Oyu Tolgoi releases Q1 2022 performance results

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Overig advies 11/05/2022 10:39
Continued globally competitive safety performance
Maintained highest water use efficiency per tonne of ore production
Paid US$72 million in taxes, fees and other payments
Total in-country spend reached US$13.8 billion
Commenced Underground mine operations
Concluded Electricity Supply Agreement for long-term electricity supply

Oyu Tolgoi released its latest performance scorecard, highlighting key performance metrics for the first quarter of 2022 and providing an update on the underground development.

In Q1 2022, Oyu Tolgoi celebrated a historic moment with our workforce, suppliers, customers, shareholders, and local communities attending the first undercut blast to mark the commencement of the Underground mine operation, as a result of the agreement reached between our shareholders – the Government of Mongolia, Turquoise Hill Resources, and Rio Tinto. This step unlocks the most valuable part of the mine, with first sustainable production expected in the first half of 2023.

Acting CEO of Oyu Tolgoi Jacques van Tonder, said, “The commencement of the underground operation is testament to our commitment to seeing the project succeed and for the people of Mongolia to continue receiving its benefits for decades to come. Megaprojects like Oyu Tolgoi entail inherent challenges be it economic or technical in nature. And I would like to thank our shareholders for their enduring faith in the project. My deep appreciation also goes to the Oyu Tolgoi family – Board of Directors, Management team, employees, communities and suppliers. What we celebrated in January would not have been possible without their hard work, passion and commitment. Now our priority is to reach first sustainable production in the first half of 2023.”

In March, the Board of Directors of Oyu Tolgoi appointed Deirdré Lingenfelder as CEO of Oyu Tolgoi LLC following the departure of Armando Torres who led the business over the previous five years. Deirdré Lingenfelder will assume the role on 1 May 2022.

Operational Update

Prioritised the safety and achieved an All Injury Frequency Rate (AIFR) of 0.09 per 200,000 people/hours worked.
Maintained excellent water-conservation practices, achieving the highest water use efficiency rates per tonne of ore production, using 0.4 cubic meters of raw water per tonne of ore processed - three times less than similar operations worldwide. Achieved an average water-recycling rate of 85.59%, compared to a target of 80%.
Nearly 97% of Oyu Tolgoi’s workforce are Mongolian citizens.
Paid US$72 million in the form of taxes, fees and other payments to the Government of Mongolia in the Q1 2022. Since 2010, Oyu Tolgoi has paid US$3.65 billion in taxes, fees and other payments, including VAT to Mongolian suppliers.
Partnered with 577 suppliers at the Q1 2022, including 409 national businesses, accounting for 76% of the total operations procurement spend.
Q1 2022 Performance Scorecard can be viewed here.

Production Update

Mined copper production from the open pit was 33% lower than the first quarter of 2021 due to lower copper grades and recoveries as a result of planned mine sequencing. A planned concentrator shutdown in February was completed safely and successfully on schedule.

Oyu Tolgoi Production Data

All data represents full production and sales on a 100% basis
Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Full year 2021

Open pit material mined (‘000 tonnes) 22,588 15,829 22,588 23,979 24,386 84,983

Ore treated (‘000 tonnes) 9,813 9,401 9,336 10,573 9,581 39,124
Average mill head grades:
Copper (%) 0.56 0.47 0.53 0.46 0.40 0.50
Gold (g/t) 0.68 0.50 0.63 0.38 0.32 0.54
Silver (g/t) 1.29 1.19 1.29 1.27 1.25 1.26

Concentrates produced (‘000 tonnes) 201.9 173.2 191.9 182.7 144.3 749.6

Average concentrate grade (% Cu) 22.5 21.2 21.9 21.3 21.0 21.7

Production of metals in concentrates:
Copper in concentrates (‘000 tonnes) 45.4 36.7 41.9 38.9 30.3 163
Gold in concentrates (‘000 ounces) 146 113 131 79 59 468
Silver in concentrates (‘000 ounces) 255 235 249 238 211 977

Concentrate sold (‘000 tonnes) 186.3 92.6 224.4 165.9 148.3 669.2
Sales of metals in concentrates:
Copper (‘000 tonnes) 39.0 19.6 46.4 34.4 29.9 139.4
Gold (‘000 ounces) 111 73 149 102 57 435
Silver (‘000 ounces) 207 106 278 192 179 783

Metal recovery (%)
Copper 86.3 79.7 83.9 80.1 78.1 82.8
Gold 72.2 69.3 68.7 59.3 59.0 68.4
Silver 65.3 62.5 64.1 55.1 54.3 61.6

