Exhibit(a)(2)(i)

These materials are important and require your immediate attention. They require shareholders of Turquoise Hill Resources Ltd. to make important decisions. If you are in doubt about how to make such decisions, please contact your financial, legal, tax or other professional advisors. If you are a shareholder of Turquoise Hill Resources Ltd. and have any questions regarding the information contained in this management proxy circular or require assistance in completing your form of proxy, please contact our proxy solicitation agent, Kingsdale Advisors, at 1-888-370-3955 (toll-free within North America) or by calling collect at 416-867-2272 (outside of North America) or by email at contactus@kingsdaleadvisors.com. Questions on how to complete the letter of transmittal should be directed to Turquoise Hill Resources Ltd.’s transfer agent, TSX Trust Company, at 1-800-387-0825 (toll-free within North America) or at 416-682-3860 (outside of North America) or by email at shareholderinquiries@tmx.com.

Shareholders in the United States should read the section “Notice to Shareholders in the United States” on page (ii) of the accompanying management proxy circular.

 

ARRANGEMENT

INVOLVING

TURQUOISE HILL RESOURCES LTD.

AND

RIO TINTO INTERNATIONAL HOLDINGS LIMITED AND RIO TINTO PLC

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

to be held on November 1, 2022 at 10:30 a.m. (Montréal time),

in person at Norton Rose Fulbright Canada LLP, 1 Place Ville Marie, Suite 2500, Chapleau Room,

Montréal, Québec, Canada, H3B 1R1

and virtually via live audio webcast at https://web.lumiagm.com/449028588.

AND

MANAGEMENT PROXY CIRCULAR

 

NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR THE SECURITIES REGULATORY AUTHORITY IN ANY STATE IN THE UNITED STATES HAS APPROVED OR DISAPPROVED OF THE ARRANGEMENT OR PASSED UPON THE FAIRNESS OR MERITS OF THE ARRANGEMENT, NOR HAS THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITIES OF ANY STATE IN THE UNITED STATES PASSED ON THE ADEQUACY OR ACCURACY OF THIS CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE. IN ADDITION, NEITHER THE TORONTO STOCK EXCHANGE NOR ANY CANADIAN SECURITIES REGULATORY AUTHORITY HAS IN ANY WAY PASSED UPON THE MERITS OF THE TRANSACTION DESCRIBED IN THIS CIRCULAR, AND ANY REPRESENTATION OTHERWISE IS AN OFFENCE.

September 27, 2022

LETTER TO SHAREHOLDERS

September 27, 2022

Dear Shareholders:

You are invited to attend a special meeting of holders of common shares (the “Shareholders”) of Turquoise Hill Resources Ltd. (“Turquoise Hill” or the “Corporation”) to be held in person and virtually on Tuesday, November 1, 2022 at 10:30 a.m. (Montréal time) (the “Meeting”). The purpose of the Meeting is to allow Shareholders to consider an offer by Rio Tinto International Holdings Limited (the “Purchaser”) to acquire all of the common shares of Turquoise Hill (each, a “Share”) not currently owned by the Purchaser or its affiliates (each, a “Minority Share”) at an all-cash price of C$43.00 per Share (the “Consideration”) by way of Court-approved statutory plan of arrangement (the “Arrangement”) involving the Corporation, the Purchaser and Rio Tinto plc pursuant to the provisions of the Business Corporations Act (Yukon).

A special committee of the Board of Directors of the Corporation (the “Board of Directors” or the “Board”) consisting entirely of independent directors (the “Special Committee”) conducted, with the assistance of its financial and legal advisors, a review of the Corporation’s operations and financing needs and alternatives available to the Corporation and obtained an independent valuation of the Shares. Following this process, and after careful consideration, the Special Committee unanimously determined that the Arrangement is in the best interests of the Corporation and fair to the holders of Minority Shares (the “Minority Shareholders”) and recommended that the Board of Directors approve the Arrangement and recommend that the Minority Shareholders vote in favour of the Arrangement.

On the unanimous recommendation of the Special Committee, the Board, with Alfred P. Grigg and Stephen Jones (being the two directors on the Board employed by Rio Tinto plc) having recused themselves, unanimously determined that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders and recommends that the Minority Shareholders vote in favour of the Arrangement.

In reaching its conclusion, the Special Committee took into consideration, among other things, the following:

 

•

the Consideration represents:

 

•

a 67% premium to the closing price of C$25.68 of the Shares on the Toronto Stock Exchange (“TSX”) on March 11, 2022, being the last trading date prior to the Purchaser’s initial public proposal to acquire the Minority Shares;

 

•

a 26% increase in the consideration as compared to the Purchaser’s initial proposal made on March 13, 2022 of C$34.00 per Share;

 

•

an 8% increase in the consideration as compared to the Purchaser’s revised proposal made on August 24, 2022 of C$40.00 per Share; and

 

•

a 19% premium to the closing price of C$36.12 of the Shares on the TSX on August 31, 2022, being the last trading day prior to the September 1, 2022 announcement of the agreement in principle and term sheet entered into by the parties with respect to the Arrangement;

 

•

the valuation carried out by TD Securities Inc., the independent valuator retained by the Special Committee, which determined that as of August 31, 2022 and based upon and subject to the assumptions, limitations and qualifications set out therein, the fair market value of the Shares is in the range of C$42.00 to C$58.00 per Share;

 

•

fairness opinions received from BMO Capital Markets to the effect that, as of August 31, 2022 and September 5, 2022, respectively, and based upon and subject to the assumptions, limitations and qualifications set out therein, the Consideration to be received by the Shareholders (other than the Purchaser and its affiliates) pursuant to the Arrangement is fair from a financial point of view to the Shareholders (other than the Purchaser and its affiliates);

 

•

a fairness opinion received from TD Securities Inc., the independent valuator retained by the Special Committee, to the effect that, as of August 31, 2022, and based upon and subject to the assumptions, limitations and qualifications set out therein and such other matters that TD Securities Inc. considered relevant,

the Consideration to be received by the Shareholders, other than Rio Tinto plc and its affiliates, pursuant to the Arrangement is fair, from a financial point of view, to such Shareholders;

 

•

the Consideration is all cash, which provides Minority Shareholders with certainty of value and immediate liquidity;

 

•

the Arrangement is the result of a process that included robust negotiations and procedural safeguards;

 

•

there are limited alternatives for a sale to third parties, including due to the fact that Rio Tinto plc has publicly announced that it is not interested in pursuing any alternative transaction and Rio Tinto plc’s controlling interest in the Corporation; and

 

•

there are a limited number of closing conditions to the completion of the Arrangement, including the lack of a financing condition.

Procedural Safeguards for the Shareholders

The negotiations leading to the execution and announcement of the Arrangement Agreement were undertaken by the Special Committee, which was comprised solely of independent directors and advised by experienced and qualified financial and legal advisors. The Arrangement is subject to the following approvals from Shareholders and the Supreme Court of Yukon (the “Court”), which provides additional protection to the Minority Shareholders:

 

(a)

a special resolution (the “Arrangement Resolution”), the full text of which is outlined in Appendix A of the accompanying management proxy circular (the “Circular”), which must be approved by at least two-thirds (662⁄3%) of the votes cast by Shareholders present in person, virtually present or represented by proxy at the Meeting, voting as a single class;

 

(b)

as the Arrangement constitutes a “business combination” for the purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (implemented in Québec as Regulation 61-101 respecting Protection of Minority Security Holders in Special Transactions) (“MI 61-101”), the Arrangement Resolution must also be approved by a simple majority (more than 50%) of the votes cast by Shareholders present in person, virtually present or represented by proxy at the Meeting, excluding, for this purpose, the votes attached to the Shares held by Rio Tinto plc and its affiliates and any other Shareholders required to be excluded under MI 61-101; and

 

(c)

the Arrangement must be approved by the Court, which will consider, among other things, the procedural and substantive fairness of the Arrangement to the Minority Shareholders.

The 102,196,643 Shares beneficially owned by Rio Tinto plc and its affiliates, representing approximately 50.8% of the Shares, will be excluded for the purposes of the “minority approval” required under MI 61-101.

In connection with the proposed Arrangement, all independent directors and executive officers of the Corporation entered into voting and support agreements pursuant to which they have agreed, subject to the terms thereof, to vote all of their Shares IN FAVOUR of the Arrangement Resolution.

The Arrangement is currently scheduled to be completed on or about November 9, 2022 based on the assumption that all required Shareholder and Court approvals are obtained and all other conditions to the Arrangement are satisfied or waived prior to such date.

The Meeting will be a hybrid meeting, held in person at Norton Rose Fulbright Canada LLP, 1 Place Ville Marie, Suite 2500, Chapleau Room, Montréal, Québec, Canada, H3B 1R1 and in virtual format via live audio webcast. Shareholders will be able to participate and vote at the Meeting online regardless of their geographic location at https://web.lumiagm.com/449028588.

Please arrange for your proxy to be received by the Corporation’s transfer agent, TSX Trust Company (“TSX Trust”), at 1200-1 Toronto Street, Toronto, Ontario, Canada, M5C 2V6, Attention: Proxy Department, or at 1600-2001 Robert-Bourassa Blvd., Montréal, Québec, Canada, H3A 2A6, Attention: Proxy Department, by no later than 10:30 a.m. (Montréal time) on October 28, 2022 (or, if the Meeting is adjourned or postponed, 48 hours, excluding Saturdays, Sundays and statutory holidays, prior to the commencement of the reconvened Meeting). Late proxies may be accepted or rejected by the Chair of the Meeting at his or her discretion, subject to the terms of the Arrangement Agreement, and the Chair of the Meeting is under no obligation to accept or reject any particular late proxy.

Shareholders should review the accompanying notice of special meeting of Shareholders and the Circular, which describes, among other things, the background to the Arrangement as well as the reasons for the determinations and recommendations of the Special Committee and the Board. The Circular contains a detailed description of the Arrangement and includes additional information to assist you in considering how to vote at the Meeting. You are urged

to read this information carefully and, if you require assistance, you are urged to consult your financial, legal, tax or other professional advisors.

Your vote is important regardless of the number of Shares you own. If you are unable to attend the Meeting online or in person, we encourage you to take the time now to complete, sign, date and return the enclosed form of proxy or voting instruction form, as applicable, so that your Shares can be voted at the Meeting in accordance with your instructions. If you are a registered Shareholder, we also encourage you to complete, sign, date and return the enclosed letter of transmittal, which will help the Corporation arrange for the prompt payment for your Shares if the Arrangement is completed.

If you have any questions about the information contained in this Circular or require assistance in completing your form of proxy please contact our proxy solicitation agent, Kingsdale Advisors, at 1-888-370-3955 (toll-free in North America), or by calling collect at 416-867-2272 (outside of North America) or by email at contactus@kingsdaleadvisors.com. Questions on how to complete the letter of transmittal should be directed to the Corporation’s transfer agent, TSX Trust, at 1-800-387-0825 (toll-free within North America) or at 416-682-3860 (outside of North America) or by email at shareholderinquiries@tmx.com.

On behalf of the Board, we would like to take this opportunity to thank you for the support you have shown as Shareholders of the Corporation.

Yours very truly,

 

(signed) R. Peter Gillin

R. Peter Gillin Independent Chairman of the Board of Directors

TURQUOISE HILL RESOURCES LTD.

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

Montréal, Québec, Canada, September 27, 2022

NOTICE IS HEREBY GIVEN that, in accordance with an interim order of the Supreme Court of Yukon dated September 27, 2022 (the “Interim Order”), a special meeting (the “Meeting”) of the holders (the “Shareholders”) of common shares (the “Shares”) of Turquoise Hill Resources Ltd. (“Turquoise Hill” or the “Corporation”) will be held on Tuesday, November 1, 2022 at 10:30 a.m. (Montréal time) in person and in virtual format for the following purposes:

 

1.

to consider, and, if deemed advisable, to pass, with or without variation, a special resolution (the “Arrangement Resolution”), the full text of which is outlined in Appendix A of the accompanying management proxy circular (the “Circular”), to approve an arrangement (the “Arrangement”) pursuant to section 195 of the Business Corporations Act (Yukon) (the “YBCA”) involving the Corporation, Rio Tinto International Holdings Limited (the “Purchaser”) and Rio Tinto plc, the whole as described in the Circular; and

 

2.

to transact such other business as may properly come before the Meeting or any adjournment or postponement(s) thereof.

The Circular provides additional information relating to the matters to be addressed at the Meeting, including the Arrangement.

Meeting

The Meeting will be held in person at Norton Rose Fulbright Canada LLP, 1 Place Ville Marie, Suite 2500, Chapleau Room, Montréal, Québec, Canada, H3B 1R1 and in virtual format via live audio webcast. Shareholders will be able to participate and vote at the Meeting online regardless of their geographic location at https://web.lumiagm.com/449028588.

To access the Meeting, follow the instructions below:

If you are a registered Shareholder:

Step 1:

Log in online at: https://web.lumiagm.com/449028588

Step 2:

Select the “Control # / No de contrôle” icon and enter your 13-digit control number as indicated on the form of proxy, followed by the following password: TRQ2022 (case sensitive).

Please note that if you use your control number to log in to the Meeting, any vote you cast will thereby revoke any proxy you previously submitted. If you do not wish to revoke a proxy that you previously submitted, you should refrain from voting during the Meeting.

If you are a duly appointed proxyholder:

Step 1:

Log in online at: https://web.lumiagm.com/449028588

Step 2:

Select the “Control # / No de contrôle” icon and enter your 13-digit control number you will have received by email from TSX Trust Company (“TSX Trust”), followed by the following password: TRQ2022 (case sensitive).

Please note that proxyholders who have been duly appointed and registered with TSX Trust in accordance with the instructions provided herein below will receive their own 13-digit control number via email from TSX Trust after the proxy voting deadline has passed.

If you are a guest:

Step 1:

Log in online at: https://web.lumiagm.com/449028588

Step 2:

Select the “Guest / Invité” icon and complete the online form.

Shareholders who are participating in the Meeting virtually must be connected to the internet throughout the entire Meeting in order to be able to vote. Participants must ensure that they have a good connection throughout the Meeting and set aside enough time to connect to the Meeting and follow the procedure described in this section.

You will require the most recent version of the browsers Chrome, Safari, Edge or Firefox. Make sure your browser is compatible by connecting in advance. PLEASE DO NOT USE INTERNET EXPLORER. Internal networks, firewalls, as well as VPNs (virtual private networks) may block the webcast or access to the virtual platform for the Meeting. If you experience issues, make sure your VPN is deactivated or that you are not using a computer connected to an enterprise network.

Appointment of Proxyholders

Shareholders who wish to appoint a person other than the Management nominees identified in the form of proxy or voting instruction form, including non-registered (beneficial) Shareholders who wish to appoint themselves as proxyholder, must carefully follow the instructions in the accompanying Circular and on their form of proxy or voting instruction form.

Additionally, such Shareholder or its duly appointed proxyholder MUST complete the online form at the address https://www.tsxtrust.com/control-number-request or contact TSX Trust at 1-866-751-6315 (toll-free in Canada and the United States) or 212-235-5754 (other countries) by 10:30 a.m. (Montréal time) on October 28, 2022 (or, if the Meeting is adjourned or postponed, 48 hours, excluding Saturdays, Sundays and statutory holidays, prior to the commencement of the reconvened Meeting) and provide the TSX Trust representative with the required information so that TSX Trust may provide the proxyholder with his, her or its own 13-digit control number by email. Without their own 13-digit control number, proxyholders will not be able to vote nor ask questions at the Meeting but will be able to attend as guests.

The Board of Directors of the Corporation (the “Board of Directors” or the “Board”) has set the close of business on September 19, 2022 as the record date (the “Record Date”) for determining the Shareholders who are entitled to receive notice of, and to vote their Shares at the Meeting. Only persons who are shown on the register of Shareholders at the close of business on the Record Date, or their duly appointed proxyholders, will be entitled to attend the Meeting and vote on the Arrangement Resolution.

As of the Record Date, there were 201,231,446 Shares issued and outstanding. Each Share entitles its holder to one (1) vote with respect to the matters to be voted on at the Meeting.

In order to become effective, the Arrangement must be approved by (i) at least two-thirds (66²⁄₃%) of the votes cast by Shareholders present in person, virtually present or represented by proxy at the Meeting, voting as a single class, and (ii) as the proposed transaction constitutes a “business combination” for the purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (implemented in Québec as Regulation 61-101 respecting Protection of Minority Security Holders in Special Transactions) (“MI 61-101”), a simple majority (more than 50%) of the votes cast by Shareholders present in person, virtually present or represented by proxy at the Meeting, excluding, for the purposes of (ii), the votes attached to the Shares held by Rio Tinto plc and its affiliates and any other Shareholders required to be excluded under MI 61-101. The 102,196,643 Shares beneficially owned by Rio Tinto plc and its affiliates (collectively, the “Excluded Shares”), representing approximately 50.8% of the Shares, will be excluded for purposes of such “minority approval” required under MI 61-101.

Accompanying this notice of meeting is the Circular, a proxy form and a letter of transmittal (for registered Shareholders) (the “Letter of Transmittal”). The accompanying Circular provides information relating to the matters to be addressed at the Meeting and is incorporated into this notice of meeting. Any adjourned or postponed meeting resulting from an adjournment or postponement of the Meeting will be held at a time and place to be specified either by the Corporation before the Meeting or at the Chair’s discretion at the Meeting.

For a registered Shareholder (other than any dissenting Shareholders and the holders of the Excluded Shares) to receive the consideration of C$43.00 in cash per Share (the “Consideration”) to which it, he or she, as the case may

be, is entitled upon the completion of the Arrangement, she, he or it, as the case may be, must complete, sign and return the Letter of Transmittal together with her, his or its, as the case may be, Share certificate(s) and/or Direct Registration System advice(s), as applicable, and any other required documents and instruments to the depositary named in the Letter of Transmittal, in accordance with the procedures set out therein.

Whether or not you are able to attend the Meeting, the Board and management of the Corporation urge you to participate in the Meeting and vote your Shares. If you cannot attend the Meeting in person or online to vote your Shares, please vote in one of the following ways:

 

i.

by following the instructions for internet voting in the accompanying proxy form at least 48 hours, excluding Saturdays, Sundays and holidays, prior to the Meeting or related adjournment(s) or postponement(s); OR

 

ii.

by completing and signing the accompanying proxy form and returning it in the enclosed envelope, postage prepaid at least 48 hours, excluding Saturdays, Sundays and statutory holidays, prior to the Meeting or related adjournment(s) or postponement(s); OR

 

iii.

by duly appointing someone as a proxy to participate in the Meeting and vote your Shares for you.

The Chair reserves the right to accept late proxies and to extend or waive the proxy cut off at their discretion, with or without notice, subject to the terms of the Arrangement Agreement.

If you are a beneficial (non-registered) Shareholder, please refer to the section in the Circular entitled “Information Concerning the Meeting and Voting – Non-Registered Shareholders” for information on how to vote your Shares. Beneficial (non-registered) Shareholders who hold their Shares through a broker, investment dealer, bank, trust company, custodian, nominee or another intermediary (an “Intermediary”), should carefully follow the instructions of their Intermediary to ensure that their Shares are voted at the Meeting in accordance with such Shareholders’ instructions and, as applicable, to arrange for their Intermediary to complete the necessary transmittal documents and to ensure that they receive payment of the Consideration for their Shares if the Arrangement is completed.

Dissent Rights

Pursuant to the Interim Order, registered Shareholders have the right to dissent with respect to the Arrangement Resolution and, if the Arrangement becomes effective, to be paid the fair value of their Shares by the Purchaser in accordance with the provisions of Section 193 of the YBCA (the “Dissent Rights”), as modified by the Interim Order and/or the plan of arrangement pertaining to the Arrangement (the “Plan of Arrangement”). A registered Shareholder wishing to exercise Dissent Rights with respect to the Arrangement Resolution must send to the Corporation a Dissent Notice (as defined below), which the Corporation must receive, c/o Dustin Isaacs, Chief Legal Officer and Corporate Secretary, at 1 Place Ville Marie, Suite 3680, Montréal, Québec, Canada, H3B 3P2, Canada, with copies to each of:

 

i.

Norton Rose Fulbright Canada LLP, 1 Place Ville Marie, Suite 2500, Montréal, Québec, Canada, H3B 1R1, Attention: Steve Malas, email: steve.malas@nortonrosefulbright.com and Orestes Pasparakis, email: orestes.pasparakis@nortonrosefulbright.com;

 

ii.

McCarthy Tétrault LLP, Toronto-Dominion Bank Tower, 66 Wellington Street West, Suite 5300, P.O. Box 48, Toronto, Ontario, Canada, M5K 1E6, Attention: Eva Bellissimo, email: ebellissimo@mccarthy.ca; and Shea Small, email: ssmall@mccarthy.ca; and

 

iii.

TSX Trust Company, 1200-1 Toronto Street, Toronto, Ontario, Canada, M5C 2V6, Attention: Proxy Department, or at 1600-2001 Robert-Bourassa Blvd., Montréal, Québec, Canada, H3A 2A6, Attention: Proxy Department;

by no later than 4:00 p.m. (Montréal time) on October 28, 2022 (or, if the Meeting is adjourned or postponed, by no later than 4:00 p.m. on the second (2^nd) business day, excluding Saturdays, Sundays and statutory holidays, prior to the commencement of the reconvened Meeting) (the “Dissent Notice”), and must otherwise strictly comply with the dissent procedures described in the accompanying Circular. A Shareholder’s Dissent Notice sent with respect to the Arrangement shall be deemed to be and shall be automatically revoked if such Shareholder has voted (some or all of their Shares) in favour of the Arrangement Resolution, whether in person, virtually or by proxy.

Anyone who is a beneficial owner of Shares registered in the name of an Intermediary and who wishes to exercise Dissent Rights should be aware that only registered Shareholders are entitled to exercise Dissent Rights. A non-registered Shareholder who wishes to exercise Dissent Rights must make arrangements for the registered Shareholder of such Shares to exercise Dissent Rights on behalf of such Shareholder. A registered Shareholder who intends to exercise Dissent Rights must do so with respect to all of the Shares registered in the Dissenting Shareholder’s

name that either: (i) they hold on their own behalf; or (ii) they hold on behalf of any one beneficial Shareholder and only if a Dissent Notice is received from such Shareholder by the Corporation in the manner and within the time described above. There is no right to a partial Dissent Right.

It is recommended that you seek independent legal advice if you wish to exercise Dissent Rights. The Shareholders’ Dissent Rights are more particularly described in the accompanying Circular, and copies of the Plan of Arrangement, the Interim Order and the text of Section 193 of the YBCA are set forth in Appendix B, Appendix E and Appendix G, respectively, of the Circular. Failure to strictly comply with the requirements set forth in Section 193 of the YBCA, as modified by the Interim Order and/or the Plan of Arrangement, will result in the loss of any right of dissent.

 

TURQUOISE HILL RESOURCES LTD.

MANAGEMENT PROXY CIRCULAR

This management proxy circular (this “Circular”) is provided in relation to the solicitation of proxies by the management of Turquoise Hill Resources Ltd. (“we”, “us”, “Turquoise Hill” and the “Corporation”) for use at the special meeting of Shareholders (the “Meeting”) of the Corporation to be held on November 1, 2022 at 10:30 a.m. (Montréal time) in person at Norton Rose Fulbright Canada LLP, 1 Place Ville Marie, Suite 2500, Chapleau Room, Montréal, Québec, Canada, H3B 1R1 and virtually via live audio webcast at https://web.lumiagm.com/449028588 and at any adjournment or postponement thereof. Unless otherwise indicated, the information provided in this Circular is provided as of the Record Date of September 19, 2022.

All capitalized terms used in this Circular but not otherwise defined herein have the meanings set forth in the “Glossary of Terms”. In this Circular, unless there is something in the subject matter or context inconsistent therewith, words importing the singular number only (including defined terms) include the plural.

CURRENCY AND EXCHANGE RATES

Unless otherwise indicated, references to “$” or “C$” refer to the lawful currency of Canada and references to “US$” refer to the lawful currency of the United States of America. On September 27, 2022, the daily average exchange rate as reported by the Bank of Canada was: C$1.00 = US$0.7285 and US$1.00 = C$1.3726.

CAUTIONARY STATEMENTS

We have not authorized any person to give any information or make any representation regarding the Arrangement or any other matters to be considered at the Meeting other than those contained in this Circular. If any such information or representation is given or made to you, you should not rely on it as being authorized or accurate.

This Circular does not constitute an offer to buy, or a solicitation of an offer to sell, any securities, or the solicitation of a proxy, by any person in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such an offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such an offer or solicitation. The delivery of this Circular will not, under any circumstances, create any implication or be treated as a representation that there has been no change in the information set out herein since the date of this Circular.

Management is soliciting your proxy. The Corporation has retained Kingsdale as its proxy solicitation agent for assistance in connection with the solicitation of proxies for the Meeting, and will pay Kingsdale fees of approximately C$85,000 for such services in addition to certain out-of-pocket expenses. Management requests that you sign and return the proxy form or voting instruction form so that your votes are exercised at the Meeting. The solicitation of proxies will be conducted primarily by mail but may also be made by telephone, facsimile transmission or other electronic means of communication or in-person by the directors, officers and employees of Turquoise Hill. The Corporation will bear the cost of such solicitation and will reimburse Intermediaries for their reasonable charges and expenses incurred in forwarding proxy materials to non-registered Shareholders. The Purchaser and Rio Tinto may also participate in the solicitation of proxies.

Shareholders should not construe the contents of this Circular as legal, tax or financial advice and are urged to consult with their own legal, tax, financial or other professional advisors.

