Pentwater issues public letter on corporate governance to Rio Tinto director Ben Wyatt



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NAPLES, Fla .– (BUSINESS WIRE) – Pentwater Capital Management LP (“Pentwater“), the largest minority shareholder of Turquoise Hill Resources Ltd. (“Turquoise Hill“) (TSX: TRQ) (NYSE: TRQ), wrote the following letter to Rio Tinto plc (“Rio tinto” Where “Rio”) (LSE: RIO) Director Mr. Ben Wyatt and the rest of the Rio Tinto Board of Directors. Unfortunately, neither Mr. Wyatt nor any other member of Rio Tinto’s board of directors responded to explain the continued breaches of corporate governance that Rio Tinto continues to inflict on minority shareholders of Turquoise Hill.

Dear Mr. Wyatt,

I am writing on behalf of Pentwater Capital Management, LP (“Pentwater”), the largest minority shareholder of Turquoise Hill Resources Ltd. (“TRQ”) to ensure that you are personally aware of the egregious manner of your fellow Rio Tinto board members and continue to violate all reasonable standards of appropriate corporate governance with respect to the subsidiary controlled from Rio, TRQ.

I am contacting you directly because you recently joined the Rio Tinto Board of Directors following your retirement from the Parliament of Western Australia. Given your notable interest in the rights of indigenous peoples, I guess when you joined the boards of big companies like Rio Tinto and Woodside Petroleum this year, your intention was to ensure good governance and ensure the protection of the countries in which these companies operate. .

When new board members take their seats, there is often the temptation to defer to other more ‘experienced’ board members and C-type types of corporate leadership and give the benefit of the doubt, at least for a time, to the company. culture of the company we joined. In the case of Rio Tinto, that would be a serious mistake, especially since you are legally and in terms of reputation responsible for all decisions taken collectively by the Board since your first day as a director.

Of course, you have intimate knowledge of Rio’s brazen actions in Australia regarding the Juukan Gorge, and I suppose you are at least aware of other misconduct and other criminal and government investigations that have resulted from it throughout the world, all of which at least happened or were long before you came to the Council. But there is an example of blatant and unacceptable corporate governance on the part of Rio reaching its climax under your watch: Rio’s mismanagement and the resulting cover-up at the Oyu Tolgoi mine, to the detriment of the people. Mongolian and minority shareholders of TRQ.

TRQ owns 66% of the entity that owns the Oyu Tolgoi mine in Mongolia. The government of Mongolia holds the remaining 34%. Rio Tinto’s interest in the mine is exclusively through TRQ. However, as the majority shareholder of TRQ, Rio Tinto controlled the election of the board of directors of TRQ, chose the management team of TRQ and generally exercises absolute control over all shares of TRQ. However, Rio Tinto’s interests in the mine are conflicting, as Rio is also the mine’s contractor and TRQ’s main negotiator with the government of Mongolia. Remarkably, even during alleged negotiations between Rio Tinto and TRQ regarding the mine, the representatives of TRQ “negotiating” with Rio are often only Rio Tinto employees temporarily seconded to TRQ. Rio has refused all attempts by minority shareholders of TRQ to be represented on the board of directors.

Right now, Rio is negotiating with the Mongolian government to compensate the government (which owns 34% of the Oyu Tolgoi mine) for cost overruns and schedule delays caused by Rio Tinto. I hope you know that a group of independent experts, consisting mainly of mining experts formerly employed by Rio on the Oyu Tolgoi project, has already discovered that Rio Tinto was itself responsible for the 1.5 billion dollar overshoot. dollars and two years behind schedule. Moreover, this same group of experts discovered that Rio had hidden these facts from both the government and shareholders. If you have not received a copy of the nearly 200-page report, we encourage you to request a copy from the Rio management team. The report concludes that, “[Rio’s] The lack of a complete and comprehensive project management and project control team, starting during project preparation and restarting, is the root reason for project delay and cost overruns. (ICG Peer Report, p. 17)

The key element that made negotiations with the government of Mongolia so difficult is that Rio was not honest about schedule delays and cost overruns as they were occurring and then finally made up a story. on unfavorable geotechnical conditions to cover up its own lies and mismanagement. The report had the following to say on this topic:

