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 December 9, 2022 at 12:00 p.m. (Montréal time). 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:

  1. 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 (66⅔%) of the votes cast by Shareholders present in person, virtually present or represented by proxy at the Meeting, voting as a single class;
  2. 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 61101 respecting Protection of Minority Security Holders in Special Transactions) (“MI 61101”), 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 61101; and
  3. 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 61101.

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 RobertBourassa 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 18883703955 (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.

(signed) R. Peter Gillin

 

 

R. Peter Gillin

Independent Chairperson of the Board of Directors