The information contained in this Circular concerning the Purchaser and Rio Tinto, including such information under the heading “Special Factors – Background to the Arrangement”, has been provided by the Purchaser and Rio Tinto for inclusion in this Circular. Although the Corporation has no knowledge that any statement contained herein taken from, or based on, such information and records or information provided by the Purchaser or Rio Tinto are untrue or incomplete, the Corporation assumes no responsibility for the accuracy of the information contained in such documents, records or information or for any failure by the Purchaser or Rio Tinto to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to the Corporation.

All summaries of and references to the Arrangement Agreement, the Plan of Arrangement, Third A&R HoA and Early Advance Agreement in this Circular are qualified in their entirety by the complete text of such documents and Shareholders should refer to the full text for complete details of such documents. The Plan of Arrangement is attached as Appendix B to this Circular, and a copy of the Arrangement Agreement, Third A&R HoA and Early Advance Agreement are available under Turquoise Hill’s profiles on SEDAR at www.sedar.com and EDGAR at www.sec.gov. You are urged to read the full text of the Arrangement Agreement and the Plan of Arrangement carefully.

 

i

NO CANADIAN SECURITIES REGULATORY AUTHORITY NOR THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS AN OFFENCE.

FORWARD-LOOKING INFORMATION

This Circular contains “forward-looking information” within the meaning of applicable Canadian Securities Laws, and Turquoise Hill intends that such forward-looking statements be subject to the safe harbours created thereby. Forward-looking statements are statements other than historical information or statements of current condition. Words such as may, expect, believe, plan, anticipate, intend, could, estimate, continue, or similar expressions or the negative of such expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events and circumstances are considered forward-looking statements. They are not guarantees of future performance and these statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. More particularly and without restriction, this Circular contains forward-looking statements and information regarding: statements and implications about the anticipated benefits of the Arrangement for the Corporation, the Purchaser and their respective shareholders, Shareholder and Court approvals and the anticipated timing of the completion of the Arrangement.

Forward-looking information is subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, the failure of the parties to obtain the necessary Shareholder and Court approvals or to otherwise satisfy the conditions to the completion of the Arrangement; failure of the parties to obtain such approvals or satisfy such conditions in a timely manner or at all; significant transaction costs or unknown liabilities; failure to realize the expected benefits of the Arrangement; general economic conditions; and other risks and uncertainties identified under “Risk Factors” and “Information Concerning Turquoise Hill”. Failure to obtain the necessary Shareholder and Court approvals, or the failure of the parties to otherwise satisfy the conditions to the completion of the Arrangement or to complete the Arrangement, may result in the Arrangement not being completed on the proposed terms, or at all. In addition, if the Arrangement is not completed, and the Corporation continues as a publicly traded entity, there are risks that the announcement of the Arrangement and the dedication of substantial resources of the Corporation to the completion of the Arrangement could have an impact on its business and strategic relationships (including with future and prospective employees, customers, suppliers and partners), operating results and activities in general, and could have a material adverse effect on its current and future operations, financial condition and prospects. Furthermore, pursuant to the terms of the Arrangement Agreement, the Corporation may, in certain circumstances, be required to pay the Expense Reimbursement Amount to the Purchaser, the result of which could have an adverse effect on its financial position.

Consequently, all of the forward-looking information contained herein is qualified by the foregoing cautionary statements, and there can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business, financial condition or results of operation. Unless otherwise noted or the context otherwise indicates, the forward-looking information contained herein is provided as of the date hereof, and we do not undertake to update or amend such forward-looking information whether as a result of new information, future events or otherwise, except as may be required by applicable Securities Laws.

This list is not exhaustive of the factors that may affect any of the forward-looking statements of Turquoise Hill. The risks and uncertainties that could affect forward-looking statements are described further under the heading “Risk Factors”. Additional risks are further discussed in Turquoise Hill’s Annual Information Form (Exhibit 99.1 to the Corporation’s Annual Report on Form 40-F) for the year ended December 31, 2021, the management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021, as well as the management’s discussion and analysis of financial condition and results of operations for the second quarter period ended June 30, 2022, which have been filed under Turquoise Hill’s profiles on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

NOTICE TO SHAREHOLDERS IN THE UNITED STATES

The transactions contemplated herein constitute a “going private” transaction under Rule 13E-3 promulgated under the United States Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”). In connection with these transactions, the Corporation, the Purchaser and certain related parties have filed with the U.S. Securities and Exchange Commission (the “SEC”) a transaction statement (the “Schedule 13E-3”) pursuant to Section 13(e) of the U.S. Exchange Act and Rule 13E-3 thereunder, which incorporates, by reference therein, this Circular. Copies of the Schedule 13E-3 are, and any other documents filed by the Corporation in connection with the Arrangement will be, available under Turquoise Hill’s profile on EDGAR at www.sec.gov.

 

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Shareholders are advised to read this Circular and the Schedule 13E-3 in their entirety, including the exhibits or appendices hereto or thereto, as applicable, because they contain important information.

Turquoise Hill is a corporation existing under the laws of Yukon and is a “foreign private issuer” within the meaning of the rules promulgated under the U.S. Exchange Act. Section 14(a) of the U.S. Exchange Act and related proxy rules are not applicable to the Corporation nor to this solicitation and, therefore, this solicitation is not being effected in accordance with such laws. The solicitation of proxies and the transactions contemplated herein involve securities of a Canadian issuer and are being effected in accordance with (1) Canadian corporate laws and Canadian Securities Laws, which differ from disclosure requirements in the United States, and (2) the requirements of Rule 13E-3 promulgated under the U.S. Exchange Act.

The unaudited interim financial statements and audited annual financial statements of Turquoise Hill and other financial information included or incorporated by reference in this Circular have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and thus may differ from the U.S. generally accepted accounting principles. Shareholders that are United States taxpayers are advised to consult their independent tax advisors regarding the United States federal, state, local and foreign tax consequences to them by participating in the Arrangement.

The enforcement by investors of civil liabilities under United States federal and state securities laws may be affected adversely by the fact that Turquoise Hill is organized under the laws of a jurisdiction other than the United States, that some (or all) of its respective officers and directors are residents of countries other than the United States, that some or all of the experts named in this Circular may be residents of countries other than the United States, or that all or a substantial portion of the assets of Turquoise Hill and such directors, officers and experts may be located outside the United States. As a result, it may be difficult or impossible for Shareholders resident in the United States to effect service of process within the United States upon Turquoise Hill and its respective officers and directors or the experts named herein, or to realize against them on judgments of courts of the United States. In addition, Shareholders resident in the United States should not assume that the courts of Canada: (a) would enforce judgments of United States courts obtained in actions against such persons predicated upon civil liabilities under the U.S. Securities Laws or any state within the United States, including “blue sky laws” of any state within the United States; or (b) would enforce, in original actions, liabilities against such persons predicated upon civil liabilities under the U.S. Securities Laws, including “blue sky laws” of any state within the United States.

 

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QUESTIONS AND ANSWERS ABOUT THE MEETING AND THE ARRANGEMENT

Your vote is important. The following are key questions that you as a Shareholder may have regarding the Arrangement to be considered at the Meeting. You are urged to carefully read the remainder of this Circular as the information in this section does not provide all of the information that might be important to you with respect to the Arrangement. All capitalized terms used herein have the meanings ascribed to them in the “Glossary of Terms” on page 119 of this Circular.

Questions Relating to the Arrangement

 

Q.	What is the proposed Arrangement?

 

A.	Pursuant to the Arrangement, Rio Tinto would acquire the Minority Shares, representing the approximately 49.2% of the Shares of Turquoise Hill not currently owned by Rio Tinto, for C$43.00 in cash per Share by way of a Court-approved plan of arrangement pursuant to the provisions of the YBCA.

 

Q.	What is the background and reasons for the proposed Arrangement?

 

A.	The Arrangement Agreement is the result of arm’s length negotiations between the Special Committee, Rio Tinto and their respective advisors.

See “Special Factors – Background to the Arrangement” for a summary of certain relevant background information that informed the Special Committee’s deliberations as well as the principal events leading to the execution of the Arrangement Agreement and the public announcement of the Arrangement.

In determining that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders, the Special Committee, with the assistance of financial and legal advisors, carefully reviewed the Arrangement and the terms and conditions of the Arrangement Agreement and related agreements and documents and considered and relied upon a number of substantive factors, including those set out under “Special Factors – Position of Turquoise Hill as to Fairness of the Arrangement – Reasons for the Recommendation”.

 

Q.	Does the Special Committee support the Arrangement?

 

A.

Yes. The Special Committee, following careful consideration of, among other things, the Formal Valuation and the Fairness Opinions, the terms and conditions set forth in the Arrangement Agreement, the matters discussed below under the heading “Special Factors – Position of Turquoise Hill as to Fairness of the Arrangement – Reasons for the Recommendation” and advice from its financial advisor, unanimously determined that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders and unanimously recommended that the Board determine that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders and recommend that the Minority Shareholders vote IN FAVOUR of the Arrangement Resolution. See “Special Factors – Position of Turquoise Hill as to Fairness of the Arrangement – Recommendation of the Special Committee”.

 

Q.	Does the Board support the Arrangement?

 

A.

Yes. The Unconflicted Board of Directors, after receiving the unanimous recommendation of the Special Committee and following careful consideration of, among other things, the Formal Valuation and the Fairness Opinions, the terms and conditions set forth in the Arrangement Agreement, the matters discussed under the heading “Special Factors – Position of Turquoise Hill as to Fairness of the Arrangement – Reasons for the Recommendation” and advice from financial advisors, unanimously determined that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders and unanimously recommends that the Minority Shareholders vote IN FAVOUR of the Arrangement Resolution. See “Special Factors – Recommendation of the Board”.

 

Q.	Who has agreed to support the Arrangement?

 

A.	All independent directors and executive officers of the Corporation have entered into Voting Agreements pursuant to which they have agreed, subject to the terms thereof, to vote all of their Shares IN FAVOUR of the Arrangement Resolution. See “The Arrangement – Voting Agreements”.

 

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Q:	What approvals are required by Shareholders at the Meeting?

 

A:

To be effective, the Arrangement Resolution must be approved by (i) at least two-thirds (662⁄3%) of the votes cast by Shareholders present in person, virtually present or represented by proxy at the Meeting, voting as a single class; and (ii) a simple majority (more than 50%) of the votes cast by Shareholders present in person, virtually present or represented by proxy at the Meeting, excluding for the purposes of (ii) the votes attached to the Excluded Shares and the Shares held by any other Shareholders required to be excluded under MI 61-101. See “The Arrangement – Shareholder Approval of the Arrangement”.

 

Q:	What other approvals are required for the Arrangement?

 

A:

The Arrangement requires approval by the Court under Section 195 of the YBCA. Prior to the mailing of this Circular, the Corporation obtained an Interim Order providing for the calling and holding of the Meeting and other procedural matters. The Corporation will apply to the Court for a Final Order if the Shareholders approve the Arrangement at the Meeting. The Court will consider, among other things, the procedural and substantive fairness of the Arrangement. See “Certain Legal Matters – Court Approvals and Completion of the Arrangement”.

 

Q.	How will I know when all required approvals have been obtained?

 

A.	If all the necessary approvals have been received and conditions to the completion of the Arrangement have been satisfied or waived, other than conditions that, by their terms, cannot be satisfied until the Effective Date, then Turquoise Hill will issue a press release disclosing such fact.

 

Q:	When will the Arrangement become effective?

 

A:

The Arrangement is currently scheduled to be completed on or about November 9, 2022 based on the assumption that all required Shareholder Approvals and Court approvals are obtained and all other conditions to the Arrangement are satisfied or waived prior to such date. It is not possible, however, to state with certainty when the Effective Date will occur. The Arrangement will become effective on the date shown on the Certificate of Arrangement to be endorsed by the Director on the Articles of Arrangement giving effect to the Arrangement in accordance with the YBCA. See “Certain Legal Matters – Implementation of the Arrangement and Timing”.

 

Q.	If the Arrangement is approved by Shareholders at the Meeting, when will the Shares cease to be traded on stock exchanges?

 

A.

The Corporation and Rio Tinto have agreed to use their commercially reasonable efforts to cause the Shares to be delisted from the TSX and the NYSE promptly, with effect as soon as practicable following the acquisition by the Purchaser of the Minority Shares pursuant to the Arrangement. Following the Effective Date, it is expected that the Purchaser will cause the Corporation to apply to cease to be a reporting issuer under the securities legislation of each of the provinces and territories in Canada under which it is currently a reporting issuer (or equivalent) or take or cause to be taken such other measures as may be appropriate to ensure that the Corporation is not required to prepare and file continuous disclosure documents. Following the consummation of the Arrangement, the registration of the Shares under the U.S. Exchange Act will be terminated. See “Securities Law Matters – Stock Exchange Delisting and Reporting Issuer Status”.

 

Q:	What will I receive for my Shares under the Arrangement?

 

A:

If the Arrangement becomes effective, Minority Shareholders will be entitled to receive Consideration of C$43.00 in cash per Share, representing a 67% premium to the closing price of C$25.68 of the Shares on the TSX on March 11, 2022, being the last trading day prior to the Purchaser’s Initial Proposal.

 

Q:	If I am a registered Shareholder, how do I receive my Consideration under the Arrangement?

 

A:

Accompanying this Circular is a form of proxy and Letter of Transmittal (for registered Shareholders). For a registered Minority Shareholder (other than any Dissenting Shareholder) to receive the Consideration of C$43.00 in cash per Share to which she, he or it, as the case may be, is entitled upon the completion of the Arrangement, she, he or it, as the case may be, must complete, sign and return the Letter of Transmittal together with her, his or its, as the case may be, Share certificate(s) and/or DRS Advice, as applicable, and any other required documents and instruments to the Depositary named in the Letter of Transmittal in accordance with the procedures set out therein.

 

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Q:	What happens if I do not surrender the certificates representing my Shares in order to receive the Consideration under the Arrangement?

 

A:

Until surrendered, each certificate that immediately prior to the Effective Time represented Shares shall be deemed after the Effective Time to represent only the right to receive upon such surrender a cash payment in lieu of such certificate as contemplated in the Plan of Arrangement, less any amounts withheld pursuant to the Plan of Arrangement. Any such certificate formerly representing Shares not duly surrendered on or before the sixth (6th) anniversary of the Effective Date shall cease to represent a claim by or interest of any former Shareholder of any kind or nature against or in the Corporation or the Purchaser. On such date, all cash to which such former holder was entitled shall be deemed to have been surrendered to the Purchaser or the Corporation, as applicable, and shall be paid over by the Depositary to the Purchaser as directed by the Purchaser. See “The Arrangement – Payment of Consideration”.

 

Q:	What will happen to the Corporation if the Arrangement is completed?

 

A:

If the Arrangement becomes effective, former Minority Shareholders will be entitled to receive the Consideration in exchange for their Shares and the only Shareholders of the Corporation will be wholly owned Subsidiaries of Rio Tinto plc, including the Purchaser, and the Corporation will become a privately held corporation and an indirect wholly owned Subsidiary of Rio Tinto and there will be no public market for its Shares.

 

Q.	What will happen if the Arrangement Resolution is not passed or the Arrangement is not completed for any reason?

 

A:

If the Arrangement Resolution is not passed or the Arrangement is not completed for any reason, the Arrangement Agreement may be terminated. If this occurs, the Corporation will continue as a publicly traded entity and continue to pursue its business plan on a stand-alone basis. Note that failure to complete the Arrangement could have an adverse effect on the Share price or on the Corporation’s operations, financial condition or prospects. See “Risk Factors”. Furthermore, pursuant to the terms of the Arrangement Agreement, the Corporation may, in certain circumstances, be required to pay the Expense Reimbursement Amount to the Purchaser, the result of which could have an adverse effect on the Corporation’s financial position.

 

Q.	Are there risks associated with the Arrangement?

 

A:

In evaluating the Arrangement, Shareholders should consider the risk factors relating to the Arrangement. Some of these risks include, but are not limited to: (i) the Arrangement Resolution must be approved by a simple majority of the votes (more than 50%) cast by Shareholders present in person, virtually present or represented by proxy at the Meeting, excluding, for the purpose of this Minority Approval, the votes attached to the Excluded Shares and the Shares held by any other Shareholders required to be excluded under MI 61-101; (ii) the Arrangement Agreement may be terminated in certain circumstances, including in the event of a change having a Material Adverse Effect or if holders of more than 12.5% of the outstanding Shares exercise Dissent Rights; and (iii) there can be no certainty that all other conditions precedent to the Arrangement will be satisfied or waived.

Any failure to complete the Arrangement could materially and negatively impact the trading price of the Shares. You should carefully consider the risk factors described in the section “Risk Factors” in evaluating the approval of the Arrangement Resolution. Readers are cautioned that such risk factors are not exhaustive.

 

Q.	Is there a termination fee if the Arrangement Resolution is not approved by Turquoise Hill’s Shareholders?

 

A:

There is no termination fee payable by either party if the Arrangement Resolution is not approved by Shareholders. However, if the Shareholder Approvals for the Arrangement are not obtained and certain other conditions are satisfied, the Purchaser has agreed in the Arrangement Agreement to pay the Expense Reimbursement Amount of US$15,000,000 to the Corporation which would defray a portion of the Corporation’s out-of-pocket fees, costs and expenses incurred in connection with the Arrangement. The Arrangement Agreement also provides that the Corporation will be required to pay the Expense Reimbursement Amount of US$15,000,000 to the Purchaser if the Arrangement Agreement is terminated and certain other conditions are satisfied.

 

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Q.

The Pentwater Funds have reported that they have beneficial ownership of in excess of 13.7% of the outstanding Shares and have publicly stated that they do not support the Arrangement and are considering legal actions including exercising Dissent Rights under the Arrangement. If the Pentwater Funds do exercise Dissent Rights, can the Arrangement proceed?

 

A.

Under the Arrangement Agreement, the Purchaser’s obligation to complete the Arrangement is subject to a number conditions in its favour, including that the number of Shares held by Shareholders who validly exercise Dissent Rights does not exceed 12.5% of the Shares issued and outstanding on the date of the Arrangement Agreement. If Dissent Rights are validly exercised by Shareholders holding in excess of 12.5% of the issued and outstanding Shares, and the Purchaser and Rio Tinto plc, in their sole discretion, do not waive this condition on or before the Outside Date, the Purchaser and Rio Tinto plc will not be obligated to complete the Arrangement and any of the Corporation, the Purchaser or Rio Tinto plc may then terminate the Arrangement Agreement, in which case the Purchaser will be required to pay to the Corporation the Expense Reimbursement Amount.

Questions Relating to the Turquoise Hill Special Meeting of Shareholders

 

Q.	Why did I receive this Circular?

 

A.	You received this Circular because you are a Shareholder and Shareholders are being asked at the Meeting to approve the Arrangement involving Turquoise Hill and the Purchaser, pursuant to Section 195 of the YBCA.

 

Q.	Where and when will the Meeting be held?

 

A.

The Meeting will be held on November 1, 2022, at 10:30 a.m. (Montréal time). The Meeting will be held in person at Norton Rose Fulbright Canada LLP, 1 Place Ville Marie, Suite 2500, Chapleau Room, Montréal, Québec, Canada, H3B 1R1 and in virtual format via live audio webcast. Shareholders will be able to participate and vote at the Meeting online regardless of their geographic location at https://web.lumiagm.com/449028588. See “Information Concerning the Meeting and Voting – Date, Time and Place of Meeting”.

In the event necessary to address material comments from any securities regulatory authority, including from the SEC, on this Circular or the Schedule 13E-3, the Parties have agreed pursuant to the Arrangement Agreement that the Corporation may adjourn the Meeting.

 

Q.	Am I entitled to vote?

 

A.	You are entitled to vote if you were a Shareholder as of the close of business on the Record Date, September 19, 2022. Each Share entitles its holder to one (1) vote with respect to the matters to be voted on at the Meeting.

 

Q.	What are Shareholders being asked to vote on at the Meeting?

 

A.

At the Meeting, pursuant to the Interim Order, the Shareholders will be asked to consider and, if thought advisable, pass the Arrangement Resolution to approve the Arrangement. The Arrangement provides for, among other things, the acquisition by the Purchaser of all of the issued and outstanding Minority Shares by way of a court-approved statutory plan of arrangement under section 195 of the YBCA. Pursuant to the Arrangement Agreement and the Plan of Arrangement, if the Arrangement becomes effective each Minority Shareholder (except for any Dissenting Shareholders) will be entitled to receive C$43.00 in cash per Share.

 

Q.	What constitutes quorum for the Meeting?

 

A.

The Corporation’s by-laws provide that the quorum for the transaction of business at the Meeting is at least one (1) individual present, either in person or electronically, at the commencement of the Meeting holding, or representing by proxy the holder or holders of Shares carrying, in the aggregate, not less than one-third (331⁄3%) of the votes eligible to be cast at the Meeting.

 

Q.	How many Shares are entitled to be voted?

 

A.	As at the Record Date of September 19, 2022, there were 201,231,446 Shares issued and outstanding, and no issued and outstanding preferred shares. Each Share entitles its holder to one (1) vote with respect to the matters to be voted on at the Meeting.

 

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Q.	What if I acquire ownership of Shares after the Record Date?

 

A.	You will not be entitled to vote Shares acquired after the Record Date on the Arrangement Resolution. Only persons owning Shares as of the Record Date of September 19, 2022 are entitled to vote their Shares on the Arrangement Resolution.

 

Q.	What do I need to do now in order to vote on the Arrangement Resolution?

 

A:

Registered Shareholders can vote by internet, by mail, or in person or virtually at the Meeting. It is recommended that you vote by internet to ensure that your vote is received before the Meeting. To cast your vote by internet, please have your form of proxy or VIF on hand and carefully follow the instructions contained therein. Your internet vote authorizes the named proxies to vote your Shares in the same manner as if you mark, sign and return your form of proxy. You may also vote by mail by completing, dating and signing the enclosed form of proxy or VIF and return it in the envelope provided for that purpose. To be valid, proxies must be received by TSX Trust Company, at 1200-1 Toronto Street, Toronto, Ontario, Canada, M5C 2V6, Attention: Proxy Department, or at 1600-2001 Robert-Bourassa Blvd., Montréal, Québec, Canada, H3A 2A6, Attention: Proxy Department, by no later than 10:30 a.m. (Montréal time) on October 28, 2022 (or, if the Meeting is adjourned or postponed, 48 hours, excluding Saturdays, Sundays and statutory holidays, prior to the commencement of the reconvened Meeting). Late proxies may be accepted or rejected by the Chair of the Meeting at his or her discretion, subject to the terms of the Arrangement Agreement, and the Chair of the Meeting is under no obligation to accept or reject any particular late proxy.

 

Q:	If my Shares are held by my broker, investment dealer or other Intermediary, will they vote my Shares for me?

 

A:	No. Non-registered (beneficial) Shareholders who receive these materials through their broker or other Intermediary should complete and send the form of proxy or VIF in accordance with the instructions provided by their broker or Intermediary.

Additionally, the Corporation may utilize the Broadridge QuickVote^TM system, which involves NOBOs being contacted by Kingsdale, which is soliciting proxies on behalf of Management, to obtain voting instructions over the telephone and relaying them to Broadridge (on behalf of the NOBO’s Intermediary). While representatives of Kingsdale are soliciting proxies on behalf of Management, Shareholders are not required to vote in the manner recommended by the Board of Directors. The QuickVote^TM system is intended to assist Shareholders in placing their votes, however, there is no obligation for any Shareholders to vote using the QuickVote^TM system, and Shareholders may vote (or change or revoke their votes) at any other time and in any other applicable manner described in this Circular. Any voting instructions provided by a Shareholder will be recorded and such Shareholder will receive a letter from Broadridge (on behalf of the Shareholder’s Intermediary) as confirmation that their voting instructions have been accepted.

 

Q.	Who is soliciting my proxy?

 

A.

Management is soliciting your proxy. The Corporation has retained Kingsdale as its proxy solicitation agent for assistance in connection with the solicitation of proxies for the Meeting, and will pay Kingsdale fees of approximately C$85,000 for such services in addition to certain out-of-pocket expenses. Management requests that you sign and return the form of proxy or VIF so that your votes are exercised at the Meeting. The solicitation of proxies will be conducted primarily by mail but may also be made by telephone, facsimile transmission or other electronic means of communication or in-person by the directors, officers and employees of Turquoise Hill. The Corporation will bear the cost of such solicitation and will reimburse Intermediaries for their reasonable charges and expenses incurred in forwarding proxy materials to non-registered Shareholders. The Purchaser and Rio Tinto may also participate in the solicitation of proxies.

 

Q.	Can I appoint someone other than those named in the enclosed proxy forms to vote my Shares?

 

A.	Yes. You have the right to appoint a person other than the Management nominees identified in the form of proxy or VIF. Non-registered (beneficial) Shareholders who wish to appoint themselves as proxyholder must carefully follow the instructions in the Circular and on their form of proxy or VIF.

Additionally, a Shareholder or its duly appointed proxyholder who is entitled to attend the Meeting MUST complete the online form at the address https://www.tsxtrust.com/control-number-request or contact TSX Trust at 1-866-751-6315 (toll-free in Canada and the United States) or 212-235-5754 (other countries) by 10:30 a.m. (Montréal time) on October 28, 2022 (or, if the Meeting is adjourned or postponed, 48 hours,

 

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excluding Saturdays, Sundays and statutory holidays, prior to the commencement of the reconvened Meeting) and provide the TSX Trust representative with the required information so that TSX Trust may provide the proxyholder with his, her or its own 13-digit control number by email. Without their own 13-digit control number, proxyholders will not be able to vote nor ask questions at the Meeting but will be able to attend as guests. See “Information Concerning the Meeting and Voting – Appointment of Proxyholders”.

