Turquoise Hill Resources today announced its financial results for the quarter ended March 31, 2018. All figures are in U.S. dollars unless otherwise stated.
- Oyu Tolgoi achieved a strong All Injury Frequency Rate of 0.21 per 200,000 hours worked for the three months ended
March 31, 2018.
- Underground development achieved record-level monthly progress during Q1’18, with 2.6 equivalent kilometres completed during the quarter.
- In March 2018, the underground team experienced their highest development month to date.
- Since the restart of development, a total of 10.3 equivalent kilometres of lateral development has been completed.
- Sinking of Shaft 2 was completed in January 2018 and sinking of Shaft 5 was completed in March 2018.
- During Q1’18, underground expansion spend was $270.5 million, resulting in total project spend since January 1, 2016 of approximately $1.4 billion.
- Production from first draw bell remains planned for mid-2020 and sustainable first production in 2021.
- During Q1’18, Oyu Tolgoi produced 38,800 tonnes of copper and 42,000 ounces of gold.
- Revenue of $245.6 million in Q1’18 increased 3.4% over Q1’17 reflecting higher copper and gold prices partly offset by lower concentrate sales volumes.
- For Q1’18, the Company recorded income of $79.7 million and net income attributable to owners of Turquoise Hill of $85.7 million or $0.04 per share.
- Turquoise Hill generated cash flow from operating activities before interest and taxes of $14.7 million in Q1’18.
- For Q1’18, Oyu Tolgoi’s cost of sales was $2.23 per pound of copper sold, C1 cash costs were $1.76 per pound of copper produced and all-in sustaining costs were $2.07 per pound of copper produced1.
- Operating cash costs1 of $176.6 million in Q1’18 increased 4.9% over Q1’17 reflecting higher open pit and concentrator maintenance costs.
Income in Q1’18 was $79.7 million compared with $29.7 million in Q1’17. The increase mainly reflects the impact of higher copper prices, reduced depreciation and depletion and lower finance costs due to higher amounts of interest capitalized to property, plant and equipment, partially offset by reduced sales volumes. Cash generated from operating activities in Q1’18 was $19.4 million compared with $86.3 million in Q1’17. This reduction was primarily driven by significant movements in working capital, partly offset by higher copper prices. Capital expenditure on property, plant and equipment was $285.7 million on a cash basis in Q1’18 compared to $147.9 million in Q1’17, attributed principally to underground ($270.5 million) with the remainder related to open-pit capital activities.
Turquoise Hill’s cash and cash equivalents at March 31, 2018 were approximately $1.5 billion.
1 Please refer to the NON-GAAP MEASURES section of this press release for further information.
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.
Oyu Tolgoi is expected to be the world’s third-largest copper mine at peak metal production in 2025. Copper and gold production is expected to increase by more than 340% and 150% respectively between 2018 and 2025. Average copper and gold production from 2025 to 2030 is expected to be more than 550,000 tonnes of copper and over 450,000 ounces of gold per year.
At the end of Q1’18, Oyu Tolgoi had a total workforce, including underground project construction, of more than 14,000, of which 94% were Mongolian.
Underground development progress
The main focus of underground development for 2018 will be underground lateral development, the fit out of Shaft 2, completion and commissioning of Shaft 5, support infrastructure and the convey-to-surface decline. In January 2018, the Company announced the sinking of Shaft 2 was complete. Additionally, earthworks for Shafts 3 and 4 commenced during Q1’18 and the sinking award package is expected to occur in Q2’18. 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 $270.5 million on underground expansion during Q1’18. Total underground project spend from January
1, 2016 to March 31, 2018 was approximately $1.4 billion. In addition, Oyu Tolgoi had further capital commitments2 of
$1.2 billion as of March 31, 2018. At the end of Q1’18, the underground project had committed 62% of direct project
contracts and procurement packages, of which 71% were to Mongolian companies. Since the restart of project development, Oyu Tolgoi has committed almost $1.6 billion to Mongolian vendors and contractors.
Underground lateral development achieved record-level monthly progress during Q1’18, with 2.6 equivalent kilometres completed during the quarter. The underground team experienced their highest development month to date in March.
2 Please refer to the NON-GAAP MEASURES section of this press release for further information.
Since the re-start of development, a total of 10.3 equivalent kilometres of lateral development has been completed.
