Turquoise Hill Resources (TSX, NYSE: TRQ) announced on Thursday that its chief executive officer Ulf Quellmann is leaving the company after majority-owner Rio Tinto (ASX, LON, NYSE: RIO) told the Canadian miner that it planned to vote against his re-election at the annual shareholders’ meeting in May.
The company’s board said it has appointed Steeve Thibeault as interim CEO. It also noted that the special committee of independent directors will continue negotiations with Rio Tinto about a funding plan for the underground expansion of the vast Oyu Tolgoi copper-gold mine in Mongolia that is “in the best interests of the company.”
Thibeault served as Turquoise Hill’s chief financial officer between 2014 and 2017, and had led funding talks between the company and Rio Tinto back in 2015. He’s had no involvement in either company since April 2017, according to the statement.
Turquoise Hill had expected the underground expansion to cost $5.3 billion when it was approved in 2015. Last year, however, the world’s second largest miner flagged stability risks associated with the original project design, adding that amendments to it could increase costs by as much as an additional $1.9 billion.
The Vancouver-based miner warned at the time of further delays of up to two and a half years, with first sustainable production from Oyu Tolgoi’s underground expansion expected between May 2022 and June 2023.
Rio Tinto had said in September it planned to raise up to $500 million through additional lending to develop the giant copper mine. The move, Rio said, would reduce the remaining funding requirement of the expansion to up to $1.4 billion.
By reprofiling, the parties sought more time to repay their debt, knowing that the principal of the extended debt, or in some cases even the interest rate on it, are not reduced.
Any remaining funding for the underground mine, Rio vowed, was to be met through a Turquoise Hill equity offering.
Turquoise is simultaneously advancing its evaluation of financing options for Oyu Tolgoi. Such alternatives include additional debt from banks or international financial institutions, an offering of global medium-term notes and a gold streaming transaction, it said.
The company had previously disclosed it was facing a funding shortfall for Oyu’s expansion of up to $4 billion, including balance sheet servicing costs.
Once completed, the underground section of Oyu Tolgoi will lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, which is now expected by 2025 at the earliest. This would make it the biggest new copper mine to come on stream in several years.
Rio Tinto owns the mine through its majority stake in Turquoise Hill, which has a 66% interest in Oyu Tolgoi. The Mongolian state has the remaining 34% of the operation, located in the South Gobi desert near the border with China.
News of Quellmann’s resignation comes on the heels of a yet to be confirmed new deal governing the $6.75 billion mine expansion between Rio Tinto and the government of Mongolia.
The agreement would end a three-month spat between the world’s second-largest miner and the landlocked East Asian country, as it would give better economic benefits to the state than the current deal.
Activist investor Pentwater Capital Management, Turquoise Hill’s largest minority shareholder, condemned Quellmann’s rushed resignation.
“In over 20 years of investing in companies around the globe, I have never seen poorer corporate governance than has been exhibited by Rio Tinto and Turquoise Hill,” Pentwater’s CEO Matthew Halbower said in a statement.
“Mr. Quellmann’s brazen termination serves as just more proof of what was already clear to all: Rio Tinto has no respect or regard for good corporate governance or the minority shareholders of Turquoise Hill,” Halbower added.
Canaccord Genuity’s Dalton Baretto downgraded his rating on Turquoise Hill from a hold to a sell.
“Goodbye, good governance — we hardly knew ye!” he wrote in a research note to clients. “Mr. Quellmann was the first CEO in our long history with TRQ that we believed actually pushed back on RIO and stood up for decisions that were in the best interests of all shareholders,” the mining analyst wrote.
BMO analyst Jackie Przybylowski said that, in her view, Quellmann had prioritized the defence of minority shareholder interests. With him gone, she added, it’s increasingly likely that project funding will be dilutive to Turquoise Hill minority equity holders.
Quellmann’s departure follows news of Rio Tinto’s chairman resignation, as the company seeks to repair damage to its reputation caused by its decision to blast two 46,000-year-old rock sacred shelters in Western Australia last year.