San Francisco-based investment advisory firm SailingStone Capital Partners has informed TSX- and NYSE-listed Turquoise Hill that it intends to vote against the independent directors of the company at the yearly meeting on May 14, citing concerns about corporate governance practices.
MD MacKenzie Davis said in a letter that the firm had long been troubled by the corporate governance practices at Turquoise Hill and that the organisation had tried to work with the Turquoise Hill board to address these issues.
“This is not a decision which we have entered into lightly, given our significant investment and our long-term commitment to the company. But, the fact remains that this is a world-class asset that deserves world-class corporate governance practices so that all stakeholders – Rio Tinto, the minority shareholders and the people and government of Mongolia – are aligned to achieve success at both the project and the corporate level,” he said.
Responding to the letter, Turquoise Hill said in a release on Thursday that it had improved its corporate government practices in the last two year and listed seven enhancements, including hiring a new CEO last year, who is a direct employee of the company, and committing to directly employ certain other senior officers in future, rather than have them seconded by Rio Tinto.
Rio Tinto is the majority shareholder of Turquoise Hill and also the project manager of the Oyu Tolgoi copper/gold mine, in Mongolia.
Other improvements include increasing Turquoise Hill management’s direct participation in Oyu Tolgoi matters and establishing a joint project management office with Rio Tinto and Oyu Tolgoi to facilitate sharing of information.
The board has further implemented a long-term incentive plan exclusively in Turquoise Hill share-based compensation to align executives' compensation with the interests of all shareholders, adopted formal shareholding guidelines requiring named executive officers and the independent directors to accumulate a meaningful equity interest in Turquoise Hill over a five-year period and three-year period, respectively, as well as implementing a formal shareholder engagement policy.
“Like SailingStone, the board wants to see Oyu Tolgoi’s underground mine built safely and quickly. And like SailingStone, the board is frustrated with the performance of Turquoise Hill’s shares,” the company, chaired by independent director Peter Gillin, said.
The other three independent directors are Russ Robertson, James Gill and Maryse Saint-Laurent.
The underground mine at Oyu Tolgoi has faced several delays. Turquoise Hill said in February that a review of the Shaft 2 commissioning was under way and described the installation as “technically challenging”. Earlier this month, the company stated that Rio Tinto had concluded a review of the fit-out and commissioning issues at Shaft 2 – the main production and services shaft of the underground development – and expects the shaft to be completed by the end of October.
Turquoise Hill’s stock closed nearly 3% lower on the NYSE on Thursday at $1.58 a share – about half the value of its 52-week high of $3.23 a share. On the TSX, the company closed at C$2.15 a share, down from the previous close of C$2.19 a share and the 52-week high of C$4.18 a share.