 

Q.	What if my Shares are registered in more than one name or in the name of a company?

 

A.

If your Shares are registered in more than one name, all registered persons must sign the form of proxy. If your Shares are registered in a company’s name or any name other than your own, you may be required to provide documents proving your authorization to sign the form of proxy for that company or name. For any questions about the proper supporting documents, contact TSX Trust before submitting your form of proxy.

 

Q:	When will I receive the Consideration payable to me under the Arrangement for my Shares?

 

A:

If the Arrangement becomes effective and your Letter of Transmittal and Share certificate(s), if applicable, and all other required documents are properly completed and received by the Depositary, you will receive the Consideration due to you under the Arrangement as soon as practicable after the Arrangement becomes effective. The Arrangement is currently scheduled to be completed on or about November 9, 2022 based on the assumption that all required Shareholder Approvals and Court approvals are obtained and all other conditions to the Arrangement are satisfied or waived prior to such date.

 

Q:	What happens if I send in my Share certificate(s) and the Arrangement Resolution is not approved or the Arrangement is not completed?

 

A:	If the Arrangement Resolution is not approved or if the Arrangement is not otherwise completed, your Share certificate(s) will be returned promptly to you by the Depositary.

 

Q:	Can I revoke my vote after I have voted by proxy?

 

A:

Yes. If you want to revoke your proxy after you have delivered it, you can do so by (i) delivering a written notice of revocation that is received by TSX Trust Company, at 1200-1 Toronto Street, Toronto, Ontario, Canada, M5C 2V6, Attention: Proxy Department, or at 1600-2001 Robert-Bourassa Blvd., Montréal, Québec, Canada, H3A 2A6, Attention: Proxy Department, no later than 5:00 p.m. (Montréal time) on October 28, 2022 (or, if the Meeting is adjourned or postponed, 48 hours, excluding Saturdays, Sundays and statutory holidays, prior to the commencement of the reconvened Meeting), or delivered to the person presiding at the Meeting before it commences, (ii) signing a proxy bearing a later date and depositing it in the manner and within the time described above; (iii) attending the Meeting and voting virtually if you were a registered Shareholder at the Record Date; or (iv) in any other manner permitted by Law. See “Information Concerning the Meeting and Voting – Changing Your Mind (Revoking Your Proxy)”.

 

Q.	Are the shareholders of the Purchaser required to approve the Arrangement?

 

A.

No.

 

Q.	Who is responsible for counting and tabulating the votes by proxy?

 

A.	Votes by proxy are counted and tabulated by TSX Trust, Turquoise Hill’s transfer agent.

 

Q:	What are the Canadian federal income tax consequences of the Arrangement?

 

A:

Subject to the discussion in “Certain Canadian Federal Income Tax Considerations”, a Shareholder who is, or is deemed to be, resident in Canada, holds the Shares as “capital property”, and who sells such Shares to the Purchaser pursuant to the Arrangement will realize a capital gain (or a capital loss) to the extent that such Shareholder’s proceeds of disposition, net of any reasonable cost of disposition, exceed (or are less than) the aggregate adjusted cost base to such Shareholder of his, her or its Shares.

The foregoing description of Canadian federal income tax consequences of the Arrangement is qualified in its entirety by the longer discussion under “Certain Canadian Federal Income Tax Considerations” below which contains a summary of certain Canadian federal income tax considerations of the Arrangement generally applicable to a Resident Holder (including a Dissenting Resident Holder) or a Non-Resident Holder (including a Dissenting Non-Resident Holder). Neither this description nor the longer discussion is intended to be legal

 

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advice to any particular Shareholder. Accordingly, Shareholders should consult their tax advisor with respect to their particular circumstances.

The foregoing is only a brief summary of certain material Canadian federal income tax considerations. Shareholders should read carefully the information in the Circular under the heading “Certain Canadian Federal Income Tax Considerations”, which qualifies the summary set forth above. Shareholders are urged to consult their own tax advisors to determine the particular tax consequences to them of the Arrangement.

 

Q:	What are the United States income tax consequences of the Arrangement?

 

A:

Subject to the discussion in “Certain United States Federal Income Tax Considerations” a U.S. Shareholder who holds Shares as capital assets and who sells such Shares pursuant to the Arrangement and receives the Consideration generally will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the amount received and the U.S. Shareholder’s adjusted tax basis in the Shares.

The foregoing description of U.S. federal income tax consequences of the Arrangement is qualified in its entirety by the longer discussion under “Certain United States Federal Income Tax Considerations” below, and neither this description nor the longer discussion is intended to be legal advice to any particular Shareholder residing in the United States. Accordingly, U.S. Shareholders should consult their tax advisor with respect to their particular circumstances.

 

Q:	Are Shareholders entitled to Dissent Rights?

 

A:

Pursuant to the Interim Order, registered Shareholders have the right to exercise Dissent Rights with respect to the Arrangement Resolution and, if the Arrangement becomes effective, to be paid the fair value of their Shares by the Purchaser in accordance with the provisions of Section 193 of the YBCA, as modified by the Interim Order and/or the Plan of Arrangement. A registered Shareholder wishing to exercise Dissent Rights with respect to the Arrangement Resolution must send to the Corporation a Dissent Notice, which the Corporation must receive, c/o Dustin Isaacs, Chief Legal Officer and Corporate Secretary, at 1 Place Ville Marie, Suite 3680, Montréal, Québec, Canada, H3B 3P2, Canada, with copies to each of:

 

i.

Norton Rose Fulbright Canada LLP, 1 Place Ville Marie, Suite 2500, Montréal, Québec, Canada, H3B 1R1, Attention: Steve Malas, email: steve.malas@nortonrosefulbright.com and Orestes Pasparakis, email: orestes.pasparakis@nortonrosefulbright.com;

 

ii.

McCarthy Tétrault LLP, Toronto-Dominion Bank Tower, 66 Wellington Street West, Suite 5300, P.O. Box 48, Toronto, Ontario, Canada, M5K 1E6, Attention: Eva Bellissimo, email: ebellissimo@mccarthy.ca; and Shea Small, email: ssmall@mccarthy.ca; and

 

iii.

TSX Trust Company, 1200-1 Toronto Street, Toronto, Ontario, Canada, M5C 2V6, Attention: Proxy Department, or at 1600-2001 Robert-Bourassa Blvd., Montréal, Québec, Canada, H3A 2A6, Attention: Proxy Department;

by no later than 4:00 p.m. (Montréal time) on October 28, 2022 (or, if the Meeting is adjourned or postponed, by no later than 4:00 p.m. on the second (2^nd) Business Day, excluding Saturdays, Sundays and statutory holidays, prior to the commencement of the reconvened Meeting), and must otherwise strictly comply with the dissent procedures described in this Circular, the Interim Order, the Plan of Arrangement and Section 193 of the YBCA, as modified by the Interim Order and/or the Plan of Arrangement. A Shareholder’s Dissent Notice sent with respect to the Arrangement will be deemed to be and will be automatically revoked if such Shareholder has voted (some or all of their Shares) in favour of the Arrangement Resolution, whether in person, virtually or by proxy.

A Shareholder’s failure to follow exactly the procedures set forth in the Plan of Arrangement and the Interim Order will result in the loss of such Shareholder’s Dissent Rights. If you are a Shareholder and wish to dissent, you should obtain your own legal advice and carefully read the Plan of Arrangement, the Interim Order and the text of Section 193 of the YBCA, all of which are set forth in Appendix B, Appendix E and Appendix G, respectively, of this Circular. See “Dissenting Shareholders’ Rights”.

 

Q:	Who can help answer my questions?

 

A:

If you have any questions about the information contained in this Circular or require assistance in completing your form of proxy, please contact our proxy solicitor, Kingsdale, at 1-888 370 3955 (toll-free in North America), or by calling collect at 416-867-2272 (outside of North America) or by email at

 

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contactus@kingsdaleadvisors.com. Questions on how to complete the Letter of Transmittal should be directed to the Corporation’s depositary, TSX Trust, at 1-800-387-0825 (toll-free within North America) or at 416-682-3860 (outside of North America) or by email at shareholderinquiries@tmx.com.

 

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SPECIAL FACTORS

Background to the Arrangement

The Arrangement Agreement is the result of arm’s length negotiations between the Special Committee, Rio Tinto and their respective advisors. The following is a summary of certain relevant background information that informed the Special Committee’s deliberations, as well as the principal events leading to the execution of the Arrangement Agreement and public announcement of the Arrangement. Unless otherwise indicated, all information regarding Rio Tinto and its consideration of a potential acquisition of the Minority Shares was provided to Turquoise Hill by Rio Tinto in connection with the preparation of this Circular, and after the execution of the Arrangement Agreement and public announcement of the Arrangement; and Turquoise Hill was not previously aware of such information.

Introduction

Turquoise Hill is an international mining company focused on the operation and continued development of the Oyu Tolgoi copper-gold mine in Mongolia (“Oyu Tolgoi”), which is the Corporation’s principal and only material mineral resource property. The Corporation’s ownership of Oyu Tolgoi is held through a 66% interest in OT LLC; the remaining 34% interest is held by Erdenes, a Mongolian state-owned entity.

Rio Tinto commenced its investment in the Corporation in 2006, and in 2012 Rio Tinto acquired majority ownership of the Corporation when it increased its shareholding to approximately 50.8% of the then outstanding Shares. Rio Tinto has been a party to a series of agreements with the Corporation entered into since 2006 pursuant to which, among other things, Rio Tinto has provided operational, management and financing support to further the development of Oyu Tolgoi. The Manager (an affiliate of Rio Tinto) is responsible for the day-to-day operational management of Oyu Tolgoi. Rio Tinto currently owns, directly or indirectly, 102,196,643 Shares of Turquoise Hill, representing approximately 50.8% of the outstanding Shares.

Background to the Timing of Rio Tinto’s Initial Proposal

The information under this heading includes certain information provided by RTIHL and Rio Tinto for purposes of inclusion in this Circular with respect to the principal events leading to Rio Tinto’s decision to make the Initial Proposal and the reasons for the Initial Proposal and its timing.

Over the past two years, the Corporation and Rio Tinto have entered into several agreements related to the funding of Oyu Tolgoi’s underground project in light of increased development cost estimates for the project as well as the impact of the COVID-19 pandemic and delays in the anticipated date of first sustainable production, including a “heads of agreement” entered into between the Corporation and RTIHL on April 9, 2021 to provide an updated funding plan for the development of the Oyu Tolgoi underground project.

Beginning in mid-2021, a small internal working group within Rio Tinto began to assess the feasibility and desirability of a possible acquisition by Rio Tinto of the Minority Shares. Rio Tinto’s management concluded that it would not recommend proceeding with such a transaction unless there was a reset of the relationship with the Government of Mongolia that would allow the parties to commence underground mining operations at Oyu Tolgoi. Representatives of Turquoise Hill were not included in Rio Tinto’s informal working group, nor was Turquoise Hill informed of these internal discussions and assessments or the respective outcomes.

Over the course of 2021 and early 2022, the Corporation and Rio Tinto worked to renew the partnership with the Government of Mongolia, to amend the framework governing the funding for development of Oyu Tolgoi and, subject to reaching agreement with the Government of Mongolia, to commence underground mining operations (collectively the “Reset”). On December 30, 2021, the Parliament of Mongolia passed Resolution 103, which mandated the Government of Mongolia to take necessary measures to ensure the benefits to Mongolia of Oyu Tolgoi. Among other things, Resolution 103 prohibited any additional debt financing at OT LLC, regardless of whether it was provided by OT LLC’s shareholders or any third party. On January 10, 2022, a member of the Mongolian Parliament sent a letter to Rio Tinto (the “Response Letter”), which clarified that the debt restrictions with respect to OT LLC’s shareholders would apply until such time as sustainable production is achieved at the Oyu Tolgoi underground mine. At such time, sustainable production for Panel 0 in the underground mine was expected to be achieved by the first half of 2023. In Rio Tinto’s view, this intensified the need to resolve the funding structure of Oyu Tolgoi, which depends on debt funding guaranteed by Rio Tinto.

On January 24, 2022, the Corporation announced that it had reached a mutual understanding with the Government of Mongolia in connection with the Reset and that the OT LLC board of directors had unanimously approved the

 

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commencement of underground mining operations at Oyu Tolgoi. As part of the agreement with the Government of Mongolia, Turquoise Hill agreed, among other things, to waive in full the approximately US$2,400,000,000 carry account loan owed by Erdenes to the Corporation, which comprised the amount of equity invested in OT LLC by Turquoise Hill on behalf of Erdenes plus accrued interest.

In connection with the Reset, on January 24, 2022, the Corporation also announced that it had entered into the A&R HoA with RTIHL setting forth a comprehensive funding arrangement that did not contemplate additional loan financing at OT LLC prior to sustainable production (as required by Resolution 103 and the Response Letter) and to address Turquoise Hill’s incremental funding requirements, which were estimated at US$3,400,000,000 as at December 31, 2021.

Key elements of the A&R HoA included (subject to the applicable terms and conditions set forth in the A&R HoA):

 

•

RTIHL and Turquoise Hill agreeing to use their commercially reasonable efforts to negotiate the rescheduling of principal repayments of existing Oyu Tolgoi project debt to better align service of such debt with the updated Oyu Tolgoi mine plan and potentially reduce the base case funding requirement (US$3,400,000,000) by up to US$1,700,000,000 (the “Re-Profiling”) prior to December 31, 2022;

 

•

seeking to raise up to US$500,000,000 of additional senior supplemental debt from specified international financial institutions (“SSD”);

 

•

RTIHL committing to provide a co-lending facility (the “Co-Lending Facility”), incremental to the Re-Profiling and the SSD, of up to US$750,000,000 to be made available once sustainable production at Oyu Tolgoi is achieved;

 

•

RTIHL committing to provide one or more short-term secured advances (the “RT Advance”) directly to the Corporation up to a maximum of US$300,000,000, which would be available during the debt funding restriction period identified in Resolution 103 and would be indirectly repaid out of the proceeds of the Co-Lending Facility;

 

•

Turquoise Hill agreeing to conduct an equity offering of at least US$650,000,000 (the “Initial Equity Offering”) (including any pro rata participation by Rio Tinto) by no later than August 31, 2022;

 

•

Turquoise Hill committing to conduct one or more additional equity offerings by December 31, 2023 sufficient to generate gross proceeds in the amount required to fund any further funding shortfall up to the maximum amount of US$1,500,000,000 in the aggregate (including the proceeds from the Initial Equity Offering); and

 

•

Turquoise Hill acknowledging that RTIHL had considered, but would not support or expect to consent (where its consent was required), to any additional debt or other sources of funding beyond those explicitly contemplated in the A&R HoA.

In light of the debt financing restrictions imposed by Resolution 103, until sustainable production is achieved at Oyu Tolgoi, OT LLC’s estimated funding requirements were expected to be addressed by cash on hand, the Re-Profiling and the various funding elements contemplated by the A&R HoA through the Pre-payment Agreement.

Following execution of the A&R HoA, in light of the August 31, 2022 deadline for the Initial Equity Offering, the Corporation took steps to be in a position to proceed with an equity offering in the first half of 2022, subject to market and other conditions. These steps included engaging potential lead underwriters, including TD Securities, in November 2021.

Following the January 24, 2022 announcement of the Reset, the Corporation’s Share price materially increased, rising from a closing price of C$19.12 per Share on the TSX on January 24, 2022, the last trading day prior to the Reset announcement, to a closing price of C$25.68 on the TSX on March 11, 2022, the last trading day prior to Rio Tinto’s announcement of its proposal to acquire the Minority Shares.

Over the same period, copper prices increased by approximately 6% and the average share price of Turquoise Hill’s peers increased by approximately 18%.

Unbeknownst to Turquoise Hill at the time, Rio Tinto’s preliminary confidential work to evaluate a potential acquisition of the Minority Shares intensified during this period and the Rio Tinto board of directors was apprised of this work at a February 15, 2022 meeting. At that meeting, the Rio Tinto board of directors established a subcommittee of the board to further evaluate the merits and risks of the proposal. That subcommittee met several times over the following several weeks, working with Rio Tinto management to evaluate the feasibility, merits and risks of such an acquisition. The Rio

 

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Tinto board of directors met again on March 11, 2022, at which meeting the Rio Tinto board of directors and management discussed potential proposal terms. The Rio Tinto board of directors authorized Rio Tinto management to speak to Peter Gillin, the independent Chairman of the Board of Turquoise Hill, to advise the Corporation that Rio Tinto was contemplating a proposal to acquire the Minority Shares.

Rio Tinto Initial Proposal

On March 11, 2022, Mr. Gillin received a call from Bold Baatar, Rio Tinto’s Chief Executive, Copper, advising that Rio Tinto was evaluating the possibility of a proposal to acquire the Minority Shares and that, should Rio Tinto decide that it intended to make a proposal to acquire the Minority Shares, applicable Securities Laws would require Rio Tinto to make a prompt public disclosure of the change in its investment intention through a regulatory filing. Following such call, Mr. Gillin informed the other independent members of the Board as well as Steve Thibeault, the Interim Chief Executive Officer of Turquoise Hill, that Rio Tinto was evaluating a proposal to acquire the Minority Shares. On March 12, 2022, Mr. Gillin received a call from Jakob Stausholm, Chief Executive Officer of Rio Tinto, reiterating that the Rio Tinto board of directors was considering a proposal to acquire the Minority Shares.

On March 13, 2022, Mr. Baatar and Andrew Latham, Head of Business Development at Rio Tinto, called Mr. Gillin and Russel C. Robertson, an independent member of the Board, to advise Mr. Gillin and Mr. Robertson that the Rio Tinto board of directors had met that day and approved a non-binding proposal for a transaction that would be shared with the Board later that day. Mr. Baatar and Mr. Latham also previewed the material terms of such proposal.

Later that day on March 13, 2022, the Board received a letter from Mr. Stausholm on behalf of Rio Tinto submitting a non-binding proposal from Rio Tinto to acquire the Minority Shares for consideration of C$34.00 per Share in cash (the “Initial Proposal”). The Initial Proposal was conditional on, among other things, approval of the Board and that Turquoise Hill not raise additional equity capital, including through a rights offering, bought deal or other share placement, pending completion of the proposed transaction. The Initial Proposal also stated that Rio Tinto was not interested in pursuing any alternative transaction, including any transaction that 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. Rio Tinto subsequently issued a press release announcing the Initial Proposal prior to the commencement of trading on March 14, 2022, and filed an amendment to Rio Tinto’s Schedule 13D with respect to its shareholding in the Corporation with the SEC later that day.

Following receipt of the Initial Proposal, on March 13, 2022 the independent members of the Board met with Mr. Thibeault, Dustin Isaacs, Chief Legal Officer and Corporate Secretary of Turquoise Hill, and Blakes, ongoing legal counsel to the independent members of the Board, to discuss the Initial Proposal and the formation of a special committee to consider Rio Tinto’s privatization proposal. The independent directors considered, among other things, directors’ duties in the context of a going private transaction, the formation of a special committee, the terms of the Initial Proposal, and the requirements of MI 61-101 applicable to going private transactions. On March 14, 2022, the Corporation issued a press release acknowledging receipt of the Initial Proposal and announcing that the Board would be establishing a special committee of independent directors to review and consider the Initial Proposal.

On March 15, 2022, a meeting of the Board was held to form the Special Committee of independent directors, comprised of Maryse Saint-Laurent (Chair), George Burns, Mr. Gillin and Mr. Robertson, and to approve a mandate for the Special Committee that authorized the Special Committee to, among other things: (i) review and evaluate the Initial Proposal and any alternative transaction, including whether any such transaction would be in the best interests of the Corporation; (ii) consider the Corporation’s liquidity needs and financing options pending the Special Committee’s consideration of the Initial Proposal, or any other alternative transaction, and through completion of any proposed transaction; (iii) if determined desirable, negotiate the terms of any transaction with Rio Tinto, any alternative transaction or any potential financing transaction on behalf of the Corporation, and (iv) make recommendations to the Board respecting any potential transaction, including any potential financing transaction.

On March 16, 2022, the Special Committee invited eight investment banks to submit proposals to act as financial advisor to the Special Committee or independent valuator. Of these, six investment banks submitted detailed proposals. In connection with the selection process, candidates were required to disclose to the Special Committee details regarding their relationships with Rio Tinto so that the Special Committee could assess the materiality of those relationships for purposes of independence. In addition, on March 18, 2022, a ninth investment bank was invited to submit a proposal.

On March 17, 2022, the Special Committee met, with Mr. Thibeault, Mr. Isaacs and Blakes also in attendance, to consider, among other things, the Corporation’s liquidity requirements, the Corporation’s anticipated equity offering, including the requirement under the A&R HoA to complete the Initial Equity Offering by August 31, 2022 and the condition in the Initial Proposal that the Corporation not proceed with an equity offering, and to consider alternative financing options that might be requested from Rio Tinto pending the Special Committee’s consideration of the Initial

 

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Proposal. Also on March 17, 2022, the Special Committee met separately with Blakes to discuss, among other things, the process for selecting a financial advisor and independent valuator.

On March 21, 2022, the Special Committee met, with Blakes, Mr. Thibeault and Mr. Isaacs also in attendance, to review and discuss the proposals received from potential financial advisors and independent valuators. The Special Committee considered the independence requirements for valuators under MI 61-101, reviewed the criteria it considered to be important in selecting an independent valuator and reviewed the disclosures made in each proposal regarding independence and additional considerations with respect to the independence of each financial advisor and valuator candidate. The Special Committee determined to invite six investment banks to make presentations on their credentials as a potential financial advisor or independent valuator.

On March 23, 2022, the Special Committee met at the offices of Blakes in Toronto to interview the candidates to become the Special Committee’s financial advisor, each of which was also prepared to act alternatively as independent valuator. Following the interviews, the Special Committee met to discuss the presentations provided by each of the candidates and consider each candidate’s qualifications, credentials and relevant experience. Mr. Thibeault attended at the invitation of the Special Committee for a portion of the meeting and provided the Special Committee with his views on the candidates interviewed. Following the March 23, 2022 meeting, the Special Committee engaged with BMO Capital Markets regarding potential terms of an engagement to serve as the Special Committee’s financial advisor.

During the weeks of March 14 and March 21, 2022, Mr. Gillin and Management had discussions with representatives of certain of the Corporation’s Minority Shareholders with significant holdings of Shares who, among other things, expressed a view that the consideration proposed to be offered to the Minority Shareholders under the Initial Proposal was inadequate.

On March 25, 2022, Ms. Saint-Laurent met with Mr. Latham in Calgary to discuss the process for the Special Committee’s consideration of the Initial Proposal, including the information that would be required from OT LLC and, in certain cases, from the Manager in order to complete an independent valuation. Mr. Latham and Ms. Saint-Laurent did not discuss the terms of the Initial Proposal or the terms of a potential transaction. Ms. Saint-Laurent informed Mr. Latham that the Special Committee was in the process of engaging advisors to assist it in considering the Initial Proposal.

On April 6, 2022, the Special Committee met with Blakes. Mr. Thibeault and certain other members of Management were also in attendance for portions of the meeting. At the meeting, BMO Capital Markets’ selection as financial advisor was formally approved. In addition, the Special Committee further discussed TD Securities’ qualifications as a valuator and considerations related to TD Securities’ independence, including TD Securities’ engagement as a potential lead underwriter in connection with the Corporation’s potential equity offering and TD Securities’ relationships with and past work for the Corporation and Rio Tinto, and further considered the independence requirements for valuators under MI 61-101. The Special Committee considered TD Securities’ prior roles advising the Corporation and its potential role as a lead underwriter in connection with an equity offering and determined that these relationships would not impact its independence for the purposes of MI 61-101. As a result, the Special Committee determined to retain TD Securities as independent valuator to prepare a formal valuation of the Shares in accordance with MI 61-101. At the meeting, the Special Committee also received an update from Management regarding the Corporation’s liquidity position, the status of the Re-Profiling and negotiation of the Pre-payment Agreement. The Special Committee considered potential terms for a loan from Rio Tinto that, if agreed to by Rio Tinto, would address the Corporation’s near-term liquidity requirements on terms acceptable to the Special Committee in lieu of proceeding with an equity offering to satisfy the Initial Equity Offering required under the A&R HoA.

The Corporation announced the Special Committee’s retention of BMO Capital Markets as financial advisor, TD Securities as independent valuator and Blakes as legal counsel by press release on April 7, 2022. Following TD Securities’ engagement as independent valuator, TD Securities commenced work on its valuation of the Shares, including obtaining information from Management regarding the Corporation and Oyu Tolgoi, and from OT LLC and, in certain cases, from the Manager regarding Oyu Tolgoi.

On April 12, 2022, at the direction of the Special Committee, Mr. Thibeault and Luke Colton, Chief Financial Officer of the Corporation, met with Elias Scafidas, Chief Financial Officer, Copper of Rio Tinto and Mr. Latham in London, United Kingdom to discuss the liquidity needs of the Corporation. Following the meeting, at the request of the Special Committee, Mr. Thibeault provided Rio Tinto with the Special Committee’s proposed terms for a potential debt facility to be provided by Rio Tinto in order to address the Corporation’s near-term liquidity requirements on terms acceptable to the Special Committee in lieu of proceeding with an equity offering to satisfy the Initial Equity Offering required under the A&R HoA.

 

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From April 13, 2022 through to mid-May 2022, the Special Committee and Management, at the direction of the Special Committee, engaged in extensive negotiations with Rio Tinto regarding the size and terms of a potential debt facility from Rio Tinto to satisfy the Corporation’s near-term liquidity requirements in lieu of proceeding with an equity offering. Over the course of the negotiations, the Special Committee met on several occasions to consider, along with BMO Capital Markets and Blakes, and with input from members of Management, the Corporation’s liquidity needs, preparations for the proposed equity offering, and revised debt financing proposals received from Rio Tinto, as well as to receive updates on the status of TD Securities’ independent valuation.

