MONTREAL, May 13, 2020 /CNW/ - Turquoise Hill Resources
Ltd. ("Turquoise Hill" or the "Company") today
announced its financial results for the period ended March 31, 2020. All figures are in U.S.
dollars unless otherwise stated.
"Our first quarter of 2020 delivered strong operational results
in the open-pit mine, whilst importantly achieving an excellent
safety record that the Oyu Tolgoi team has continued to
maintain.
The COVID-19 pandemic has, provided unprecedented challenges,
yet the Oyu Tolgoi open pit has continued to operate without
interruptions, and the underground development, although
experiencing delays with the construction of some underground
infrastructure, has continued to progress. We are seeing the
benefits of a highly skilled local workforce being able to adapt to
the challenges presented by the restrictions imposed due to the
COVID-19 pandemic.
In addition to presenting another solid quarter, we are
announcing that the updated Panel 0 mine design is complete. This
is an important milestone and is the basis of the Definitive
Estimate due in the second half of 2020.
The block cave design anticipates a delay to OTFS16 key project
milestones of sustainable production by 25 months (with a range of
21 to 29 months) and an increase in development capital cost of
$1.5 billion (with a range of
$1.3 to $1.8
billion). The preferred block cave design is a more
resilient mine plan that provides the best opportunity for success
based on an extensive trade-off analysis taking into account the
reserve recovery, geotechnical, constructability, operability,
schedule, cost and value risks. Given the importance of the Panel 0
mine design, Turquoise Hill engaged subject matter experts to
undertake an external and independent assurance process that
focused on the technical review of the proposed mine re-design
options, and a review of the schedule and estimating process.
As at March 31, 2020, Turquoise
Hill has $1.8 billion of available
liquidity, which is sufficient to fund operations, underground and
power development into Q3 2021. The Company is well progressed in
its discussions with Rio Tinto regarding its proposal for sourcing
incremental interim funding to provide flexibility to explore and
evaluate long term financing options." stated Ulf Quellmann, Chief
Executive Officer of Turquoise Hill.
HIGHLIGHTS
- Safety is a top priority and is critical to our continued
success. Oyu Tolgoi achieved another strong AIFR of 0.20 per
200,000 hours worked for the three months ended March 31, 2020.
- In Q1'20, Oyu Tolgoi produced 35,203 tonnes of copper and
26,154 ounces of gold and is on track to achieve 2020 copper and
gold production guidance.
- Mill throughput was 10,889,000 tonnes and increased 17% versus
Q1'19 due to lower ore hardness as well as high mill availability
and effective utilisation performance.
- Our Oyu Tolgoi team has continued to maximise the production
from the open pit and is expected to produce 140,000 to 170,000
tonnes of copper and 120,000 to 150,000 ounces of gold in
concentrates in 2020 from both the open pit and the beginning of
the underground development material being processed. Initiatives
have been implemented by Oyu Tolgoi to bring forward the higher
gold bearing ore into 2020; consequently, if these initiatives are
successful, we anticipate gold production will be at the upper end
of the guidance range.
- As anticipated, a design change for Panel 0 has been approved,
which is supported by extensive geotechnical modelling and a
thorough technical assurance program including independent third
parties. The caving method of mining remains valid and many
fundamentals of the mine design have remained unchanged. The
approved design that now progresses to execution-level planning is
based on a block cave approach, which leaves two pillars to the
north and south of Panel 0. This design change results in a more
resilient mine plan able to effectively operate with the Panel 0
geotechnical conditions as now understood. The Definitive Estimate
of project cost and schedule currently remains on track for the
second half of 2020, subject to any delays due to the impacts of
the COVID-19 pandemic.
- The block cave design anticipates a delay to OTFS16 key project
milestones of sustainable production of 25 months (with a range of
21 to 29 months) inclusive of an allowance for schedule
contingency, and an increase in development capital cost of
$1.5 billon (with a range of
$1.3 to $1.8
billion), subject to any additional scheduling delays or
increases in capital costs arising from the impacts of the COVID-19
pandemic, which may also reduce the available contingency in these
estimates. These schedule and cost delays are within the estimates
previously disclosed to the market and will undergo a period of
further detailed design, engineering and optimisation to support
the Definitive Estimate.
- Revenue of $130.7 million in
Q1'20 decreased 62.9% from $352.7
million in Q1'19, primarily due to both a 78.2% decrease in
gold production and a 23.1% decrease in copper production,
reflecting the planned transition from mining Phase 4A and Phase 6A
to lower grade Phase 4B, Phase
6B and stockpiles. Further, the
average price of copper fell by 9.1% from Q1'19 to Q1'20, primarily
due to the impact of the COVID-19 pandemic on global copper
demand.
- Income for the period was $19.0
million compared with income of $105.2 million in Q1'19. This was primarily due
to $198.8 million lower gross margin
driven by the reduced revenue, partly offset by a higher deferred
tax recovery of $107.7 million
resulting from higher deferred tax assets recognised in Q1'20
compared to Q1'19. Income attributable to owners of Turquoise Hill
in Q1'20 was $55.4 million or
$0.03 per share, compared with income
of $111.2 million or $0.06 per share in Q1'19.
- Cash generated from operating activities before interest and
taxes was $1.5 million, a decrease
from $49.8 million generated in
Q1'19, primarily reflecting the impact of reduced revenue partly
offset with favourable movements in working capital.
- Cost of sales was $2.57 per pound
of copper sold, C1 cash costs1 were $2.07 per pound of copper produced, and all-in
sustaining costs1 were $2.39 per pound of copper produced.
- Total operating cash costs1 of $188.1 million in Q1'20 decreased 5.1% from
$198.1 million in Q1'19. This was
principally due to lower milling and mining costs, lower
maintenance costs, and lower fuel costs. Additionally, royalty
costs were lower as a result of the lower sales revenue.
- During Q1'20 underground development spend was $291.5 million, resulting in total project spend
since January 1, 2016 of
approximately $3.8 billion.
- At the end of March 2020,
Turquoise Hill had approximately $1.8
billion of available liquidity, split between remaining
project finance proceeds of $0.2
billion and $1.6 billion of
cash and cash equivalents. We currently expect to have enough
liquidity to fund our operations and underground development into
Q3 2021.
- Productivity improvements resulted in increased underground
lateral development rates during Q1'20, with an average monthly
rate of 1,822 equivalent metres (eqm) compared to 1,607 eqm in
Q4'19, with March 2020 seeing a
record 1,939 eqm. Despite the challenges of personnel movements
posed by COVID-19, underground development performance continues as
expected.
- Despite these gains, the unprecedented circumstances of the
ongoing COVID-19 pandemic have had an impact on some aspects of the
underground development, as local governments have restricted
access to the mine for teams from Oyu Tolgoi, Rio Tinto and our
construction partners, and although the open pit has continued to
operate uninterrupted, COVID-19 restrictions have challenged our
supply logistics.
- Shafts 3 and 4 have been placed into care and maintenance until
expert service providers can complete technical commissioning of
specialised equipment and commence sinking activities. The
possibility of specialised support via remote means is being
explored to minimise the impact of travel restrictions currently in
place due to the COVID-19 pandemic on development progress, but
delays are still anticipated. Work has also slowed on some critical
underground material handling infrastructure, in particular the
construction of primary crusher one, which has currently been
reduced to day shift activity only from late March. The opportunity
to return to a double shift pattern is currently being
assessed.
