SailingStone Applauds Turquoise Hill Response to Rio Tinto's Offer

Rhea-AI Summary

SailingStone Capital Partners has sent a second open letter to the Independent Directors of Turquoise Hill Resources Ltd. (TRQ), expressing concerns over Rio Tinto's proposed acquisition offer of C$34/share for minority stakes in TRQ. SailingStone argues this price undervalues the Oyu Tolgoi mine, which they describe as a crucial Tier 1 copper asset with significant future cash flow potential. The letter also criticizes Rio Tinto's operational failures, emphasizing the need for fair compensation for TRQ's minority shareholders and suggesting that Rio's control of TRQ should come at a higher price.

Positive

• SailingStone applauds the Turquoise Hill Resources Special Committee's rejection of Rio Tinto's C$34/share acquisition offer.
• Recognition of Oyu Tolgoi as a Tier 1 copper asset with substantial future cash flow potential.

Negative

• Rio Tinto's proposed acquisition price undervalues the intrinsic worth of Oyu Tolgoi, representing a 60% discount from its cost basis.
• Concerns over past operational mismanagement by Rio Tinto affecting equity raises and minority shareholder interests.

Second Open Letter to TRQ Independent Directors Focuses on Unjust Business Dealings by Rio Tinto and Long-Time Concerns of Minority Owners

HOUSTON, Aug. 16, 2022 /PRNewswire/ -- SailingStone Capital Partners, a long-time owner of Turquoise Hill Resources Ltd. (TSX: TRQ) (NYSE: TRQ), has delivered the attached letter to the Turquoise Hill Independent Directors:

As a Tier 1 copper mine, Oyu Tolgoi's value is much higher than what Rio Tinto offered minority owners.

Dear Independent Directors of Turquoise Hill Resources Ltd.,

SailingStone Capital Partners applauds the decision of the Turquoise Hill Resources Special Committee to reject Rio Tinto's opportunistic offer to acquire the minorities' stake in TRQ for C$34/share.

As one of the largest, lowest cost, and longest duration copper/gold assets ever discovered, Oyu Tolgoi is a crown jewel. The proposed acquisition price is nowhere near the intrinsic value of Oyu Tolgoi, as it values the Company at less than 35% of capital invested to date and represents a 60% discount to Rio Tinto's own cost basis in TRQ, a position that Rio acquired over a decade ago when the net present value was far lower and the risks far greater than today. In the next few months, the underground mine will achieve sustainable first production, unlocking billions of dollars in annual free cash flow for decades into the future even before the impact of potential expansions. Tier 1 copper assets with brownfield growth options are increasingly rare and therefore increasingly valuable, particularly given how critical copper is in the race to decarbonize and expand the world's energy systems. Rio Tinto's opportunistic bid did not compensate TRQ minority shareholders adequately for any of these realities.

In addition, we appreciate that "Rio Tinto welcomes the continued investment by Turquoise Hill minority shareholders and their pro rata sharing of future risks and funding obligations." Unfortunately, most of the risks and funding obligations "shared" over the last several years have come as the result of Rio's incompetence, including the incremental equity raise which now must be addressed. However, we welcome Rio's continued participation as mine developer and operator and trust that they have addressed their internal shortcomings so that all Oyu Tolgoi stakeholders can benefit from the mine's incredible employment, business development, and free cash flow potential.

Lastly, we note the following from Rio Tinto's press release.
As previously disclosed, Rio Tinto is not interested in pursuing any alternative transaction, including any such transaction which would result in the sale of Rio Tinto's interest in Turquoise Hill or the acquisition by a third party of Turquoise Hill or Oyu Tolgoi in partnership with or independent of Rio Tinto.

Apparently, Rio Tinto isn't interested in selling their stake in TRQ, even at a price which it claims represents "compelling value" for the seller. More importantly, this statement clearly is intended to preempt any price discovery process which might allow minority owners to be fairly compensated for their 49.2% stake in the Company. While we appreciate that Rio Tinto has certain rights, it cannot and should not preclude potentially interested parties from approaching Turquoise Hill, nor can it preclude the independent directors from considering a combination or transaction from any party which might crystalize the true value of Oyu Tolgoi. In other words, if Rio wants complete control, they can acquire it for a price. The Special Committee has determined that price is meaningfully higher than C$34/share, and we agree with that conclusion.

Best regards,

SailingStone Capital Partners LLC

ABOUT SAILINGSTONE CAPITAL PARTNERS LLC

SailingStone Capital Partners, a division of Pickering Energy Partners, provides investment solutions in the global natural resource space with a specific focus on the industrial businesses, commodities and infrastructure assets which will enable the energy transition. SailingStone manages concentrated, long-only equity portfolios for institutional investors.

For media inquiries:

Petree Partners LLC
Jennifer Petree / Tina Tallant
713.269.3776

For investor inquiries:

SailingStone
MacKenzie Davis
ir@sailingstonecapital.com

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SOURCE SailingStone Capital Partners

FAQ

What is the current status of Turquoise Hill Resources Ltd. regarding Rio Tinto's acquisition offer?

The Special Committee of Turquoise Hill Resources has rejected Rio Tinto's acquisition offer of C$34/share.

What are the main criticisms outlined by SailingStone regarding Rio Tinto's offer?

SailingStone criticizes the offer as significantly undervaluing Oyu Tolgoi, a Tier 1 copper asset, and failing to adequately compensate minority shareholders.

What does SailingStone propose regarding the valuation of Turquoise Hill Resources Ltd.?

SailingStone suggests that any acquisition price for TRQ should be much higher than the C$34/share proposed by Rio Tinto to reflect Oyu Tolgoi's true value.

How does Rio Tinto's operational management affect its relationship with Turquoise Hill Resources Ltd.?

SailingStone highlights operational failures by Rio Tinto as detrimental to TRQ's minority shareholders and funding obligations.