Rio Tinto (ASX, LON, NYSE: RIO) is facing a new setback at its giant copper project聽in Mongolia with a large investor demanding a shakeup at the Oyu Tolgoi operation over what it claims is 鈥渁 massive devaluation鈥� of the asset.
US hedge fund Pentwater Capital to represent the interests of minority shareholders at聽Turquoise Hill Resources (TSX, NYSE:TRQ), the Rio-controlled company that operates the mine.聽
Naples, Florida-based Pentwater also wants other shareholders to be able to nominate three more directors.
鈥淭urquoise Hill鈥檚 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,鈥� Pentwater .
US hedge fund Pentwater Capital said it had become increasingly worried at the mismanagement of Oyu Tolgoi鈥檚聽underground expansion and the timing of market disclosures
The fund, which has a 9% interest in Vancouver-based Turquoise Hill, said it had become increasingly worried at the mismanagement of an underground expansion of the mine and the timing of market disclosures.
鈥淭he 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,鈥� Pentwater said.聽
Mongolian muddles
Investor activism is just the latest in a series of recent headaches for Rio as it builds what would rank as one of the three largest copper mines in the world when operating at full tilt 鈥� now expected to be by 2025 at the earliest.
In January 2018, the country鈥檚 government聽聽in back taxes 鈥斅� the mine鈥檚 second tax dispute since 2014. The company聽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 mine聽聽after protests by Chinese coal haulers disrupted deliveries near the border.
The situation prompted Rio鈥檚 chief executive Jean-Sebastien Jacques to visit Prime Minister Ukhnaagiin Khurelsuk to discuss how to build 鈥渨in-win鈥� partnerships. The trip was followed by the company鈥檚 announcement that it聽, focused on exploration and building local relationships.
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.聽
In December, Mongolia鈥檚 parliament unanimously approved a resolution that reconfirms the validity of all the Oyu Tolgoi mine-related agreement, bringing聽the 18-month review to a close.
Behind schedule聽and over budget
搁颈辞听warned聽last year that the聽project聽located in the South Gobi desert near the border with China would take 16-30 months聽longer than expected and would cost as much as an additional $1.9 billion to the initial $5.3 billion earmarked.
Last week, Turquoise Hill on the plan, saying that it would need at least another $4.5 billion to finish the project.
Once completed, the expansion is expected to lift Oyu Tolgoi鈥檚 production from 125,000鈥�150,000 tonnes in 2019 to 560,000 tonnes at peak output, targeted for 2025.
The giant deposit, discovered in 2001, is one-third owned by Mongolia鈥檚 government and two-thirds held by Turquoise Hill. Rio has a 51% stake in the Canadian miner.