- Ordinary course elongation of newly commissioned ropes may
impact Shaft 2 ore hoisting. Payload and speed have been reduced to
prolong the ability to use the hoist until specialised personnel
are able to reach the site to perform the necessary adjustments.
These mitigations allow development to proceed unimpeded and
management is discussing the potential for remote support to
rectify the situation whilst travel restrictions remain in place.
People and materials movement via the service hoist continue to
operate normally.
- The Company recognises the unprecedented situation surrounding
the ongoing COVID-19 pandemic. Turquoise Hill has established a
business resiliency team and is closely monitoring the effect of
the COVID-19 pandemic on its business and operations and will
continue to update the market on the impacts to the Company's
business and operations in relation to these extraordinary
circumstances. See the "RISKS AND UNCERTAINTIES" section of the
Company's management discussion and analysis of financial condition
and results of operations for the three months ended March 31, 2020 (the Q1 2020 MD&A).
__________________________________
|
1 Please refer to Section – NON-GAAP
MEASURES – on page 19 of this press release for further
information
|
OPERATIONAL OUTLOOK FOR 2020
Oyu Tolgoi is expected to produce 140,000 to 170,000 tonnes of
copper and 120,000 to 150,000 ounces of gold in concentrates in
2020 from both the open pit and the beginning of the underground
development material being processed. Although the mid-point copper
production range guidance is higher in 2020 versus the 2019
guidance, a lower gold production year is expected for 2020. This
is due to the need to mine through lower grade material on the
periphery of the South West pit as Phase 4B sinks towards the highest gold and copper
grades lower in the pit. It is anticipated that the higher grade
ore will be accessed in 2021, resulting in a significant increase
in gold production in 2021. Initiatives have been implemented by
Oyu Tolgoi to bring forward some of the higher gold bearing ore
into 2020; consequently, if these initiatives are successful, we
anticipate gold production will be at the upper end of the guidance
range. Mill throughput for 2020 is expected to be approximately 40
million tonnes.
Operating cash costs2 for 2020 are expected to
be $800 million to $850 million.
Capital expenditure for 2020 on a cash-basis is expected to be
approximately $80 million to
$100 million for open-pit operations
and $1.0 billion to $1.1 billion for the underground development,
exclusive of any expenditure on power. The upper end of the
open-pit operations guidance range was reduced from $120 million due to lower capitalised deferred
stripping costs and lower estimated spend as a result of COVID-19.
The underground development guidance was reduced from the original
range of $1.2 billion to $1.3 billion as a result of the estimated impact
of COVID-19, which has restricted access to the mine for teams from
Oyu Tolgoi, Rio Tinto and our construction partners.
Open-pit capital is mainly comprised of deferred stripping,
equipment purchases, tailings storage facility construction and
maintenance componentization. Underground development capital
includes both expansion capital and VAT.
C1 cash costs2 are expected to be in the
range of $1.80 to $2.20 per pound of copper produced, up from 2019
guidance largely reflecting the reduced gold production estimate.
Unit cost guidance assumes the midpoint of expected 2020 copper and
gold production ranges and commodity price assumptions of
$2.39 per pound copper and
$1,513 per ounce gold.
_________________________________
|
2 Please
refer to Section – NON-GAAP MEASURES – on page 19 of this press
release for further information
|
2021 OUTLOOK
Production in 2021 is expected to increase to a range of 170,000
to 200,000 tonnes of copper, and 450,000 to 500,000 ounces of gold,
as we transition to the higher grade ore in the lower benches of
the pit and continue to increase the amount of underground
development material processed.
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; the remaining 34% interest is held
by Erdenes Oyu Tolgoi LLC (Erdenes), 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 2020 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.
At the end of Q1'20, Oyu Tolgoi had a total workforce (employees
and contractors), including underground project construction, of
approximately 13,600, of which 94% were Mongolians.
SELECTED FINANCIAL
METRICS (1)
|
|
|
|
|
($ in millions,
unless otherwise noted)
|
1Q
|
1Q
|
Change
|
12
months
|
2020
|
2019
|
%
|
2019
|
|
|
|
|
|
Revenue
|
130.7
|
352.7
|
(62.9%)
|
1,166.0
|
Income for the
period
|
19.0
|
105.2
|
--
|
(476.9)
|
Income attributable
to owners of Turquoise Hill
|
55.4
|
111.2
|
--
|
(150.5)
|
Basic and diluted
income per share attributable to owners of Turquoise
Hill
|
0.03
|
0.06
|
--
|
(0.07)
|
Revenue by metals in
concentrates
|
|
|
|
|
Copper
|
96.9
|
223.9
|
(56.7%)
|
787.8
|
Gold
|
31.6
|
125.7
|
(74.9%)
|
365.0
|
Silver
|
2.2
|
3.1
|
(29.0%)
|
13.2
|
Cost of
sales
|
145.9
|
169.1
|
(13.7%)
|
743.0
|
Production and delivery
costs
|
104.7
|
126.0
|
(16.9%)
|
559.1
|
Depreciation and
depletion
|
35.0
|
44.6
|
(21.5%)
|
183.9
|
Capital expenditure
on cash basis
|
301.1
|
325.3
|
(7.4%)
|
1,308.1
|
Underground
|
291.5
|
296.4
|
(1.7%)
|
1,174.9
|
Open pit
(2)
|
9.6
|
28.9
|
(66.8%)
|
133.2
|
Royalties
|
10.2
|
19.7
|
(48.2%)
|
64.0
|
Operating cash costs
(3)
|
188.1
|
198.1
|
(5.1%)
|
774.5
|
Unit costs
($)
|
|
|
|
|
Cost of sales (per
pound of copper sold)
|
2.57
|
1.99
|
29.1%
|
2.25
|
C1 (per pound of copper
produced) (3)
|
2.07
|
0.77
|
168.8%
|
1.37
|
All-in sustaining
(per pound of copper produced) (3)
|
2.39
|
1.45
|
64.8%
|
2.08
|
Mining costs (per tonne
of material mined) (3)
|
1.73
|
2.10
|
(17.5%)
|
1.88
|
Milling costs (per
tonne of ore treated) (3)
|
5.58
|
8.06
|
(30.7%)
|
6.48
|
G&A costs (per
tonne of ore treated)
|
2.95
|
3.65
|
(19.3%)
|
3.30
|
Cash used in
operating activities
|
(24.4)
|
(5.7)
|
328.1%
|
(11.7)
|
Cash generated from
operating activities before interest and tax
|
1.5
|
49.8
|
(97.0%)
|
341.7
|
Interest
paid
|
26.8
|
78.6
|
(65.9%)
|
427.5
|
Total
assets
|
12,915
|
13,437
|
(3.9%)
|
12,822
|
Total non-current
financial liabilities
|
4,384
|
4,389
|
(0.1%)
|
4,371
|
|
|
(1)
|
Any financial
information in this press release should be reviewed in conjunction
with the Company's consolidated financial statements or condensed
interim consolidated financial statements for the reporting periods
indicated.
|
(2)
|
Open-pit capital
expenditure includes both sustaining and non-underground
development activities.
|
(3)
|
Please refer to
NON-GAAP MEASURES – on page 19 of this press release for further
information.
|
Q1'20 vs Q1'19
- Revenue of $130.7 million in
Q1'20 decreased 62.9% from $352.7
million in Q1'19, primarily due to both a 78.2% decrease in
gold production and a 23.1% decrease in copper production,
reflecting the planned transition from mining Phase 4A and Phase 6A
to lower grade Phase 4B, Phase
6B and stockpiles. Further, the
average price of copper fell by 9.1% from Q1'19 to Q1'20 primarily
due to the impact of COVID-19 on global copper demand.