During such time, the Corporation continued to prepare to launch an equity offering should negotiations with Rio Tinto on debt financing terms be unsuccessful. The Special Committee and Management communicated to Rio Tinto on several occasions that the Corporation continued to prepare for an equity offering and during this period shared with Rio Tinto, as required under the A&R HoA, draft offering documents for the planned equity offering. On April 24, 2022, during a meeting between Ms. Saint-Laurent, Mr. Gillin, Mr. Scafidas and Mr. Latham, Mr. Scafidas and Mr. Latham reiterated that Rio Tinto intended to withdraw the Initial Proposal (which was conditional on no equity being issued by the Corporation) if the Corporation proceeded with an equity offering. They also confirmed that Rio Tinto intended to participate pro rata in any such equity offering pursuant to its existing pre-emptive rights. This was subsequently confirmed in writing by Mr. Latham the following day. In addition, during such period BMO Capital Markets reported to the Special Committee on several discussions it had held at the direction of the Special Committee with the potential lead underwriters for the equity offering during which BMO Capital Markets discussed with the potential lead underwriters the potential of proceeding with an equity offering despite the complexities due to the pendency of the Initial Proposal.

On April 28, 2022, Mr. Scafidas delivered a revised proposal to the Special Committee for an early advance credit facility of US$400,000,000.

At a meeting on April 30, 2022, the Special Committee authorized BMO Capital Markets to proceed with outreach to industry participants and strategic investors to discuss potential alternatives to the transaction proposed by Rio Tinto in the Initial Proposal. In the weeks that followed, at the direction of the Special Committee, representatives of BMO Capital Markets reached out to 13 industry participants and strategic investors and held discussions regarding potential participation in an alternative transaction, including acquisition of the Minority Shares or participation in a private placement offering of equity of the Corporation.

On May 5, 2022, the Special Committee delivered a revised proposal to Rio Tinto for an early advance credit facility of US$400,000,000 in addition to amendments to the A&R HoA, which was subsequently negotiated over the following 13 days.

On May 11, 2022, following her election as an independent director to the Board at the Corporation’s annual shareholders’ meeting, the Board appointed Ms. Donally to the Special Committee as its fifth member.

On May 16, 2022, the Special Committee met, with representatives of BMO Capital Markets and Blakes in attendance, to discuss a draft Second A&R HoA in order to give effect to additional short term debt financing from Rio Tinto to address the Corporation’s near-term liquidity requirements in lieu of proceeding with an equity offering. Mr. Thibeault and certain other members of Management also attended portions of the meeting at the invitation of the Special Committee. During the meeting, the Special Committee considered the application of MI 61-101 to the Second A&R HoA due to the fact that Rio Tinto is a “related party” of the Corporation (as defined in MI 61-101). Following careful consideration by the Special Committee of the financing options available to the Corporation, including the planned equity offering, feedback from potential lead underwriters and then current market conditions; the Special Committee resolved to recommend that the Board approve the Second A&R HoA in the form of the draft provided to the Special Committee, subject to acceptance thereof by Rio Tinto.

On May 17, 2022, in connection with TD Securities’ ongoing valuation work, TD Securities engaged Enthalpy PTY Ltd. (“Enthalpy”) as a technical consultant to assist with TD Securities’ independent valuation and the review of mine design, mine optimization opportunities and certain potential risks relating to Oyu Tolgoi.

On May 18, 2022, the Corporation announced that it had entered into the Second A&R HoA with RTIHL in order to, among other things, make interim debt funding available to the Corporation to address the Corporation’s near-term estimated funding requirements and to extend the date by which Turquoise Hill was required to complete the Initial Equity Offering. Key elements of the Second A&R HoA included (subject to the applicable terms and conditions set forth in the Second A&R HoA):

 

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an extension of the date by which the Corporation was required to conduct the Initial Equity Offering to December 31, 2022 from August 31, 2022;

 

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a commitment by Rio Tinto to make available additional short-term bridge financing directly to the Corporation by way of one or more secured advances of up to US$400,000,000 (the “Early Advance”) subject to satisfaction or waiver of certain conditions precedent and to be repaid out of the proceeds of the Initial Equity Offering; and

 

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if Rio Tinto did not publicly withdraw the Initial Proposal prior to June 30, 2022, the automatic removal of the condition that the Corporation have completed the Initial Equity Offering prior to drawing any RT Advances.

In furtherance of its mandate, the Special Committee continued to monitor and evaluate the Corporation’s liquidity needs and financing options following execution of the Second A&R HoA. The Special Committee determined that the Corporation should continue to be prepared to proceed with an equity offering on short notice, and the Corporation continued to hold regular calls with potential lead underwriters and legal counsel in respect of the potential equity offering throughout the remainder of May 2022 through to August 2022, including with BMO Capital Markets and TD Securities.

On May 25, 2022, Mr. Gillin had a call with Dominic Barton, the recently appointed Chairman of the board of directors of Rio Tinto. In their conversation, Mr. Barton and Mr. Gillin noted the Special Committee’s ongoing process in reviewing the Initial Proposal, but did not otherwise discuss the Initial Proposal.

In connection with TD Securities’ independent valuation and BMO Capital Markets’ engagement as financial advisor, from June 1 to 4, 2022, representatives of TD Securities and BMO Capital Markets travelled to Mongolia along with the Senior Manager, Business Strategy and Analysis of Turquoise Hill to conduct a site visit of Oyu Tolgoi and to meet with staff of OT LLC in Ulaanbaatar. During the course of the visit, representatives of OT LLC and Turquoise Hill led the TD Securities and BMO Capital Markets representatives through key areas of Oyu Tolgoi and engaged in discussions with such representatives regarding the project. The site visit included presentations from various representatives of OT LLC as well as tours of the open pit mine, underground development area and concentrator.

On June 9, 2022, Ms. Saint-Laurent had a call with Mr. Latham in which Ms. Saint-Laurent described the information which Ms. Saint-Laurent understood remained outstanding from TD Securities’ requests of OT LLC and, in certain cases, from the Manager. Mr. Latham confirmed that he would follow up to seek that the requested information would be provided.

On June 9, 2022, a representative of BMO Capital Markets met with a representative of one of Rio Tinto’s financial advisors, RBC Capital Markets, to discuss the basis upon which Rio Tinto arrived at the offer price of C$34.00 per Share in the Initial Proposal.

On June 10, 2022, the Special Committee met with representatives of BMO Capital Markets, TD Securities and Blakes to receive an update from TD Securities on the status of TD Securities’ independent valuation and outstanding information requests related thereto and an update from members of Management on the Corporation’s liquidity needs and status of preparations for the planned equity offering. In addition, representatives of BMO Capital Markets provided an update to the Special Committee on the results of its outreach to third parties regarding a potential investment in the Corporation or an acquisition of the Minority Shares, reporting that the parties had advised BMO Capital Markets that they were unwilling to acquire a minority stake without Rio Tinto’s support, which the Special Committee recognized would not be forthcoming as set out in the Initial Proposal. TD Securities reported to the Special Committee on its engagement with Enthalpy and Enthalpy’s review of the Oyu Tolgoi mine plan. Mr. Thibeault and other members of Management were invited to participate in certain portions of the meeting. Management provided the Special Committee with an update on the status of the Re-Profiling, noting that engagement with lenders’ counsel had commenced and was progressing towards completion before the US$362,000,000 principal payment would become due in December 2022. Management also provided an update on the progress of the underground operations at Oyu Tolgoi and the anticipated timing of sustainable production and updated the Special Committee on the Corporation’s readiness to proceed with an equity offering.

On June 15, 2022, representatives of BMO Capital Markets met with representatives of one of Rio Tinto’s financial advisers, RBC Capital Markets, to discuss the Initial Proposal. At the meeting, representatives of BMO Capital Markets indicated that the Special Committee expected to be in a position to engage with Rio Tinto on the Initial Proposal in July.

From June 17 to June 24, 2022, members of the Special Committee travelled to Mongolia to conduct a site visit of Oyu Tolgoi and to receive updates on underground development directly from representatives of OT LLC.

On June 21, 2022, Ms. Saint-Laurent received an update from TD Securities on the status of TD Securities’ independent valuation and outstanding information requests related thereto, including outstanding information requested from OT LLC and, in certain cases, from the Manager. TD Securities confirmed that, while it would continue

 

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to pursue such outstanding information that it had requested in connection with its valuation work, it would be in a position to provide a preliminary indications of value analysis to the Special Committee the following week.

On June 27, 2022, the Special Committee met with representatives of TD Securities, BMO Capital Markets and Blakes to receive a draft presentation from TD Securities regarding its preliminary indications of value analysis regarding the value of the Shares based on its work performed to date. In connection with such presentation, TD Securities provided the Special Committee with a detailed explanation of the analysis and assumptions underlying its preliminary indications of value analysis as well as an overview of outstanding information that had been requested from the Corporation, OT LLC and, in certain cases, the Manager in order to inform TD Securities’ analysis. TD Securities’ presentation included a preliminary analysis of transaction values based on price to NAV multiples and future enterprise value to EBITDA multiples, with the lowest transaction value implied by these methodologies being C$39.10 per Share. TD Securities noted to the Special Committee that the draft preliminary analysis presented was as of such date, not a formal valuation and further analysis, refinement and receipt of additional information would be required prior to TD Securities being in a position to provide a formal valuation range. At the meeting, representatives of BMO Capital Markets also presented to the Special Committee the results of a preliminary financial analysis based on publicly available information and information provided by or on behalf of the Corporation to date. The Special Committee discussed the preliminary indications of value analysis presented by TD Securities and financial analysis presented by BMO Capital Markets and noted that the offer price of C$34.00 per Share was well below the ranges of values implied by the analysis presented by TD Securities.

In late June and early July 2022, at the request of the Special Committee, BMO Capital Markets held meetings with the representatives of a number of Minority Shareholders with significant holdings of Shares to hear their perspectives on the Corporation, and the Minority Shareholders’ views that the fair value for the Shares was well above the C$34.00 per Share offer price contemplated by the Initial Proposal and on how to maximize value for Shareholders.

On July 6, 2022, the Special Committee met with representatives of BMO Capital Markets and Blakes to discuss the feedback that BMO Capital Markets had received from the representatives of certain Minority Shareholders on the Initial Proposal. At the meeting, the Special Committee discussed alternatives to a take-private transaction with Rio Tinto, noting that Rio Tinto had publicly stated that it would be unwilling to support an alternative transaction. Alternatives considered included continuing to pursue the Corporation’s business plan on a stand-alone basis and options to assist the Corporation in pursuing such plan and addressing the Corporation’s funding needs, including through a public or private offering of equity. The Special Committee also considered alternative consideration structures for a potential take-private transaction with Rio Tinto that could potentially bridge the gap between Rio Tinto’s offer price and the Special Committee’s views on a fair value for the Shares. TD Securities was in attendance for a portion of the meeting and provided a draft presentation to the Special Committee updating its preliminary indications of value analysis previously provided on June 27, 2022 to account for additional information reviewed by TD Securities in the intervening period, updated market conditions and other refinements. Within this presentation, the lowest transaction value implied by the future enterprise value to EBITDA multiple methodology had been updated to C$40.34 per Share. TD Securities noted to the Special Committee that the draft preliminary analysis presented was as of such date, not a formal valuation and further analysis, refinement and receipt of additional information would be required prior to TD Securities being in a position to provide a formal valuation range. Following such update, TD Securities continued to seek outstanding information from Management regarding the Corporation and Oyu Tolgoi, and from OT LLC and, in certain cases, from the Manager, regarding Oyu Tolgoi, related to its ongoing valuation work.

On July 11, 2022, the Special Committee met, with representatives of BMO Capital Markets and Blakes in attendance. At such meeting, the Special Committee received a presentation from representatives of BMO Capital Markets that updated the financial analysis presented by BMO Capital Markets on June 27, 2022 based on the passage of time and additional information that was publicly available or provided by or on behalf of the Corporation to BMO Capital Markets as of such date. Following such presentation, the Special Committee, with advice from BMO Capital Markets and following careful consideration of, among other things, the preliminary indications of value analysis provided by TD Securities and preliminary financial analysis provided by BMO Capital Markets, the size and quality of Oyu Tolgoi as a tier 1 asset that is expected to be one of the largest copper mines in the world, market conditions in the equity and copper markets and the feedback received from certain Minority Shareholders on the Initial Proposal, determined that Rio Tinto’s offer price of C$34.00 per Share was inadequate. In addition, the Special Committee once again discussed with BMO Capital Markets alternatives to a take-private transaction with Rio Tinto and options for satisfying the Corporation’s liquidity needs.

On July 12, 2022, Ms. Saint-Laurent and Mr. Gillin held a telephone call with Mr. Baatar and Mr. Latham of Rio Tinto to discuss the Initial Proposal. During the call, Mr. Gillin relayed that the offer price of C$34.00 per Share was well below the ranges of values implied by the analysis presented by TD Securities and that the Special Committee believed that C$34.00 per Share was inadequate. Mr. Gillin, Mr. Baatar and Mr. Latham discussed, among other things, the recent decline in the market price of copper and the impact on the share prices of the Corporation’s peers and developmental, operating and financial challenges associated with Oyu Tolgoi. Mr. Baatar and Mr. Latham explained

 

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that, in Rio Tinto’s view, each of these factors supported that the offer price of C$34.00 in cash per Share represented fair value to the Minority Shareholders. Ms. Saint-Laurent and Mr. Gillin invited Rio Tinto to have its financial advisors engage further with representatives of BMO Capital Markets to discuss a potential transaction, including the parties’ respective preliminary financial analyses.

On July 14, 2022, representatives of BMO Capital Markets met with Rio Tinto’s financial advisors, Credit Suisse, RBC Capital Markets and Rothschild & Co, to provide the Special Committee’s rationale for concluding that the Initial Proposal was inadequate and to discuss potential alternatives for structuring consideration in a take-private transaction as well as to address the parties’ differing views on value. During the meeting, BMO Capital Markets and Rio Tinto’s financial advisors discussed the primary methodologies being used by the parties in their respective financial analyses. In the course of this discussion, Rio Tinto’s financial advisors conveyed to representatives of BMO Capital Markets that Rio Tinto was unwilling to consider any alternatives to an all-cash transaction, and that Rio Tinto was not prepared to increase its offer price from the C$34.00 per Share in cash offered in the Initial Proposal. Following such meeting, the representatives of BMO Capital Markets provided the Special Committee with a high-level summary of the primary methodologies Rio Tinto’s financial advisors had indicated were being used by Rio Tinto as compared to the primary methodologies being used by the Special Committee’s advisors.

During the week of July 18, 2022, the Special Committee met on a number of occasions to receive updates regarding the discussions with Rio Tinto and its financial advisors, to consider alternatives to a take-private transaction with Rio Tinto, including proceeding with an equity offering, and to evaluate the Corporation’s readiness to proceed with an equity offering.

On July 21, 2022, Ms. Saint-Laurent and Mr. Gillin met with Mr. Baatar and Mr. Latham of Rio Tinto in Toronto. During the meeting, Ms. Saint-Laurent and Mr. Gillin informed Mr. Baatar and Mr. Latham that the Corporation expected that the independent valuation being prepared by TD Securities would result in a range well above Rio Tinto’s offer price of C$34.00 in cash per Share. The parties engaged in a discussion of valuation methodologies, including operating assumptions and discount rates which impacted their respective analyses, and the parties agreed that their respective financial advisors should meet again to better understand the reasons for differing views on valuation.

On July 26, 2022, Andrew Latham, on behalf of Rio Tinto, delivered a letter to Ms. Saint-Laurent and Mr. Gillin that provided Rio Tinto’s perspectives on the value of the Shares and the potential risks facing Turquoise Hill’s investment in Oyu Tolgoi. The letter outlined valuation considerations from Rio Tinto’s perspective including (i) sovereign considerations reflecting Mongolia’s country risk profile, (ii) operational considerations reflecting risks associated with the ramp up and operation of a complex block cave and (iii) financing considerations, including the risk that the required equity raise may be well in excess of the US$1,500,000,000 commitment in the Second A&R HoA. The letter claimed that the Special Committee’s views on value, informed by the analyses of its financial advisor and valuator, did not appropriately factor in these risks. Following receipt of the letter, Ms. Saint-Laurent and Mr. Gillin shared the letter with the other members of the Special Committee, Blakes, BMO Capital Markets, TD Securities and representatives of Management.

On July 28, 2022, Rio Tinto delivered to BMO Capital Markets a copy of Rio Tinto’s updated valuation model, an earlier version of which had been shared with BMO Capital Markets in June 2022.

On July 29, 2022, the Special Committee met, with representatives of BMO Capital Markets, TD Securities, Blakes, Mr. Thibeault and certain other members of Management also in attendance, to discuss Rio Tinto’s July 26, 2022 letter. The Special Committee, with input from members of Management, considered each of the risks identified in Rio Tinto’s letter and determined that none of these were new risks and that each had already been considered and disclosed in the Corporation’s public disclosure. The Special Committee also determined, with input from BMO Capital Markets and TD Securities, that the risks identified in Rio Tinto’s letter had been largely considered and incorporated into the respective financial analyses of BMO Capital Markets and TD Securities, where appropriate.

On August 1, 2022, representatives of BMO Capital Markets met with Rio Tinto’s financial advisors, Credit Suisse, RBC Capital Markets and Rothschild & Co., to discuss Rio Tinto’s July 26, 2022 letter and their clients’ respective approaches to the financial analyses. Later in the day on August 1, 2022, the Special Committee met with representatives of BMO Capital Markets and Blakes to discuss the Initial Proposal and Rio Tinto’s July 26, 2022 letter.

Also on August 1, 2022, representatives of BMO Capital Markets, at the direction of the Special Committee, had a discussion with a Minority Shareholder with a significant holding of Shares regarding such Minority Shareholder’s views on value and the Initial Proposal. During the meeting, the Minority Shareholder expressed its view that fair value for the Shares was well above the C$34.00 per Share offer price contemplated by the Initial Proposal.

On August 4, 2022, the Corporation announced its second quarter financial results and disclosed, among other things, an increase in its estimated base case incremental funding requirement from US$3,400,000,000 to US$3,600,000,000

 

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and that it could need to raise incremental equity proceeds of approximately US$400,000,000, which would be in addition to the Initial Equity Offering of US$650,000,000 required by December 31, 2022, to fully address its estimated incremental funding requirements within the timing framework of the Second A&R HoA which set a target date for the Re-Profiling of no later than December 31, 2022 and an outside date for the SSD and the Co-Lending Facility of the earlier of three months following the lifting of the debt restrictions under Resolution 103 and December 31, 2023. The Corporation also reiterated that its liquidity outlook would continue to be impacted, either positively or negatively, by various factors, many of which are outside of the Corporation’s control, including (i) achieving alignment with relevant stakeholders in addition to Rio Tinto; (ii) success in implementing the Second A&R HoA; (iii) changes in commodity prices and other market-based assumptions such as LIBOR and inflation; (iv) achieving certain cost and performance metrics in mining operations, performance of surface operations and cost or schedule estimates for the underground mine; and (v) the outcomes of the Corporation’s and Rio Tinto’s ongoing engagement with the Government of Mongolia.

On August 4, 2022, Ms. Saint-Laurent and Mr. Gillin met with Mr. Baatar and Mr. Latham to discuss the Initial Proposal and Rio Tinto’s July 26, 2022 letter. At the meeting, Ms. Saint-Laurent and Mr. Gillin acknowledged the July 26, 2022 letter and advised that the Special Committee was of the view that the risks outlined in their letter and facing the Corporation and Oyu Tolgoi were adequately understood by the Corporation and taken into consideration by the Special Committee and its financial advisor and valuator in their evaluation of the Initial Proposal. Accordingly, Ms. Saint-Laurent and Mr. Gillin reiterated that the Special Committee would be unable to support the Initial Proposal at an offer price of C$34.00 per Share.

Following the meeting with Rio Tinto, the Special Committee requested that BMO Capital Markets prepare a reconciliation of inputs and assumptions underlying BMO Capital Markets’ advice on the Initial Proposal, such that BMO Capital Markets could seek to demonstrate to Rio Tinto’s financial advisors that the mine model on which BMO Capital Markets had based its analysis was consistent with the model being used by Rio Tinto and to assist Rio Tinto in understanding the Special Committee’s views on value.

At a meeting on August 8, 2022, representatives of BMO Capital Markets presented the Special Committee with a summary of the inputs and assumptions underlying the preliminary financial analyses prepared by the Special Committee’s and Rio Tinto’s respective advisors and confirmed that overall the inputs and operating assumptions used in the analyses were largely consistent. On August 9, 2022, Ms. Saint-Laurent shared this summary with Rio Tinto, which confirmed that the underlying operating models being used by the parties were similar.

On August 11, 2022, representatives of BMO Capital Markets and one of Rio Tinto’s financial advisors, Credit Suisse, met to discuss their clients’ respective approaches to the financial analyses and the summary of inputs and assumptions that BMO Capital Markets had prepared.

On August 12, 2022, the Special Committee met, with representatives of BMO Capital Markets and Blakes in attendance, to consider the status of discussions with Rio Tinto regarding the Initial Proposal. During the meeting, the Special Committee determined to inform Rio Tinto that if it could not provide an improved offer, the Special Committee was prepared to publicly announce its rejection of the Initial Proposal to facilitate the Corporation moving forward with an equity offering.

Later on August 12, 2022, Ms. Saint-Laurent and Mr. Gillin spoke by telephone with Mr. Baatar and Mr. Latham of Rio Tinto. During this meeting, it was acknowledged and agreed that similar mine plans and operating assumptions were being used by each party in connection with their respective valuation analyses and that the difference between Rio Tinto’s view of value and the Special Committee’s view of value was primarily due to differences in methodologies and the discount rate being applied. Ms. Saint-Laurent and Mr. Gillin once again reiterated that the Special Committee was unable to support the Initial Proposal at the offer price of C$34.00 per Share and relayed the Special Committee’s determination to publicly announce the rejection of the Initial Proposal if Rio Tinto was not prepared to provide an improved offer. Ms. Saint-Laurent and Mr. Gillin agreed to give Rio Tinto until the evening of August 14, 2022 to provide an improved offer before publicly announcing the Special Committee’s rejection of the Initial Proposal. During the call, the representatives of Rio Tinto also indicated that, should the Special Committee reject the Initial Proposal and the Corporation proceed with an equity offering, Rio Tinto intended to withdraw the Initial Proposal but would, however, participate pro rata in such equity offering pursuant to its existing pre-emptive rights.

Over the course of the weekend, members of the Special Committee met with representatives of Rio Tinto on several occasions to discuss the Initial Proposal. However, these discussions did not result in an improved offer from Rio Tinto. On August 14, 2022, Ms. Saint-Laurent, Mr. Gillin and Ms. Donally held a call with Mr. Stausholm, Mr. Baatar and Mr. Latham of Rio Tinto wherein it became evident that the parties’ respective views on the appropriate range of value for the Shares continued to differ. At a meeting of the Special Committee on the evening of August 14, 2022, and with advice from BMO Capital Markets, after considering, among other factors, that Rio Tinto’s offer price of C$34.00 per Share was well below the ranges of values implied by TD Securities’ preliminary indications of value analysis, the size and quality of Oyu Tolgoi as a tier 1 asset, market conditions in the equity and copper markets, the risks facing the

 

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Corporation’s continued pursuit of its business plan on a stand-alone basis and the feedback received from certain Minority Shareholders on the Initial Proposal, the Special Committee determined that Rio Tinto’s offer price of C$34.00 per Share did not fairly reflect the fundamental and long-term strategic value of the Corporation’s majority ownership of Oyu Tolgoi and that it was not in the best interests of the Corporation or the Minority Shareholders for the Special Committee to support the Initial Proposal. Consequently, the Special Committee resolved to proceed with a public announcement of its rejection of the Initial Proposal, and a press release to that effect was issued on August 15, 2022.

Equity Offering and Revised Proposal

Following its decision to reject the Initial Proposal, the Special Committee instructed Management to proceed with finalizing preparations for an equity offering that would satisfy the Initial Equity Offering required under the Second A&R HoA, with the intention of launching an offering as soon as feasible and, if possible, before the end of August 2022, subject to market conditions.

On August 17, 2022, Ms. Saint-Laurent, Mr. Gillin, and Ms. Donally met with Mr. Stausholm, Mr. Baatar and Mr. Latham of Rio Tinto to discuss valuation and explore the possibility of the parties agreeing on an offer price in connection with a privatization transaction. The representatives of Rio Tinto communicated their view that future potential operational and financing challenges of Oyu Tolgoi, comparisons to similar mining projects and the price of copper assets made a valuation of above C$40.00 per Share difficult for Rio Tinto to justify. While specifics regarding the ranges of values implied by TD Securities’ preliminary indications of value analysis were not shared with Rio Tinto, the members of the Special Committee communicated to Rio Tinto that the Special Committee would not accept an offer price that was below the ranges of values implied by such preliminary analysis. The parties discussed shareholder relations and the financing needs of Oyu Tolgoi, including the Corporation’s planned equity raise.

On August 21, 2022, the Corporation informed Rio Tinto that it intended to launch an equity offering by August 24, 2022, and indicated that updated draft offering documents would be shared with Rio Tinto and its Canadian legal advisors shortly as required pursuant to the Second A&R HoA. Following such notice, Mr. Gillin spoke with Mr. Baatar of Rio Tinto who asked that the Corporation hold off on announcing an equity offering to allow time for Rio Tinto to come back with an improved privatization proposal.

