Pentwater demands Turquoise Hill for increased transparency in financial disclosures

Pentwater Capital Management LP, the largest minority shareholder of Turquoise Hill Resources Ltd., has issued a letter to the Turquoise Hill board of directors.

The letter outlines yet another example of how the board has benefited its largest shareholder Rio Tinto by failing to disclose important and necessary financial information to shareholders.

“Turquoise Hill’s 2019 fourth quarter financial results, released on March 21, 2020, served as the first public disclosure of Turquoise Hill’s alleged 4.5 billion USD estimate of the incremental funding requirement caused by the delay and capital overrun in the underground development at Oyu Tolgoi, announced more than eight months earlier on July 15, 2019. How the company reached the 4.5 billion USD figure was not explained in any of the filings in any clear way,” Pentwater’s CEO Matthew Halbower wrote in a letter addressed to Ulf Quellmann, CEO of Turquoise Hill.

Pentwater has attempted to get clarification from its correspondent on numerous occasions but all of their questions have been ignored or avoided to date. In his letter, Halbower questioned about the company’s lowered estimate of the incremental funding requirement, which has been cut down from 4.5 billion to 4 billion USD in the Q1 2020 financial results, released in May 2020.

He continued, “Turquoise Hill minority shareholders deserve representation on the board. Without any minority shareholder representation on the board, there will continue to be lack of transparency and disclosure on Turquoise Hill’s part in regard to any incremental funding requirements. And until additional such transparency is provided, Pentwater must prudently assume that the company might be purposely obfuscating and misleading the public markets on its true underfunding needs to the benefit of its majority shareholder’s position in financing discussions.”

The minority shareholder provided several examples of the board’s dereliction of its duty to provide full and adequate disclosure, which included:

• Turquoise Hill refuses to disclose the amount of the cost overrun for Shaft 2 and the reason for that cost overrun.

• Turquoise Hill refuses to disclose if it was misled by Rio Tinto regarding the budget.

• Turquoise Hill refuses to disclose the nature of its alleged 4 billion USD funding shortfall and provide sufficient explanation as to how that amount was lowered from 4.5 billion USD after just 60 days.

• Turquoise Hill refuses to disclose the proposed fee to be paid to Rio in connection with the potential construction of the power plant.