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Turquoise Hill investor Pentwater says $2.7 billion Rio bid too low -letter

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FILE PHOTO: A sign adorns the building where mining company Rio Tinto has their office in Perth, Western Australia
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By Clara Denina

LONDON (Reuters) -Activist investor Pentwater Capital Management, the largest minority shareholder of Canada's Turquoise Hill with a 10% stake, has rejected a $2.7 billion bid for the copper producer by Rio Tinto as too low.

Anglo-Australian Rio Tinto, on Monday proposed to buy out the 49% minority shareholders in Turquoise Hill for about $2.7 billion in cash, paving the way for direct ownership of a massive copper-gold mining project in Mongolia.

"It is highly improbable that Rio will be successful at its current bid price and equally improbable that Turquoise Hill shares will ever fall back to the levels they traded at prior to Rio's offer," the investor said in a letter to Turquoise Hill's independent directors seen by Reuters on Friday.

Turquoise Hill is a single-asset company holding 66% of Oyu Tolgoi, one of the world's largest known copper and gold deposits, 550 km (342 miles) south of Mongolia's capital Ulaanbaatar. The government of Mongolia owns the remaining 34%.

The Toronto-listed miner has a market capitalisation of $5.4 billion, after its share price rose by 32% since Monday, in line with the 32% premium offered by Rio Tinto in its non-binding C$34 per share offer.

Rio paid $63.70 per share for its existing 51% stake in Turquoise Hill, according to Pentwater.

"If Rio believes that its current $26.90 proposal is compelling for Turquoise Hill shareholders, Pentwater would be pleased to purchase part of Rio Tinto's stake in Turquoise Hill for that price," it said.

SailingStone Capital Partners, another minority shareholder at 2.4%, said on Tuesday "an additional premium to compensate minority shareholders for losing access to an asset of this quality seems eminently reasonable."

Turquoise Hill and Rio have had long-running disagreements over funding for the $6.93 billion expansion of the mine as costs and timelines overran, but they reached a deal, which included a rights issue, in April.

Rio Tinto in January settled a long-running dispute with Mongolia over the economic benefits of the project, waiving $2.4 billion in debt owed to it by the Mongolian government.

Pentwater Capital last year filed a class action in New York against Rio Tinto for damages, alleging it concealed the project's problems from investors for months.

(Reporting by Clara Denina; editing by Jason Neely and Chizu Nomiyama)