On August 22, 2022, the Special Committee met with representatives of BMO Capital Markets and Blakes to discuss Rio Tinto’s request for additional time prior to the announcement of an equity offering to consider providing an improved privatization proposal. The Special Committee determined that the Corporation should continue to prepare to launch an equity offering by August 24, 2022, market conditions permitting, having considered, among other things, the Corporation’s liquidity needs, the status of preparations for the equity offering, indications from the potential lead underwriters for the equity offering that favourable market conditions were anticipated to exist for the launch of an offering in the near-term, the deadline for the Initial Equity Offering under the Second A&R HoA and the Special Committee’s responsibility for considering the Corporation’s liquidity needs and financing options.

On August 23, 2022, Mr. Gillin had several discussions with representatives of Rio Tinto regarding a potential improved privatization proposal from Rio Tinto.

On the morning of August 24, 2022, the Special Committee received a revised proposal from Rio Tinto to acquire the Minority Shares for C$40.00 in cash per Share (the “Revised Proposal”). The Revised Proposal was shortly thereafter publicly announced by Rio Tinto via press release. The Revised Proposal was subject to the same conditions as the Initial Proposal, including, among others, that no equity be issued by the Corporation. The Revised Proposal also noted that Rio Tinto was only prepared to continue with the Revised Proposal if it had the unanimous support and positive recommendation of the Special Committee.

On August 24, 2022, the Special Committee met with representatives of BMO Capital Markets and Blakes to discuss the Revised Proposal and its impact on the planned equity offering. Mr. Thibeault was also in attendance for a portion of the meeting to discuss the status of the equity offering. It was determined that due to the announcement of the Revised Proposal and in light of applicable requirements related to equity offerings, it would be prudent to postpone launch of the equity offering. Following a discussion of the Revised Proposal, the Special Committee determined that C$40.00 per Share did not reflect fair value for the Shares, noting, among other things, that it remained below the ranges of values implied by TD Securities’ preliminary indications of value analysis. However, given the significant increase in offer price from the Initial Proposal against the backdrop of a decline in the broader equity markets, copper pricing and Turquoise Hill’s peer share prices, and in light of the postponement of launch of the equity offering, the Special Committee determined to engage with Rio Tinto to negotiate an improved purchase price for the Shares.

On August 25, 2022, the Special Committee met with representatives of BMO Capital Markets and Blakes to discuss the Revised Proposal. At the meeting, the Special Committee received BMO Capital Markets’ preliminary financial analysis regarding the Revised Proposal and an update from BMO Capital Markets on the status of the planned equity

 

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offering. Following such meeting, on August 25, 2022, Mr. Gillin had a discussion with Mr. Baatar regarding the status of the Special Committee’s consideration of the Revised Proposal. Later in the day on August 25, 2022, the Special Committee reconvened, with representatives of BMO Capital Markets and Blakes also in attendance, and determined to propose a price of C$45.00 per Share to Rio Tinto as a price that the Special Committee would be willing to support based on their collective evaluation of the information and factors considered by the Special Committee to date, including, among other things, advice from BMO Capital Markets and the preliminary indications of value analysis received from TD Securities.

Over the following days, at Rio Tinto’s request, members of the Special Committee met daily with representatives of Rio Tinto, including Mr. Stausholm, Mr. Baatar and Mr. Latham, to discuss the Revised Proposal and the offer price. In these discussions, the Special Committee advised Rio Tinto that the Special Committee was not prepared to proceed with a privatization transaction, even if a price acceptable to the Special Committee was proposed by Rio Tinto, unless the parties also agreed to appropriate amendments to the Second A&R HoA to address the Corporation’s near-term liquidity requirements while any privatization proposal was pending. During these discussions, Rio Tinto indicated that it was not prepared to increase its offer price. In addition, representatives of Rio Tinto indicated that Rio Tinto was only interested in pursuing a transaction that had the support of the Special Committee and that Rio Tinto did not intend to launch an unsolicited takeover bid to acquire the Minority Shares.

During this time, the Special Committee met on several occasions with representatives of BMO Capital Markets and Blakes to discuss the status of discussions with Rio Tinto, to receive advice from BMO Capital Markets and to discuss the feasibility of the Corporation proceeding with its planned equity offering in the near-term.

On August 25, 2022, Management provided Ms. Saint-Laurent and Mr. Gillin with an outline of proposed amendments to be made to the Second A&R HoA should the Special Committee accept the Revised Proposal or any other improved offer from Rio Tinto. Management stated that such amendments would, in its view, address the Corporation’s liquidity risks prior to, and improve the conditions for launching and successfully completing, an equity offering in 2023, and would facilitate the evaluation by Minority Shareholders of any proposed privatization transaction by Rio Tinto.

On August 26, 2022, Management presented to the Special Committee its preliminary analysis on the Corporation’s liquidity outlook under a range of potential scenarios (including where implementation of the Re-Profiling was to be delayed beyond December 2022), and associated implications for the timing and amount of required equity raises by the Corporation.

Later on August 26, 2022, Mr. Barton called Mr. Gillin to discuss the Revised Proposal and to explore bridging the valuation gap. Mr. Gillin advised Mr. Barton that the Special Committee could not support the Revised Proposal.

On August 27, 2022, the Special Committee advised representatives of Rio Tinto that it was prepared to publicly announce, as early as August 29, 2022, a rejection of the Revised Proposal and the launch of an equity offering by the Corporation. Throughout the weekend, the Corporation’s legal and financial advisors continued to prepare for a potential public announcement of the Special Committee’s rejection of the Revised Proposal and to position the Corporation to immediately proceed with an equity offering.

On the morning of August 28, 2022, Mr. Gillin received a letter from Mr. Stausholm, on behalf of Rio Tinto, addressed to the independent directors of the Corporation. In the letter, Mr. Stausholm described the letter as a “final attempt to reach agreement” with respect to a privatization transaction that would have the recommendation of the Special Committee. In the letter, Mr. Stausholm reiterated the C$40.00 per Share offer price under the Revised Proposal and indicated that if an agreement was not reached by August 31, 2022, Rio Tinto would withdraw the Revised Proposal. The August 28, 2022 letter also included the reasons why Rio Tinto viewed its latest proposal of C$40.00 in cash per Share as compelling and detailed certain proposed amendments to the Second A&R HoA that were intended to address the Corporation’s near-term funding requirements as well as Rio Tinto’s views on the Corporation’s financing outlook and funding gap, including Rio Tinto’s view that the equity raise that could be required to address such funding gap could be well in excess of US$1,050,000,000.

Following receipt of the August 28, 2022 letter, the Special Committee continued to engage in discussions with representatives of Rio Tinto throughout the day on August 28, 2022. During these discussions, the full Special Committee, then Mr. Gillin and Ms. Saint-Laurent in discussions with Mr. Stausholm, advised that the Special Committee was unwilling to support the revised offer price of C$40.00 per Share. During the course of the day on August 28, 2022, Mr. Stausholm suggested alternative offer prices to Ms. Saint-Laurent and Mr. Gillin, subject to approval by the Rio Tinto board of directors. Throughout the day, following each call with Mr. Stausholm, Ms. Saint-Laurent and Mr. Gillin met with the Special Committee to report on Mr. Stausholm’s revised proposals. In the course of such meetings, the Special Committee considered the advice received from BMO Capital Markets and the preliminary indications of value analysis received from TD Securities. Following an evaluation of this information and

 

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advice, and also taking into consideration recent market conditions, the Special Committee determined that it would not be prepared to support a privatization transaction with Rio Tinto at less than C$43.00 per Share.

Following such meetings with the Special Committee, Ms. Saint-Laurent and Mr. Gillin reiterated to Mr. Stausholm that they were unwilling to support a transaction at C$40.00 per Share. In their final conversation on August 28, 2022, Mr. Stausholm advised Ms. Saint-Laurent and Mr. Gillin that he would be prepared to offer C$42.50 per Share, which price Ms. Saint-Laurent and Mr. Gillin rejected. Following another meeting of the Special Committee that evening, Mr. Gillin engaged with Mr. Stausholm and advised that the Special Committee was not prepared to support a transaction at less than C$43.00 per Share. Mr. Stausholm advised Mr. Gillin that he would consider the Special Committee’s position and advise the following morning on Rio Tinto’s position.

On the morning of August 29, 2022, Mr. Stausholm called Mr. Gillin to advise that Rio Tinto would be prepared to increase its offer price to C$43.00 per Share, subject to certain conditions, and that Rio Tinto was prepared to provide certain interim financing arrangements requested by the Special Committee to address the Corporation’s near-term liquidity requirements. The conditions included that: (i) the revised offer would receive the unanimous recommendation of the Special Committee; (ii) each independent member of the Board enter into a voting support agreement in respect of the transaction; (iii) the parties would work to finalize a term sheet on an expedited basis setting out the agreement in principle and announcement relating to the transaction (the “Term Sheet”); and (iv) the parties mutually commit to expediting the finalization of the transaction documentation due to the Corporation’s liquidity requirements. Mr. Stausholm also stated that the purchase price of C$43.00 in cash per Share was Rio Tinto’s best and final offer.

On August 29, 2022, McCarthy Tétrault LLP, legal counsel to Rio Tinto, provided Blakes with a first draft of the Arrangement Agreement as well as a draft of the Term Sheet setting out the agreed price of C$43.00 per Share and a summary of the proposed amendments to the Second A&R HoA. Over the days that followed, the Special Committee and Blakes, with input from Management and the Corporation’s Canadian and U.S. legal counsel, negotiated the terms of the Term Sheet with Rio Tinto and its counsel, including extensive negotiations regarding the amendments to the Second A&R HoA.

On August 30, 2022, the Special Committee met with representatives of BMO Capital Markets and Blakes to discuss the status of negotiations regarding the Term Sheet. At the meeting, Blakes reviewed the terms of the draft Term Sheet and discussed the material terms that remained outstanding. The Special Committee also received advice from Management on the proposed amendments to the Second A&R HoA contemplated in the Term Sheet and the Corporation’s near-term liquidity requirements. In addition, the Special Committee received a presentation from BMO Capital Markets analyzing the proposed offer price of C$43.00 per Share relative to various measures of the fair value of the Shares.

On August 31, 2022, representatives of TD Securities met with members of Management for the purposes of confirming certain information necessary to finalize the Formal Valuation and TD Fairness Opinion.

On August 31, 2022, the Special Committee met to consider the Term Sheet. Representatives of TD Securities, BMO Capital Markets, and Blakes, Mr. Thibeault and certain other members of Management were also in attendance. At the meeting, the Special Committee received an overview from Blakes of the terms of the Term Sheet. TD Securities made a presentation at such meeting regarding the conclusion of its Formal Valuation of the fair market value of the Shares, and provided its oral opinion to the Special Committee that, as of August 31, 2022, and based on TD Securities’ analysis and subject to the assumptions, limitations and qualifications to be set out in TD Securities’ written valuation and fairness opinion, the fair market value of the Shares is in the range of C$42.00 to C$58.00 per Share. TD Securities also provided an oral opinion to the Special Committee that, as of August 31, 2022, and subject to the assumptions, limitations and qualifications to be set out in TD Securities’ written valuation and fairness opinion and such other matters that TD Securities considered relevant, the consideration of C$43.00 per Share to be received by the Shareholders, other than Rio Tinto and its affiliates, pursuant to the Arrangement is fair, from a financial point of view, to such Shareholders. TD Securities subsequently delivered the Formal Valuation and the TD Fairness Opinion to this effect.

BMO Capital Markets also presented a financial analysis and provided its oral opinion to the Special Committee at such meeting that, as of August 31, 2022 and subject to the assumptions, limitations and qualifications to be set out in BMO Capital Markets’ written fairness opinion, the consideration of C$43.00 per Share contemplated to be received by the Shareholders (other than the Purchaser and its affiliates) pursuant to the Term Sheet and the Arrangement is fair from a financial point of view to the Shareholders (other than the Purchaser and its affiliates). BMO Capital Markets subsequently delivered the BMO August 31^st Fairness Opinion to this effect.

After consideration and discussion of the advice and opinions provided to the Special Committee, the short, medium- and long-term risks and opportunities facing the Corporation, and the Special Committee’s view that Shareholders should be given the opportunity to consider the offer in light of the foregoing, the Special Committee unanimously determined that Rio Tinto’s offer price of C$43.00 per Share was fair to the Minority Shareholders and that it was in the

 

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best interests of the Corporation to enter into the Term Sheet. Accordingly, the Special Committee unanimously determined to approve entering into the Term Sheet. The Term Sheet was finalized and executed on the evening of August 31, 2022, and publicly announced on the morning of September 1, 2022.

The Term Sheet provided that the parties would work expeditiously to finalize and sign a definitive arrangement agreement providing for the making by the Unconflicted Board of Directors, acting on the recommendation of the Special Committee, of a unanimous recommendation that Minority Shareholders vote in favour of a plan of arrangement that would provide for the acquisition of the Minority Shares at a price of C$43.00 per Share. The Term Sheet provided that entering into such arrangement agreement would be conditional on, among other things, approval by the Unconflicted Board of Directors of the arrangement and the arrangement agreement (based on the unanimous recommendation of the Special Committee) and the entering into of the Third A&R HoA to implement the following amendments to the Second A&R HoA contemplated in the Term Sheet:

 

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increasing the Early Advance to US$650,000,000 from US$400,000,000, provided that if there is an anticipated funding shortfall for March 2023 the parties will in good faith discuss increasing the Early Advance by up to an additional US$100,000,000;

 

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extending the date by which the Initial Equity Offering must be conducted and Early Advance repaid from December 31, 2022 to March 31, 2023 (subject to a potential day for day extension up to May 31, 2023 in certain circumstances including if there were to be regulatory or other delays to the Arrangement);

 

•

a new US$362,000,000 commitment from Rio Tinto to provide additional bridge financing to Turquoise Hill on the same terms as the Early Advance if, despite the parties’ reasonable commercial efforts to secure the Re-Profiling, all or a portion of the Re-Profiling is unsuccessful or delayed and additional funds are required by Turquoise Hill in respect of the December 2022 debt principal repayment under the Oyu Tolgoi project finance facility; and

 

•

a commitment by Rio Tinto to participate pro rata in the Initial Equity Offering, subject to certain pre-conditions.

As a result, under the Third A&R HoA, Rio Tinto would commit to provide the Corporation with near-term liquidity while the Arrangement is pending, including up to US$650,000,000 in connection with the Early Advance, with a potential for up to an additional US$100,000,000 in the event of a funding shortfall in March 2023 and US$362,000,000 in additional bridge financing in the event additional funds are required by Turquoise Hill in respect of the December 2022 principal debt repayment under the Oyu Tolgoi project finance facility. This incremental financing would need to be repaid by the Corporation in the first half of 2023 if the Arrangement is not approved by the Shareholders, which repayment would require the Corporation to seek additional equity financing. This financing is incremental to the other elements of the Corporation’s funding plan contemplated by the Third A&R HoA.

Between September 1 and September 5, 2022, the Special Committee and Blakes, together with the assistance of the Corporation’s Management and Canadian and U.S. legal counsel, engaged in negotiations with Rio Tinto and its counsel to settle the terms of the Arrangement Agreement. Among other things, the Special Committee sought in the negotiations to ensure that the Arrangement Agreement would include terms satisfactory to the Special Committee and Management.

During this time, the Corporation and its Canadian legal counsel, Norton Rose Fulbright Canada LLP, also engaged in negotiations with Rio Tinto and its counsel regarding the Third A&R HoA to implement the amendments contemplated by the Term Sheet.

On September 5, 2022, the Special Committee met to consider the Arrangement Agreement and the Third A&R HoA and to receive a detailed presentation from TD Securities with respect to the Formal Valuation and the TD Fairness Opinion orally delivered to the Special Committee on August 31, 2022. Representatives of TD Securities, BMO Capital Markets, and Blakes, Mr. Thibeault and certain other members of Management were also in attendance. At the meeting, the Special Committee received a presentation by Blakes that included a summary of the terms of the Arrangement Agreement and related matters, and an overview of the terms of the Third A&R HoA and the Early Advance from Norton Rose Fulbright Canada LLP.

At the meeting, TD Securities reviewed in further detail its analysis supporting its opinion that, as of August 31, 2022, and based on TD Securities’ analysis and subject to the assumptions, limitations and qualifications to be set out in TD Securities’ written valuation and fairness opinion and such other matters that TD Securities considered relevant, the fair market value of the Shares is in the range of C$42.00 and C$58.00 per Share and that the Consideration to be received by the Shareholders, other than Rio Tinto and its affiliates, pursuant to the Arrangement is fair, from a financial point of view, to such Shareholders.

 

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Also at the meeting, BMO Capital Markets presented a financial analysis that was consistent with the analysis presented on August 31, 2022, subject to updates for the passage of time, and provided its oral opinion that, as of September 5, 2022, and subject to the assumptions, limitations and qualifications to be set out in BMO Capital Markets’ written fairness opinion, the Consideration to be received by the Shareholders (other than the Purchaser and its affiliates) pursuant to the Arrangement is fair from a financial point of view to the Shareholders (other than the Purchaser and its affiliates). BMO Capital Markets subsequently delivered the BMO September 5^th Fairness Opinion to this effect.

For a detailed discussion of the Formal Valuation and Fairness Opinions, please see “Special Factors – Formal Valuation and TD Fairness Opinion” and “Special Factors – Fairness Opinions of BMO Capital Markets”.

After consideration and discussion of the advice and opinions provided to the Special Committee, the Special Committee accepted TD Securities’ conclusions as to the fair value of the Shares and accepted the TD Fairness Opinion and BMO Fairness Opinions. The Special Committee unanimously determined, based on the factors set forth below under “Special Factors – Position of Turquoise Hill as to Fairness of the Arrangement – Reasons for the Recommendation”, that (i) the Arrangement is in the best interests of the Corporation, and (ii) the Arrangement is fair to the Minority Shareholders. The Special Committee also unanimously resolved to recommend to the Board that the Board: (i) determine that the Arrangement is in the best interests of the Corporation; (ii) determine that the Arrangement is fair to the Minority Shareholders; and (iii) recommend to the Minority Shareholders that they vote their Shares in favour of the Arrangement Resolution. The Special Committee also unanimously determined that the Third A&R HoA was in the best interests of the Corporation and unanimously resolved to recommend to the Board that it approve the Third A&R HoA.

The Unconflicted Board of Directors was convened on September 5, 2022 immediately following the Special Committee meeting. After receiving the aforementioned recommendation of the Special Committee, the Unconflicted Board of Directors unanimously adopted the Special Committee’s analyses and conclusions as its own and unanimously resolved, based on the recommendation of the Special Committee and the factors set forth below under “Special Factors – Position of Turquoise Hill as to Fairness of the Arrangement – Reasons for the Recommendation”, to: (i) determine that the Arrangement is in the best interests of the Corporation; (ii) determine that the Arrangement is fair to the Minority Shareholders; and (iii) recommend to the Minority Shareholders that they vote their Shares in favour of the Arrangement Resolution. The Unconflicted Board of Directors also unanimously resolved to approve the Third A&R HoA.

The Arrangement Agreement and Third A&R HoA were finalized and executed later in the day on September 5, 2022 and entry into the Arrangement Agreement and Third A&R HoA was publicly announced on the evening of September 5, 2022. The members of the Unconflicted Board of Directors and executive officers of the Corporation also entered into Voting Agreements concurrently with the execution of the Arrangement Agreement.

Turquoise Hill’s Purposes and Reasons for the Arrangement

The Special Committee and the Unconflicted Board of Directors have determined that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders. In deciding to recommend the Arrangement to the Minority Shareholders, the Unconflicted Board of Directors, following receipt of the unanimous recommendation of the Special Committee, carefully considered, among other things, the benefits to the Corporation of the Arrangement, the Formal Valuation and the Fairness Opinions, the terms and conditions set forth in the Arrangement Agreement, the matters discussed below under the heading “Position of Turquoise Hill as to Fairness of the Arrangement – Reasons for the Recommendation” and advice from financial advisors. As discussed below under “Special Factors – Position of Turquoise Hill as to Fairness of the Arrangement”, the Consideration to be paid to the Minority Shareholders of C$43.00 in cash per Minority Share represents a premium of 67% over the closing price of the Shares on the TSX on March 11, 2022, the last trading day before the public announcement of the Initial Proposal, a premium of 66% over the 20-business day volume weighted average price for the Shares on the TSX ended on such date, and a premium of 19% over the closing price of the Shares on the TSX on August 31, 2022, the last trading day before the public announcement of the Term Sheet. See “Special Factors – Position of Turquoise Hill as to Fairness of the Arrangement”. After weighing all of these factors, the Special Committee and the Unconflicted Board of Directors determined that the Arrangement is in the best interests of the Corporation and that Minority Shareholders should be given the opportunity to consider the Arrangement and that the Unconflicted Board of Directors would recommend that Minority Shareholders vote in favour of the Arrangement Resolution.

Position of Turquoise Hill as to Fairness of the Arrangement

Reasons for the Recommendation

In determining that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders, the Special Committee, with the assistance of financial and legal advisors, carefully reviewed the proposed

 

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Arrangement and the terms and conditions of the Arrangement Agreement and related agreements and documents and considered and relied upon a number of substantive factors, including the following:

Business Issues and Trends

 

•

In concluding that the Arrangement is in the best interests of the Corporation, the Special Committee and the Board considered, among other things, the volatility of the current global economy and the challenging capital market conditions. The price of the Shares has historically been subject to a relatively high degree of volatility and has been significantly affected by, among other things, short-term changes in copper and precious metal prices and other mineral prices. Market conditions in the equity and copper markets have changed significantly since the receipt of the Initial Proposal in March, with the average share prices of Turquoise Hill’s peers declining by more than 30% between receipt of the Initial Proposal and signing of the Term Sheet. During that same period, Rio Tinto materially increased its offer price. Macroeconomic conditions considered by the Special Committee and Board include, among others, the continued adverse impact of COVID-19 and uncertainty regarding the potential impact of the geopolitical environment and location of Oyu Tolgoi.

 

•

The Special Committee, with the assistance of its financial and legal advisors, considered extensive information concerning the business, operations, financial condition and prospects of the Corporation, as well as the current and prospective environment in which the Corporation operates, and assessed the relative benefits and risks of the Arrangement compared to the status quo. In considering the status quo as an alternative to pursuing the Arrangement, the Special Committee assessed the Corporation’s current business plan given the Special Committee’s assessment of the current and anticipated future opportunities and risks associated with the financing and development of Oyu Tolgoi, including the risk that some or all of the Re-Profiling may not be successful, the debt financing restrictions imposed by the Government of Mongolia pursuant to Resolution 103 until achievement of sustainable production, the requirement under the Second A&R HoA to complete the Initial Equity Offering by December 31, 2022 and the Corporation’s expected need for additional equity to satisfy the latest funding gap projections, including the potential associated dilutive impact on the Minority Shareholders that do not participate on a pro rata basis in any such equity offering.

 

•

Concurrently with and contingent on entering into the Arrangement Agreement, the Purchaser and the Corporation entered into the Third A&R HoA in order to extend the deadline for the Initial Equity Offering in the event the Arrangement does not close to March 31, 2023 (subject to a potential day for day extension up to May 31, 2023 in certain events including regulatory or other delays to the Arrangement) and to provide bridge financing to address the Corporation’s near-term liquidity needs while the Arrangement is pending, while also giving Minority Shareholders time to evaluate and vote in respect of the Arrangement.

Consideration Payable to Minority Shareholders

 

•

The Consideration to be paid to the Minority Shareholders of C$43.00 in cash per Minority Share represents a premium of 67% over the closing price of the Shares on the TSX on March 11, 2022, the last trading day before the public announcement of the Initial Proposal, a premium of 66% over the 20-business day volume weighted average price for the Shares on the TSX ended on such date, and a premium of 19% over the closing price of the Shares on the TSX on August 31, 2022, the last trading day before the public announcement of the Term Sheet, all while considering that the average share prices of Turquoise Hill’s peers declined by more than 30% between the date the Corporation received the Initial Proposal and the signing of the Term Sheet.

 

•

TD Securities, the independent valuator retained by the Special Committee, prepared the Formal Valuation in accordance with MI 61-101. In the Formal Valuation, which was delivered orally to the Special Committee at the time the Special Committee approved entering into the Term Sheet and subsequently confirmed by delivery of a written opinion dated August 31, 2022, TD Securities determined that as of August 31, 2022, and based on TD Securities’ analysis and subject to the assumptions, limitations and qualifications set forth therein, the fair market value of the Shares is in the range of C$42.00 to C$58.00 per Share.

 

•

TD Securities delivered an oral opinion to the Special Committee at the time the Special Committee approved entering into the Term Sheet, which was subsequently confirmed by delivery of a written opinion dated August 31, 2022, that, as of August 31, 2022, and subject to the assumptions, limitations and qualifications set forth therein and such other matters that TD Securities considered relevant, the Consideration to be received by the Shareholders, other than Rio Tinto and its affiliates, pursuant to the Arrangement is fair, from a financial point of view, to such Shareholders.

 

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•

BMO Capital Markets, financial advisor to the Special Committee, delivered an oral opinion to the Special Committee, which was subsequently confirmed by delivery of a written opinion dated September 5, 2022, that, as of September 5, 2022, and subject to the assumptions, limitations and qualification set forth therein, the Consideration to be received by the Shareholders (other than the Purchaser and its affiliates) pursuant to the Arrangement is fair from a financial point of view to the Shareholders (other than the Purchaser and its affiliates).