- Income for the period was $19.0
million compared with income of $105.2 million in Q1'19. This was primarily due
to $198.8 million lower gross margin
driven by the reduced revenue partly offset by a higher deferred
tax recovery of $107.7 million
resulting from higher deferred tax assets recognised in Q1'20
compared to Q1'19. Income attributable to owners of Turquoise Hill
in Q1'20 was $55.4 million or
$0.03 per share, compared with income
of $111.2 million or $0.06 per share in Q1'19.
- Cost of sales of $145.9 million
decreased 13.7% from $169.1 million
in Q1'19 reflecting 31.9% lower volumes of concentrates sold partly
offset by the impact of increased unit cost of sales per pound of
copper sold due to decreased head grades of the material mined in
the period.
- Unit cost of sales of $2.57 per
pound of copper sold increased 29.1% from $1.99 reflecting lower average mill head grades
and recoveries reflecting the transition from mining Phase 4A and
Phase 6A to lower grade Phase 4B,
Phase 6B and stockpiles.
- Capital expenditure on a cash basis of $301.1 million compared to $325.3 million in Q1'19, comprised of
$291.5 million attributed to the
underground project and $9.6 million
to open-pit activities.
- Total operating cash costs3 of $188.1 million in Q1'20 decreased 5.1% from
$198.1 million in Q1'19. This was
principally due to lower milling and mining costs due to lower
maintenance costs and lower fuel costs. Additionally, royalty costs
were lower as a result of lower sales revenue.
- Oyu Tolgoi's C1 cash costs3 of $2.07 per pound of copper produced increased from
$0.77, primarily reflecting the
impact of the 74.9% lower gold sales revenue credits in Q1'20
compared to Q1'19.
- All-in sustaining costs3 of $2.39 increased 64.8% from $1.45 in Q1'19. Similar to the C1 cash costs, the
increase was primarily due to a reduction in gold revenue credits,
partly offset by lower royalty costs resulting from the lower sales
revenue in Q1'20 compared to Q1'19.
- Mining costs3 of $1.73
per tonne of material mined decreased 17.5% from $2.10 in Q1'19. The decrease was due to lower
fuel and maintenance costs coupled with higher material mined
benefitting from lower cycle times as mining in Q1'20 was focused
on higher benches of the open pit compared with Q1'19.
- Milling costs3 of $5.58 per tonne of ore treated decreased 30.7%
from $8.06 of ore treated in Q1'19,
mainly due to higher milled ore resulting from the deferral of
major plant shutdowns together with lower maintenance service
costs.
- G&A costs per tonne of ore treated of $2.49 in Q1'19 decreased 19.3% from $3.65 per tonne of ore treated in Q1'19, mainly
due to the impact of higher milled ore in the period.
- Cash used in operating activities of $24.4 million in Q1'20 was higher than the
$5.7 million used in Q1'19. This was
principally due to 62.9% decrease in sales revenue partly offset
with $51.7 million lower interest
paid in Q1'20 compared to Q1'19, resulting mainly from the
difference in timing of payment of the completion support fee.
_________________________________
|
3 Please
refer to Section – NON-GAAP MEASURES – on page 19 of this press
release for further information
|
OYU TOLGOI
Safety performance and COVID-19 Response
The Oyu Tolgoi mine recorded another strong AIFR of 0.20 per
200,000 hours worked for the three months ended March 31, 2020. In addition to the continued
commitment to reducing health and safety risk and injury at the Oyu
Tolgoi mine site, the prevention of the spread of COVID-19 is a key
priority for all Oyu Tolgoi and Turquoise Hill employees. To assist
in curtailing the spread of COVID-19, the Company has instituted
temperature and health screenings at the mine and a dedicated
hotline is available for employees who are on or off site, which
they can call for advice or information sharing.
The Company continues to closely monitor the impact of the
COVID-19 pandemic on its business and operations. As disclosed on
March 16, 2020, the Company
established the Oyu Tolgoi Business Resilience Team, which meets on
a daily basis and takes a considered and risk-based approach to
managing our response and actions for the prevention of COVID-19.
To assist with the battle against COVID-19, Oyu Tolgoi LLC has also
donated MNT100 million to the
Government of Mongolia, and
through the Oyu Tolgoi-sponsored Gobi Oyu Development Support Fund,
the Company further committed MNT200
million to the Umnugobi emergency committee, and
MNT10 million to the Khanbogd
Emergency Commission for prevention support. We are also sharing
the prevention and hygiene controls we have in place with local
companies.
The Company has been and will continue to engage with both the
Mongolian and Chinese governments in an effort to minimise the
impacts of restrictive actions taken in response to the COVID-19
pandemic on future sales. Oyu Tolgoi has notified its project
lenders that the COVID-19 pandemic constitutes a force majeure
event under its project finance facilities, which will have the
effect of extending the June 30, 2028
project longstop date under those facilities for the duration of
the force majeure. Certain suppliers of Oyu Tolgoi have declared
force majeure on their contracts as a result of the COVID-19
pandemic; this has not had a material adverse impact on the
business to date.
While the open pit at Oyu Tolgoi has continued to operate to
plan despite COVID-19, the unprecedented impact of this pandemic
has seen restrictions imposed by the Government of Mongolia on travel and movement of goods and
people both across and within its borders, and has made it
difficult for teams from Oyu Tolgoi, Rio Tinto and our construction
partners to access the site. While some aspects of underground
infrastructure, such as Shafts 3 and 4 have been impacted,
underground development currently continues as per
expectations. The Company is assessing the possibility of
providing specialised support via remote means as a way of
minimizing the impact of the access restrictions currently in
place. While mine management believes the situation remains
manageable, underground development progress could be impacted if
experts continue to be unable to access the site by the end of
Q2'20. See the "RISKS AND UNCERTAINTIES" section of the Company's
Q1 2020 MD&A.