  • “The project started to fall behind almost from the start. Sinking (and commissioning) of wells # 2 and # 5 was essential to complete HNL1 on time. Well # 2, essential to support the project’s development and construction activities, was completed 461 days late. This has caused a delay in the mobilization of development teams, which is the fundamental reason why the development of the mine is behind schedule. The project team never recovered from this delay. (ICG Peer Report, p. 5)

  • “It is inconceivable that senior management, both at the project site and in the higher level committees, was not aware of these shortcomings, as reports were generated regularly by the planners who worked in the section. Controls of the project and by the field concerned. managers. But there was also a culture there that did not welcome negative, although real, reporting. ” (ICG Report, p. 92)

  • “ICG does not take into account the support deviations due to design changes. Changes in key geotechnical parameters. Rio Tinto’s statement that these isolated, worse-than-expected ground conditions had a significant impact on the schedule is misleading and is not supported by the documents reviewed. (ICG Report, p. 111).

  • In August 2018, Rio Tinto asked its consultant, Broadleaf, to perform an analysis of the chances that the benchmark date of May 28, 2021 for sustainable production “has no probability of being reached”. (ICG Report, p. 44).

It has been publicly reported that over $ 2 billion in compensation has been offered to the government of Mongolia. Obviously, since Turquoise Hill (66% owner of the mine) has been harmed by Rio’s covert mismanagement just like the Mongolian government, it is only natural that Turquoise Hill should be compensated as well. However, Rio does not compensate Turquoise Hill at all. Instead, Rio Tinto demands that TRQ pay the compensation Rio should pay to the government of Mongolia. News reports said that TRQ would give up $ 1.6 billion in debt Mongolia owed to TRQ as compensation for Rio’s lies and mismanagement.

It’s scandalous. If Rio’s lies and mismanagement harmed Oyu Tolgoi mine owners, then all mine owners should be compensated. Rio should not be allowed to use its influence and control over TRQ to get TRQ to pay $ 1.6 billion for the damages caused by Rio’s actions. Minority shareholders of TRQ are victims of both the billions of dollars lost due to Rio’s cover-up mismanagement of underground construction and the billions of dollars that Rio is forcing TRQ to pay to the Mongolian government to compensate it for the bad. management of Rio.

Your CV suggests that you should be concerned about corporate governance and the protection against exploitation of the citizens of the countries in which Rio Tinto operates. Among your distinctions, you received the Australian Defense Medal. You have also served as a lawyer in large Australian law firms and in the Office of the Director of Public Prosecutions. Perhaps most notably, you have served as Treasurer of Western Australia and Minister for Aboriginal Affairs, an impressive responsibility. You have broken glass ceilings for others who will follow in your footsteps and who have shown admirable dedication to public service.

You have also been criticized by some for joining the Rio Tinto board of directors; it is perhaps understandable that some see your membership in a bad actor like Rio Tinto – especially so soon after leaving public service where you were a staunch defender of indigenous rights – as disturbing. For us, the fact that you joined Rio Tinto so soon after your retirement from public service could be interpreted in two ways. Either you use your social capital to secure luxurious seats on the board of directors, or you are a true reformer, believing that you can make a real change in the corporate culture of Rio Tinto and, in doing so, significantly improve the company. We hope you are the latter.

Over the next few weeks, a compensation deal will likely be reached with the government of Mongolia. As such, you will be forced to make a decision. Will you vote to allow Rio to continue to exercise full control over Turquoise Hill to force Turquoise Hill and its minority shareholders to pay for Rio’s mismanagement and dishonesty? Or are you going to be an advocate for good corporate governance and use your voice to make sure Rio does not force TRQ to pay more than $ 1.6 billion to the government of Mongolia in compensation for Rio’s lies? and poor management of the project?

It is inconceivable to us that you would jeopardize and forever mar your otherwise laudable and story-rich resume as a fighter for the good moral side of history, all in an effort to accompany the immoral actions taken by your fellow board members and Rio Tinto. management. This is why Pentwater is hopeful that you can be one of the few people in Rio who really begins to cleanse the current culture of corruption and put in its place a real goal of honestly operating Rio’s business. What you decide will surely have important consequences.

I would be very happy to speak with you at any time regarding these matters to provide you with all the information that I have learned over the past decade that we have invested in TRQ and Rio Tinto.

Best regards,

Matthew Halbower

Chief Executive Officer

Pentwater Capital Management

Cc: Members of the Board of Directors of Rio Tinto plc

David Zirin – Director of Operations

Pentwater Capital Management

312-589-6401

Source: Pentwater Capital Management LP


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