 

•

The Consideration to be paid to the Minority Shareholders pursuant to the Arrangement is the product of extensive negotiation between the Special Committee and Rio Tinto that resulted in multiple material increases in the price to be offered by Rio Tinto to the Minority Shareholders. The offer price pursuant to Rio Tinto’s Initial Proposal was C$34.00 per Minority Share, which Rio Tinto subsequently increased to C$40.00 per Minority Share pursuant to the Revised Proposal that was publicly announced by Rio Tinto on August 24, 2022, and ultimately increased to C$43.00 per Minority Share, which represents a 26% premium over the Initial Proposal and a further 8% premium over the Revised Proposal.

 

•

Rio Tinto publicly announced that the Consideration of C$43.00 per Minority Share to be paid to the Minority Shareholders pursuant to the Arrangement is its best and final offer and indicated to the Special Committee that it was only interested in pursuing a transaction that had the support of the Special Committee. If the Special Committee were to have rejected Rio Tinto’s offer, Minority Shareholders may have been denied an opportunity to evaluate and vote in respect of the Arrangement.

 

•

In the course of considering the Initial Proposal and subsequent proposals received from Rio Tinto, members of the Special Committee and its advisors as well as Management engaged with certain Minority Shareholders with significant holdings of Shares that expressed their views on the value of the Minority Shares and other Minority Shareholders have also publicly expressed their views on value. While some Minority Shareholders have expressed their view that a fair price for the Minority Shares is higher than the price offered by Rio Tinto, other Minority Shareholders have indicated that prices less than C$43.00 per Minority Share would be an attractive and fair price for their Minority Shares. As a result, given that the Special Committee concluded that a price of C$43.00 per Share would be a fair price for the Minority Shares, based on the advice of the independent valuator and its financial advisor, and determined that the Arrangement is in the best interests of the Corporation, the Special Committee determined that all Minority Shareholders should be provided the opportunity to evaluate and vote in respect of the Arrangement.

 

•

The payment to the Minority Shareholders pursuant to the Arrangement will be all cash, which will provide Minority Shareholders with certainty of value and immediate liquidity at a price that may not otherwise be available, in particular in the short to medium term, in the absence of the Arrangement.

Limited Alternatives for Sale to Third Parties

 

•

When Rio Tinto made the Initial Proposal, Rio Tinto informed the Corporation and publicly announced that it was not interested in pursuing any alternative transaction, including any transaction which could 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. Given that Rio Tinto controls approximately 50.8% of the Shares, it is unlikely that any other party or combination of parties would make a proposal to acquire the Corporation or any material portion of the Corporation for a higher price than the Consideration to be paid pursuant to the Arrangement, or that any such proposal would be reasonably capable of completion.

 

•

The Initial Proposal, as well as the formation of the Special Committee, was publicly announced in March 2022. In the subsequent five months between the date of the Initial Proposal and the signing of the Arrangement Agreement, the Special Committee did not receive any written expressions of interest or proposals from third parties with respect to an alternative transaction, including an acquisition of the Minority Shares or a minority stake under 20%. While an acquisition of a minority stake under 20% would not require Rio Tinto’s approval, a proposal for an acquisition of the Minority Shares could not be effected under applicable Canadian Securities Laws without the support of Rio Tinto.

 

•

The Special Committee, with the assistance of BMO Capital Markets, conducted a market canvass involving outreach to industry participants and strategic investors and determined that it was unlikely that any of those parties would submit an offer to acquire the Corporation given an acquisition of the Minority Shares could not be effected without the support of Rio Tinto, and the third parties expressed they were unwilling to acquire a minority stake under 20% without Rio Tinto’s support.

 

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Procedural Safeguards and Fairness

 

•

The Arrangement Agreement is the result of a robust negotiation process that was undertaken at arm’s length between the Special Committee, the Corporation and their respective advisors, on the one hand, and Rio Tinto and its advisors, on the other hand. The Special Committee had the authority not to recommend the Arrangement or any other transaction to the Board and to identify, evaluate, negotiate and make recommendations to the Board regarding any alternative transaction. The Special Committee held over 30 formal meetings to consider and review the terms of the Initial Proposal, subsequent proposals received from Rio Tinto and the Arrangement and its members were adequately compensated for their services and their compensation was in no way contingent on their approving the Arrangement Agreement or taking the other actions described herein. The Special Committee was comprised solely of independent directors who are unrelated to Rio Tinto and Management, and was advised by experienced and qualified financial and legal advisors. The advice received by the Special Committee included detailed financial advice from a highly qualified financial advisor, including with respect to the Corporation remaining a publicly traded corporation and continuing to pursue its business plan on a stand-alone basis, as well as an independent formal valuation of the Shares prepared in accordance with MI 61-101.

 

•

The Board included in the Special Committee’s mandate responsibility for considering the Corporation’s liquidity needs and financing options pending the Corporation’s consideration of the Initial Proposal and any alternative transaction. Pursuant to this authority under its mandate, and notwithstanding that Rio Tinto’s Initial Proposal was conditioned on the Corporation not raising any additional equity, the Special Committee considered whether the Corporation should proceed with an equity offering to meet its liquidity requirements and took substantial steps for the Corporation to be able to conduct an equity offering that would satisfy the Corporation’s obligations under the Second A&R HoA to raise US$650,000,000 in additional equity prior to December 31, 2022. As a result of these actions, the Corporation was well positioned to consider alternatives to the Arrangement.

 

•

The Arrangement will become effective only if the Arrangement Resolution is approved by (i) at least two-thirds (662⁄3%) of the votes cast by Shareholders present in person, virtually present or represented by proxy at the Meeting, voting as a single class; and (ii) a simple majority (more than 50%) of the votes cast by Shareholders present in person, virtually present or represented by proxy at the Meeting, excluding, for the purposes of this Minority Approval, the votes attached to the Excluded Shares and the Shares held by any other Shareholders required to be excluded under MI 61-101.

 

•

Completion of the Arrangement is subject to the approval of the Court, after considering the procedural and substantive fairness of the Arrangement at a hearing at which Minority Shareholders and certain others are entitled to be heard.

 

•

Subject to a dissent condition in favour of Rio Tinto under the Arrangement Agreement, registered Minority Shareholders who do not vote in favour of the Arrangement Resolution and who follow the procedures described under “Dissenting Shareholders’ Rights” will be entitled to exercise Dissent Rights with respect to the Arrangement Resolution and receive “fair value” for their Shares as determined by the Court.

 

•

The Arrangement Agreement permits the Board, in certain circumstances, to change its recommendation that Minority Shareholders vote in favour of the Arrangement in order to respond to certain Intervening Events that would reasonably be expected to have a material positive effect on the Corporation, its properties or its assets.

 

•

If Shareholder approval for the Arrangement is not obtained and certain other conditions are satisfied, the Purchaser has agreed in the Arrangement Agreement to pay the Expense Reimbursement Amount of US$15,000,000 to the Corporation which would defray a portion of the Corporation’s out-of-pocket fees, costs and expenses incurred in connection with the Arrangement.

 

•

Certain information relied upon by the Special Committee and its advisors was received from Rio Tinto and the Manager. In light of potential or perceived conflicts of interest, the Special Committee and its legal advisors, financial advisor and independent valuator carefully scrutinized and analysed such information (including the underlying assumptions) in conducting their own analysis and reaching their own conclusions, including, in the case of TD Securities, engaging an external technical consultant. In addition, the Arrangement Agreement includes a representation from Rio Tinto with respect to the accuracy of information provided by Rio Tinto in connection with the Formal Valuation.

 

•

The Special Committee considered the compensation arrangements of each of BMO Capital Markets and TD Securities, in particular that (i) TD Securities was engaged to provide the Formal Valuation and the TD Fairness

 

34

Opinion on a fixed fee basis that was not contingent on the conclusions reached therein or the completion of the Arrangement; and (ii) a substantial portion of BMO Capital Markets’ fees (excluding the fixed fees for the BMO Fairness Opinions) are contingent upon the consummation of the Arrangement, which the Special Committee considers to be a reasonably customary compensation structure for financial advisors in similar transactions and therefore was satisfied that BMO Capital Markets’ fees properly aligned their incentives for the mandate.

Deal Certainty

 

•

Completion of the Arrangement is subject to a limited number of conditions which the Special Committee believes are reasonable under the circumstances.

 

•

Completion of the Arrangement is not subject to any financing condition and Rio Tinto plc has unconditionally and irrevocably guaranteed the due and punctual performance by the Purchaser of its covenants, obligations and undertakings under the Arrangement Agreement, including the due and punctual payment of the aggregate Consideration pursuant to the Arrangement.

 

•

All members of the Unconflicted Board of Directors and executive officers of Turquoise Hill have entered into voting support agreements with the Purchaser pursuant to which, and subject to the terms thereof, they have agreed to vote their Minority Shares in favour of the Arrangement.

 

•

The Corporation has the ability to seek specific performance to prevent breaches of the Arrangement Agreement and to enforce specifically the terms of the Arrangement Agreement.

 

•

Completion of the Arrangement is not subject to the approval of the Arrangement by the members or holders of any share capital or comparable equity interest of Rio Tinto.

Key Risks and Countervailing Factors Inherent in the Arrangement

In considering the Arrangement, the Special Committee also considered risks of entering into the Arrangement Agreement and potential negative factors that the Arrangement posed to the Corporation and the Minority Shareholders, including the following:

 

•

The consideration to be paid to the Minority Shareholders pursuant to the Arrangement is at the lower end of the fair market value range for the Shares as of August 31, 2022 as determined by TD Securities pursuant to the Formal Valuation prepared in accordance with MI 61-101. In addition, certain Minority Shareholders have expressed their view that a fair price for the Minority Shares is higher than the price of C$43.00 offered by Rio Tinto.

 

•

The Special Committee considered the significant positive developments in recent months associated with the Corporation’s investment in Oyu Tolgoi, including the Reset in January 2022, the significant progress made on underground development, the advanced schedule on draw bell construction, the potential for sustainable production to be achieved earlier than previously forecast and progress on meeting OT LLC’s requirement to source long-term power from domestic sources. Following the January 24, 2022 announcement of the Reset, the Corporation’s Share price materially increased, rising from a closing price of C$19.12 per Share on the TSX on the last trading day prior to the Reset announcement to a closing price of C$25.68 on the TSX on the last trading day prior to Rio Tinto’s announcement of the Initial Proposal. The Special Committee considered that the market price of the Shares could significantly further appreciate as the Corporation achieved further milestones regarding the development of Oyu Tolgoi.

 

•

In the spring and summer of 2022, the Corporation made substantial progress towards completing an equity offering of at least US$650,000,000, which would have satisfied its obligation under the Second A&R HoA to complete the Initial Equity Offering prior to December 31, 2022. However, the potential lead underwriters for the Corporation’s equity offering had discussed the challenges in launching an equity offering given the pendency of the Initial Proposal. Had the Corporation proceeded with the Initial Equity Offering despite Rio Tinto’s condition in its proposals that the Corporation not raise any equity, the trading price of the Shares may have improved if the market ascribed value to the Corporation meeting the equity funding obligation in the A&R HoA.

 

•

The Corporation and Rio Tinto are working towards the Re-Profiling of the debt repayment schedule of the Oyu Tolgoi project financing with a view to completing the Re-Profiling prior to the payment of a US$362,000,000

 

35

principal payment scheduled in December 2022. Rio Tinto and the Corporation are required under the Third A&R HoA to use their commercially reasonable efforts to negotiate and secure the Re-Profiling of the project financing by December 31, 2022. In considering whether to recommend entering into the Arrangement Agreement, the Special Committee considered that, were the Corporation and Rio Tinto to complete the Re-Profiling, the market price of the Shares may have increased if the market ascribed value to the associated reduction in the Corporation’s funding gap, notwithstanding any potential dilution resulting from the Corporation having to conduct the Initial Equity Offering which would have been required to be completed prior to December 31, 2022.

 

•

Rio Tinto will realize any benefits of maintaining an investment in the Corporation following completion of the Arrangement, including any benefits that may result from any improvement in the Corporation’s financial results or appreciation in the value of Oyu Tolgoi. The Arrangement would eliminate the opportunity for Minority Shareholders to participate in the potential benefits of a continued investment in the Corporation.

 

•

Rio Tinto’s public announcement at the time of the Initial Proposal that it was not interested in pursuing any alternative transaction, including any transaction which could 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, resulted in difficulty in attracting expressions of interest or proposals from third parties with respect to an alternative transaction.

 

•

Rio Tinto’s majority equity interest in the Corporation, the Corporation’s non-solicitation obligations under the Arrangement Agreement, the expense reimbursement payable by the Corporation to Rio Tinto in certain circumstances under the Arrangement Agreement and the Corporation’s inability to terminate the Arrangement Agreement in response to a superior proposal may discourage other parties from making a superior proposal. The Special Committee was advised, and understood, that such restrictions would further limit the possibility that a superior proposal will emerge. However, given that Rio Tinto could block a competing transaction and the fact that no competing Acquisition Proposal has been received by the Corporation since the Initial Proposal was publicly announced in March 2022, these restrictions were not considered significant by the Special Committee in the circumstances.

 

•

The Arrangement Agreement imposes certain restrictions on the conduct of the Corporation’s business during the period between the execution of the Arrangement Agreement and the consummation of the Arrangement or the termination of the Arrangement Agreement, including on the ability of the Corporation to raise equity. While the Third A&R HoA extended the date by which the Corporation must conduct the Initial Equity Offering from December 31, 2022 to March 31, 2023, (subject to a potential day-for-day extension up to May 31, 2023 in certain circumstances including if there were to be regulatory or other delays to the Arrangement), if the Arrangement is not completed for any reason, the Corporation will be required to proceed with the Initial Equity Offering by the deadline required under the Third A&R HoA regardless of prevailing market conditions. Pending completion of the Arrangement, the Corporation will be required to rely on bridge financing provided by Rio Tinto in order to satisfy certain of its near-term liquidity requirements, which bridge financing is repayable at the same time as the Initial Equity Offering. In addition, in certain circumstances the deadline for the Initial Equity Offering and the maturity of certain bridge financing from Rio Tinto will accelerate in the event the Corporation breaches its covenants under the Arrangement Agreement in any material respect.

 

•

The Purchaser has the right to terminate the Arrangement Agreement under certain limited circumstances, including if holders of more than 12.5% of the outstanding Shares exercise Dissent Rights.

 

•

There are risks to the Corporation if the Arrangement is delayed or not completed, including the costs to the Corporation of pursuing the Arrangement, the potential for suits, actions or proceedings in respect of the Arrangement Agreement or the Arrangement, the diversion of Management’s attention away from conducting the Corporation’s business in the ordinary course, the potential impact on the Corporation’s current business relationships (including with the Government of Mongolia, employees, suppliers and industry partners), the potential loss of value to the Shareholders and the possible reduction of the trading price of the Shares.

 

•

The Arrangement will be a taxable transaction and, as a result, Minority Shareholders will generally be required to pay taxes on any gains that result from their receipt of the Consideration pursuant to the Arrangement.

The Special Committee did not base its assessment of the Consideration on the liquidation value or the net book value of the Corporation in its evaluation of the Arrangement because of its belief that neither liquidation value nor net book value present a meaningful valuation of the Corporation and its business, including because the Corporation’s value is

 

36

derived from the potential development of its projects rather than from the value of assets that might be realized in a liquidation or from net book value which is significantly influenced by historical costs.

The Special Committee was not aware of any firm offer, proposal or indication of interest for a merger, sale of all or substantial part of the Corporation’s assets, or a purchase of a controlling amount of the Corporation’s securities having been received by the Corporation from affiliated persons or third parties during the two years preceding the signing of the Arrangement Agreement, other than the proposals from Rio Tinto as described herein. The Special Committee did not consider purchase prices previously paid for Shares in the past two years because, to the knowledge of the Special Committee, any such purchases would have been made at the then-current market or trading prices of such Shares and do not necessarily reflect the present market value of the Shares.

The Special Committee did not retain an unaffiliated representative to act solely on behalf of the Minority Shareholders for purposes of negotiating the terms of the Arrangement. The Special Committee was comprised entirely of independent directors who are non-executives of the Corporation and are unaffiliated with Rio Tinto. In addition, the Special Committee retained BMO Capital Markets as a financial advisor to advise it in considering Rio Tinto’s acquisition proposal and to assist in negotiations with Rio Tinto, TD Securities as independent valuator to prepare the Formal Valuation and Blakes as Canadian legal advisor.

The Special Committee concluded that the potential benefits that it expected the Minority Shareholders would achieve as a result of the Arrangement outweighed the risks and potentially negative factors relevant to the Arrangement. The foregoing summary of the information and factors considered by the Special Committee is not intended to be exhaustive of the factors considered by the Special Committee in reaching its conclusions and making its recommendations, but includes a summary of the material information, factors and analysis considered by the Special Committee in reaching such conclusions and making such recommendations. The members of the Special Committee evaluated the various factors summarized above in light of their own knowledge of the business of Turquoise Hill and the industry in which Turquoise Hill operates and of the Corporation’s financial condition and prospects and were assisted in this regard by Management and the Special Committee’s legal and financial advisors. In view of the numerous factors considered in connection with its evaluation of the Arrangement, the Special Committee did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weight to specific factors in reaching its decision. In addition, individual members of the Special Committee may have given different weights to different factors. The respective conclusions and unanimous recommendation of the Special Committee were made after considering all of the information and factors involved. Accordingly, the Special Committee determined that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders for the reasons described above.

The foregoing includes forward-looking information and Shareholders are cautioned that actual results may vary. See “Forward-Looking Information” and “Risk Factors”.

Recommendation of the Special Committee

The Special Committee, following careful consideration of, among other things, the Formal Valuation and the Fairness Opinions, the terms and conditions set forth in the Arrangement Agreement, the matters discussed above under the heading “Special Factors – Position of Turquoise Hill as to Fairness of the Arrangement – Reasons for the Recommendation” and advice from its financial advisor, unanimously determined that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders and unanimously recommended that the Board determine that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders and recommend that the Minority Shareholders vote IN FAVOUR of the Arrangement Resolution.

Recommendation of the Board

The Unconflicted Board of Directors, after receiving the unanimous recommendation of the Special Committee and following careful consideration of, among other things, the Formal Valuation and the Fairness Opinions, the terms and conditions set forth in the Arrangement Agreement, the matters discussed above under the heading “Special Factors – Position of Turquoise Hill as to Fairness of the Arrangement – Reasons for the Recommendation” and advice from financial advisors, unanimously determined that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders and unanimously recommends that the Minority Shareholders vote IN FAVOUR of the Arrangement Resolution.

In adopting the Special Committee’s recommendations and concluding that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders, the Board considered and relied upon the same factors and considerations that the Special Committee relied upon, as described above, and adopted as its own the Special Committee’s analysis and conclusions in their entirety.

 

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Compensation of the Special Committee

The Unconflicted Board of Directors has approved the following payments to the members of the Special Committee: (i) a fee of C$30,000 per month plus a retainer of C$35,000 for the Chair of the Special Committee; (ii) a fee of C$20,000 per month plus a retainer of C$25,000 for the other members of the Special Committee; and (iii) the reimbursement of expenses incurred in connection with their services as members of the Special Committee. Such payments are not conditional on completion of the Arrangement.

In recommending and approving the compensation structure, the Board considered, among other things, precedent compensation structures for special committees formed for purposes comparable to those for which the Special Committee was formed, the nature and scope of the privatization transaction proposed by Rio Tinto and the time expected to be required by the Special Committee members and Chair, and potential advantages and disadvantages of alternative compensation arrangements.

Formal Valuation and TD Fairness Opinion

In determining that the Arrangement is in the best interests of the Corporation and fair to the Minority Shareholders, the Special Committee considered, among other things, the Formal Valuation and the TD Fairness Opinion prepared by TD Securities.

TD Securities provided a Formal Valuation in accordance with the requirements of MI 61-101, which concluded that, as at August 31, 2022, and based upon and subject to the assumptions, limitations and qualifications set out in the Formal Valuation and the TD Fairness Opinion, the fair market value of the Shares is in the range of C$42.00 to C$58.00 per Share.

TD Securities also provided its opinion to the effect that, as at August 31, 2022, and based upon and subject to the assumptions, limitations and qualifications set out in the Formal Valuation and the TD Fairness Opinion and such other matters that TD Securities considered relevant, the Consideration to be received by the Shareholders, other than Rio Tinto and its affiliates, pursuant to the Arrangement is fair, from a financial point of view, to such Shareholders.

MI 61-101 regulates certain types of special transactions to ensure equality of treatment among security holders and may require enhanced disclosure, approval by a majority of security holders, excluding interested or related parties, independent valuations and, in certain instances, approval and oversight of certain transactions by a special committee of independent directors. The protections afforded by MI 61-101 apply to, among other transactions, “business combinations”, as defined in MI 61-101, in which the interest of holders of equity securities may be terminated without their consent and where a “related party” (as defined in MI 61-101) (i) would, as a consequence of the transaction, directly or indirectly acquire the issuer or the business of the issuer, or combine with the issuer, through an amalgamation, arrangement or otherwise, whether alone or with joint actors, (ii) is a party to a “connected transaction”, as defined in MI 61-101, to the transaction, or (iii) is entitled to receive a consideration per equity security that is not identical in amount and form to the entitlement of the general body of holders in Canada of securities of the same class or a collateral benefit.

Pursuant to MI 61-101, a formal valuation of the Shares is required since the Arrangement is a “business combination” within the meaning of MI 61-101 and Rio Tinto is a “related party” of the Corporation (as defined in MI 61-101). Consequently, the Special Committee retained TD Securities to provide it with a formal valuation of the fair market value of the Shares in accordance with the requirements of MI 61-101.

The following summary of the Formal Valuation and the TD Fairness Opinion is qualified in its entirety by reference to the full text of the Formal Valuation and the TD Fairness Opinion attached to this Circular as Appendix C. The Formal Valuation and the TD Fairness Opinion are not a recommendation as to how any Shareholder should vote or act on any matter relating to the Arrangement. The full text of the Formal Valuation and the TD Fairness Opinion sets out the assumptions made, procedures followed, information reviewed, matters considered, and limitations and qualifications on the review undertaken in connection with the Formal Valuation and the TD Fairness Opinion. Shareholders are urged to read the Formal Valuation and the TD Fairness Opinion carefully and in their entirety.

Certain financial data referred to in the Formal Valuation and the TD Fairness Opinion and in the following summary of the Formal Valuation and the TD Fairness Opinion, including the summary of the key outputs of the Adjusted Resource Case (collectively, the “TRQ FV Forecasts”), were made available by or on behalf of the Corporation to TD Securities for the purposes of the Formal Valuation and the TD Fairness Opinion. The TRQ FV Forecasts are included in this Circular not to influence your decision whether to vote for or against the Arrangement Resolution, but because TRQ FV Forecasts were made available to TD Securities.

 

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The TRQ FV Forecasts are subjective in many respects and reflect numerous judgments, estimates and assumptions by the Corporation that are inherently uncertain, many of which are difficult to predict or cannot be predicted, are subject to significant uncertainties and are beyond the Corporation’s control, including estimates and assumptions regarding industry performance, general business, economic, regulatory, market and financial conditions, future commodity, operational, maintenance and production costs, as well as other future events. Important factors may cause actual results to differ from the TRQ FV Forecasts. In addition, since the TRQ FV Forecasts cover many years, such information by its nature becomes less reliable with each successive year. As a result, there can be no assurance that the TRQ FV Forecasts will be realized or that actual results will not be significantly higher or lower than projected.

The TRQ FV Forecasts were not prepared with a view toward public disclosure, soliciting proxies or complying with the published guidelines of the SEC or Canadian securities regulators regarding projections and forecasts or accounting rules, standards and procedures for preparation and presentation of projections and forecasts. Neither the Corporation’s independent registered public accounting firm, nor any other independent registered public accounting firm has examined, compiled or performed any procedures with respect to the TRQ FV Forecasts, and accordingly, neither the Corporation’s independent registered public accounting firm, nor any other independent registered public accounting firm expresses an opinion or any other form of assurance with respect to the TRQ FV Forecasts.

The TRQ FV Forecasts should not be considered in isolation or in lieu of the Corporation’s operating and other financial information that is publicly available. In addition, the TRQ FV Forecasts may not be comparable to similarly titled measures of other companies.

For the foregoing reasons, as well as the bases and assumptions on which the TRQ FV Forecasts were compiled, the inclusion of specific portions of the TRQ FV Forecasts in the Formal Valuation and the TD Fairness Opinion and in the following summary of the Formal Valuation and the TD Fairness Opinion should not be regarded as an indication that the Corporation or TD Securities considers the TRQ FV Forecasts to be necessarily predictive of actual future events, and the TRQ FV Forecasts should not be relied on as such an indication. No one has made any representation to any Shareholder or anyone else regarding the ultimate performance of the Corporation as reflected in the TRQ FV Forecasts.

Engagement of TD Securities

Pursuant to the TD Engagement Agreement, TD Securities was formally engaged as a professional advisor experienced in business and securities valuations to provide the Formal Valuation, pursuant to and in accordance with MI 61-101, with respect to the fair market value of the Shares. In addition, TD Securities was also engaged to provide the TD Fairness Opinion as to whether the Consideration to be received by the Shareholders, other than Rio Tinto and its affiliates, pursuant to the Arrangement is fair, from a financial point of view, to such Shareholders.

TD Securities will receive a fixed fee, as stipulated in the TD Engagement Agreement, for the Formal Valuation and the TD Fairness Opinion. In addition, TD Securities is entitled to recover reasonable out-of-pocket expenses. The fee payable to TD Securities is not contingent, in whole or in part, on whether the Arrangement is completed, or on the conclusions reached in the Formal Valuation and/or the TD Fairness Opinion, and TD Securities does not have any financial interest in the completion of the Arrangement. In addition, pursuant to the TD Engagement Agreement, TD Securities will be indemnified by the Corporation under certain circumstances for liabilities arising in connection with its engagement.

