Pentwater Capital Management LP, the largest minority shareholder of Turquoise Hill Resources Ltd., wrote a letter to the Rio Tinto plc Board of Directors, which manages and owns 51% of Turquoise Hill, describing Rio Tinto’s “oppressive” actions taken against minority shareholders. It also threatened to file an action for oppression against Rio Tinto if its behavior is not corrected. Turquoise Hill Resources operates the Oyu Tolgoi copper mine in Mongolia.

A main concern from Pentwater was the delayed timeline for underground development at Oyu Tolgoi. It was originally supposed to reach first sustainable production in Q1 2021 with a $5.3 billion budget. In July 2019, Rio Tinto said it expected a massive cost overrun and schedule delays.

According to Pentwater, a former Rio employee who turned whistleblower named Richard Bowley said the budget overrun and schedule delay were largely caused by Rio’s negligent construction of shaft No. 2.

The letter said in July 2018, Bowley told executives the mine was $300 million over budget and a year behind schedule. But in a presentation to U.S. investors on October 2, 2018, the head of Rio’s copper business, Arnaud Soirat, said the project was “on budget and on schedule.”

Pentwater said Bowley was scheduled to provide live testimony in open court last month, but the day before the hearing was scheduled to take place, Rio agreed to an undisclosed settlement with Bowley.

Pentwater also addressed the destruction of the aboriginal sites in Australia by Rio, as well as bribery investigations and financial disclosure investigations that have been brought against Rio.

A day before Rio Tinto decided to part ways with CEO Jean Sébastien Jacques, Pentwater said Jacques “attempted to force Turquoise Hill to pay for the cost overruns caused by Rio’s own mismanagement of the construction of the underground mine through an equity rights offering instead of accessing cheaper, readily available financing.”

Pentwater said Rio is preventing Turquoise Hill from seeking financing solutions that are most optimal for shareholders. “Rio is attempting to force Turquoise Hill to conduct an equity raise despite the fact that the current equity price severely undervalues the company and despite the fact that there are much cheaper and more advantageous financing options available to the company, such as streaming and bond financing,” the letter said.

According to Pentwater, Rio has notified Turquoise Hill it will oppose any additional debt or hybrid financing options beyond the amount in the memorandum of understanding.

“Pentwater hopes that it was your lame duck CEO Mr. Jacques who duped Rio into proceeding down this value destructive path,” the letter stated. “Pentwater hopes that once you understand the facts, you will agree that the only rational path forward is to allow supplemental financing to move forward.”

Turquoise Hill’s current financing agreements are written to allow for $1.6 billion of supplemental financing, according to Pentwater.

Pentwater believes Rio has prevented minority shareholders from serving on the Turquoise Hill board in an attempt to block any investigation into “Rio’s reported misfeasance and malfeasance committed in construction of the underground mine.”

According to Pentwater, U.S. corporate governance firm, Institutional Shareholder Services (ISS) supported minority shareholder representation on the Turquoise Hill Board. On July 15, ISS said, “the board’s history of communication with minority shareholders is of particular concern” and noted that it “has not gone far enough” in ensuring “mitigation of conflicts of interest.”

Pentwater said Jacques was not the only one to blame and that “the rot began before his reign.” But said the destruction of the Juukan Gorge historical sites was “the pièce de resistance of his reign” and supported a “Rio-first-and-only, whatever the cost” corporate mentality; a high-handed disregard of business and ethical obligations; and a total disrespect of governments and non-governmental partners and co-investors.”

Pentwater said “enough is enough” and it is prepared to move forward with legal action if the “oppressive behavior” isn’t resolved. Owners of the mine should be treated as business partners and “not as puppets or pawns,” it added.

It seems as though Pentwater isn’t the only one with concerns. On November 25, the government of Mongolia asked Oyu Tolgoi LLC to seek an independent review into delays and costs overruns in the underground expansion of the Oyu Tolgoi mine.

The board of directors of Oyu Tolgoi LLC approved a resolution establishing the special board committee to conduct the independent review.

The special committee is comprised of four members: two nominated by Turquoise Hill and two members nominated by Erdenes Oyu Tolgoi (EOT), a state-owned entity that owns the remaining 34% interest in Oyu Tolgoi LLC. The special committee will select and engage an independent and reputable firm of experts in the field of project management and mine planning to provide a report within six months of commencing the investigation. The resolution requests each shareholder of Oyu Tolgoi, as well as Rio Tinto, as manager, to cooperate fully with the special committee.

“TRQ fully supports our government partner, EOT, in securing an independent and objective review of the cost overruns and delays announced last year,” Turquoise Hill CEO Ulf Quellmann said.

In addition to a formal review, Oyu Tolgoi has also initiated arbitration against Rio Tinto. It seeks clarification of certain agreements with Rio Tinto International Holdings Ltd. (RTIHL) and a related party associated with their role and obligations to support the company in seeking additional financing for the Oyu Tolgoi project.

The arbitration proceedings follow recent discussions with Rio Tinto relating to the re-profiling of Oyu Tolgoi LLC’s existing project debt, which was contemplated by the memorandum of understanding (MOU) announced on September 10.

The special committee said Rio Tinto’s approach to the financing of the Oyu Tolgoi project is incompatible with the company’s announced strategy to maximize debt and/or hybrid financing for the Oyu Tolgoi project so as to minimize the size and defer the timing of an equity rights offering, the company said. The special committee believes the arbitration will provide needed clarity from an independent third party. The arbitration process is confidential and is expected to take three to five months to reach a decision. The arbitrator’s decision will be final and binding on the parties.

Details of the company’s preferred funding options will be presented to Rio Tinto for consideration in accordance with the memorandum of understanding prior to December 31.

Turquoise Hill Resources Ltd. also addressed a recent letter to Rio Tinto plc from Odey Asset Management LLP, a short-seller in Turquoise Hill’s stock and claiming to be a shareholder of Rio Tinto. However, Turquoise Hill said Odey profits from a decline in Turquoise Hill’s share price.

“Odey’s letter to Rio Tinto contains a number of false assumptions and misinformation about Turquoise Hill and its funding plan,” Turquoise Hill said. “While Odey has a clear financial motive to depress Turquoise Hill’s share price, the company is focused on executing its funding plan and maximizing value for shareholders.”

The company said neither Turquoise Hill nor Oyu Tolgoi LLC has any intention or plan to prepay or refinance Oyu Tolgoi LLC’s existing US$4.4 billion project finance facilities. This facility is expected to remain in place until its maturity. Contrary to Odey’s assertions, Turquoise Hill said Rio Tinto has no right to require the prepayment, refinancing or “removal” of Oyu Tolgoi LLC’s existing project finance facilities.