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 March 31, 2022. All figures are in U.S. dollars unless otherwise stated.

“Oyu Tolgoi’s first quarter again demonstrated the operational excellence of the Oyu Tolgoi workforce. The OT team achieved an All Injury Frequency Rate (AIFR) of 0.09 per 200,000 hours worked, one of the lowest in recent years while keeping the Company on track to meet its guidance for the year. First quarter in-line production of 30.3 thousand tonnes of copper and 59 thousand ounces of gold has allowed us to maintain our 2022 copper production guidance of 110,000 to 150,000 tonnes, and to revise the gold production guidance range upward from 115,000 – 165,000 ounces to 135,000 – 165,000 ounces, with production trending toward the higher end of the range.” said Steve Thibeault, Turquoise Hill’s Interim Chief Executive Officer.

“As COVID-19 cases have trended downward, the size of the onsite workforce over the quarter increased to approximately 90% of plan. With the easing of the pandemic, concentrate shipment volumes to customers also improved and on-site concentrate inventory were reduced by 30% in the quarter. We have also planned a total of 25,000 metres of drilling in 2022 and 2023 to increase our knowledge of the orebody and to grow the Mineral Reserve of the Hugo North Lift 1. After two years of negotiations, we reached a mutual understanding for a renewed partnership with the Government of Mongolia which allowed us to start caving operations in January. Consequently, the underground mine remains on-track for sustainable production in H1 2023.”

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Oyu Tolgoi open-pit and underground workforce posted an AIFR of 0.09 per 200,000 hours worked for the three months ended March 31, 2022.
In Q1’22, Oyu Tolgoi produced 30.3 thousand tonnes of copper in concentrate and 59 thousand ounces of gold in concentrate.
Mill throughput of 9.6 million tonnes in Q1’22 was 2% lower than Q1’21 and 9% lower than Q4’21, in line with expectations due to planned maintenance.
Turquoise Hill successfully reached a mutual understanding for a renewed partnership with the Government of Mongolia and the board of directors of Oyu Tolgoi LLC (OT LLC) unanimously approved commencement of the undercut. On January 25, 2022, a ceremony was held at the mine site to celebrate the commencement of blasting the undercut that started the Oyu Tolgoi Hugo North underground mine production phase.
Turquoise Hill and Rio Tinto International Holdings Ltd. (Rio Tinto) agreed a comprehensive and binding, amended funding agreement that provides a pathway forward to address the Company’s estimated funding requirements.
Turquoise Hill currently estimates a base case incremental funding requirement of $3.4 billion (unchanged from Q4’21).
As at March 31, 2022, Turquoise Hill had $0.6 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 expenditure, into October 2022, after which the Company is able to rely on funding available under the amended funding agreement 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 March 31, 2022.
Revenue of $402.7 million in Q1’22 decreased 23.5% from $526.5 million in Q1’21 due to the planned transition of mining to the next phase of operations, resulting in 33.3% and 59.6% lower production volumes of copper and gold, respectively, and processing lower grade stockpile material, partially offset by 17.9% higher copper and 4.3% gold average prices.
Income for the period was $394.3 million in Q1’22 versus $332.1 million in Q1’21 reflecting higher tax benefits offset by lower revenue. Income attributable to owners of Turquoise Hill in Q1’22 was $275.2 million ($1.37 per share) versus $236.7 million ($1.18 per share) in Q1’21.
Cost of sales in Q1’22 was $2.65 per pound of copper sold1 and C1 cash costs were $1.66 per pound of copper produced2. All-in sustaining costs were $2.72 per pound of copper produced2.
Total operating cash costs3 of $228.9 million in Q1’22 increased 13.8% from $201.2 million in Q1’21 largely due to inflationary pressures on prices for critical supplies including fuel, power, explosives and grinding media.
Expenditures on property, plant and equipment in Q1’22 were $229.9 million, which included $203.8 million of capital expenditures on the underground project. Capital expenditures4 on the underground project included $84.8 million of underground sustaining capital expenditure4. At March 31, 2022, total capital expenditure on the underground project since January 1, 2016 was $5.6 billion, including $0.4 billion of underground sustaining capital expenditure.
Net cash generated from operating activities in Q1’22 was $122.4 million compared to cash used in operating activities of $133.2 million in Q1’21, primarily due to $356 million in taxes paid in Q1’21 related to the 2013 to 2015 and 2016 to 2018 Tax Assessments. Cash generated from operating activities before interest and tax decreased by $125.6 million compared to Q1’21 due largely to inflationary pressures on prices for critical supplies including fuel, power, explosives and grinding media.
Oyu Tolgoi concentrate shipment volumes to customers continued to steadily improve with on-site concentrate inventory levels reducing by 30% during Q1’22.
The commissioning of Materials Handling System 1 and the first on-footprint truck chute were successfully completed during Q1’22.
Preliminary outcomes from the 2022 cost and schedule update for the underground project, which incorporate the known, incremental COVID-19 cost impact of $195 million through March 31, 2022, associated taxes and an estimate of further COVID-19 management costs over the remaining development schedule, indicate an increase in the total expected development capital from $6.75 billion to $7.06 billion. The 2022 cost and schedule update is currently under review by the Company.
Shaft 3 headframe was commissioned and sinking commenced on March 31, 2022 from a cumulative depth of 83 metres below ground level. Shaft 4 sinking re-started on March 25, 2022 after work was interrupted on February 17, 2022 due to an electrical fault. Shaft 4 advancement is 190 metres below ground level as at March 31,2022.
A total of 25,000 metres of drilling is planned for 2022 and into 2023. Most of these drill metres are into potential future mining areas which are on the Lift 1 horizon and currently excluded from the Mineral Reserve.
As previously disclosed, the first drawbells for Panels 1 and 2 were delayed due to a later than planned commencement of the undercut, lateral development scope changes, impacts of COVID-19 on development progression and delays to the forecast completion dates for Shaft 3 and 4. As part of the 2022 cost and schedule update, schedules for Shafts 3 and 4 are under review, and a programme of work is underway to maximise the productivity of their development. The potential impact of any further schedule slippage to Shafts 3 and 4 on the timing of Panels 1 and 2 is under review but is not expected to result in equivalent delays to Panels 1 and 2 given the current underground development approach and further mitigation opportunities under investigation.
On March 13, 2022, the board of directors of the Company (the Board) received a non-binding proposal from Rio Tinto, the Company's majority shareholder, to acquire the approximately 49% of the outstanding common shares of Turquoise Hill held by the Company's minority shareholders for cash consideration of C$34.00 per share (the Proposal).
OT LLC signed an Electricity Supply Agreement (ESA) to provide Oyu Tolgoi with a long-term source of power from the Mongolian grid on terms fully agreed with the Government of Mongolia. Power will be delivered pursuant to the ESA once certain technical conditions are satisfied.
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1 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 20 of this press release for further information.

