MONTREAL--(BUSINESS WIRE)-- Turquoise Hill Resources Ltd. (TSX: TRQ) (NYSE: TRQ) (Turquoise Hill or the Company) today announced its financial results for the period ended June 30, 2022. All figures are in U.S. dollars unless otherwise stated.
“Following the First Quarter inflection points of renewing our partnership with the Government of Mongolia and blasting the undercut of the Oyu Tolgoi underground mine, we have continued to make excellent progress on the underground during the second quarter. We fired the first drawbell of the Oyu Tolgoi underground mine well ahead of schedule and have now fired the first three drawbells ahead of schedule. While we continue to forecast sustainable production in the first half of 2023, this is most certainly trending earlier.” stated Steve Thibeault, Turquoise Hill’s Interim Chief Executive Officer.
“The Oyu Tolgoi team achieved an All Injury Frequency Rate (AIFR) of 0.21 per 200,000 hours worked. The number of COVID cases at the site continued to decline enabling a return to near-normal roster levels and rotations. With the easing of the pandemic we have been able to reduce our on-site concentrate inventories to target levels and force majeure has been lifted.
“We produced 30.6 thousand tonnes of copper in the second quarter and are on track to meet our 2022 guidance for copper production of 110,000 to 150,000 tonnes. Gold production in the quarter totalled 47.6 thousand ounces and we have increased our gold production guidance range for the year from 135,000 to 165,000 ounces to 150,000 to 170,000 ounces.
“The Company ended the first half with liquidity of $0.5 billion and with access to funding under the terms of the Heads of Agreement with Rio Tinto that will be sufficient to meet its minimum obligations for at least 12 months from the quarter end. We are well positioned to maintain this momentum and we look forward to ramping up the Oyu Tolgoi underground mine.”
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Oyu Tolgoi surface operations1 and underground workforce posted an AIFR of 0.21 per 200,000 hours worked for the six months ended June 30, 2022.
In Q2’22, Oyu Tolgoi produced 30.6 thousand tonnes of copper in concentrate and 47.6 thousand ounces of gold in concentrate.
Mill throughput of 9.69 million tonnes in Q2’22 was 1% higher than Q1’22 and 3% higher than Q2’21 in line with expectations due to higher mill availability.
Copper production guidance for 2022 remains within the range of 110,000 to 150,000 tonnes while 2022 gold production guidance has been revised from a range of 135,000 – 165,000 ounces to 150,000 – 170,000 ounces.
On-site concentrate inventory has returned to target levels.
Drawbells continue to be completed ahead of schedule with the first 2 drawbells successfully fired in Q2’22 and the third drawbell subsequently fired on July 29. Sustainable production continues to trend earlier than expected. It is anticipated that between 16 – 21 drawbells are required to achieve sustainable production, subject to the natural caving conditions encountered.
Turquoise Hill currently estimates its base case incremental funding requirement to be $3.6 billion (March 31, 2022: $3.4 billion).
As at June 30, 2022, Turquoise Hill had $0.5 billion of available liquidity in the form of cash and cash equivalents, which under current projections is expected to meet the Company’s requirements, including funding of underground capital expenditures, into November 2022, after which the Company is able and would be required to rely on funding available under the Funding HoA2 (see – Funding of OT LLC by Turquoise Hill) to provide it with sufficient liquidity and resources to meet its minimum obligations for a period of at least 12 months from the balance sheet date of June 30, 2022.
Revenue of $402.0 million in Q2’22 increased 21.9% from $329.8 million in Q2’21 due to an 89.3% increase in concentrate sales with the easing of COVID-19 related restrictions at the border and use of double trailers to ship concentrate and due to a 3.1% increase in average gold prices. Onsite concentrate inventory levels returned to target levels in Q2’22. Higher concentrate volumes were partially offset by a 1.8% decrease in average copper prices and by lower copper and gold head grades from the planned transition of mining to the next phase of operations and processing lower grade stockpile material.
Income for the period was $93.3 million in Q2’22 versus $127.8 million in Q2’21 as higher revenue and tax benefits were more than offset by the impact of higher cost of sales as the higher volumes of concentrate shipped contained lower metal in concentrate following the planned transition of mining from higher to lower grade areas of the open pit. Cost of sales has also been impacted by inflation and higher input prices. A $9.8 million tax benefit was recorded in Q2’22 versus $19.0 million charge in Q2’21. The recognition in Q2’22 was largely due to an increase in temporary differences on property, plant and equipment. Income attributable to owners of Turquoise Hill in Q2’22 was $82.6 million ($0.41 per share) versus $102.9 million ($0.51 per share) in Q2’21.
