Dispute over Oyu Tolgoi’s funding heats up as independent review moves ahead

On Tuesday, Turquoise Hill Resources expressed support for its majority-owned subsidiary Oyu Tolgoi LLC’s decision to set up a special board committee to conduct an independent review into failures to meet the set cost and timeline for the Oyu Tolgoi mine underground expansion.

Two of the committee’s members were nominated by the Canadian mining company and another two by Erdenes Oyu Tolgoi (EOT), a stateowned entity that owns 34 percent interest in Oyu Tolgoi LLC. The remaining 66 percent stake is owned by Rio Tinto-controlled Turquoise Hill.

“Turquoise Hill fully supports our government partner, EOT, in securing an independent and objective review of the cost overruns and delays announced last year. Turquoise Hill’s nominees will serve on the special committee and the company is fully supportive of the review process,” commented CEO of Turquoise Hill Ulf Quellmann.

He added, “We believe the independent special committee established in EOT’s resolution is consistent with corporate governance best practices, ensures accountability and transparency and will ultimately serve the best interests of Oyu Tolgoi’s owners – EOT and Turquoise Hill – as well as our respective stakeholders.”

The special committee is required to select and engage an independent and reputable firm of experts in the field of project management, mine planning, cost management and other related fields to provide a report to the special committee within six months of commencing the investigation, according to the Mongolian side.

Through its latest resolution, Oyu Tolgoi requests each shareholder, as well as Rio Tinto, as manager, to cooperate fully with and support the work of the special committee and to contribute, on a confidential basis, any internal or third-party report in its possession relating to the cost overruns and delays.

Rio confirmed in July that its most important growth project would be delivered almost two years late and close to 1.5 billion USD over budget. Turquoise Hill commenced arbitration proceedings against Rio on November 4 to get clarity on the sudden cost increase, heating up the dispute over funding for the Oyu Tolgoi underground development.

Rio has said it will not allow the Canadian miner, in which it holds a 51 percent stake, to take on more than 500 million USD in additional debt, and asked the company to fill up a funding gap of up to 3 billion USD by reprofiling loans and raising equity.

Minority investors in Turquoise Hill, including US hedge fund Pentwater Capital, oppose Rio’s attempts to force the Canadian miner to conduct an equity raise. On November 30, Pentwater Capital demanded Rio to allow Turquoise Hill take on more debt to fund the 6.8 billion USD underground expansion of Oyu Tolgoi mine or raise cash by selling the rights to future gold production from Oyu Tolgoi in fear of being diluted.

“We do not undertake this lightly, but enough is enough,” the company’s CEO Matthew Halbower said in an open letter sent to Rio’s board of directors on Monday. “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.”