Underground Development Update[1]

Technical progress
Commencement of undercut operations was achieved in January following Oyu Tolgoi Board approval to commence underground mining operations. Construction progress continued to be impacted by COVID-19 during the quarter with an increase in on-site COVID-19 cases in January reducing workforce availability to approximately 55% of planned requirements. Workforce levels have since improved to between 70% and 90% of planned requirements. The impact on project costs of the additional restrictions related to COVID-19 to the end of March is estimated to be $195 million ($20 million in the first quarter). Commissioning of the Materials Handling System 1 was completed in February.
At the end of March, shaft 4 sinking recommenced with sinking advancement now at 181 metres below ground level and shaft 3 sinking commenced. The delay to the commissioning of shafts 3 and 4 is still expected to be approximately nine months per prior guidance based on known COVID-19 impacts to date. This delay has no impact on Panel 0 sustainable production with Panels 1 and 2 study work underway.

Other Updates
The challenges relating to the continued COVID-19 related Mongolia / Chinese border restrictions, which resulted in force majeure being declared from March 30, 2021, continue despite the improvements experienced during the quarter. Oyu Tolgoi continues to work closely with Mongolian and Chinese authorities to manage any supply chain disruptions. The force majeure will remain in place until there are sufficiently sustained volumes of convoys crossing the border to ensure Oyu Tolgoi’s ability to meet its on-going commitments to customers and to return on-site concentrate inventory to target levels.
A reforecast is underway to determine a revised cost and schedule estimate that will reflect: any further COVID-19 impacts; any additional time-based impacts and market price escalation arising from resequencing due to 2021 budget constraints (as a result of the Oyu Tolgoi Board not approving the capital budget uplift at the time the Definitive Estimate was finalised); and updated risk ranging reflecting the latest project execution risks. The market will be updated on any associated impacts in due course.
The Oyu Tolgoi Board has approved the Electricity Supply Agreement to provide Oyu Tolgoi with a longterm source of power from the Mongolian grid, under terms already agreed with the Government of Mongolia. An agreement in-principle has been reached between the National Power Transmission Grid (NPTG) and the Inner Mongolia Power International Cooperation Company (IMPIC) for an extension of current power import arrangements from China. This is for a three-year fixed term extension to 2026, followed by an extension to up to 2030, if required (the current agreement expires in July 2023). Outstanding commercial terms are in the process of being finalised.
Rio Tinto and Oyu Tolgoi continue to work closely with the Technical Working Group established by the Government to progress the feasibility study.
[1] Project baseline reporting is against the 2020 Definitive Estimate. Oyu Tolgoi LLC’s updated Mongolian Feasibility Study incorporating the Definitive Estimate schedule, costs and refined Panel 0 mine design is subject to review and approval pursuant to Mongolian regulatory requirements. The definitive estimate assumed COVID-19 restrictions in 2021 that were no more stringent than those experienced in September 2020 and noted that should COVID-19 constraints continue beyond 2021 or should the COVID-19 situation escalate further in 2021 leading to tougher restrictions, additional costs and schedule impacts would arise. Since the definitive estimate, at the end of 2020, Mongolia implemented additional restrictions in response to community transmission cases, and in March 2021 the first cases of COVID-19 were identified at Oyu Tolgoi resulting in temporary site shutdown, quarantine measures and further travel and movement restrictions. The impact of these and other additional restrictions, which have continued throughout this period and are beyond those experienced in September 2020, is ongoing. To date, the impact on project costs of the additional restrictions experienced to 31 March 2022 is estimated to be $195 million. Additional costs and schedule impacts continue to be incurred and the final impact is still to be determined. A revised schedule forecast is in progress to assess the overall impact of additional COVID-19 restrictions and the re-sequencing of procurement and construction works arising from restricted budgets in 2021.

About Oyu Tolgoi LLC (www.ot.mn)

Oyu Tolgoi LLC, Mongolia's largest copper and gold mining company, is a strategic partnership between the Government of Mongolia, Turquoise Hill Resources and Rio Tinto. Located in the South Gobi, Oyu Tolgoi commenced shipment of product to customers in July 2013. Oyu Tolgoi is managed by Rio Tinto, which is investing global expertise and cutting-edge technology to help develop Mongolia’s mining industry and ensure Oyu Tolgoi is one of the world’s most advanced mines. For Oyu Tolgoi, nothing matters more than safety. The business operates under the principle that if a job cannot be done safely, it will not be done at all.

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