Key operational metrics for Q1'20 are as
follows:
Oyu Tolgoi Production Data
All data represents full
production and sales on a 100% basis
|
1Q
|
2Q
|
3Q
|
4Q
|
1Q
|
Full Year
|
|
2019
|
2019
|
2019
|
2019
|
2020
|
2019
|
|
|
|
|
|
|
|
Open pit material
mined ('000 tonnes)
|
23,943
|
24,408
|
24,844
|
28,122
|
26,834
|
101,316
|
Ore treated ('000
tonnes)
|
9,255
|
10,394
|
10,040
|
11,088
|
10,889
|
40,777
|
Average mill head
grades:
|
|
|
|
|
|
|
Copper (%)
|
0.57
|
0.46
|
0.37
|
0.42
|
0.42
|
0.45
|
Gold (g/t)
|
0.58
|
0.31
|
0.14
|
0.15
|
0.15
|
0.29
|
Silver
(g/t)
|
1.25
|
1.20
|
1.03
|
1.06
|
1.14
|
1.13
|
Concentrates produced
('000 tonnes)
|
210.1
|
180.6
|
131.3
|
152.6
|
164.5
|
674.6
|
Average concentrate
grade (% Cu)
|
21.8
|
21.7
|
21.7
|
21.6
|
21.4
|
21.7
|
Production of metals
in concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
45.8
|
39.2
|
28.4
|
32.9
|
35.2
|
146.3
|
Gold ('000
ounces)
|
120.1
|
71.8
|
25.6
|
24.3
|
26.2
|
241.8
|
Silver ('000
ounces)
|
247
|
238
|
191
|
190
|
214
|
867
|
Concentrate sold
('000 tonnes)
|
184.9
|
225.3
|
157.0
|
157.5
|
125.9
|
724.7
|
Sales of metals in
concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
38.5
|
46.6
|
32.4
|
32.3
|
25.8
|
149.9
|
Gold ('000
ounces)
|
97.9
|
115.6
|
35.4
|
24.7
|
19.7
|
273.6
|
Silver ('000
ounces)
|
200
|
245
|
207
|
244
|
146
|
896
|
Metal recovery
(%)
|
|
|
|
|
|
|
Copper
|
83.8
|
80.2
|
75.1
|
74.2
|
74.3
|
78.7
|
Gold
|
70.1
|
63.6
|
54.7
|
48.2
|
46.0
|
63.6
|
Silver
|
63.2
|
59.2
|
56.0
|
53.5
|
51.5
|
58.1
|
Copper production in Q1'20 decreased 23% compared to Q1'19 due
primarily to decreased head grade reflecting the planned transition
from mining Phase 4A and Phase 6A to lower grade Phase 4B, Phase 6B and
stockpiles.
Gold Production in Q1'20 decreased 78% over Q1'19 due primarily
to decreased head grade, which also reflects the planned transition
from mining Phase 4A and Phase 6A to lower grade Phase 4B, Phase 6B and
stockpiles.
Mill throughput in Q1'20 was higher than the same quarter of
2019 due to lower ore hardness as well as good availability and
effective utilisation in Q1'20.
Underground development
The 2016 Feasibility Study design calls for the development of
three panels; Panel 0 followed by Panel 1 and Panel 2. As announced
on July 15, 2019, stability risks had
been identified with some components of the mine design.
As anticipated, a design change for Panel 0 has been approved,
which is supported by extensive geotechnical modelling and a
thorough technical assurance program including independent third
parties. The caving method of mining remains valid and many
fundamentals of the mine design have remained unchanged. The
approved design is based on a block cave and includes two pillars;
one to the north and one to the south of Panel 0. Study work is
ongoing to assess the recoverability of the pillars.
The next phase of mine design studies will include design
optimisation for Panel 0, and a review of mine design options for
Panel 1 and Panel 2 to utilise the learnings from the Panel 0
work. The Panel 1 and Panel 2 studies, expected to be finalised as
early as possible in 2021, will be informed by additional data
collected from an underground drilling program which is in
progress.
The block cave design for Panel 0 was selected based on an
extensive trade-off analysis taking into account risks related to
recovery, geotechnical, constructability, operability, schedule,
cost and value risks. The change in design provides a more
resilient mine design that is able to effectively operate with the
Panel 0 geotechnical conditions as now understood.
The block cave design varies from the 2016 feasibility design
through:
- Incorporation of structural pillars, located immediately north
and south of the current Panel 0 boundaries;
- Relocation of ore handling infrastructure to the pillars;
- Initiation via a single undercut face (instead of two);
and
- Initiation of panels 1 and 2 as independent panels or
blocks.
The block cave design anticipates a delay to OTFS16 key project
milestones of sustainable production of 25 months (with a range of
21 to 29 months) inclusive of an allowance for schedule
contingency, and an increase in development capital cost of
$1.5 billon (with a range of
$1.3 to $1.8
billion), subject to any additional scheduling delays or
increases in capital costs arising from the impacts of the COVID-19
pandemic, which impacts may also reduce the available contingency
in these estimates. These schedule and cost delays are within the
estimates previously disclosed to the market and will undergo a
period of further detailed design, engineering and optimisation to
support the Definitive Estimate due in the second half of 2020,
again subject to any delays due to the impacts of the COVID-19
pandemic.
Preparations to put Shaft 3 and 4 into care and maintenance
started in March as a result of travel restrictions affecting
specialist expatriate personnel and equipment providers. Prior to
this, Shaft 3 construction works progressed on sinking ventilation,
compressor building, pump house and local mine dry. Shaft 4
compressor building, pump house, pumping system and mine dry were
completed and the galloway and headframe work progressed towards
being ready for sinking to start. The possibility of specialised
support via remote means is being explored to minimise the impact
of travel restrictions on development progress by allowing
commissioning work to continue at Shaft 4.
Civil works continued in the primary crusher one chamber with
mass pour number 10 completed in March. Work has slowed on
some critical underground material handling infrastructure, in
particular the construction of primary crusher one, which has
currently been reduced to day shift activity only from late March.
The opportunity to return to a double shift pattern is currently
being assessed. The changes to Shaft 3 and 4 progress, as well as
primary crusher one construction, has resulted in a reduction of
approximately 1,400 people onsite.
Ordinary course elongation of newly commissioned ropes may
impact Shaft 2 ore hoisting. Payload and speed have been reduced to
prolong the ability to use the hoist until specialised personnel
are able to reach the site to perform the necessary adjustments.
These mitigations allow development to proceed unimpeded and
management is discussing the potential for remote support to
rectify the situation whilst travel restrictions remain in place.
People and materials movement via the service hoist continue to
operate normally.
Good underground development progress has continued in Q1'20.
Focus on productivity gains on the most critical development areas
over the past seven months has reaped substantial improvements.
Underground development progressed 5.5 total equivalent kilometres
and completed 3.2 cubic kilometres of mass excavation during the
quarter. Since the restart of underground development, 38.4 total
equivalent kilometres and 158.5 cubic kilometres of mass excavation
have been completed. The following table provides a breakdown of
the various components of completed development (excluding conveyor
declines) since project restart:
Oyu Tolgoi
Underground Project Development Progress Excluding Conveyor
Declines
|
Year
|
Total
Equivalent
Development
(Km)
|
Lateral
Development
(Km)
|
Mass
Excavation
('000'
m3)
|
2016
|
1.6
|
1.5
|
3.0
|
Q1'17
|
1.0
|
0.8
|
5.2
|
Q2'17
|
1.4
|
0.9
|
9.2
|
Q3'17
|
1.4
|
1.2
|
8.3
|
Q4'17
|
2.2
|
1.9
|
8.9
|
2017
|
6.1
|
4.8
|
31.6
|
Q1'18
|
2.6
|
2.1
|
11.6
|
Q2'18
|
2.4
|
2.1
|
8.6
|
Q3'18
|
3.0
|
2.1*
|
23.3*
|
Q4'18
|
2.3
|
1.6
|
16.0
|
2018
|
10.3
|
7.9
|
59.5
|
Q1'19
|
3.2
|
2.3
|
21.4
|
Q2'19
|
3.2
|
2.4
|
19.3
|
Q3'19
|
3.6
|
3.2
|
11.4
|
Q4'19
|
4.8
|
4.5
|
9.0
|
2019
|
14.9
|
12.4
|
61.1
|
Q1'20
|
5.5
|
5.3
|
3.2
|
2020
|
5.5
|
5.3
|
3.2
|
Total
|
38.4
|
32.0
|
158.5
|
Notes:
|
Totals may not match
due to rounding.