Credentials of TD Securities

TD Securities is a Canadian investment banking firm with operations in a broad range of investment banking activities, including corporate finance, mergers and acquisitions, equity and fixed income sales and trading, investment management and investment research. TD Securities has participated in a significant number of transactions involving public and private companies and has extensive experience in preparing valuations and fairness opinions, including in connection with transactions that are subject to the formal valuation requirements of MI 61-101. The Special Committee determined that TD Securities was a qualified valuator and selected it based on its qualifications, expertise and reputation, its experience with MI 61-101 valuations and its strong mining industry expertise.

The Formal Valuation and the TD Fairness Opinion are the opinion of TD Securities and their form and content have been approved by a committee of senior investment banking professionals of TD Securities, each of whom is experienced in merger, acquisition, divestiture, valuation and fairness opinion matters. The Formal Valuation and the TD Fairness Opinion have been prepared in accordance with the Disclosure Standards for Formal Valuations and Fairness Opinions of IIROC, but IIROC has not been involved in the preparation or review of the Formal Valuation and the TD Fairness Opinion.

 

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Independence of TD Securities

The Special Committee determined that TD Securities is independent of all Interested Parties (as defined below) in the Arrangement within the meaning of MI 61-101 and is an independent valuator (as defined for the purposes of MI 61-101), as required by MI 61-101, based, in part, on representations made to it by TD Securities that neither TD Securities nor any of its affiliated entities (as such term is defined for the purposes of MI 61-101): (i) is an associated entity or affiliated entity or issuer insider (as such terms are defined in MI 61-101) of Turquoise Hill, Rio Tinto or any of their respective associated entities or affiliated entities (collectively, the “Interested Parties”); (ii) is an advisor to any of the Interested Parties in connection with the Arrangement other than to the Special Committee pursuant to the TD Engagement Agreement; (iii) is a manager or co-manager of a soliciting dealer group for the Arrangement (or a member of the soliciting dealer group for the Arrangement providing services beyond the customary soliciting dealer’s functions or receiving more than the per security or per security holder fees payable to the other members of the group); or (iv) has a material financial interest in the completion of the Arrangement.

TD Securities and its affiliated entities have not been engaged to provide any financial advisory services, have not acted as lead or co-lead manager on any offering of securities of the Interested Parties, and have not had a material financial interest in any transaction involving the Interested Parties during the twenty-four (24) months preceding the date on which TD Securities was first contacted with respect to the Arrangement, other than as described in the Formal Valuation and the TD Fairness Opinion. TD Securities and/or its affiliates have been engaged by the Interested Parties on the following mandates, or have provided the following services to such entities: (i) mandated as joint bookrunner by Turquoise Hill with respect to a potential equity financing effective November 2021 (the “Equity Mandate”); (ii) advisor to a special committee of Turquoise Hill’s independent directors with respect to the evaluation of financing alternatives available to Turquoise Hill from April 2020 to April 2021; (iii) an affiliate of TD Securities provides a US$330,000,000 commitment to Rio Tinto’s US$7,500,000,000 revolving credit facility, holding title of “Bookrunner & Mandated Lead Arranger”, together with 18 other banks at the same commitment level (no active lead role) and 7 banks at a lower lending tier; (iv) an affiliate of TD Securities acted as a passive bookrunner (4.5% syndicate position) in a US$1,250,000,000 bond financing for Rio Tinto in October 2021; and (v) an affiliate of TD Securities provides banking services, including cash management, trade finance, foreign exchange, interest rate hedging and commodities trading, to Rio Tinto.

The fees paid to TD Securities in connection with the foregoing activities, together with the fees payable to TD Securities pursuant to the TD Engagement Agreement, are not, in the aggregate, financially material to TD Securities, and do not give TD Securities any financial incentive in respect of the conclusions reached in the Formal Valuation and the TD Fairness Opinion. Other than the Equity Mandate there are no understandings or agreements between TD Securities and the Interested Parties with respect to future financial advisory or investment banking business. TD Securities may in the future, in the ordinary course of its business, perform financial advisory or investment banking services for the Interested Parties. TD Securities and its affiliates may in the future, in the ordinary course of their respective businesses, provide banking services or credit facilities to the Interested Parties.

TD Securities and its affiliates act as a trader and dealer, both as principal and agent, in major financial markets and, as such, may have and may in the future have positions in the securities of any Interested Party, and, from time to time, may have executed or may execute transactions on behalf of any Interested Party or other clients for which it may have received or may receive compensation. As an investment dealer, TD Securities conducts research on securities and may, in the ordinary course of its business, provide research reports and investment advice to its clients on investment matters, including matters with respect to the Arrangement, or any other Interested Party.

Having regard to the nature of TD Securities’ roles in the matters described above and the factors specified in the Companion Policy to MI 61-101, the Special Committee was satisfied that TD Securities is an independent valuator. The Special Committee assessed all prior mandates disclosed above and determined that they were not material and would not reasonably interfere with the exercise of TD Securities’ independent judgment in respect of the Arrangement and other transactions contemplated in the Term Sheet.

Scope of Review

In connection with the Formal Valuation and the TD Fairness Opinion, TD Securities reviewed and relied upon (without attempting to verify independently the completeness, accuracy or fair presentation of) or carried out, among other things, the following:

 

1.

Audited financial statements of Turquoise Hill, and management’s discussion and analysis related thereto, for the fiscal years ended December 31, 2021, 2020 and 2019;

 

2.

Unaudited financial statements of Turquoise Hill, and management’s discussion and analysis related thereto, for the fiscal quarters ended March 31, 2022 and June 30, 2022;

 

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3.

Annual reports, annual information forms, and management information circulars of Turquoise Hill for its most recent three fiscal years as outlined above;

 

4.

Financial statements of OT LLC and analysis related thereto for the fiscal years ended December 31, 2021 and 2020;

 

5.

National Instrument 43-101 Oyu Tolgoi 2020 technical report titled “Oyu Tolgoi 2020 Technical Report” prepared in accordance with the requirements of National Instrument 43-101—Standards of Disclosure for Mineral Projects with an effective date of June 30, 2020 (the “2020 OTTR”);

 

6.

Discussions with Management, including but not limited to, various opportunities and risks relating to Oyu Tolgoi, Oyu Tolgoi’s long-term prospects and other issues and matters deemed relevant by TD Securities;

 

7.

Discussions with the Special Committee and legal counsel to the Special Committee;

 

8.

Representations contained in a certificate dated August 31, 2022, from senior officers of Turquoise Hill (the “TD TRQ Certificate”);

 

9.

Memorandum from Turquoise Hill to TD Securities dated August 31, 2022 regarding the TD TRQ Certificate (the “TD Management Memo”);

 

10.

Representations contained in a certificate dated August 31, 2022, from a director of the Manager (the “TD RT Certificate”);

 

11.

Representations to Turquoise Hill contained in a form of certificate dated August 31, 2022, from the Chief Executive Officer and Chief Financial Officer of OT LLC (the “OT Certificate”);

 

12.

Meetings with OT LLC management on June 2, 2022 and visit to Oyu Tolgoi on June 3, 2022;

 

13.

Financial models provided by OT LLC and Management;

 

14.

Non-public technical reports, trade-off and expansion studies, management presentations, engineering reports, budget documents, and other relevant internal project evaluation materials relating to Oyu Tolgoi;

 

15.

Draft of the Term Sheet dated August 31, 2022;

 

16.

Various research reports prepared by equity research analysts regarding Turquoise Hill and other selected public entities considered relevant;

 

17.

Public information relating to the business, operations, financial performance and trading history of Turquoise Hill and other selected public entities considered relevant;

 

18.

Public information with respect to certain other transactions of a comparable nature considered relevant;

 

19.

Discussions with Enthalpy, a mining technical consulting firm engaged by TD Securities in connection with the Formal Valuation; and

 

20.

Other financial, legal and operating information and materials provided by Turquoise Hill and the Manager and such other corporate, industry, and financial market information, investigations and analyses as TD Securities considered necessary or appropriate in the circumstances.

TD Securities has not reviewed any draft of the Circular as no such draft was available as of August 31, 2022, the date the Formal Valuation and the TD Fairness Opinion were rendered. TD Securities did not meet with the auditors of Turquoise Hill and has assumed the accuracy, completeness and fair presentation of, and has relied upon, without independent verification, the financial statements of Turquoise Hill and OT LLC referred to above and any reports of the auditors thereon.

Prior Valuations

Turquoise Hill has represented in the TD TRQ Certificate to TD Securities that, to the best of senior Management’s knowledge, information and belief after reasonable inquiry, there have been no valuations or appraisals relating to Turquoise Hill or any of its Subsidiaries or any of their respective material assets or material liabilities (“material assets” and “material liabilities” have the meanings ascribed thereto in the TD TRQ Certificate, as described below) made by

 

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or on behalf of Turquoise Hill or, to the knowledge of Turquoise Hill, any other person, in the preceding twenty-four (24) months.

Assumptions and Limitations

With the Special Committee’s acknowledgement and agreement as provided for in the TD Engagement Agreement, TD Securities has relied upon the accuracy, completeness and fair presentation in all material respects of all financial and other data and information filed by Turquoise Hill with securities regulatory or similar authorities (including under Turquoise Hill’s profiles on SEDAR at www.sedar.com and EDGAR at www.sec.gov), provided to it by or on behalf of Turquoise Hill, OT LLC, Rio Tinto, the Manager or their respective representatives or affiliates in respect of Turquoise Hill and/or Oyu Tolgoi, or otherwise obtained by TD Securities, including the certificates identified above (collectively, the “TD Information”). The Formal Valuation and the TD Fairness Opinion are conditional upon such accuracy, completeness and fair presentation in all material respects of the TD Information. Subject to the exercise of professional judgment, TD Securities has not attempted to verify independently the accuracy, completeness or fair presentation of any of the TD Information.

With respect to the budgets, forecasts, projections or estimates provided to TD Securities and used in its analyses, TD Securities notes that projecting future results is inherently subject to uncertainty. TD Securities has assumed, however, that such budgets, forecasts, projections or estimates provided to TD Securities and used in its analyses were prepared using the assumptions identified therein which TD Securities has been advised are (or were at the time of preparation and continue to be), in the opinion of Turquoise Hill and Rio Tinto, reasonable in the circumstances. TD Securities expresses no independent view as to the reasonableness of such budgets, forecasts, projections and estimates or the assumptions on which they are based.

The interim Chief Executive Officer and the Chief Financial Officer of Turquoise Hill, on behalf of Turquoise Hill and not in their personal capacities and without personal liability, have represented to TD Securities in the TD TRQ Certificate, among other things, that to the best of their knowledge, information and belief after reasonable inquiry: (i) Turquoise Hill has no information or knowledge of any facts, public or otherwise, not specifically provided to TD Securities or otherwise contained to in the TD Corporation Information (as defined below) relating to Turquoise Hill which would reasonably be expected to affect materially the Formal Valuation or TD Fairness Opinion; (ii) with the exception of forecasts, projections or estimates referred to in subparagraph (iv) below, the information, data and other material as filed by Turquoise Hill under its profile on SEDAR and/or provided to TD Securities by or on behalf of Turquoise Hill or its representatives in respect of Turquoise Hill and its Subsidiaries (within the meaning thereof in the Securities Act (Ontario)) in connection with the Arrangement (collectively, the “TD Corporation Information”) is or, in the case of historical TD Corporation Information was, at the date of preparation, true, complete and accurate in all material respects and does not or, in the case of historical TD Corporation Information did not, at the date of preparation, contain any untrue statement of a material fact (as such term is defined in the Securities Act (Ontario)), or omit to state a material fact necessary to make such TD Corporation Information not misleading in the light of circumstances in which it was presented; (iii) to the extent that any of the TD Corporation Information identified in subparagraph (ii) above is historical, there have been no changes in any material facts or new material facts since the respective dates thereof which have not been disclosed in a filing by Turquoise Hill that is publicly available on SEDAR or disclosed to TD Securities or updated by more current information provided to TD Securities by Turquoise Hill which would have or which would reasonably be expected to have a material effect on the Formal Valuation; (iv) any portions of the TD Corporation Information provided to TD Securities (or filed on SEDAR) which constitute forecasts, projections or estimates were prepared using the assumptions identified therein, which, in the reasonable belief of Turquoise Hill, are (or were at the time of preparation and, in the case of forecasts, projections or estimates prepared in connection with the Formal Valuation and provided to TD Securities, continue to be) reasonable in the circumstances; (v) there have been no valuations or appraisals relating to Turquoise Hill or any of its Subsidiaries or any of their respective material assets or material liabilities made by or on behalf of Turquoise Hill or, to the knowledge of Turquoise Hill, any other person, in the preceding twenty-four (24) months; (vi) except as otherwise publicly disclosed by Turquoise Hill, there have been no verbal or written offers or serious negotiations for or transactions involving any material property of Turquoise Hill or any of its Subsidiaries communicated to or in which Turquoise Hill has been involved during the preceding twenty-four (24) months which have not been disclosed to TD Securities. For the purposes of paragraphs (v), (vi) and (vii), “material assets”, “material liabilities”, “material property” and “material transaction” include assets, liabilities, property or a transaction of Turquoise Hill or its Subsidiaries having a gross value greater than or equal to US$100,000,000; (vii) since the last date on which TD Corporation Information was provided to TD Securities (or filed on SEDAR), no material transaction has been entered into by Turquoise Hill or any of its Subsidiaries; (viii) other than as disclosed in the TD Corporation Information, neither Turquoise Hill nor any of its Subsidiaries has any contingent liabilities that are material to Turquoise Hill and its Subsidiaries on a consolidated basis and there are no actions, suits, claims, proceedings, investigations or inquiries pending or threatened against or affecting the Arrangement, Turquoise Hill or any of its Subsidiaries at law or in equity or before or by any federal, national, provincial, state, municipal or other governmental department, commission, bureau, board, agency or instrumentality which would be reasonably expected to, in any way, materially adversely affect Turquoise Hill; (ix) all financial material, documentation and other data

 

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concerning Turquoise Hill and its Subsidiaries, including any projections or forecasts provided to TD Securities, were prepared on a basis consistent in all material respects with the accounting policies applied in the most recent audited consolidated financial statements of Turquoise Hill; (x) Turquoise Hill has no information or knowledge of any agreements, undertakings, commitments or understandings (whether written or oral, formal or informal) relating to the Arrangement, except as have been disclosed in complete detail to TD Securities; (xi) the contents of any and all documents prepared by Turquoise Hill in connection with the Arrangement for filing with regulatory authorities or delivery or communication to security holders of Turquoise Hill (collectively, the “Disclosure Documents”) have been, are and will be true, complete and correct in all material respects and have not contained, do not and will not contain, any misrepresentation (as defined in the Securities Act (Ontario)), and the Disclosure Documents have complied, comply and will comply with all requirements under applicable Laws; (xii) there is no plan or proposal for any material change in the affairs of Turquoise Hill which has not been disclosed to TD Securities; (xiii) since the dates on which the TD Corporation Information was provided to TD Securities, there has been no material change (as such term is defined in the Securities Act (Ontario)) or change in material facts, financial or otherwise, in or relating to the financial condition, assets, liabilities (whether accrued, absolute, contingent or otherwise), business, operations or prospects of Turquoise Hill or any of its Subsidiaries. Turquoise Hill is in compliance in all material respects with its continuous disclosure obligations under applicable Securities Laws; and (xiv) Turquoise Hill, except as disclosed to TD Securities, has not received any request from any applicable regulatory authority, stock exchange or similar body for any information, meeting or hearing relating to the Arrangement or any disclosure document or other document prepared in connection with the Arrangement, and is not subject to any cease trading, restraining or similar order or the initiation of any meeting, hearing, proceeding, litigation or investigation by a regulatory or judicial authority or other person with respect to the Arrangement.

In connection with the TD TRQ Certificate: (i) the TD Management Memo was intended to provide additional context regarding the source and nature of the information delivered to TD Securities, including the fact that certain information was provided by the Manager, which is an affiliate of Rio Tinto, and by OT LLC; (ii) the TD RT Certificate was provided to TD Securities whereby the Manager represented to TD Securities that (a) with the exception of forecasts, projections or estimates referred to in (d) below, the information, data and other material provided to Turquoise Hill by or on behalf of the Manager or its representatives in respect of Oyu Tolgoi (excluding for the avoidance of doubt any information, data or other material provided by OT LLC) in connection with the Arrangement (collectively, the “TD Manager Information”) is or, in the case of historical TD Manager Information was, at the date of preparation, true, complete and accurate in all material respects and does not or, in the case of historical TD Manager Information did not, at the date of preparation, (A) contain any untrue statement of a material fact (as such term is defined in the Securities Act (Ontario)), or (B) omit to state a material fact necessary to make such TD Manager Information not misleading in the light of circumstances in which it was presented; (b) the Manager has no information or knowledge of any facts with respect to Oyu Tolgoi, not contained in the TD Manager Information, Turquoise Hill’s public disclosure or otherwise provided to OT LLC or Turquoise Hill, which would reasonably be considered material to a determination of the fair value of Oyu Tolgoi prepared for the purposes of MI 61-101; (c) to the extent that any of the TD Manager Information identified in (a) above is historical, there have been no changes in any material facts or new material facts since the respective dates thereof which have not been disclosed to Turquoise Hill or updated by more current information provided to Turquoise Hill which would have or which would reasonably be expected to have a material effect on the Formal Valuation; (d) any portions of the TD Manager Information provided by or on behalf of the Manager to Turquoise Hill which constitute forecasts, projections or estimates were prepared using assumptions which, in the reasonable belief of the Manager, were at the time of preparation reasonable in the circumstances; and (e) other than as disclosed in the TD Manager Information or Turquoise Hill’s public disclosure, there are no actions, suits, claims, proceedings, investigations or inquiries pending or threatened against or affecting Oyu Tolgoi at law or in equity or before or by any federal, national, provincial, state, municipal or other governmental department, commission, bureau, board, agency or instrumentality which would be reasonably expected to, in any way, materially adversely affect Oyu Tolgoi; and (iii) the OT Certificate was provided to Turquoise Hill whereby OT LLC made certain representations to Turquoise Hill in support of the representations made in the TD TRQ Certificate.

In preparing the Formal Valuation and the TD Fairness Opinion, TD Securities has made a number of assumptions, including that all final or executed versions of agreements and documents will conform in all material respects to the Term Sheet and will not contain any term, condition or other provision that materially affects the Formal Valuation and the TD Fairness Opinion, that all conditions precedent to the consummation of the Arrangement can and will be satisfied, that all approvals, authorizations, consents, permissions, exemptions or orders of relevant regulatory authorities, courts of law, or third parties required in respect of or in connection with the Arrangement will be obtained in a timely manner, in each case without adverse condition, qualification, modification or waiver, that all steps or procedures being followed to implement the Arrangement are valid and effective and comply in all material respects with all applicable Laws and regulatory requirements, that all required documents have been or will be distributed to the Shareholders in accordance with applicable Laws and regulatory requirements, and that the disclosure in such documents is or will be complete and accurate in all material respects and such disclosure complies or will comply in all material respects with the requirements of all applicable Laws and regulatory requirements. In its analysis in connection with the preparation of the Formal Valuation and the TD Fairness Opinion, TD Securities made numerous

 

43

assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of TD Securities, Turquoise Hill, Rio Tinto and their respective Subsidiaries and affiliates or any other Party involved in the Arrangement. Among other things, TD Securities has assumed the accuracy, completeness and fair presentation of, and has relied upon, both the audited and unaudited financial statements forming part of the TD Information. The Formal Valuation and the TD Fairness Opinion are conditional on all such assumptions being correct.

The Formal Valuation and the TD Fairness Opinion have been provided for the exclusive use of the Special Committee and for inclusion in the Circular relating to the Arrangement and are not intended to be, and do not constitute, a recommendation that Turquoise Hill take, or that any Shareholder vote in favor of or otherwise take, any action in connection with the Arrangement.

The Formal Valuation and the TD Fairness Opinion may not be used or relied upon by any Person other than the Special Committee or for any other purpose without the express prior written consent of TD Securities. The Formal Valuation and the TD Fairness Opinion do not address the relative merits of the Arrangement as compared to other transactions or business strategies that might be available to Turquoise Hill, nor do they address the underlying business decision to implement the Arrangement or any other term or aspect of the Arrangement or any agreements entered into or to be entered into in connection with implementing the Arrangement. In considering fairness, from a financial point of view, of the Consideration to be received by the Shareholders, other than Rio Tinto and its affiliates, pursuant to the Arrangement, TD Securities considered the Arrangement from the perspective of Shareholders (other than Rio Tinto and its affiliates) generally and did not consider the specific circumstances of any particular Shareholder, including with regard to income tax considerations. TD Securities expresses no opinion with respect to future trading prices of securities of Turquoise Hill. The Formal Valuation and the TD Fairness Opinion are rendered as of August 31, 2022 on the basis of securities markets, economic and general business and financial conditions prevailing on that date and the condition and prospects, financial and otherwise, of Turquoise Hill and its Subsidiaries and affiliates as they were reflected in the TD Information. Any changes therein may affect the Formal Valuation and the TD Fairness Opinion and, although TD Securities reserves the right to change, withdraw or supplement the Formal Valuation and the TD Fairness Opinion in such event, it disclaims any undertaking or obligation to advise any Person of any such change that may come to its attention, or to change, withdraw or supplement the Formal Valuation and the TD Fairness Opinion after such date. In preparing the Formal Valuation and the TD Fairness Opinion, TD Securities was not authorized to solicit, and did not solicit, interest from any other party with respect to the acquisition of Shares or other securities of Turquoise Hill, or any business combination or other extraordinary transaction involving Turquoise Hill, nor did TD Securities negotiate with any other party in connection with any such transaction involving Turquoise Hill. TD Securities has not undertaken an independent evaluation, appraisal or physical inspection (other than the site visit to Oyu Tolgoi on June 3, 2022) of any assets or liabilities of Turquoise Hill or any of its Subsidiaries or affiliates. TD Securities is not an expert on, and did not render advice to the Special Committee or Turquoise Hill regarding, legal, accounting, regulatory, operating, permitting or tax matters. TD Securities has relied upon, without independent verification, the assessment of the Special Committee and their respective legal, accounting, tax or regulatory advisors with respect to legal, accounting, tax or regulatory matters. The Formal Valuation and the TD Fairness Opinion may not be summarized, published, reproduced, disseminated, quoted from or referred to without the express prior written consent of TD Securities.

The preparation of the Formal Valuation and the TD Fairness Opinion is a complex process and is not necessarily amenable to partial analysis or summary description. TD Securities believes that its analyses must be considered as a whole and that selecting portions of the analyses or the factors considered by it, without considering all factors and analyses together, could create an incomplete view of the process underlying the Formal Valuation and the TD Fairness Opinion. Accordingly, the Formal Valuation and the TD Fairness Opinion should be read in their entirety.

Formal Valuation of the Shares

Definition of Fair Market Value

For purposes of the Formal Valuation, fair market value is defined as the monetary consideration that, in an open and unrestricted market, a prudent and informed buyer would pay to a prudent and informed seller, each acting at arm’s length with the other and under no compulsion to act. In accordance with MI 61-101, TD Securities has made no downward adjustment to the fair market value of the Shares to reflect the liquidity of the Shares, the effect of the Arrangement on the Shares, or the fact that the Shares held by the Minority Shareholders do not form part of a controlling interest.

 

44

Approach to Value

The Formal Valuation is based upon techniques and assumptions that TD Securities considered appropriate in the circumstances for the purpose of arriving at an opinion as to the range of fair market value of the Shares. Fair market value of the Shares was analyzed on a going concern basis, as Turquoise Hill is expected to continue as a going concern, and was expressed as an amount per Share. In determining the fair market value of the Shares, based on its experience, TD Securities has relied primarily on a NAV analysis and, as a secondary methodology, has considered a future enterprise value (“EV”) to forward earnings before interest, taxes, depreciation, and amortization (“EBITDA”) multiples analysis (“Future EV / EBITDA”).

Oyu Tolgoi Model

TD Securities relied on a financial model prepared by Management, which is based on the April 2022 Oyu Tolgoi Life of Mine Model prepared by management at OT LLC and includes mineral reserves and resources from the open pit Oyut deposit and Oyu Tolgoi’s four underground deposits – Hugo North Lift 1, Hugo North Lift 2, Hugo South and Heruga (the “Resource Case”). Based on guidance and certain technical judgements from Management, the financial model was adjusted for certain near-term updates and longer-term opportunities to get to the “Adjusted Resource Case”. These adjustments included: (i) capital expenditure reforecast, completed in Q2 2022; (ii) accelerated ramp-up of Panel 0 of Hugo North Lift 1; (iii) debottlenecking of the mill to improve throughput; (iv) mining of the Hugo North Lift 1 high-grade structural pillars; and (v) resequencing of deposits to move development of Hugo South forward in the mine plan. The Adjusted Resource Case was approved by the Special Committee for TD Securities’ use for purposes of the Formal Valuation and the TD Fairness Opinion.

A summary of the key outputs of the Adjusted Resource Case is set forth in the table below.

 

		Annual Average
						Life of Mine				First 10 Years				First 20 Years
Cu Produced			kt				286				390				436
CuEq. Produced			kt				348				460				504
Net Revenue		US$	mm			$	2,332			$	3,177			$	3,386
Operating Costs		US$	mm			($	854	)		($	944	)		($	981	)
EBITDA		US$	mm			$	1,479			$	2,234			$	2,406
Capital Expenditures		US$	mm			($	441	)		($	712	)		($	620	)
Sustaining Capital		US$	mm			($	348	)		($	476	)		($	385	)
Development Capital		US$	mm			($	93	)		($	236	)		($	235	)
Tax		US$	mm			($	218	)		($	153	)		($	321	)
Working Capital and Other		US$	mm			($	1	)		($	6	)		($	3	)
Unlevered Free Cash Flow		US$	mm			$	818			$	1,362			$	1,462

 

Note: Figures may not sum exactly to totals due to rounding.