During 2018, underground development is expected to advance approximately 10.0 kilometres. 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
Q1’17 1.0 0.8 5.2
Q2’17 1.4 0.9 9.2
Q3’17 1.4 1.2 8.3
Q4’17 2.2 1.9 8.9
2017 6.1 4.8 31.6
Q1’18 2.6 2.1 11.6
Total 10.3 8.4 46.2
Shaft 2 sinking was completed in January 2018. Structural steel installation commenced during Q1’18 at the 1,202 metre
level and equipping of the shaft is ongoing. Fit out of Shaft 2 is expected to occur throughout 2018. Shaft 2 is a key part
of future increases in lateral development activity.
Sinking of Shaft 5 was completed in March 2018. During Q1’18, installation of the shaft’s three exhaust fans was
mechanically complete and commissioning underway. Shaft 5 will be dedicated to ventilation thereby increasing the
capacity for underground activities.
The following table outlines the status of shafts for underground development as of March 31, 2018.
(early development and ventilation) Shaft 2 (production and ventilation)
Shaft 5 (ventilation) Shaft 3 (ventilation) Shaft 4 (ventilation)
Total Depth 1,385 metres 1,284 metres 1,178 metres 1,148 metres 1,149 metres
Diameter 6.7 metres 10 metres 6.7 metres 10 metres 11 metres
Completion 2008 Q1’18 Q1’18 Expected 2021 Expected 2021
Remaining Complete Complete Complete Not started Not started
During Q1’18, advancement of the convey-to-surface decline continued to progress. The convey-to-surface system is the eventual route of the full 95,000 tonne per day underground ore delivery system to the concentrator; however, it is not a critical path item for first draw bell planned in mid-2020. Expected completion of the convey-to-surface system is 2022, which will facilitate the ramp up to full production by 2027.
Supporting infrastructure continued to progress during Q1’18. Construction of the new camp was more than 75% complete at the end of Q1’18, including completion and occupancy of eight buildings. Two additional buildings were approved for occupancy by the state commissioning authorities at the end of the quarter.
Safety is a major focus throughout Oyu Tolgoi’s operations and the mine’s management is committed to reducing risk and injury. Oyu Tolgoi achieved a strong All Injury Frequency Rate of 0.21 per 200,000 hours worked for the three months ended March 31, 2018.
Q1’18 open-pit operations performance
Key financial metrics for Q1’18 are as follows:
Oyu Tolgoi Key Financial Metrics(1)
($ in millions, unless otherwise noted)
1Q 2017 2Q 2017 3Q 2017 4Q 2017 1Q 2018 Full Year 2017
Revenue 237.5 203.7 246.9 251.7 245.6 939.8
Revenue by metals in concentrates
Copper 196.6 173.7 209.2 216.1 202.1 795.6
Gold 37.5 26.6 34.2 32.5 40.3 130.8
Silver 3.4 3.3 3.5 3.2 3.2 13.4
Cost of sales 194.4 188.9 197.8 182.7 168.9 763.8
Production and delivery costs 120.7 117.7 123.4 106.6 114.6 468.4
Depreciation and depletion 78.3 75.0 77.4 73.4 55.6 304.1
Capital expenditure on cash basis 147.9 205.2 234.0 330.4 285.7 917.5
Underground 136.4 184.7 205.6 309.0 270.5 835.7
Open pit(2) 11.5 20.5 28.4 21.4 15.2 81.8
Royalties 14.3 12.5 14.5 15.8 14.9 57.1
Operating cash costs(3) 168.4 163.6 161.9 217.7 176.6 711.6
Unit costs ($)
Cost of sales (per pound of copper sold) 2.23 2.30 2.43 2.32 2.23 2.32
C1 (per pound of copper produced)(3) 1.85 1.92 1.83 2.05 1.76 1.92
All-in sustaining (per pound of copper produced)(3) 2.15 2.27 2.76 2.40 2.07 2.39
(1) Any financial information in this press release should be reviewed in conjunction with the Company‘s consolidated financial statements or condensed
interim consolidated financial statements for the reporting periods indicated.
(2) Open-pit capital expenditure includes both sustaining and non-underground development activities.
(3) Please refer to the NON-GAAP MEASURES section of this press release for further information.
Revenue of $245.6 million in Q1’18 increased 3.4% over Q1’17 reflecting higher copper and gold prices partly offset by lower concentrate sales volumes.
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