|
*Lateral development
and mass excavation amount for Q3'18 have been updated to reflect
revised results.
|
Oyu Tolgoi
Conveyor Decline Project Development Progress
|
Year
|
Total Equivalent
Development (Km)
|
Lateral
Development
(Km)
|
Mass
Excavation
('000'
m3)
|
2016
|
0.0
|
0.0
|
0.0
|
Q1'17
|
0.1
|
0.1
|
0.0
|
Q2'17
|
0.4
|
0.4
|
0.2
|
Q3'17
|
0.9
|
0.9
|
0.5
|
Q4'17
|
0.9
|
0.8
|
0.5
|
2017
|
2.3
|
2.3
|
1.2
|
Q1'18
|
0.8
|
0.8
|
0.1
|
Q2'18
|
0.8
|
0.8
|
0.1
|
Q3'18
|
0.8
|
0.8
|
0.3
|
Q4'18
|
0.6
|
0.6
|
0.1
|
2018
|
3.0
|
3.0
|
0.6
|
Q1'19
|
0.8
|
0.8
|
0.8
|
Q2'19
|
0.9
|
0.9
|
0.8
|
Q3'19
|
0.9
|
0.7
|
4.9
|
Q4'19
|
1.1
|
0.7
|
8.3
|
2019
|
3.7
|
3.1
|
14.7
|
Q1'20
|
1.0
|
0.7
|
7.5
|
2020
|
1.0
|
0.7
|
7.5
|
Total
|
10.0
|
9.1
|
24.0
|
Note: Totals
may not match due to rounding.
|
Oyu Tolgoi spent $291.5 million on
underground development during Q1'20. Total underground project
spend from January 1, 2016 to
March 31, 2020 was approximately
$3.8 billion. Underground project
spend on a cash basis includes expansion capital, VAT and
capitalised management services payment and excludes capitalised
interest. In addition, Oyu Tolgoi had further capital
commitments4 of $0.7
billion as of March 31,
2020. Since the restart of project development, Oyu Tolgoi
has committed over $3.3 billion to
Mongolian vendors and contractors.
FUNDING OF OYU TOLGOI LLC BY TURQUOISE HILL
In accordance with the Amended and Restated Shareholders'
Agreement dated June 8, 2011 (ARSHA),
Turquoise Hill has funded Oyu Tolgoi LLC's cash requirements beyond
internally generated cash flows by a combination of equity
investment and shareholder debt.
For amounts funded by debt, Oyu Tolgoi LLC must repay such
amounts, including accrued interest, before it can pay common share
dividends. As of March 31, 2020, the
aggregate outstanding balance of shareholder loans extended by
subsidiaries of the Company to Oyu Tolgoi LLC was $6.5 billion, including accrued interest of
$1.3 billion. These loans bear
interest at an effective annual rate of LIBOR plus 6.5%.
In accordance with the ARSHA, a subsidiary of the Company has
funded the common share investments in Oyu Tolgoi LLC on behalf of
state-owned Erdenes. These funded amounts earn interest at an
effective annual rate of LIBOR plus 6.5% and are repayable, by
Erdenes to a subsidiary of the Company, via a pledge over Erdenes'
share of Oyu Tolgoi LLC common share dividends. Erdenes also has
the right to reduce the outstanding balance by making cash payments
at any time. As of March 31, 2020,
the cumulative amount of such funding was $1.3 billion, representing 34% of invested common
share equity, with unrecognised interest on the funding amounting
to $0.7 billion.
At the end of March 2020,
Turquoise Hill has approximately $1.8
billion of available liquidity, split between remaining
project finance proceeds of $0.2
billion, which are drawn and currently deposited with Rio
Tinto, and $1.6 billion of cash and
cash equivalents. In addition, we expect to generate free cash flow
at our existing open pit operations, which will also be available
to help fund the underground development.
Turquoise Hill currently expects to have enough liquidity to
fund its operations and underground development, including possible
progression of the proposed Tavan Tolgoi-based power plant or other
power alternatives currently under discussion with the Government
of Mongolia, through Q3 2021.
Taking into consideration the estimated impacts of the announced
increases to underground development capital, as well as delays to
first sustainable production, the Company expects to need
significant incremental financing to sustain its underground
development as well as construction of the proposed Tavan
Tolgoi-based power plant beyond this timeframe. The Company will
have greater clarity on this incremental funding requirement as the
Definitive Estimate progresses and as discussions progress with the
Government of Mongolia to conclude
a mutually acceptable basis on which to proceed with securing
long-term domestic power supply for Oyu Tolgoi. Nevertheless,
current estimates indicate an incremental funding requirement, over
and above the $1.8 billion in
liquidity currently available, of at least $4 billion. This current estimate of the
Company's minimum incremental funding requirement has improved from
the $4.5 billion previously disclosed
due in part to selection of the Panel 0 mine design coupled with
lower forecast LIBOR rates. The Company will continue to assess the
possible impacts of COVID-19 on this incremental funding
requirement.
Turquoise Hill and Oyu Tolgoi LLC have the option to raise
additional external financing, subject to required approvals, to
assist in funding development going forward, including during
underground commissioning and ramp up. This additional external
funding, as well as any possible re-profiling of the principal
repayments relating to the existing project financing facility,
have not been assumed in estimating the incremental funding
requirement. Further, important variables impacting the estimated
incremental funding requirement include:
- The amount of incremental underground development capital
required;
- The ultimate long-term domestic power solution agreed to by the
Government of Mongolia and the
Company, including the timing of its commissioning;
- The timing of sustainable first production and its resulting
cash flows. The block cave design anticipates a delay to the OTFS16
estimate for first sustainable production of 25 months (with a
range of 21 to 29 months), inclusive of an allowance for schedule
contingency;
- The timing of principal repayments on amounts currently drawn
under the project finance facility as well as on-going debt service
costs;
- The amount of cash flow that can be generated from open-pit
operations, net of sustaining capital requirements; and
- The impact of COVID-19 on Oyu Tolgoi's open-pit operations and
underground development.
As the work to complete the Definitive Estimate and the Panels 1
and 2 mine design study, and to secure a long-term domestic power
solution progress, Turquoise Hill continues to evaluate the impact
of the estimated increases to underground capital expenditure, as
well as delays to sustainable first production and the other
important variables discussed above, on its cash flows, liquidity
and financing projections and will update the market when
appropriate. While the Company's funding requirements will be
clarified by the ongoing work on the Definitive Estimate, the
Panels 1 and 2 mine design study and as power discussions advance
with the Government of Mongolia,
Turquoise Hill is well progressed in its discussions with Rio Tinto
regarding its proposal for sourcing incremental interim funding to
ensure the Company can progress the underground development over
and above its $1.8 billion of
available liquidity.
_______________________________
|
4 Please
refer to Section – NON-GAAP MEASURES – on page 19 of this press
release for further information
|
GOVERNMENT RELATIONS
Turquoise Hill's ownership of the Oyu Tolgoi mine is held
through a 66% interest in Oyu Tolgoi LLC. The remaining 34%
interest in Oyu Tolgoi LLC is held by Erdenes. Turquoise Hill is
obliged to fund Erdenes' share of the capital costs under the
ARSHA.