Cost of sales in Q2’22 was $2.82 per pound of copper sold3 and C1 cash costs were $1.31 per pound of copper produced4. All-in sustaining costs were $2.63 per pound of copper produced 4 .
Total operating cash costs5 of $229.6 million in Q2’22 increased 7.6% from $213.4 million in Q2’21 largely due to inflationary pressures on prices for critical supplies including fuel, power, explosives and higher shipment and royalty costs from increased volumes following the easing of COVID-19 related restrictions at the border. This was partially offset by higher deferred stripping due to the planned transition of mining from Phase 4B to Phase 5A. Ore mining had been prioritised in Q2’21 due to the impact of COVID-19 related restrictions on manning and equipment usage.
Expenditures on property, plant and equipment6 in Q2’22 were $260.9 million, which included $218.2 million of capital expenditures on the underground project7. Capital expenditures on the underground project 7 included $85.9 million of underground sustaining capital expenditures 7 . At June 30, 2022, total capital expenditures on the underground project 7 since January 1, 2016 was $5.8 billion, including $0.5 billion of underground sustaining capital expenditures 7 .
Net cash generated from operating activities of $229.1 million and cash generated from operating activities before interest and tax of $315.4 million were $10.7 million and $10.6 million higher, respectively, than in Q2’21 due to the impact of higher shipment volumes and prices on cash receipts, partially offset by inflationary pressures on operating expenditures from higher prices for critical supplies including fuel, power, explosives and higher shipment and royalty costs.
Oyu Tolgoi has continued to progressively increase on-site personnel numbers with the workforce in Q2’22 approaching full capacity.
The 2022 cost and schedule update for the underground project has been completed and incorporates the known, incremental COVID-19 cost impacts, associated taxes and an estimate of further COVID-19 management costs over the remaining development schedule, confirming total development capital expenditure expectations of $7.06 billion.
Oyu Tolgoi continued to build on its relationship reset in Mongolia, with the Oyu Tolgoi Board approving a $50 million, five-year funding programme to support the long-term, sustainable development of Khanbogd town, our neighbouring host community in the South Gobi region.
The special committee of independent directors (the Special Committee) continues to consider the unsolicited non-binding proposal from Rio Tinto International Holdings Limited (Rio Tinto) received on March 13, 2022 to acquire the approximately 49% of the outstanding shares of Turquoise Hill held by the Company’s minority shareholders for cash consideration of C$34.00 per share (the Proposal).
1 Surface operations denotes open-pit operations plus on surface infrastructure benefitting both the open pit and underground including, but not limited to, the concentrator, tailings storage facility and central heating plant. Of the 19,266 thousand tonnes of material processed by the mill in H1’22, approximately 715 thousand tonnes was underground development material.
2 The Funding HOA is an amendment dated May 18, 2022 to the amended and restated heads of agreement entered into between the Company and Rio Tinto on January 24, 2022. Please refer to the Section titled “Funding of OT LLC by Turquoise Hill” on page 11 of this press release for further information.
3 Cost of sales per pound of copper sold is a supplementary financial measure. Please refer to the Section titled “Non-GAAP and Other Financial Measures” on page 21 of this press release for further information.
4 C1 cash costs per pound of copper produced and all-in sustaining costs per pound of copper produced are non-GAAP ratios. Please refer to the Section titled “Non-GAAP and Other Financial Measures” on page 21 of this press release for further information.
5 Total operating cash costs is a non-GAAP financial measure. Please refer to the Section titled “Non-GAAP and Other Financial Measures” on page 21 of this press release for further information.
6 In this press release, “expenditures on property, plant and equipment is sometimes alternatively referred to as “capital expenditures on a cash basis”.
7 Capital expenditures on the underground project and underground sustaining capital expenditures are supplementary financial measures. Please refer to the Section titled “Non-GAAP and Other Financial Measures” on page 21 of this press release for further information.
OPERATIONAL OUTLOOK FOR 2022
Oyu Tolgoi is expected to produce 110 to 150 thousand tonnes of copper and 150 to 170 thousand ounces of gold in concentrates in 2022 from processing ore from the open pit, underground and stockpiles.Gold production guidance has been revised upward from a previous forecast range of 135 to 165 thousand ounces due to additional mining of high-grade material at the bottom of Phase 4B in Q1’22 and better than expected production from Phase 5A.Gold and copper production are forecast to be lower in 2022 compared with 2021 due to the planned transition of mining to the next phase of operations and the processing of lower grade stockpile material.
