Hill Resources today announced its financial results for the year ended December 31, 2017. All figures are in U.S. dollars unless otherwise stated.
HIGHLIGHTS
Full year 2017
• Oyu Tolgoi achieved an All Injury Frequency Rate of 0.27 per 200,000 hours worked for the year ended December 31, 2017.
• Underground lateral development made good progress during 2017 completing 6.1 equivalent kilometres for the year which was in-line with the 2016 Technical Report expectations.
• Since the re-start of development in January 2016, a total of 7.7 equivalent kilometres has been completed, which is on plan.
• Shaft 2 sinking was completed in January 2018 with fit out expected to occur over 2018.
• Shaft 5 had approximately 100 metres remaining at the end of 2017 and sinking is expected to be complete in Q1’18.
• During 2017, total underground expansion spend was $835.7 million, meeting guidance and resulting in total underground project spend since January 1, 2016 of approximately $1.1 billion.
• Production from first draw bell remains planned for mid-2020 and sustainable first production in 2021.
• During 2017, Oyu Tolgoi set operational records for total material mined and concentrator throughput.
• Copper production of 157,400 tonnes and gold production of 114,000 ounces in 2017 met the Company’s guidance.
• Oyu Tolgoi recorded revenue of $939.8 million in 2017 compared with $1,203.3 million in 2016 reflecting lower sales volumes partially offset by higher copper prices.
• For 2017, the Company recorded income of $110.9 million and net income attributable to owners of Turquoise Hill of $181.2 million or $0.09 per share.
• Turquoise Hill generated cash flow from operating activities before interest and tax of $325.8 million in 2017, with net cash generated from operating activities of $118.0 million.
• For 2017, Oyu Tolgoi’s cost of sales was $2.32 per pound of copper sold, C1 cash costs were $1.92 per pound of copper produced and all-in sustaining costs were $2.39 per pound of copper produced1.
• Operating cash costs1 of $711.6 million in 2017 beat the Company’s guidance.
• Of the $4.2 billion project finance facility proceeds deposited with Rio Tinto in June 2016, approximately $1.0 billion has been redrawn as of December 31, 2017 with approximately $3.2 billion available.
• Turquoise Hill’s cash and cash equivalents at December 31, 2017 were approximately $1.4 billion.

1 Please refer to the NON-GAAP MEASURES section of this press release for further information.

Fourth quarter 2017
• Following the newly-installed 3,500 tonne per day development crusher consistently operating above nameplate capacity, underground lateral development made strong progress during Q4’17 with a record over 2.2 equivalent kilometres completed.
• During Q4’17, Rio Tinto undertook a schedule and cost review and reported there were no material changes in project scope, cost or schedule.
• Shaft 2 sinking reached final depth of 1,284 metres during Q4’17 and the shaft bottom mass excavation was approximately 50% complete by year end.
• During Q4’17, installation of the Shaft 5 exhaust fan commenced and is on target to be completed in early Q2’18.
• During Q4’17, underground expansion spend was $309.0 million, the highest quarterly expansion spend since notice to proceed was received.
• During Q4’17, Oyu Tolgoi set operational records for open pit material mined as well as concentrator throughput.
• Copper production in Q4’17 increased 22.8% over Q3’17 and gold production increased 12.9% compared to Q3’17.
• Revenue of $251.7 million in Q4’17 increased 1.9% over Q3’17 reflecting higher copper prices partly offset by lower concentrate sales volumes.
• For Q4’17, the Company recorded income of $33.9 million and net income attributable to owners of Turquoise Hill of $51.1 million or $0.03 per share.
• Turquoise Hill generated cash flow from operating activities before interest and taxes of $91.1 million in Q4’17.
• Net cash used in operating activities in Q4’17 was $33.4 million resulting from the bi-annual interest payments due on the project finance facility in December 2017.
Subsequent Event
• On March 15, 2018, Oyu Tolgoi filed a notice of dispute with the Government of Mongolia for the January 2018 tax assessment.

FINANCIAL RESULTS
Income in 2017 was $110.9 million compared with $106.6 million in 2016. The increase mainly reflects the impact of adjustments to deferred tax assets, cost reductions and higher copper prices, partially offset by reduced sales volumes resulting from lower production due to lower head grades. Cost of sales for 2017 was $763.8 million compared to $861.8 million reflecting lower volumes of concentrates sold and reduced cost of production as a result of cost savings. Cash generated from operating activities in 2017 was $118.0 million compared with $230.6 million in 2016 reflecting the impact of lower gold revenues and higher interest payments, partly offset by higher copper prices and production cost savings. Capital expenditure on property, plant and equipment was $917.5 million on a cash basis in 2017 compared to $326.3 million in 2016, attributed principally to underground ($835.7 million) with the remainder related to open-pit capital activities.
Turquoise Hill’s cash and cash equivalents at December 31, 2017 were approximately $1.4 billion.