Underground construction recommenced in May 2016 when Oyu Tolgoi LLC received the final
requirement for the re-start of underground development: formal
notice to proceed approval by the boards of Turquoise Hill, Rio
Tinto (as project manager) and Oyu Tolgoi LLC. Approval followed
the signing of the Oyu Tolgoi Underground Mine Development and
Financing Plan (Underground Plan) in May
2015 and the signing of a $4.4
billion project finance facility in December 2015. Development had been suspended in
August 2013 pending resolution of
matters with the Government of Mongolia.
Turquoise Hill's investment in the Oyu Tolgoi mine is governed
by a 2009 Investment Agreement (Investment Agreement). The
Investment Agreement framework was authorised by the Mongolian
Parliament and was concluded after 16 months of negotiations. It
was reviewed by numerous constituencies within the
Government. Turquoise Hill has been operating in good faith
under the terms of the Investment Agreement since 2009, and we
believe not only that it is a valid and binding agreement, but that
it has proven to be beneficial for all parties.
Adherence to the principles of the Investment Agreement, the
ARSHA and the Underground Plan has allowed for the development of
the Oyu Tolgoi mine in a manner that has given rise to significant
long-term benefits to Mongolia.
Benefits from the Oyu Tolgoi mine open-pit operations and
underground development include, but are not limited to,
employment, royalties and taxes, local procurement, economic
development and sustainability investments.
Oyu Tolgoi mine power supply
Oyu Tolgoi LLC currently sources power for the Oyu Tolgoi mine
from China's Inner Mongolian
Western Grid, via overhead power line, pursuant to back-to-back
power purchase arrangements with National Power Transmission Grid
JSC (NPTG), the power importing entity, and Inner Mongolia Power
International Cooperation Co., Ltd (IMPIC).
Oyu Tolgoi LLC is obliged under the 2009 Oyu Tolgoi Investment
Agreement to secure a long-term domestic source of power for the
Oyu Tolgoi mine. The Power Source Framework Agreement (PSFA)
entered into between Oyu Tolgoi LLC and the Government of
Mongolia on December 31, 2018 provides a binding framework
and pathway for the construction of an Oyu Tolgoi LLC-led, Tavan
Tolgoi-based power plant (TTPP), as well as potentially alternative
power solutions, to supply the Oyu Tolgoi mine. The PSFA
contemplates that TTPP would be majority-owned by Oyu Tolgoi LLC
and situated close to the Tavan Tolgoi coal mining district located
approximately 150 kilometres from the Oyu Tolgoi mine.
On February 14, 2020, Oyu Tolgoi
LLC submitted a TTPP Feasibility Study to the Government of
Mongolia pursuant to the PSFA. The
TTPP Feasibility Study contemplates a 300 MW coal fired power plant
and related infrastructure, including a 55-kilometre water pipeline
and a 126-kilometre overhead power line. The estimated project cost
for TTPP is $924 million, which is based on the results of a
competitive tender process for a "turnkey" Engineering, Procurement
and Construction (EPC) contract as well as certain assumptions for
other costs that are not yet finalised (including government fees,
licences and reimbursements). As contemplated by the PSFA, the TTPP
Feasibility Study assumes that power for the Oyu Tolgoi mine
supplied from TTPP would be supplemented by a back-up power
arrangement to be agreed with IMPIC, until back-up power can be
provided within Mongolia.
On February 14, 2020, Oyu Tolgoi
LLC also issued to the Government of Mongolia a Notice of Contingency under Clause
7.4(a) (ii) of the PSFA, which initiated a prescribed "contingency
process" with respect to TTPP and the alternative power options
listed in the agreement. The first phase of the contingency process
concluded on April 14, 2020 without
Oyu Tolgoi LLC and the Government of Mongolia reaching agreement on a basis for
which TTPP could proceed. In the second phase of the
contingency process, which commenced immediately thereafter and
will conclude on June 14, 2020, the
parties are required to progress the alternative power supply
options listed in Clause 7.4(b) of the PSFA, which comprise an Oyu
Tolgoi mine-based power plant, a Mongolian grid solution and a
primary renewables solution.
On April 14, 2020, the Minister of
Energy notified Oyu Tolgoi LLC of the Government's decision to
develop and fund a State-Owned Power Plant to be located at the
Tavan Tolgoi coal fields (SOPP), which would supply power to the
Oyu Tolgoi mine and potentially other regional mines. Oyu Tolgoi
LLC has indicated to the Government of Mongolia its willingness to support SOPP,
subject to certain conditions being satisfied and clarifications
being provided. Oyu Tolgoi LLC is currently in discussions with the
Government of Mongolia concerning
the SOPP concept and, in particular, is seeking confirmation that
SOPP may be considered as part of the second contingency phase
under the PSFA. Moreover, Oyu Tolgoi is seeking clarification from
the Government of Mongolia with
respect to the commercial terms of power supply, development
process, proposed sources of financing and expected timing of SOPP
completion.
The terms of the PSFA provide, among other things, that if
agreement cannot be reached between Oyu Tolgoi LLC and the
Government of Mongolia on an
alternative power solution (as specified in Clause 7.4(b)) by
June 14, 2020, then Oyu Tolgoi LLC is
thereafter entitled to select and implement one of these
alternative options.
Oyu Tolgoi LLC's existing project finance documentation permits,
subject to certain conditions being met, an increase of Oyu Tolgoi
LLC's senior debt cap in connection with the development of an
"expansion facility", which would include TTPP.
Oyu Tolgoi tax assessment
On January 16, 2018, Turquoise
Hill announced that Oyu Tolgoi LLC had received and was evaluating
a tax assessment for approximately $155
million (which was converted from Mongolian Tugrik to U.S.
dollars at the exchange rate on that date) from the Mongolian Tax
Authority (MTA) relating to an audit on taxes imposed and paid by
Oyu Tolgoi LLC between 2013 and 2015. In January 2018, Oyu Tolgoi LLC paid an amount of
approximately $4.8 million to settle
unpaid taxes, fines and penalties for accepted items.
On February 20, 2020, the Company
announced that Oyu Tolgoi LLC will be proceeding with the
initiation of a formal international arbitration proceeding in
accordance with dispute resolution provisions within Chapter 14 of
the Investment Agreement entered into with the Government of
Mongolia in 2009 and Chapter 8 of
the Oyu Tolgoi Underground Mine Development and Financing Plan
entered into with the Government of Mongolia in 2015. The dispute resolution
provisions call for arbitration under the United Nations Commission
on International Trade Law (UNCITRAL) seated in London before a panel of three
arbitrators.
By agreeing to resolve the dispute under UNCITRAL Arbitration
Rules, both parties have agreed that the arbitral award shall be
final and binding on both parties and the parties shall carry out
the award without delay.
The Company remains of the opinion that Oyu Tolgoi LLC has now
paid all taxes and charges required under the Investment Agreement,
the ARSHA, the Underground Plan and Mongolian law.
Mongolian parliamentary working group
In March 2018, the Speaker of the
Mongolian Parliament appointed a Parliamentary Working Group
(Working Group) that consisted of 13 Members of Parliament to
review the implementation of the Investment Agreement. The Working
Group established five sub-working groups consisting of
representatives from government ministries, agencies, political
parties, non-governmental organizations and professors, to help and
support the Working Group. The Working Group was initially expected
to report to the Parliament before the end of spring session in
late June 2018.