Total operating cash costs8 for 2022 are now expected to be in the range of $850 million to $925 million compared to original guidance of $800 million to $875 million due to higher royalties and price inflation for key raw materials, especially fuel, and lower deferred stripping. The proportion of ore to waste is now expected to be higher than originally planned in 2022 due to mine plan changes.
Capital expenditures on surface operations9 for 2022 are now expected to be lower than previously disclosed at approximately $140 million to $170 million due to further schedule changes impacting the timing of spend and lower deferred stripping as a result of mine plan changes over the course of the year resulting in a higher proportion of ore mining compared to waste removal. This is compared to the Company’s previous guidance of $155 million to $185 million that was provided in the Company's management's discussion and analysis of the financial condition and results of the operations (MD&A) for the first quarter of 2022. Capital expenditures on the underground project9 are now expected to be lower at $1.1 billion to $1.3 billion for 2022 compared to original guidance of $1.2 billion to $1.4 billion due to slower than expected workforce ramp-up following commencement of the undercut in January 2022. Capital expenditures on the underground project9 are expected to be comprised of $650 million to $750 million of underground development capital expenditures9 and $425 million to $525 million of underground sustaining capital expenditures9.
Capital expenditures on surface operations9 is mainly comprised of deferred stripping, equipment purchases, tailings storage facility construction and maintenance componentisation. Capital expenditures on the underground project9 is inclusive of VAT.
2022 C1 cash costs are expected to be in the range of positive $1.95 to positive $2.35 per pound of copper produced10, which is higher than 2021 due to lower gold production in 2022. Unit cost guidance assumes the midpoint of the expected 2022 copper and gold production ranges and a gold commodity price assumption of $1,868 per ounce.
Estimates of future production, expenditures on property, plant and equipment, total operating cash costs and C1 cash costs per pound of copper produced presented in this press release are based on mine plans that reflect the expected method by which the Company will mine reserves at Oyu Tolgoi. Actual gold and copper production and associated costs may vary from these estimates due to a number of operational and non-operational risk factors (see the section “Forward-Looking Statements and Forward-Looking Information” of the Company’s Q2 2022 MD&A for a description of certain risk factors that could cause actual results to differ materially from these estimates).
8 Total operating cash costs is a non-GAAP measure that is forward-looking information. Please refer to the Section titled “Non-GAAP and Other Financial Measures” on page 21 of this press release for further information.
9 Underground development capital expenditures, underground sustaining capital expenditures, and capital expenditures on surface operations are all supplementary financial measures. Please refer to the Section titled “Non-GAAP and Other Financial Measures” on page 21 of this press release for further information.
10 C1 cash costs per pound of copper produced is a non-GAAP ratio. Please refer to the Section titled “Non-GAAP and Other Financial Measures” on page 21 of this press release for further information.
Turquoise Hill is an international mining company focused on the operation and continued development of the Oyu Tolgoi copper-gold mine in Mongolia, which is the Company’s principal and only material mineral resource property. The Company’s ownership of the Oyu Tolgoi mine is held through a 66% interest in Oyu Tolgoi LLC (OT LLC); the remaining 34% interest is held by Erdenes Oyu Tolgoi LLC (Erdenes or EOT), a Mongolian state-owned entity.
The Oyu Tolgoi property is located approximately 550 kilometres south of Ulaanbaatar, Mongolia’s capital city, and 80 kilometres north of the Mongolia-China border. The property is cut by the Oyu Tolgoi trend, a 12 kilometres north-south orientated corridor which is host to the known deposits, Hugo North, Hugo South, Oyut and Heruga. Open-pit mining operations commenced at Oyut in 2013. The Hugo North deposit (Lift 1) is currently being developed as an underground operation with production ramp up expected to commence in H1’23.
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. Since 2014, the concentrator has consistently achieved a throughput of over 105,000 tonnes per day due to improvements in operating practices. Concentrator throughput for 2022 is targeted at over 110,000 tonnes per day and expected to be approximately 40 million tonnes for the year due to improvements in concentrator performance and more favourable ore characteristics.
As at June 30, 2022, Oyu Tolgoi had a total workforce (employees and contractors), including for underground project construction, of approximately 18,100 workers, of which over 97% were Mongolian.
SELECTED FINANCIAL METRICS (1)
see & read more on