Turquoise Hill Resources Ltd. (“Turquoise Hill” or the “Company”) today announced first quarter 2020 production for Oyu Tolgoi and provided an update on underground development, COVID-19 and power.
Highlights
Q1 production was another strong performance given the mining position within the open pit sequence with results exceeding expectations despite quarterly copper and gold production being lower than the same quarter of the previous year. This is due to decreased head grade driven by the continued planned transition from Phase 4a and Phase 6a to Phase 4b, Phase 6b and lower grade
stockpiles resulting in:
? Copper production of 35,203 tonnes, a decrease of 23% vs Q1 2019
? Gold production of 26,154 ounces, a decrease of 78% vs Q1 2019
? Mill throughput increased 17% vs Q1 2019 due to lower overall feed hardness as well as good availability and effective utilization performance
? On track to achieve 2020 copper and gold production guidance
“The first quarter of 2020 was another notable effort from the Oyu Tolgoi team as we continue to
mine through the lower grade material on the periphery of the South West pit. As we progress through 2020, Phase 4b will sink towards the higher gold and copper grades which is expected to result in a significant increase in gold production in 2021,” stated Ulf Quellmann, Chief Executive
Officer of Turquoise Hill, “Oyu Tolgoi is adapting to the challenges posed by the COVID-19 pandemic on both the open pit and underground operations, with the open-pit continuing to operate without interruption, while the underground development is experiencing a slow-down. We will continue to update the market as the impact of COVID-19 becomes clearer.”
Underground Development, COVID-19 and Power Updates
? As announced on March 16, 2020, work on the Oyu Tolgoi underground continues, and we are achieving strong productivity in underground advancement (1,939eqm in March, average monthly 1,815eqm for the quarter).
? Despite these gains, the unprecedented circumstances of COVID-19 have had an impact on the underground development by restricting access for teams from Oyu Tolgoi, Rio Tinto and our construction partners, and although the open pit has continued to operate uninterrupted, COVID- 19 restrictions have challenged our supply logistics.
? Shafts 3 and 4 have been placed on care and maintenance until expert service providers can return to site to complete technical commissioning of specialised equipment and commence sinking activities. Work has also slowed on some critical underground material handling infrastructure, in particular the construction of primary crusher one, which has been reduced to day shift activity only.
? Ordinary course elongation of newly commissioned ropes may impact shaft 2 ore hoisting and consequently underground development progress may be impacted by 30% as a result of travel restrictions due to COVID-19 preventing experts from travelling to the Oyu Tolgoi site. Payload and speed have been reduced to prolong the ability to use the hoist until specialised personnel are able to reach the site to perform rectification work. Mine management believes the situation is manageable; however, development progress could be impacted should experts not be able to get to site by the end of Q2. People and materials movement via the service hoist continue to operate normally.
? Work continues on the mine design and we still expect this to be completed in the first half of 2020 with the Definitive Estimate of project cost and schedule to be provided in the second half of 2020.
? Based on current information, the underground project remains within the range announced in July 2019 of a 16 to 30-month delay in schedule, and an increase of $1.2 to $1.9 billion in development capital, with indications of the preferred technical solution falling in the upper half of the schedule delay range and the development capital overrun trending away from the lower end of the range.
? Although sales in January and February were impacted by curtailed operations in China during peak COVID-19 restrictions, strong collections occurred in March and sales exceeded expectations at the end of the quarter. Concentrate transportation remains a challenge in the current environment and engagement with both the Mongolian and the Chinese governments continues in an effort to minimize the impact on future sales.
Oyu Tolgoi has notified its project lenders that the COVID-19 pandemic constitutes a force majeure event under its project finance facilities, which will have the effect of extending the June 30, 2028 project longstop date under those facilities for the duration of the force majeure, and certain suppliers of Oyu Tolgoi have declared force majeure on their contracts, however this has not had a material adverse impact on the business to date.
? Notwithstanding any of the updates provided above, the Company recognizes the
unprecedented situation surrounding the COVID-19 pandemic. Turquoise Hill has established a business resiliency team and is closely monitoring the effect of the COVID-19 pandemic on its business and operations and will continue to update the market on the impacts to the Company’s business and operations in relation to these extraordinary circumstances.
? On February 14, 2020, Oyu Tolgoi LLC and the Government of Mongolia (GoM) commenced a negotiation process under the PSFA to confirm a mutually acceptable pathway to secure long term domestic power supply for Oyu Tolgoi. Under Phase 1 of this process, the parties had until April 14, 2020 to agree a way forward for a Tavan Tolgoi-based power plant (TTPP). As the parties have yet to be able to do this, they are now also considering the alternatives specified in the PSFA, an Oyu Tolgoi mine site-based power plant; a primary renewables solution; and grid supply. (which could incorporate consideration of Cabinet’s recent resolution to progress a Stateowned, coal-fired power plant at Tavan Tolgoi). Under the PSFA, Oyu Tolgoi and GoM currently have until June 14, 2020 to consider these alternatives, failing which Oyu Tolgoi has the right tochoose one or a combination of these options to pursue.
Oyu Tolgoi Production Data
All data represents full production and sales on a 100% basis
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