Page 11 of 11 – SEC Filing
Dear Members of the Board,
SailingStone Capital Partners (“SailingStone”), on behalf of its advisory clients, has been a patient, long-term owner of Turquoise Hill Resources (“TRQ” or “Turquoise Hill”), as we believe that Oyu Tolgoi (“OT”) is one of the most unique development projects in the world due to its size, grade profile and capital efficiency. We are pleased with the progress that has been made over the last few years in terms of the restart of underground development work, the execution of the project finance facility and the remarkable free cash flow stream generated by the open pit operations through the recent downturn in commodity prices. It’s clear that all stakeholders, including the government and citizens of Mongolia, are benefiting from the activity and investments being made at site. However, we remain concerned about corporate governance, given the potential for conflicts of interest which exist between Rio Tinto (“Rio”), your majority shareholder and the operator of Oyu Tolgoi, and the minority shareholders of Turquoise Hill. Specifically, we believe that basic corporate governance standards require an independent and informed management team and board of directors. These requirements are particularly acute given the unique relationship between TRQ and Rio, and yet today neither of these conditions is being met.
1. | Conducting an independent technical report so that we can be certain that existing estimates of capital intensity and the development schedule are reasonable. Given the size and duration of this project, and the obvious potential conflicts of interest that exist between Rio Tinto and the minority shareholders, we believe that this decision is necessary to protect our multi-billion dollar investment. |
2. | Creating a fully-staffed TRQ technical team who will have complete access to the OT project and will report back regularly to TRQ management and the independent directors. This would provide management and directors with the information necessary to determine what and when material updates should be made to the market, and could be the basis for more fruitful engagement with the host government. |
3. | Implementing employment contracts for management and restructuring compensation plans to remove any real or perceived conflicts with Rio Tinto and to significantly improve alignment with TRQ shareholders. This could include increasing available cash compensation opportunities towards industry median levels, an increase in equity grants available to be earned based on specific performance targets and improved disclosure of managements’ and directors’ vested and unvested exposure to TRQ’s and Rio Tinto’s stock price. |
MacKenzie B. Davis James Bruce