, 2020, the Australian Financial Review, taking notice of ISS’s endorsement of minority shareholder representation, stated as follows:
In its advice to [Turquoise Hill] shareholders, ISS confirmed ‘legitimate concerns around governance, delays, cost overruns and the company’s disclosure regarding the gravity of funding shortfalls.’ It said ‘the board’s history of communication with minority shareholders is of particular concern’ and noted that it ‘has not gone far enough’ in ensuring ‘mitigation of conflicts of interest.’
The same article goes on to say:
Under the capricious Jean-Sébastien Jacques, Rio Tinto’s bad faith conduct is overarching. Its pariah status transcends the company’s individual crises and its organizational silos. It treats its business partners and minority shareholders with the same contempt it shows its host communities – like the grieving PKKP people. It is excoriated by Canberra’s Takeovers Panel, American proxy houses, British fund managers and by Reconciliation Australia alike. These are not inconsequential malcontents. They are a growing chorus, and these are glaring warning signs for Simon Thompson’s board, if it cares to notice. Australian Financial Review, July 15, 2020.
But, of course, it is not “breaking news” that Rio Tinto, under Mr. Jacques and his predecessors have not been models of good corporate governance. Among the many scandals swirling around Jacques was one reported by The Australian Financial Review on July 27, 2020 regarding unethical conduct by Rio’s most senior executives. The paper states:
In December 2017…. British executive coaching firm GFI Blackswan abruptly quit its 12-year role providing leadership development services to Rio Tinto’s senior leadership team ‘because of serious misgivings about unethical behaviour.’ Blackswan’s principal, Dr. Maurice Duffy,laid this out in an eye-popping letter to current chairman Simon Thompson and the entire Rio Tinto board, Jacques and his entire executive committee … on November 26, 2019. In it, Duffy complains that before terminating his consultancy agreement in 2017, he reported ‘multiple, unprofessional [and] unethical behaviors’ by Rio’s most senior executives to the then chairman and members of the board, ‘who took no action’.
Mr. Jacques was CEO in 2017. The same article reported that Duffy’s concerns addressed Rio issues in both Mongolia and Mozambique.
Duffy had reported ‘the potential overstatements that [Blackswan] were informed of in Mongolia and Mozambique, which we first informed [Rio Tinto] of in 2017.’ In October 2017, Albanese and former CFOGuy Elliott were charged by the US Securities and Exchange Commission with fraud ‘for inflating the value of coal assets’ in Mozambique. Duffy even called out ‘the 2019 independent investigations by Baker McKenzie that excluded information known by [Blackswan] about Mongolia since 2017’.
According to the same article, Duffy apparently had reported inappropriate relationships at Rio. To quote, “Duffy had reported ‘the inappropriate relationships.’ One such relationship remains an open secret in Rio Tinto circles.” Pentwater believes that one of these inappropriate relationships created conflicts of interests with Turquoise Hill at the time large contracts were being negotiated between Turquoise Hill and Rio.
Rio’s corporate culture problems extend around the world, from its corporate inner sanctum to Mongolia, to Mozambique and even to Guinea. As the Financial Times on July 28, 2020 reported:
Rio Tinto is in talks with the UK’s Serious Fraud Office about a possible deal under which the Anglo-Australian miner would avoid prosecution on bribery allegations. The group is seeking a deferred prosecution agreement over a payment it made to a consultant working on a contentious iron ore deposit in Guinea, according to people with knowledge of the situation, who said there was no certainty a deal would be reached. Under a DPA, the SFO charges a company with a criminal offence but proceedings are automatically suspended as long as the deal is approved by a judge. For negotiations to begin, the company has to agree a number of terms, including paying a fine and co-operating with future prosecutions of individuals.
