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 September 30, 2022. All figures are in U.S. dollars unless otherwise stated.
Turquoise Hill’s Interim CEO, Steve Thibeault stated, “During the third quarter, Turquoise Hill management remained focused on maintaining a safe and efficient operation at the Oyu Tolgoi mine and on advancing the Oyu Tolgoi underground project. I am pleased, that thanks to the commitment of our people, we were able to deliver good results on both fronts.
Safety has always been and will remain our top priority, so it is gratifying to report that our Oyu Tolgoi team turned in a very solid health and safety performance achieving an all injury frequency rate of 0.19 for 200,000 hours worked for the first three quarters of the year.
From a production perspective, we increased our gold production guidance for the year and are on track to meet our revised copper production guidance.
During the quarter we made excellent progress on the underground project as we fired the 7th drawbell and started commissioning the second truck chute. By early November subsequent to the quarter end, we had fired another four drawbells, all ahead of schedule. Given progress to date, and considering natural caving conditions, we continue to expect to achieve sustainable production from Panel 0 in the first quarter of 2023 which is earlier than originally anticipated.
We believe that our third quarter has put us in a good position to end the year with a robust operation and with the project poised to reach a major milestone in the first quarter of 2023.
Regarding the transaction with Rio Tinto and its impact on the future of the Company.
If our minority shareholders approve the transaction we will proceed with the orderly wind-up and delisting of the Company and will ensure that our employees are treated fairly and respectfully throughout that process.
If the transaction does not proceed, we will continue to manage the Company on a standalone basis. Our immediate priority will be to address our liquidity requirements by implementing all elements of the binding funding Heads of Agreement with Rio Tinto.
Oyu Tolgoi is a tier one, low cost, high grade operation with a long life of mine that will deliver value for Turquoise Hill stakeholders for decades to come.”
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Oyu Tolgoi surface operations1 and underground workforce posted an AIFR of 0.19 per 200,000 hours worked for the nine months ended September 30, 2022.
In Q3’22, Oyu Tolgoi produced 36.3 thousand tonnes of copper in concentrate and 42.7 thousand ounces of gold in concentrate.
Mill throughput of 10.68 million tonnes in Q3’22 was 14% higher than Q3’21 and 10% higher than Q2’22, which is 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 150,000 – 170,000 ounces to 165,000 – 185,000 ounces.
Continued progress in underground on-footprint construction and blasting saw firing of the 7th drawbell during Q3’22 and commencement of commissioning of the second truck chute. Four further drawbells were blasted during October and early November bringing the total number fired to 11, and sustainable production, which is anticipated once between 16 and 21 drawbells have been blasted, subject to the natural caving conditions encountered, is now anticipated in Q1’23.
Turquoise Hill currently estimates its base case incremental funding requirement to be in the range of $3.7 billion to $4.0 billion (June 30, 2022: base case estimate of $3.6 billion). Contributing factors to this increase include updated commodity pricing and other market-based assumptions, including LIBOR and inflation, and a draft operating plan for 2023 received from OT LLC.
As at September 30, 2022, Turquoise Hill had $0.2 billion of available liquidity in the form of cash and cash equivalents, which under current projections would be sufficient to meet the Company’s requirements, including funding of underground capital expenditures, into December 2022. Thereafter, the Company plans to rely on the various sources of funding available under the Amended HoA2 (see the section “Funding of OT LLC by Turquoise Hill” of this press release) 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 September 30, 2022. The risks inherent in delivery of the Amended HoA funding plan, some of which are outside of the Company’s control, result in the existence of a material uncertainty that casts a significant doubt about the Company’s ability to continue as a going concern.
Revenue of $391.1 million in Q3’22 decreased by $271.0 million or 40.9% from $662.1 million in Q3’21 due to 13.4% and 67.2% decreases in copper and gold production, respectively, which were driven by lower head grades from the planned transition of mining to the next phase of operations earlier in 2022 and processing of lower grade stockpile material. Revenue was also impacted by 17.4% and 3.4% decreases in average copper and gold prices, respectively, from Q3’21.
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1Surface 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 10,685 thousand tonnes of material processed by the mill in Q3’22, approximately 543 thousand tonnes was underground development material.
2The Amended HoA is the third amended and restated heads of agreement dated September 5, 2022 entered into between the Company and Rio Tinto. Please refer to the Section titled “Funding of OT LLC by Turquoise Hill” on page 11 of this press release for further information.