2 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 20 of this press release for further information.

3 Total operating cash costs is a non-GAAP financial measure. Please refer to the Section titled “Non-GAAP and Other Financial Measures” on page 20 of this press release for further information.

4 Capital expenditures on the underground project and underground sustaining capital expenditure are supplementary financial measures. Please refer to the Section titled “Non-GAAP and Other Financial Measures” on page 20 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 135 to 165 thousand ounces of gold in concentrates in 2022 from processing ore from the open-pit, underground development material and stockpiles. Gold production guidance has been revised upward from a previous forecast range of 115 to 165 thousand ounces and is trending toward the higher end of the range. 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 costs5 for 2022 are expected to be $800 million to $875 million, though inflationary pressures could see these costs trending towards the higher end of the range.

Expenditures on property, plant and equipment for 2022 are now expected to be approximately $155 million to $185 million for open-pit operations due to schedule changes impacting the timing of spend. This compares to the original guidance of $170 million to $200 million. Expenditures on property, plant and equipment for the underground are expected to remain within the original guidance of $1.2 billion to $1.4 billion.

Open-pit capital is mainly comprised of deferred stripping, equipment purchases, tailings storage facility construction and maintenance componentisation. Underground capital 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 produced6, which is higher than 2021 due to lower gold production in 2022, as mining transitions to the next phase of operations. Unit cost guidance assumes the midpoint of the expected 2022 copper and gold production ranges and a gold commodity price assumption of $1,801 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 Q1 2022 MD&A for a description of certain risk factors that could cause actual results to differ materially from these estimates).

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 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.

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 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.

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5 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 20 of this press release for further information.

6 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 20 of this press release for further information.

As at March 31, 2022, Oyu Tolgoi had a total workforce (employees and contractors), including for underground project construction, of approximately 16,300 workers, of which over 97% were Mongolian.

SELECTED FINANCIAL METRICS (1)
Three months ended Year ended
($ in millions, unless otherwise noted) 1Q 2022 1Q 2021 Change % 12 months
2021 Restated (6)
Revenue (6) 402.7 526.5 (23.5%) 2,040.8
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