How could Mr. Jacques have allowed such a culture of misfeasance and malfeasance infest Rio Tinto? To be fair, the rot began before his reign. The Mozambique scandal and the Guinea bribery scandal involved underlying actions that occurred before his ascendance. However, he has continued the degradation of any semblance of good corporate character, leading to the pièce de resistance of his reign … the blowing up of cultural heritage sites in Australia. The destruction of Western Australia’s Juukan Gorge cultural heritage sites is emblematic of Rio’s actions under Mr. Jacques – a “Rio-first-and-only, whatever the cost” corporate mentality; a high-handed disregard of business and ethical obligations; and a total disrespect of governments and non-governmental partners and co-investors.
You know that your corporation has gone astray when you have to “clean house” yet again. Mr. Jacques’ tenure started with great hopes that Rio Tinto could put past scandals behind it. But we have now come full circle, and Mr. Jacques is leaving under a dark cloud. This is the time for the Board of Directors to put right the things that are indeed wrong. It is illegal and oppressive for Rio to order Turquoise Hill to undergo an equity raise despite the lack of any economic sense. We hope that it was not the Board itself who thought sua sponte that this was a good idea. Unfortunately, the press from last week makes Pentwater question whether it is in fact Rio’s own Board who is responsible for all of these numerous acts of impropriety.
A Financial Times article published Wednesday, November 25, 2020, states that the Government of Mongolia is calling for Oyu Tolgoi LLC to seek “an independent review into delays and huge costs blowouts in the underground expansion” of the Oyu Tolgoi mine. As you know, Rio Tinto does not own the Oyu Tolgoi mine. Rio is simply the operator in charge of underground mine construction. The mine is co-owned by Turquoise Hill and the government of Mongolia. The article suggests that both owners of the mine want an independent investigation but that Rio is opposing this. If accurate, that is truly SHOCKING. Rio is nothing more than the contractor hired to build the mine. Do you really have the audacity to attempt to block the owners of the mine from conducting an independent investigation into you, their hired contractor? If so, it serves as nothing but confirmation that Rio’s management team AND BOARD have a great deal to hide. And your actions would be further confirmation that Rio truly does not understand the concept of corporate governance, if it insists on blocking an independent investigation into itself. How can you possibly explain to the people of Mongolia and TRQ minority shareholders that you want to block an investigation into yourself if you truly have nothing to hide?
We can only hope that Rio’s Board takes this moment to course correct, to provide transparency to the Government of Mongolia and Turquoise Hill, and to enter into a financially appropriate non-equity financing agreements to fund the cost overruns at Oyu Tolgoi necessitated by your own management. However, if Rio’s Board continues with this oppressive behavior toward Turquoise Hill, Pentwater is prepared to go forward with legal action against the proper parties, including, you, the Board of Directors of Rio Tinto. We do not undertake this lightly, but enough is enough. This mine is a jewel. It will be the third largest gold and copper mine in the world. It will produce tens of billions of dollars of free cash flow for decades. Its owners should be treated as business partners, not as puppets or pawns. I sincerely hope to hear from you shortly and am free to discuss these matters at any time convenient for you.
Matthew C. Halbower CEO, Pentwater Capital Management
cc: Turquoise Hill Resources
David Zirin- Chief Operating Officer Pentwater Capital Management 312-589-6401
Human rights and local communities are not on the agenda of the Finance in Common summit. Let’s make sure they hear we won’t stand for it.
Today, join our twitterstorm (9-12 November), using the official hashtag (#FinanceInCommon2020) and our slogan #HumanRightsInCommon to occupy their virtual space with the voices of those excluded by the Summit.
Many many thanks to all of you for signing on to the Open Letter calling for debt cancellation and debt justice!
We are sending here the PDF version of the letter in 3 languages (English, French and Spanish) with all the signatories as of two hours ago. We sent the letter to governments, International institutions and lenders last October 14 evening and October 15 morning Manila time – with more than 550 signatory organizations from 93 countries that had signed as of October 14.
Please circulate and send out to your own contacts in government offices, parliamentarians, financial institutions, and media.
Please also help in media and communications efforts.