On December 13, 2018, Oyu Tolgoi
LLC received a letter from the head of the Working Group confirming
that the consolidated report, conclusions and recommendations of
the Working Group had been finalised and was ready to be presented
to the Parliament.
On March 22, 2019, the
Parliamentary press office announced that the Working Group report
had been submitted to the National Security Council (President,
Prime Minister and Speaker of the Parliament). On May 3, 2019, a summary of the Working Group
report was received by Oyu Tolgoi LLC. On May 6, 2019, Oyu Tolgoi LLC provided the Economic
Standing Committee of the Parliament a written response to the
summary of the Working Group report.
As an outcome of the hearing, a new working group of nine
Members of Parliament was established to take the Working Group
Report and draft resolutions directing the Cabinet on
recommendations related to Oyu Tolgoi LLC.
Upon completion of the Working Group review and its report, a
resolution was submitted to the Economic Standing Committee, and
subsequently passed in a plenary session of the Parliament of
Mongolia on November 21, 2019. Resolution 92 was published on
December 6, 2019 and includes
resolutions to take comprehensive measures to improve the
implementation of the Investment Agreement and the ARSHA, to
improve the Underground Plan and to explore and resolve options to
have a product sharing arrangement or swap Mongolia's equity holding of 34 per cent for a
special royalty. Representatives from Turquoise Hill and Rio Tinto
are currently engaged with the Government of Mongolia to work together and resolve the
issues raised in the Resolution.
Anti-Corruption Authority information requests
On March 13, 2018, we announced
that Oyu Tolgoi LLC received information requests from the
Mongolian Anti-Corruption Authority (ACA) for information relating
to Oyu Tolgoi LLC. The ACA has also conducted interviews with
representatives of Oyu Tolgoi LLC in connection with its
investigation. Turquoise Hill has inquired as to the status of
the investigation and Oyu Tolgoi LLC has informed the Company that
the investigation appears to relate primarily to possible abuses of
power by certain former Government officials in relation to the
Investment Agreement, and that Oyu Tolgoi LLC is complying with the
ACA's requests in accordance with relevant laws. To date, neither
Turquoise Hill nor Oyu Tolgoi LLC have received notice from the
ACA, or indeed from any regulator, that either company or their
employees are subjects of any investigation involving the Oyu
Tolgoi project.
The Investment Agreement framework was authorised by the
Mongolian Parliament, concluded after 16 months of negotiations and
reviewed by numerous constituencies within the
Government. Turquoise Hill has been operating in good faith
under the terms of the Investment Agreement since 2009, and we
believe not only that it is a valid and binding agreement, but that
it has proven to be beneficial for all parties.
Adherence to the principles of the Investment Agreement, ARSHA
and Underground Plan has allowed for the development of the Oyu
Tolgoi mine in a manner that has given rise to significant
long-term benefits to Mongolia.
Benefits from the Oyu Tolgoi open-pit operations and underground
development include, but are not limited to, employment, royalties
and taxes, local procurement, economic development and
sustainability investments.
CORPORATE ACTIVITIES
Board appointment
On January 21, 2020, Turquoise
Hill announced the appointment of George R.
Burns to the Company's Board of Directors as an independent
director.
US trading price non-compliance
On July 31, 2019, the Company
received an automatic notice from the NYSE advising that the
average closing price of the Common Shares had fallen below
US$1.00 for 30 consecutive trading
days and that, as a result, the Common Shares no longer met the
minimum US$1.00 average closing price
requirement. Under the NYSE rules, a company that fails to meet
this continued listing requirement must bring its share price and
average closing price above US$1.00
by the end of the six-month period following receipt of the NYSE's
notification. However, where a company has notified the NYSE that
it intends to cure its minimum price deficiency by a corporate
transaction requiring approval of its shareholders, it must obtain
shareholder approval by no later than its next annual meeting and
implement the transaction promptly thereafter, in which case the
minimum price deficiency will be deemed to be cured if the share
price promptly exceeds US$1.00 and
the price remains above that level for at least the following 30
consecutive trading days.
On August 28, 2019, the Company
received an automatic notice from the NASDAQ advising that the
minimum bid price of the Common Shares had fallen below
US$1.00 for 30 consecutive trading
days and that, as a result, the Common Shares no longer met the
minimum US$1.00 bid price
requirement. Under the Listing Rules of the NASDAQ, the Company had
180 calendar days to regain compliance.
On November 12, 2019, the Company
announced that it expected to seek approval from shareholders at
the Meeting for a consolidation of its outstanding Common Shares.
The announcement stated that the expected consolidation was
intended to cure the share price non-compliance under the continued
listing rules of both the NYSE and the NASDAQ.
On February 14, 2020, the Company
announced that it had provided written notice to NASDAQ regarding
its intention to voluntarily delist from the NASDAQ. Given that
trading on the NASDAQ represented only approximately 5% of the
worldwide trading volume of the Common Shares in 2019, the Company
believes that the NYSE and the TSX listings provide investors with
sufficient liquidity. In addition, delisting from the NASDAQ will
reduce the Company's administrative costs. The NASDAQ delisting
became effective on March 5, 2020.
The Company's common shares will continue to trade on the NYSE
and the TSX now that the NASDAQ delisting has become effective. The
delisting did not affect the Company's continuing obligation to
file required reports with the U.S. Securities and Exchange
Commission ("SEC") and Canadian securities regulatory authorities.
The Company will comply with, and continue to be subject to, the
laws of the Yukon, the
jurisdiction in which the Company is incorporated, as well as
applicable U.S. and Canadian securities laws and corporate
governance rules applicable to Canadian publicly listed companies,
including the rules of the NYSE and the TSX.
In its proxy management circular dated March 18, 2020 (the Circular), which is available
on the Company's SEDAR profile at www.sedar.com, the Company
informed its shareholders that they will be asked to consider and,
if deemed appropriate, adopt a special resolution authorizing the
Company's board of directors to implement a consolidation of the
Company's issued and outstanding common shares into a lesser number
of common shares. If the special resolution is approved, the board
of directors of the Company will have the authority, in its sole
discretion, to select the exact share consolidation ratio, provided
that (i) the ratio may be no smaller than one post-consolidation
share for every five pre-consolidation shares and no larger than
one post-consolidation share for every thirty pre-consolidation
shares, and (ii) the number of pre-consolidation shares in the
ratio must be a whole number of common shares. Approval of the
special resolution by shareholders would give the board of
directors authority and discretion to implement the share
consolidation at any time prior to May 11,
2021.
Pentwater Capital Management LP dissident circular
In connection with the annual and special meeting of the
Company's shareholders originally scheduled for May 12, 2020, Pentwater Capital Management LP
(Pentwater) filed a dissident circular on the Company's SEDAR page,
requesting shareholders (i) elect its nominee, Matthew Halbower, Chief Executive Officer of
Pentwater, to the board of directors of the Company, and (ii) vote
to adopt its shareholder proposal to amend the Company's articles
to provide minority shareholders with the exclusive right to
nominate and elect three of seven of the Company's board members.
The Company responded to Pentwater on April
6, 2020, encouraging its shareholders to vote against
Pentwater's proposed board of directors nominee, and to withhold
their vote on Pentwater's proposed amendment to the Company's
articles.
