A prominent investor in Turquoise Hill Resources is intending to vote down’s Rio Tinto £2.9billion proposal to take full ownership of the company.
SailingStone Capital Partners, a California-based investment group, said approval of the deal would amount to one of ‘the biggest corporate governance failures’ in history and represent poor value for shareholders.
About six weeks ago, Rio Tinto agreed to purchase the remaining stake it did not own in the Canadian mineral exploration firm, whose principal asset is the Oyu-Tolgoi copper mine in Mongolia.
Deal: Rio Tinto recently agreed to purchase the remaining stake it did not own in Turquoise Hill Resources, whose principal asset is the Oyu-Tolgoi copper mine in Mongolia
This mine has some of the world’s largest known copper and gold deposits, and could potentially operate for more than a century.
Copper is considered a crucial element in the transition to clean energy, given its use in batteries and motors for electric vehicles, as well as technologies like wind turbines and solar panels.
But SailingStone believes the Rio Tinto offer ‘fails to adequately compensate’ minority investors like them, even though it is a £600million increase on a previous deal that was rejected by a committee of directors formed by Turquoise Hill.
It accused the mining giant and Turquoise’s independent directors of supporting a bid that is too low and does not account for future growth in net asset value.
The company also claimed the FTSE 100 firm had a ‘well-established history of corporate malfeasance’.
SailingStone pointed to an independent report published last year, which concluded that Rio’s poor management was primarily behind the delays and cost overruns at the Oyu Tolgoi project.
Benefits?: Rio Tinto chief executive Jakob Stausholm has said the takeover of Turquoise Hill would enhance his firm’s copper portfolio, simplify governance matters
Rio Tinto challenged the report’s findings, claiming that weak rock conditions meant the mine had to be redesigned, thereby contributing to the delays.
Underground operations began at the mine in January this year after the FTSE 100 firm waived £1.8billion of debt and interest that the Mongolian Government had incurred to fund the scheme.
SailingStone said that money should have been ‘provided to ALL (sic) shareholders’ as compensation by Rio Tinto.
The group went on to say that Turquoise’s management and independent directors were ‘completely reliant’ on Rio Tinto, which had resulted in a significant pushback against those minority investors who had called for reforms.
A vote on the deal is expected on 1 November. In a strong statement, SailingStone declared: ‘C$43 is a throw-away bid that is not based in intrinsic value and ignores upside potential. We will VOTE NO.’
Rio Tinto chief executive Jakob Stausholm has said the takeover would enhance the firm’s copper portfolio, simplify governance matters and strengthen its commitment to Mongolia.
This intervention comes the week before Rio Tinto is due to publish its production output for the third quarter.
It reported bumper profits and paid out record dividends to investors last year after prices of key metals skyrocketed following the loosening of lockdown restrictions.
However, copper prices have slumped his year as global economic uncertainty, rising inflation and China’s draconian zero-Covid policy have hit demand.
Rio Tinto shares were down 2.15 per cent to £47.73 during the late afternoon Friday, meaning their value has declined by around a fifth in the past six months.
