Turquoise Hill announces third quarter 2020 production and provides updates on underground development, the definitive estimate and the liquidity outlook.
Turquoise Hill Resources Ltd. (“Turquoise Hill” or the “Company”) today announced third quarter 2020 production for Oyu Tolgoi and provided an update on underground development, COVID-19 and the definitive estimate.
Q3’ 2020 Highlights
• Copper and gold production guidance for 2020 remains within the ranges of 140,000 to 170,000 tonnes and 155,000 to 180,000 ounces respectively, with gold production trending towards the higher end of the range.
• Limited flights adhering to Mongolian protocols allowing expatriates to return to Mongolia began in July.
• Access to higher copper and gold grades is expected to continue for the remainder of 2020, and into 2021.
• C1 cash costs1 guidance remains in the $1.60 - $2.00 range.
• The 2020 operating cash cost estimate remains in a range between $780 million - $830 million.
• Capital expenditure for 2020 on a cash-basis for open-pit operations is trending toward the lower end of the $70 million - $90 million range.
• TRQ now expects to have sufficient liquidity to meet its requirements, including for its operations and underground development, into Q2 2022.
Q3’ 2020 Production
• Q3’ 2020 mill throughput was slightly higher than Q3’ 2019 due to slightly higher mill availability and an increased milling rate associated with softer ore.
• Copper production of 36,286 tonnes, an increase of 28% vs Q3’ 2019, was due to a planned increase in head grade as the open pit moves deeper into the higher grade Phase 4B.
C1 cash costs are a non-GAAP (Generally Accepted Accounting Principles) measure (i.e. not defined by International Financial Reporting
Standards (IFRS)). It is presented in order to provide investors and other stakeholders with an additional understanding of performance
and operations at the Oyu Tolgoi mine and is not intended to be used in isolation form, or as a replacement for, measures prepared in
accordance with IFRS. Please refer to Non-GAAP Measures section of the Company’s Q2 MD&A for further information.
• On a sequential basis, Q3’ 2020 Copper production was slightly lower driven by a decrease of copper head grade as central ore proportion in the ore blend to the crusher was decreased.
• Gold production of 36,743 ounces, an increase of 43% vs Q3’ 2019 due to increased head grade as the open pit moves deeper into the higher grade Phase 4B.
Oyu Tolgoi underground project
• Work on the project has continued to progress despite COVID-19 controls and ongoing international travel restrictions issued by the Government of Mongolia. 40 expatriates returned to Mongolia in July - the first time this has been possible since the onset of the pandemic. Further flights are planned in order to return the required specialists to site.
• Care and maintenance activities continue at shafts 3 and 4 but some commissioning activities have advanced in preparation for shaft sinking, including rope installation and no-load testing of the Shaft 4 hoisting system. Further substantial progress will require the remobilisation of international shaft-sinking specialists, and subject to local border restrictions, preparation is underway to mobilise these contractors before the end of the fourth quarter 2020. Review of the impacts of the shaft 3 and 4 delays are ongoing, but first sustainable production for Panel 0 is not anticipated to be affected. We will communicate any implications, particularly for Panel 1 and Panel 2 ramp-up which shaft 3 and 4 support, at an appropriate time.
• Overall, underground lateral development has now reached 48,604 equivalent metres, and progress continues broadly in line with the OTTR20 Technical Report.
• All surface infrastructure required for first sustainable production is complete and the team is
focused on the safe and efficient delivery of the critical underground Material Handling System 1 (MHS1). The balance of project infrastructure to be delivered post the completion of MHS1 is not needed for first sustainable production; however, it is needed to support the production ramp-up profile and the life of mine material handling infrastructure capacity.
• In the fourth quarter of 2020, the definitive estimate cost and schedule update for Panel 0 is expected, and as advised by the manager, preliminary indications from the definitive estimate process are that first sustainable production is trending towards the earlier months of the previously guided range of October 2022 to June 2023, and that the forecast development capital cost remains within the range of $6.6 to $7.1 billion. This is subject to ongoing internal assessment and review as part of finalising the definitive estimate process by the manager.
Turquoise Hill is undertaking an independent technical assurance review into the indications and findings of the definitive estimate communicated by the manager.
• As part of its ongoing review, Turquoise Hill has received an independent consultant’s report with respect to the delay and cost overruns at OT, which were announced by the Company in July 2019. The management and independent directors of the Company are currently reviewing the report with their advisors.
• Due to the ongoing nature of the COVID-19 pandemic, its full impact remains unknown. The cost and schedule range assumes an easing of travel restrictions and COVID-19 related controls from the time of reporting, which will continue to be monitored and reviewed.
TRQ regularly reviews its available liquidity and short-term cash flow forecasts as information changes or becomes available. An updated liquidity forecast will be included in TRQ’s third quarter earnings release on November 13, 2020. However, based on an initial review, which takes into account higher commodity prices as well as updated assumptions regarding delays in underground capital expenditure caused by COVID-related travel and other restrictions, TRQ now expects to have sufficient liquidity to meet its requirements, including for its operations and underground development, into Q2 2022. Further updates to its liquidity forecast will be provided by the Company as and when available.
Oyu Tolgoi Production Data
All data represents full production and sales on a 100% basis
3Q 4Q 1Q 2Q 3Q 9 months 9 months Full Year
2019 2019 2020 2020 2020 2020 2019 2019
Open pit material mined (‘000 tonnes) 24,844 28,122 26,834 23,218 23,979 74,032 73,195 101,316
Ore treated (‘000 tonnes) 10,040 11,088 10,889 9,645 10,072 30,606 29,689 40,777
Average mill head grades:
Copper (%) 0.37 0.42 0.42 0.47 0.45 0.45 0.46 0.45
Gold (g/t) 0.14 0.15 0.15 0.19 0.21 0.18 0.34 0.29
Silver (g/t) 1.03 1.06 1.14 1.22 1.22 1.19 1.16 1.13
Concentrates produced (‘000 tonnes) 131.3 152.6 164.5 169.9 168.5 502.9 552.1 674.6
Average concentrate grade (% Cu) 21.7 21.6 21.4 21.5 21.5 21.5 21.7 21.7
Production of metals in concentrates:
Copper (‘000 tonnes) 28.4 32.9 35.2 36.5 36.3 108.0 113.4 146.3
Gold (‘000 ounces) 26 24 26 31 37 94 218 242
Silver (‘000 ounces) 191 190 214 212 219 645 677 867
Concentrate sold (‘000 tonnes) 157.0 157.5 125.9 194.3 167.9 488.1 567.2 724.7
Sales of metals in concentrates:
Copper (‘000 tonnes) 32.4 32.3 25.8 39.7 34.4 99.9 117.6 149.9
Gold (‘000 ounces) 35 25 20 31 34 84 249 274
Silver (‘000 ounces) 207 244 146 220 201 566 652 896
Metal recovery (%)
Copper 75.1 74.2 74.3 79.1 78.9 77.4 80.3 78.7
Gold 54.7 48.2 46.0 52.0 53.7 51.0 66.2 63.6
Silver 56.0 53.5 51.5 55.8 54.6 54.0 59.6 58.1
Class Action Complaint
On October 14, 2020, a class action complaint was filed in the U.S. District Court, Southern District of New York against the Company, certain of its current and former officers as well as Rio Tinto and certain of its officers. The complaint alleges that the defendants made material misstatements and material omissions with respect to, among other things, the schedule, cost and progress to completion of the development of Oyu Tolgoi in violation of Section 10(b) of the U.S. Securities Exchange Act and Rule 10b-5 thereunder. The Company believes that the complaint against it is without merit.