Note: Full year 2022 figures are included for purposes of average calculations. Sustaining capital includes VAT and closure costs.

Commodity Price and Exchange Rate Assumptions

Forecast commodity prices and foreign exchange rate (“FX”) assumptions are a critical determinant of the outcome of the NAV and Future EV / EBITDA analysis. Future commodity prices and exchange rates are very difficult to predict and different views can have a very significant impact on resulting net present values. TD Securities selected its commodity price forecast based on a review of equity research analysts’ commodity price estimates and spot prices, which TD Securities believes is representative of that used by financial and industry participants in evaluating assets. FX projections are based on the underlying rates used by Management. The financial model was created on a U.S. dollar basis, however there are embedded exchange rate assumptions that underpin certain cost assumptions. Only a portion of cost inputs are exposed to movements in foreign currencies, other than the U.S. dollar.

 

45

		Selected Price Deck
		H2 2022		2023		2024		2025		2026		Long-Term
Copper (US$/lb)		$3.60		$3.75		$3.85		$3.85		$3.85		$3.50
Gold (US$/oz)		$1,750		$1,750		$1,750		$1,700		$1,675		$1,600
Silver (US$/oz)		$20.00		$20.00		$22.00		$22.00		$22.00		$22.00
Molybdenum (US$/lb)		n/a		n/a		n/a		n/a		n/a		$11.00

 

		Adjusted Resource Case Embedded FX
MNT / USD			2,890
CNY / USD			6.45

Discount Rate Assumptions

TD Securities generally uses, as a starting point, an 8% real discount rate for producing base metal mines and a 10% real discount rate for development stage base metal projects and makes adjustments, as appropriate, for specific risks including geopolitical and technical risks. TD Securities believes this methodology is representative of that used by financial and industry participants in evaluating mining assets and is consistent with the application of discount rates in connection with the precedent transactions and related value approaches in the Formal Valuation and the TD Fairness Opinion.

A number of asset-specific factors, which are outlined in the Formal Valuation and the TD Fairness Opinion attached as Appendix C to this Circular, also influenced the selection of the discount rate. In addition, other data points were considered, including: (i) the 2020 OTTR uses an 8% discount rate; (ii) research analysts covering Turquoise Hill use a range of discount rates from 8% to 12% (median of 10%); and (iii) average discount rates used by research analysts and available to TD Securities in relevant precedent transactions range from 8% to 11% (median of 9%).

Based on the foregoing, TD Securities selected a real discount rate of 10%.

Corporate G&A Assumptions

The Adjusted Resource Case includes annual corporate general and administrative expenses (“G&A”), which are the corporate expenses that are not directly attributable to the mine, of approximately US$27,000,000 per annum.

Synergies Assumptions

TD Securities reviewed and considered whether any distinctive material value would accrue to Rio Tinto or any other purchaser through the acquisition of all of the Shares. It was concluded that there would be synergies available to Rio Tinto and to certain other mining industry participants as a result of the potential accrual of certain savings described in the Formal Valuation and the TD Fairness Opinion. Based on information received from Rio Tinto and guidance provided by Management, synergies that could be achievable by Rio Tinto were estimated to range from US$10,000,000 – US$20,000,000 per annum. TD Securities reflected such amounts in its valuation of the Shares.

Shareholder Loans and Other Corporate Adjustments

Turquoise Hill has funded OT LLC’s cash requirements beyond internally generated cash flows by a combination of equity investment and shareholder debt. For amounts funded by debt (the “Shareholder Loans”), OT LLC must repay such amounts, including accrued interest before it can pay common share dividends. As at June 30, 2022 the aggregate outstanding balance of the Shareholder Loans was approximately US$8,600,000,000, including accrued interest of approximately US$2,500,000,000, and bears interest at LIBOR + 6.5%. The Shareholder Loans have no fixed repayment date or maturity schedule and are repaid by OT LLC’s cash flows in subordination to the repayment of the project finance facilities, but must be repaid in full prior to any dividends being paid. Given that Turquoise Hill owns 66% of OT LLC, that portion of the Shareholder Loans are inter-company, and therefore only 34% of the Shareholder Loans value is included in the NAV.

TD Securities valued the Shareholder Loans by selecting a market rate to discount the future loan repayments. In selecting a pre-tax nominal market interest rate range of 12% – 14%, TD Securities considered, among other things,

 

46

the expected duration, assessment of sovereign risk and asset risk, and the subordinated nature of the Shareholder Loans.

TD Securities incorporated several other corporate adjustments, including adjustments for: (i) tax dispute recovery; (ii) expected transfer taxes on the Entrée license transfer; (iii) Canadian taxes; (iv) management services payments paid to Rio Tinto and Turquoise Hill (“MSP”); (v) guarantee fees paid to Rio Tinto; (vi) unconsolidated investments; and (vii) integration costs.

NAV Analysis

TD Securities calculated consolidated NAV by taking the NPV of Turquoise Hill’s interest in Oyu Tolgoi and adjusting for other assets, liabilities and corporate adjustments in the manner that TD Securities determined to be the most appropriate to the nature of each particular asset and liability. To arrive at the Oyu Tolgoi NPV, TD Securities relied on the attributable, unlevered, after-tax free cash flows projected in the Adjusted Resource Case, discounted to June 30, 2022 using a 10% real discount rate. Adjustments were then made to account for the value of: (i) cash and cash equivalents; (ii) debt; (iii) corporate G&A (iv) G&A synergies; (v) Shareholder Loans; and (vi) other corporate adjustments, as described above. A summary of the NAV is provided below:

 

(In US$ millions, except per share data)		Attributable				Discount Rate				Model
Oyu Tolgoi			66%				10%			$	9,278
Mining Asset NAV										$	9,278
Cash(1)			100%				n/a			$	488
Debt(2)			66%				n/a			($	2,836	)
Corporate G&A			100%				10%			($	293	)
G&A Synergies(3)			100%				10%			$	157
Shareholder Loans(4)			34%				13%nominal			$	2,386
Other Corporate Adjustments(5)										($	473	)
Total Corporate Adjustments										($	572	)
Total Corporate NAV										$	8,707
Fully -Diluted Shares Outstanding (mm)											201.2
Total Corporate NAVPS (US $)										$	43.27
Total Corporate NAVPS (C$)(6)										$	56.59

 

Notes: Figures may not sum exactly to totals due to rounding.

(1)	Cash held at Turquoise Hill level (100%) plus cash at OT LLC level (66% attributable to Turquoise Hill) at June 30, 2022 value date.

(2)	Based on fair market value as disclosed in Turquoise Hill’s Q2 2022 financial statements.

(3)	Annual synergies of US$10,000,000 – US$20,000,000 at midpoint of range.

(4)	Levered nominal cash flows of Shareholder Loans repayment discounted at midpoint of range (12% – 14%).

(5)	Includes Entrée transfer taxes and Canadian tax at midpoint of ranges, tax dispute recovery, MSP, guarantee fee, unconsolidated investments and integration costs.

(6)	Converted to C$ NAV per share using spot CAD/USD FX rate of 0.7646.

Oyu Tolgoi NPV Sensitivity Analysis

To illustrate the effects of variations in key assumptions, TD Securities performed a variety of sensitivity analyses on the Oyu Tolgoi NPV. In particular, the table in the Formal Valuation and the TD Fairness Opinion, attached as Appendix C to this Circular, under the heading “Oyu Tolgoi NPV Sensitivity Analysis” shows eight key sensitivities (namely discount rate, copper price, copper production, operating costs, gold price, gold production, sustaining capex and remaining development capex) to TD Securities’ calculated Oyu Tolgoi NPV.

TD Securities also reviewed various other upside and downside sensitivities specific to Oyu Tolgoi. These were not explicitly included in the Adjusted Resource Case due to the level of uncertainty surrounding the underlying assumptions.

 

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Comparable Precedent Transaction Analysis

TD Securities identified a list of comparable precedent transactions involving companies and assets in the copper sector which are pending or have been concluded and for which there is sufficient public information to derive value multiples. The comparable precedent transactions approach consists of selecting appropriate value benchmarks based on transactions of a comparable nature and applying these value benchmarks to the appropriate Turquoise Hill metrics. TD Securities focused on selecting transactions involving companies and assets considered most comparable to Turquoise Hill, taking into account criteria such as: asset size, commodity mix, stage, geographic location, and grade. TD Securities identified and reviewed 21 comparable precedent transactions, as set forth in the Formal Valuation and the TD Fairness Opinion, attached as Appendix C to this Circular, in the table titled “Summary of Comparable Precedent Transactions”.

TD Securities analyzed precedent P/NAV multiples and Future EV / EBITDA multiples based on the median of equity research analyst estimates of the targets’ NAV and EBITDA, respectively, at the date of each precedent transaction. Based on the above analysis, TD Securities selected a range of multiples from 0.75x to 1.10x P/NAV and 3x to 6x Future EV / EBITDA for Turquoise Hill, to be applied under the valuation approaches considered below.

Trading Comparables Analysis

TD Securities also reviewed the market trading multiples of selected base metal companies that it considered relevant to determine whether a public market trading analysis might imply values which exceed values determined by the comparable precedent transactions approach. Based on this review, TD Securities concluded that the public market trading approach implied values that were generally equal to or below the values determined by the comparable precedent transactions analysis.

For the purposes of its review of market trading multiples, TD Securities identified and reviewed six publicly traded copper-focused base metals companies (as set forth in Appendix C of the Formal Valuation and the TD Fairness Opinion: Trading Comparables Summary).

NAV Analysis Methodology

Based on its experience, TD Securities has relied on the NAV analysis as its primary value methodology. Under this approach, TD Securities applied a selected range of P/NAV precedent transaction multiples to the mining asset NAV calculated for Oyu Tolgoi to derive an implied value range for Turquoise Hill’s interest in Oyu Tolgoi. TD Securities then adjusted for the values of certain other assets, liabilities, and corporate adjustments, as deemed appropriate, to arrive at an en bloc equity value for Turquoise Hill.

Summary of NAV Approach

For the NAV approach, TD Securities applied a selected range of P/NAV multiples of 0.75x to 1.10x based on a review of relevant comparable precedent transactions, as described above. This approach implies a range of values for the Shares of C$38.83 to C$64.62 per Share.

 

48

										NAV Approach
(In US$ millions, except per share data)		Attributable				Discount Rate				Low				–				High
Mining Assets
Oyu Tolgoi			66%				10%							$	9,278
Mining Asset NAV														$	9,278
Selected Multiple											0.75x				–				1.10x
Mining Asset Value										$	6,959				–			$	10,206
Corporate Adjustments
Cash(1)			100%				n/a							$	488
Debt(2)			66%				n/a							($	2,836	)
Corporate G&A			100%				10%							($	293	)
G&A Synergies(3)			100%				10%			$	105				–			$	210
Shareholder Loans(4)			34%				12%—14% nom.			$	2,205				–			$	2,584
Other Corporate Adjustments(5)										($	653	)			–			($	417	)
Total Corporate Adjustments										($	985	)			–			($	264	)
Implied Equity Value										$	5,974				–			$	9,942
Fully -Diluted Shares Outstanding (mm)															201.2
Implied Share Price (US $)										$	29.69				–			$	49.41
Implied Share Price (C$)(6)										$	38.83				–			$	64.62

 

Notes: Figures may not sum exactly to totals due to rounding.

(1)	Cash held at Turquoise Hill level (100%) plus cash at OT LLC level (66% attributable to Turquoise Hill) at June 30, 2022 value date.

(2)	Based on fair market value as disclosed in Turquoise Hill’s Q2 2022 financial statements.

(3)	Annual synergies of US$10,000,000 – US$20,000,000.

(4)	Levered nominal cash flows of Shareholder Loans repayment discounted at range of 12% – 14%.

(5)	Includes tax dispute recovery, Entrée transfer taxes, Canadian tax, MSP, guarantee fee, unconsolidated investments and integration costs.

(6)	Converted to C$ using spot CAD/USD FX rate of 0.7646.

Future EV / EBITDA Multiples Analysis Methodology

Based on its experience, as a secondary methodology, TD Securities considered a Future EV / EBITDA multiples analysis. This methodology was broken into two components, a near-term period and a longer-term period. For the near-term period, Oyu Tolgoi attributable, unlevered, after-tax FCF through 2030 (representing the first fully ramped-up underground production year), as reflected in the Adjusted Resource Case, were discounted to present value as at June 30, 2022 using a 10% discount rate. For the longer-term period, a selected range of EV / EBITDA precedent transaction multiples (as described below) was applied to the average EBITDA for years 2030 – 2036, as reflected in the Adjusted Resource Case, which was then discounted to June 30, 2022. The present value of the near-term period was then added to the range of present values for the longer-term period to calculate the mining asset value. TD Securities then adjusted for the values of certain other assets, liabilities, and corporate adjustments set forth in the table below, as deemed appropriate, to arrive at an en bloc equity value for Turquoise Hill.

Summary of Future EV / EBITDA Approach

For the Future EV / EBITDA approach, TD Securities applied a selected range of EV / EBITDA multiples of 3x to 6x based on a review of relevant comparable precedent transactions, as described above. This approach implies a range of values for the Shares of C$38.11 to C$58.16 per Share.

 

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										Future EV / EBITDA
(In US$ millions, except per share data)		Attributable				Discount Rate				Low				—				High
Present Value of FCF (H2 2022 - 2030)			66	%			10%							$	4,362
Future EBITDA (Avg. 2030 - 2036)			66	%			n/a							$	1,709
Selected Multiple											3x				—				6x
Present Value of Future Value			66	%			10%			$	2,392							$	4,784
Mining Asset Value										$	6,754				—			$	9,146
Cash(1)			100	%			n/a							$	488
Debt(2)			66	%			n/a							($	2,836	)
Corporate G&A (H2 2022 - 2030)			100	%			10%							($	166	)
G&A Synergies (H2 2022 - 2030)(3)			100	%			10%			$	58				—			$	116
Shareholder Loans(4)			34	%			12% -14% nom.			$	2,205				—			$	2,584
Other Corporate Adjustments(5)										($	639	)			—			($	383	)
Total Corporate Adjustments										($	890	)			—			($	197	)
Implied Equity Value										$	5,863				—			$	8,949
Fully-Diluted Shares Outstanding (mm)															201.2
Implied Share Price (US $)										$	29.14				—			$	44.47
Implied Share Price (C$)(6)										$	38.11				—			$	58.16

 

Notes: Figures may not sum exactly to totals due to rounding.

(1)	Cash held at Turquoise Hill level (100%) plus cash at OT LLC level (66% attributable to Turquoise Hill) at June 30, 2022 value date.

(2)	Based on fair market value as disclosed in Turquoise Hill’s Q2 2022 financial statements.

(3)	Annual synergies of US$10,000,000 – US$20,000,000.

(4)	Levered nominal cash flows of Shareholder Loans repayment discounted at range of 12% – 14%.

(5)	Includes tax dispute recovery, Entrée transfer taxes, Canadian tax, MSP, guarantee fee, unconsolidated investments and integration costs.

(6)	Converted to C$ using spot CAD/USD FX rate of 0.7646.

Formal Valuation Summary

The following table summarizes the range of the fair market value of the Shares based on the methodologies described above. In arriving at fair market value of the Shares, TD Securities did not attribute specific quantitative weight to any particular valuation methodology. TD Securities made qualitative judgments based on TD Securities’ experience in rendering such opinions and on prevailing circumstances as to the significance and relevance of each valuation methodology.

 

(C$ per share)		Value of Turquoise Hill Shares
		Low				High
NAV Approach		$	38.83			$	64.62
Future EV / EBITDA Approach		$	38.11			$	58.16

Sensitivity Analysis

To illustrate the effects of variations in key assumptions, TD Securities also performed a sensitivity analysis on the value of the Shares under the NAV approach, as outlined below:

 

50

NAV Approach – Low (0.75x P/NAV)

 

(C$ per share)		Long-Term Copper Price (US $/lb)
Discount Rate		$3.00				$3.25				$3.50				$3.75				$4.00
8%		$	37.61			$	43.84			$	49.91			$	55.66			$	61.25
9%		$	32.97			$	38.51			$	43.89			$	48.97			$	53.87
10%		$	29.05			$	34.02			$	38.83			$	43.34			$	47.69
11%		$	25.70			$	30.19			$	34.52			$	38.57			$	42.46
12%		$	22.81			$	26.90			$	30.83			$	34.49			$	37.98

NAV Approach – High (1.10x P/NAV)

 

(C$ per share)		Long-Term Copper Price (US $/lb)
Discount Rate		$3.00				$3.25				$3.50				$3.75				$4.00
8%		$	64.19			$	72.83			$	81.23			$	89.29			$	97.24
9%		$	57.20			$	64.82			$	72.21			$	79.27			$	86.23
10%		$	51.28			$	58.06			$	64.62			$	70.86			$	77.00
11%		$	46.23			$	52.31			$	58.17			$	63.73			$	69.19
12%		$	41.88			$	47.37			$	52.64			$	57.62			$	62.51

 

Note: Highlighted share values reflect the low and high end of the NAV approach range.

Formal Valuation Conclusion

Based upon and subject to the foregoing, TD Securities is of the opinion that, as of August 31, 2022, the fair market value of the Shares is in the range of C$42.00 to C$58.00 per Share.

TD Fairness Opinion

Approach to Fairness

In considering the fairness of the Consideration to be received by the Minority Shareholders in connection with the Arrangement, TD Securities considered and relied upon, among other things:

 

1.

a comparison of the Consideration to the fair market value of the Shares as determined in the Formal Valuation; and

 

2.

a comparison of the premiums implied by the Consideration to the trading prices of the Shares prior to announcement of the Arrangement, to the premiums implied by selected precedent transactions involving mining companies and selected acquisition of remaining interest transactions.

Comparison of the Consideration to the Fair Market Value of the Shares

The Consideration to be received by the Minority Shareholders in connection with the Arrangement is within the range of fair market value of the Shares as at August 31, 2022, as determined by TD Securities in the Formal Valuation.

Comparison of Implied Premiums

TD Securities considered the premium implied by the Consideration to the trading price of the Shares prior to the day of public announcement of the Initial Proposal, dated March 13, 2022, and premiums implied by Canadian mining large cap takeover transactions and Canadian target remaining interest acquisitions, calculated based on the unaffected closing price on the date prior to the transaction announcement, as set forth in greater detail in the Formal Valuation and the TD Fairness Opinion attached as Appendix C to this Circular. Although TD Securities did not consider any

 

51

specific transaction to be directly comparable to the Arrangement, TD Securities believes that the transactions considered, in the aggregate, provide a useful comparison benchmark. TD Securities noted that the premium implied by the Consideration is above the median and average premiums implied by the selected Canadian mining large cap takeover transactions and Canadian target remaining interest acquisitions.

TD Fairness Opinion Conclusion

Based upon and subject to the foregoing, and such other matters that TD Securities considered relevant, TD Securities is of the opinion that, as of August 31, 2022, the Consideration to be received by the Shareholders, other than Rio Tinto and its affiliates, pursuant to the Arrangement is fair, from a financial point of view, to such Shareholders.

Other Presentations by TD Securities

In addition to the Formal Valuation and the TD Fairness Opinion rendered to the Special Committee on August 31, 2022 and reviewed with the Special Committee on September 5, 2022, as summarized above, TD Securities made certain preliminary illustrative presentations to the Special Committee on June 27, 2022 and July 6, 2022 (the “Preliminary TD Securities Presentations”). Copies of the Formal Valuation and the TD Fairness Opinion and the Preliminary TD Securities Presentations will be filed with the SEC as exhibits to the Schedule 13E-3.

The Preliminary TD Securities Presentations contained analyses substantially similar to the analyses contained in the Formal Valuation and the TD Fairness Opinion using the same methodologies, as summarized above. However, the Preliminary TD Securities Presentations were in draft form, did not form the basis of the Formal Valuation or TD Fairness Opinion, and none of the Preliminary TD Securities Presentations, alone or together, constitutes a valuation by, or an opinion of TD Securities.

The financial analyses in such Preliminary TD Securities Presentations were based on financial, economic, monetary, market, and other conditions and circumstances as they existed as of the relevant dates for each such presentation, as well as other information that was available at such time to TD Securities. Accordingly, the results of the financial analyses contained in each such presentation differed due to changes in those conditions, circumstances and information, as well as TD Securities’ continuing refinement to various aspects of its financial analyses over time. Each Preliminary TD Securities Presentation and the draft preliminary analysis therein was as of such date, not a formal valuation and further analysis, refinement and receipt of additional information was required prior to TD Securities being in a position to provide a formal valuation range.

The Preliminary TD Securities Presentations as well as the Formal Valuation and the TD Fairness Opinion will be available for any interested Shareholder to inspect and copy at the Corporation’s executive offices during regular business hours.

Fairness Opinions of BMO Capital Markets

August 31, 2022 Fairness Opinion

Prior to entering into the Term Sheet, the Special Committee requested that BMO Capital Markets evaluate the fairness, from a financial point of view, of the Consideration contemplated to be received by the Shareholders (other than the Purchaser and its affiliates) pursuant to the Term Sheet and the Arrangement. On August 31, 2022, at a meeting of the Special Committee held to evaluate the proposed Term Sheet and the plan of arrangement contemplated by the Term Sheet, BMO Capital Markets rendered the BMO August 31^st Fairness Opinion orally to the Special Committee, which was subsequently confirmed by delivery of a written opinion dated August 31, 2022, to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken described in its written opinion, the Consideration contemplated to be received by the Shareholders (other than the Purchaser and its affiliates) pursuant to the Term Sheet and the Arrangement is fair from a financial point of view to such Shareholders.

September 5, 2022 Fairness Opinion

The Special Committee requested that BMO Capital Markets provide an updated opinion of the fairness, from a financial point of view, of the Consideration to be received by the Shareholders (other than the Purchaser and its affiliates) pursuant to the Arrangement prior to the Special Committee recommending that, among other things, the Board approve the Arrangement Agreement. On September 5, 2022, at a meeting of the Special Committee held to consider the Arrangement Agreement, BMO Capital Markets rendered the BMO September 5^th Fairness Opinion orally to the Special Committee, which was subsequently confirmed by delivery of a written opinion dated September 5, 2022 to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters

 

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considered and limitations and qualifications on the review undertaken described in its written opinion, the Consideration to be received by the Shareholders (other than the Purchaser and its affiliates) pursuant to the Arrangement is fair from a financial point of view to such Shareholders.

Summary of Fairness Opinions

The full text of the BMO Fairness Opinions, which describe the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, are attached as Appendix D to this Circular, and should be read carefully in their entirety. The description of the BMO Fairness Opinions set forth below is qualified in its entirety by reference to the full text of the BMO Fairness Opinions.

The BMO Fairness Opinions were provided to the Special Committee (in its capacity as such) for its benefit and exclusive use only in evaluating the Consideration from a financial point of view. The BMO Fairness Opinions did not address the relative merits of the Arrangement as compared to any strategic alternatives or other transactions or business strategies that may be available to Turquoise Hill, nor did BMO Capital Markets express any opinion on the structure, terms or effect of any other aspect of the Arrangement or the other transactions contemplated by the Term Sheet or Arrangement Agreement. BMO Capital Markets did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any officers, directors or employees of Turquoise Hill, or any class of such persons, in connection with the Arrangement relative to the Consideration or otherwise. Furthermore, the BMO Fairness Opinions do not constitute a recommendation as to how any Shareholder or any other party should vote or act on any matter relating to the Arrangement and was not a recommendation to the Special Committee to enter into the Term Sheet or the Arrangement Agreement or to proceed with the Arrangement or any other action the Special Committee, any Shareholder or any other party should take in connection with the Arrangement or otherwise.

The BMO Fairness Opinions were prepared in accordance with the Disclosure Standards for Formal Valuations and Fairness Opinions of IIROC, but IIROC was not involved in the preparation and review of such opinions.

The BMO Fairness Opinions did not constitute an independent formal valuation for the purposes of MI 61-101.

The BMO Fairness Opinions represented the opinions of BMO Capital Markets, the issuance of which were approved by a fairness opinion committee of BMO Capital Markets.

In connection with rendering the BMO Fairness Opinions, BMO Capital Markets reviewed and relied upon, or carried out, among other things, the following:

 

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with respect to the BMO August 31st Fairness Opinion, a draft of the Term Sheet dated August 31, 2022, outlining the preliminary terms and conditions of the proposed transaction;

 

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with respect to the BMO September 5th Fairness Opinion, a draft of the Arrangement Agreement dated September 2, 2022;

 

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with respect to the BMO September 5th Fairness Opinion, a draft dated as of September 2, 2022 of the Third A&R HoA;

 

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certain publicly available information relating to the business, operations, financial condition and trading history of the Corporation, the Purchaser and Rio Tinto plc and other selected public companies that BMO Capital Markets considered relevant;

 

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certain internal financial, operating, corporate and other information prepared or provided by or on behalf of Turquoise Hill relating to the business, operations and financial condition of Turquoise Hill;

 

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internal Management forecasts, projections, estimates (including, without limitation, estimates of future resource or reserve additions) and budgets prepared or provided by or on behalf of Management;

 

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the 2020 OTTR;

 

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discussions with legal counsel to the Special Committee;

 

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discussions with Management relating to Turquoise Hill’s current business plans, financial condition and prospects;

 

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