Pentwater Issues Letter to Turquoise Hill Calling for Increased Transparency in Financial Disclosures

- June 24th, 2020

Pentwater Capital Management, the largest minority shareholder of Turquoise Hill Resources, has written the attached letter to the board of directors. 

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 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 TRQ shareholders.  Several examples of the Board’s dereliction of its duty to provide full and adequate disclosure include:

  • Turquoise Hill refuses to disclose the amount of the cost overrun for Shaft 2 and the reason for that cost overrun.  As the operator of the mine, Rio actually works for TRQ and is TRQ’s contractor.  In July 2018, TRQ reaffirmed that Shaft 2 would be completed by the end of 2018.  Just ten weeks later, TRQ announced that there would be material delays at Shaft 2 that resulted in Shaft 2 not being completed until October 2019.   How much of the delay was Rio’s fault?  How much did the delay of Shaft 2 contribute to the cost overruns?  This information is certainly available to the Company since Shaft 2 was completed over 7 months ago. Why won’t you let your shareholders know the truth?
  • Turquoise Hill refuses to disclose if it was misled by Rio Tinto regarding the budget.   On March 14, 2019, Turquoise Hill issued a press release which stated that it expected, “that project cost was expected to remain within the US$5.3 billion budget.”  Exactly four months later on July 15, 2019, Turquoise Hill issued another press release which stated that, “the development capital spend for the project may increase by US$1.2 to US$1.9 billion over the US$5.3 billion previously disclosed.”  Is it TRQ that was incompetent or Rio Tinto or both?  Was there a coverup or failure to disclose information?  Is this why one of TRQ’s board members resigned 5 days prior to the July 15, 2019 press release?  Why won’t you let your shareholders know the truth?

  • Turquoise Hill refuses to disclose the nature of its alleged $4 billion funding shortfall and provide sufficient explanation as to how that amount was lowered from $4.5 billion after just 60 days. TRQ stated in March 2020 that it had a $4.5 billion funding shortfall and then in May 2020 that it had a $4.0 billion funding shortfall.  However, it appears that the $4.0 billion number includes $1.9 billion of amortization payments and $900 million of power plant expenditures.  Given that the government of Mongolia has stated that it intends to build its own power plant and that typically amortization payments can be extended with the payment of a fee, is the real underfunding amount just $1.2 billion?  You refuse to let your shareholders know the answer.  Why won’t you let your shareholders know the truth?

  • Turquoise Hill refuses to disclose the proposed fee to be paid to Rio in connection with the potential construction of the power plant.   Pentwater became alarmed last year upon learning that Rio Tinto requested “several hundred million dollars of fees for managing and overseeing the construction of the Tavan Tolgoi power plant.”  If true, that is an unacceptable fee and a conflict of interest.  Is this why the government of Mongolia now wants to build the power plant itself?  Why won’t you let your shareholders know the truth?

We Need Your Support

We are seeking your support at the Company’s upcoming annual and special meeting of shareholders to be held on July 24, 2020 to restore accountability at Turquoise Hill and give minority shareholders back their voice.

We encourage our fellow shareholders to consider the facts and take action against the current culture of entrenchment, value destruction and misconduct at Turquoise Hill. The interests of the Company’s minority shareholders have been disregarded for far too long. Your vote is critical to initiate much-needed change, to restore accountability and to safeguard minority shareholder interests in Turquoise Hill.

Shareholders are urged to vote only the GOLD proxy:

  • FOR the election of Matthew Halbower to the board of directors of the Company;
  • WITHHOLD in respect of the election of all of the management nominees to the board of directors of the Company; and
  • FOR the adoption of the shareholder proposal submitted by Pentwater to amend the Company’s articles to provide minority shareholders of the Company with the exclusive right to nominate and elect three of seven directors to the Board.

Shareholders are urged to read the full text of Pentwater’s proxy circular, related press releases and the June 24, 2020 Letter to the Turquoise Hill Board, which have been filed and made available under Turquoise Hill’s issuer profile at

For further information contact:

MacKenzie Partners, Inc.
Daniel Burch – 1-212-929-5748
Jeanne Carr – 1-917-648-4478

Pentwater Capital Management LP

June 24, 2020

Dear Mr. Quellman and Members of the Board of Directors:

I am writing to you regarding an unacceptable lack of clarity in your financial disclosures.  Turquoise Hill’s 2019 fourth quarter financial results, released on March 21, 2020, served as the first public disclosure of TRQ’s alleged $4.5 billion estimate of the incremental funding requirement caused by the delay and capital overrun in the underground development at Oyu Tolgoi, announced more than 8 months earlier on July 15, 2019. How the company reached the $4.5 billion figure was not explained in any of the filings in any clear way.  As you know, Pentwater has made numerous attempts at more transparency from the Company on this subject.

On the March 23, 2020 earnings call, one analyst very reasonably asked for the underlying commodity prices that the Company assumed to get to the very specific $4.5 billion figure.  You refused to answer the question. Upon being asked whether the figure included the $924 million that the power plant would cost if the Company fully financed and built it, you also did not directly answer the question, but seemed to imply that it was included. This is despite the fact that the government of Mongolia has recently stated its intention to build the power plant by itself, which, if accurate, would mean the Company will not have to finance it.  Finally, in response to yet another question, management did directly confirm that the $4.5 billion figure includes $1.9 billion of debt amortization repayments due over the next five years.

Less than two months later, as part of the 2020 first quarter financial results released on May 13th, 2020, the Company lowered its estimate of the incremental funding requirement to $4.0 billion.  The Company has since refused to re-affirm the principal repayment figures included in the underfunding gap. The fact that $1.9 billion of the remaining $4.0 billion of underfunding are principal repayments that could easily be negotiated into outer years is a highly material piece of information that any transparent and thoughtful management team would emphasize.  Pentwater has asked you on numerous occasions to provide clarity in this disclosure.  You have refused.

If the statements you have made on your earnings call and disclosures are accurate, it appears to Pentwater that if debt amortizations payments are extended and the government of Mongolia does in fact construct its own power plant, the amount of incremental financing needed is as follows:

$4,000 (claimed underfunding)
$1,917 (debt amortization)
$  924  (power plant costs)
= $1,159 (actual underfunding)

If accurate, this paints a drastically different picture of the situation than the $4.5 billion figure provided by TRQ in March of 2020 or the $4.0 billion figure provided by TRQ in May.  It also is quite relevant since according to a TRQ press release dated March 14, 2019, the existing project financing arrangements provide OT the ability “to raise additional supplemental debt of up to $1.6 billion at the same attractive terms.”  It appears to Pentwater that simply moving forward with the supplemental financing and extending amortization payments at the same time would likely fill TRQ’s needed financing.

Unfortunately, you refuse to confirm or deny any of this.  Is it Rio’s goal to scare market participants into selling their shares to keep the price of TRQ shares artificially low?  Your complete failure to provide adequate disclosure on this matter is yet another example of how TRQ’s board and management team are not independent and are fully beholden to Rio Tinto – a majority shareholder that not only operates the mine but with whom the Company also happens to currently be negotiating various financing options.

TRQ 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 TRQ’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.


Matthew Halbower
Chief Executive Officer
Pentwater Capital Management

June 24, 2020 – 4:30 AM PDT
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