OYU TOLGOI
The Oyu Tolgoi mine is approximately 550 kilometres south of Ulaanbaatar, Mongolia’s capital city, and 80 kilometres north of the Mongolia-China border. Mineralization on the property consists of porphyry-style copper, gold, silver and molybdenum contained in a linear structural trend (the Oyu Tolgoi Trend) of deposits throughout this trend. They include, from south to north, the Heruga Deposit, the Oyut deposit and the Hugo Dummett deposits (Hugo South, Hugo North and Hugo North Extension).
The Oyu Tolgoi mine was initially developed as an open-pit operation. The copper concentrator plant, with related facilities and necessary infrastructure, was originally designed to process approximately 100,000 tonnes of ore per day from the Oyut open pit. However since 2014, the concentrator has improved operating practices and gained experience, which has helped achieve a consistent throughput of over 110,000 tonnes per day. This continued through 2017 with softer ores from the Central zone. Due to increased processing of harder ore from Phase 4, concentrator throughput for 2018 is expected to be approximately 102,000 tonnes per day.
In August 2013, development of the underground mine was suspended pending resolution of matters with the Government of Mongolia. Following signing of the Oyu Tolgoi Underground Mine Development and Financing Plan (Underground Plan) in May 2015 and the signing of a $4.4 billion project finance facility in December 2015, Oyu Tolgoi received formal notice to proceed approval by the boards of Turquoise Hill, Rio Tinto and Oyu Tolgoi LLC in May 2016, which was the final requirement for the re-start of underground development. Underground construction recommenced in May 2016. Prior to suspending underground construction in August 2013, underground lateral development at Hugo North Lift 1 had advanced approximately 16 kilometres off Shaft 1.
Oyu Tolgoi is expected to be the world’s third-largest copper mine at peak production in 2025. Copper production is expected to increase by more than 340% between 2018 and 2025 when Hugo North Lift 1 reaches peak production. Average production from 2025 to 2030 is expected to be more than 550,000 tonnes of copper per year.

Underground development progress
Throughout 2017, the main focus of underground development was underground lateral development, sinking of Shafts 2 and 5, support infrastructure and the convey-to-surface system, which all progressed during the year. In January 2018, the Company announced the sinking of Shaft 2 was complete. At the end of 2017, approximately 89% of the underground workforce were Mongolian nationals. The Company continues to expect the first draw bell in mid-2020 and sustainable first production in 2021.
During Q4’17, Rio Tinto undertook a schedule and cost review. Rio Tinto has provided Turquoise Hill with a high-level overview of the review’s outcomes, in which Rio Tinto concluded there were no material changes in project scope, cost or schedule.
Oyu Tolgoi spent $309.0 million on underground expansion during Q4’17 and $835.7 million for 2017. Total underground project spend from January 1, 2016 to December 31, 2017 was approximately $1.1 billion. At the end 2017, the 2016 Oyu Tolgoi Technical Report (the 2016 Technical Report) projected a cumulative underground project spend of approximately $1.5 billion. The approximate $0.4 billion difference between actual and projected spend is primarily comprised of deferred contingency allowances, foreign exchange differences as well as delayed spending associated with Shaft 2 schedule impact and the mine dry. In addition, Oyu Tolgoi had further capital commitments2 of $1.2 billion as of December 31, 2017. At the end of 2017, the underground project had committed 56% of direct project contracts and procurement packages, of which 71% were to Mongolian companies.
During Q4’17, underground lateral development made strong progress, with over 2.2 equivalent kilometres completed, resulting in 6.1 equivalent kilometres for 2017. Lateral development progress for 2017 was in line with development timeline in the 2016 Technical Report. Since the re-start of development, a total of 7.7 equivalent kilometres of lateral development has been completed. The following table provides a breakdown of the various components of completed lateral development since project restart:
Year Total Equivalent Kilometres Lateral Development (kilometres)
Mass Excavation (’000 metres3)
2016 1.6 1.5 3.0
2017 6.1 4.8 31.6
Total 7.7 6.3 34.6

During Q4’17, the newly installed 3,500 tonne per day development crusher was consistently operating above nameplate capacity. During Q4’17, eleven underground workshops were completed and were in the process of commissioning. Based on the 2016 Technical Report, lateral development is expected to advance approximately 10.0 kilometres during 2018.

2 Please refer to the NON-GAAP MEASURES section of this press release for further information.
During Q4’17, Shaft 2 sinking reached final depth of 1,284 metres and shaft sinking was completed in January 2018. At the end of 2017, the shaft bottom station was approximately 50% complete and headframe works progressed with the positioning of hoist equipment. Fit out of Shaft 2 is expected to occur throughout 2018. Shaft 2 is key to future increases in lateral development activity.
Shaft 5 sinking progressed approximately 200 metres during Q4’17 and is expected to be complete in Q1’18. During Q4’17, installation of the shaft exhaust fan commenced and is on target to be completed in early Q2’18. When completed, Shaft 5 will be dedicated to ventilation thereby increasing the capacity for underground activities. However, with good early progress and continued on-plan lateral development, the completion of Shaft 5 sinking in early 2018 is not expected to materially impact the lateral development plan.
The following table outlines the status of shafts for underground development as of December 31, 2017.

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