Income for the period was $40.0 million in Q3’22 versus $54.4 million in Q3’21. This decrease was mainly the result of $271.0 million lower revenue and $44.0 million higher cost of sales, partially offset by $301.9 million lower income and other tax charges. Cost of sales was impacted by inflationary pressures, including higher input prices. A $6.7 million tax charge was recorded in Q3’22 versus $308.5 million in Q3’21. Income attributable to owners of Turquoise Hill in Q3’22 was $46.6 million ($0.23 per share) versus $55.7 million ($0.28 per share) in Q3’21.
Cost of sales in Q3’22 was $2.76 per pound of copper sold3 and C1 cash costs were $1.72 per pound of copper produced4. All-in sustaining costs were $2.60 per pound of copper produced 4 .
Total operating cash costs5 of $228.0 million in Q3’22 increased 1.7% from $224.1 million in Q3’21, which is largely due to inflationary pressures on prices for critical supplies including fuel, power and explosives, partially offset by higher deferred stripping due to the planned transition of mining from Phase 4B to Phase 5A and lower royalty costs due to lower revenue.
Expenditures on property, plant and equipment6 in Q3’22 were $267.6 million, which included $236.0 million of capital expenditures on the underground project7. Capital expenditures on the underground project7 included $109.9 million of underground sustaining capital expenditures7. At September 30, 2022, total capital expenditures on the underground project7 since January 1, 2016 were $6.0 billion, including $0.6 billion of underground sustaining capital expenditures7.
Cash used in operating activities before interest and tax was $8.4 million versus cash generated from operating activities before interest and tax of $382.5 million in Q3’21. This change was primarily due to $271.0 million lower revenue, $44.0 million higher cost of sales and $3.9 million higher other operating cash costs. These higher costs were largely due to inflationary pressures on prices for critical supplies including fuel, power and explosives. Net cash used in operating activities was $33.6 million versus net cash generated from operating activities of $382.0 million in Q3’21. In addition to the factors discussed above, this change was also impacted by $26.1 million higher interest paid in Q3’22 due to a timing difference on payment of certain completion support fees to Rio Tinto.
The special meeting of Turquoise Hill shareholders, previously scheduled for November 15, 2022 at 10:30 a.m. (Eastern time), (the Special Meeting) has been adjourned to a date to be determined (see the section “Privatisation Proposal Received from Rio Tinto” of this press release).
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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 23 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 23 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 23 of this press release for further information.
6 In this press release, expenditures on property, plant and equipment are 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 23 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 165 to 185 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 150 to 170 thousand ounces. The higher gold guidance reflects more reliable grade performance from mining of Phase 5 during Q3’22 with related higher recoveries. This builds on the higher gold production from completion of Phase 4B in H1’22.
Total operating cash costs8 for 2022 are now expected to be in the range of $855 million to $910 million compared to previous guidance of $850 million to $925 million, which is largely due to deferral of non-critical activities to contain inflationary pressures for key inputs, including fuel and ammonium nitrate.
Capital expenditures on surface operations9 for 2022 are expected to remain within the previously disclosed guidance range of $140 million to $170 million. Capital expenditures on the underground project9 are now expected to be lower at $1.0 billion to $1.1 billion for 2022 compared to original guidance of $1.1 billion to $1.3 billion, resulting from improvements to construction productivity and the slower ramp-up and onboarding of on-site construction resources throughout 2022. Capital expenditures on the underground project9 are expected to be comprised of $600 million to $700 million of underground development capital expenditures9 and $400 million to $500 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 and capitalised management services payments but excludes capitalised interest.
2022 C1 cash costs are expected to be in the range of positive $1.55 to positive $2.05 per pound of copper produced10, which compares to previous guidance of positive $1.95 to positive $2.35 per pound of copper produced. 2022 is higher than 2021 due to lower gold production in 2022. The reduction in C1 cash costs from previous guidance is due to improved grade performance for gold and cost optimisations helping to offset the inflationary pressures noted above. Unit cost guidance assumes the midpoint of the expected 2022 copper and gold production ranges and a gold commodity price assumption of $1,808 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 Q3 2022 MD&A for a description of certain risk factors that could cause actual results to differ materially from these estimates).
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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 23 of this press release for further information.
9 Underground development capital expenditures, underground sustaining capital expenditures, capital expenditures on surface operations and capital expenditures on the underground project are all supplementary financial measures. Please refer to the Section titled “Non-GAAP and Other Financial Measures” on page 23 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 23 of this press release for further information.
OUR BUSINESS
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 sustainable production expected to commence in Q1’23.
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 September 30, 2022, Oyu Tolgoi had a total workforce (employees and contractors), including for underground project construction, of approximately 19,100 workers, of which over 97% were Mongolian.
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