Rio Tinto (ASX, LON, NYSE: RIO), the world’s second-largest miner, is facing a new setback at its massive Oyu Tolgoi underground copper project in Mongolia, as one of its investors plans a revolt over what it claims is “a massive devaluation” of the asset.
US hedge fund Pentwater Capital wants the designation of a new independent director to represent the interests of minority shareholders at Turquoise Hill Resources (TSX, NYSE:TRQ), the Rio-controlled company that operates the mine.
The Naples, Florida-based firm also wants other shareholders to be able to nominate three more directors.
“Turquoise Hill’s board and management have failed to effectively oversee Rio Tinto, and intervene in the abuse of control and refusal to make complete and truthful disclosure by Rio Tinto of the Oyu Tolgoi Project,” Pentwater said in the statement.
US hedge fund Pentwater Capital said it had become increasingly worried at the mismanagement of Oyu Tolgoi’s underground expansion and the timing of market disclosures
The fund, which has a 9% interest in Turquoise Hill, said it had become increasingly worried at the mismanagement of a critical underground ongoing expansion at the mine and the timing of market disclosures.
“The tangled web that has been woven between Rio Tinto and Turquoise Hill has resulted in a lack of corporate governance controls, systemic disregard for the interests of minority shareholders, a sustained period of false and misleading disclosures and irreparable harm to the interests of all Turquoise Hill stakeholders,” Pentwater said.
The brewing rebellion is one of many recent challenges Rio has faced in Mongolia in the past two years.
In January 2018, the country’s government served Oyu Tolgoi with a bill for $155 million in back taxes — the mine’s second tax dispute since 2014. The company said at the time the charge related to an audit on taxes imposed and paid by the mine operator between 2013 and 2015.
Shortly after, the southern Gobi
Desert-based mine had to declare force majeure after protests by Chinese
coal haulers disrupted deliveries near the border.
The situation prompted Rio’s chief executive Jean-Sebastien Jacques to visit Prime Minister Ukhnaagiin Khurelsuk to discuss how to build “win-win” partnerships. The trip was followed by the company’s announcement that it was opening a new office in the country, focused on exploration and local links.
The issue resurfaced later, when a group of Mongolian legislators recommended a review of the 2009 deal that launched construction of the mine. It also advised revoking a 2015 agreement allowing for an underground expansion.
In December, Mongolia’s parliament unanimously approved a resolution that reconfirms the validity of all the Oyu Tolgoi mine-related agreement, bringing the 18-month review to a close.
Behind schedule and over budget
The company has had to deal with other issues, related to the underground expansion of the mine.