Postponement of annual general and special meeting of
shareholders
As announced on April 27, 2020,
due to public health measures and restrictions on gatherings
enacted by both the Federal and Provincial governments in
Canada in response to the ongoing
COVID-19 pandemic, and to help protect the health and well-being of
its shareholders, colleagues, communities and other stakeholders,
the Company decided to postpone the annual general and special
meeting of its shareholders originally scheduled for May 12, 2020 to a later date.
NON-GAAP MEASURES
The Company presents and refers to the following non-GAAP
measures, which are not defined in IFRS. A description and
calculation of each measure is given below and may differ from
similarly named measures provided by other issuers. These measures
are presented in order to provide investors and other stakeholders
with additional understanding of performance and operations at the
Oyu Tolgoi mine and are not intended to be used in isolation from,
or as a replacement for, measures prepared in accordance with
IFRS.
Operating cash costs
The measure of operating cash costs excludes: depreciation and
depletion; exploration and evaluation; charges for asset write-down
(including write-down of materials and supplies inventory) and
includes management services payments to Rio Tinto and management
services payments to Turquoise Hill which are eliminated in the
consolidated financial statements of the Company.
C1 cash costs
C1 cash costs is a metric representing the cash cost per unit of
extracting and processing the Company's principal metal product,
copper, to a condition in which it may be delivered to customers
net of gold and silver credits from concentrates sold. This metric
is provided in order to support peer group comparability and to
provide investors and other stakeholders with additional
information about the underlying cash costs of Oyu Tolgoi LLC and
the impact of gold and silver credits on the operations' cost
structure. C1 cash costs are relevant to understanding the
Company's operating profitability and ability to generate cash
flow. When calculating costs associated with producing a pound of
copper, the Company deducts gold and silver revenue credits as the
production cost is reduced by selling these products.
All-in sustaining costs
All-in sustaining costs (AISC) is an extended cash-based cost
metric providing further information on the aggregate cash, capital
and overhead outlay per unit and is intended to reflect the costs
of producing the Company's principal metal product, copper, in both
the short term and over the life-cycle of its operations. As a
result, sustaining capital expenditure on a cash basis is included
rather than depreciation. As the measure seeks to present a full
cost of copper production associated with sustaining current
operations, development project capital is not included. AISC
allows Turquoise Hill to assess the ability of Oyu Tolgoi LLC to
support sustaining capital expenditures for future production from
the generation of operating cash flows.
A reconciliation of total operating cash costs, C1 cash costs
and all-in sustaining costs is provided below.
|
|
|
|
|
|
|
(Three Months
Ended)
|
|
(Year
Ended)
|
C1 costs
(Stated in $000's of dollars)
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
December 31,
2019
|
Cost of
sales
|
|
145,924
|
|
175,007
|
|
169,134
|
|
742,985
|
Cost of sales:
$/lb of copper sold
|
|
2.57
|
|
2.46
|
|
1.99
|
|
2.25
|
Depreciation and
depletion
|
|
(34,966)
|
|
(49,800)
|
|
(44,629)
|
|
(183,919)
|
Provision against
carrying value of copper-gold concentrate
|
|
(6,254)
|
|
(40)
|
|
1,447
|
|
-
|
Change in
inventory
|
|
32,149
|
|
11,618
|
|
6,432
|
|
(31,093)
|
Other operating
expenses
|
|
44,911
|
|
52,415
|
|
70,346
|
|
221,493
|
Less:
|
|
|
|
|
|
|
|
|
- Inventory
(write-down) reversal
|
|
1,164
|
|
396
|
|
(12,558)
|
|
2,161
|
-
Depreciation
|
|
(1,953)
|
|
(2,129)
|
|
(310)
|
|
(8,133)
|
Management services
payment to Turquoise Hill
|
|
7,082
|
|
7,177
|
|
8,190
|
|
31,041
|
Operating cash
costs
|
|
188,057
|
|
194,644
|
|
198,052
|
|
774,535
|
Operating cash
costs: $/lb of copper produced
|
|
2.42
|
|
2.68
|
|
1.96
|
|
2.40
|
Adjustments to
operating cash costs
|
|
6,081
|
|
8,728
|
|
8,954
|
|
44,337
|
|
|
|
|
|
|
|
|
|
Less: Gold and silver
revenues
|
|
(33,825)
|
|
(43,298)
|
|
(128,798)
|
|
(378,204)
|
C1 costs
($'000)
|
|
160,313
|
|
160,074
|
|
78,208
|
|
440,668
|
C1 costs: $/lb of
copper produced
|
|
2.07
|
|
2.21
|
|
0.77
|
|
1.37
|
|
|
|
|
|
|
|
|
|
All-in
sustaining costs (Stated in $000's of dollars)
|
|
|
|
|
|
|
|
|
Corporate
administration
|
|
4,717
|
|
9,500
|
|
4,544
|
|
23,443
|
Asset retirement
expense
|
|
1,429
|
|
(99)
|
|
1,741
|
|
6,064
|
Royalty
expenses
|
|
10,239
|
|
12,453
|
|
19,739
|
|
64,048
|
Ore stockpile and
stores write-down (reversal)
|
|
(1,164)
|
|
(396)
|
|
12,558
|
|
(2,161)
|
Other
expenses
|
|
468
|
|
4,921
|
|
(437)
|
|
5,984
|
Sustaining cash
capital including deferred stripping
|
|
9,549
|
|
28,969
|
|
30,453
|
|
133,342
|
All-in sustaining
costs ($'000)
|
|
185,551
|
|
215,422
|
|
146,806
|
|
671,388
|
All-in sustaining
costs: $/lb of copper produced
|
|
2.39
|
|
2.97
|
|
1.45
|
|
2.08
|
|
|
(1)
|
Adjustments to
operating cash costs include: treatment, refining and freight
differential charges less the 5% Government of Mongolia royalty and
other expenses not applicable to the definition of C1
cost.
|
Mining costs and milling
costs
Mining costs and milling costs are included within operating
cash costs. Mining costs per tonne of material mined in Q1'20 are
calculated by reference to total mining costs of $46.5 million (Q1'19: $50.1 million) and total material mined of 26.8
million tonnes (Q1'19: 23.9 million tonnes).
Milling costs per tonne of ore treated in Q1'20 are calculated
by reference to total milling costs of $60.8
million (Q1'19: $75.0 million)
and total ore treated of 10.9 million tonnes (Q1'19: 9.3 million
tonnes).
Working capital
Consolidated working capital comprises those components of
current assets and liabilities which support and result from the
Company's ongoing running of its current operations. It is provided
in order to give a quantifiable indication of the Company's
short-term cash generation ability and business efficiency. As a
measure linked to current operations and the sustainability of the
business, the Company's definition of working capital excludes:
non-trade receivables and payables; financing items; cash and cash
equivalents; deferred revenue and non-current inventory.
A reconciliation of consolidated working capital to the
financial statements and notes is provided below.
Working
capital
|
|
March
31,
|
|
December
31,
|
(Stated in $000's of
dollars)
|
|
2020
|
|
2019
|
|
|
|
|
|
Inventories
(current)
|
|
$
|
211,305
|
|
$
|
175,719
|
Trade and other
receivables
|
|
16,325
|
|
27,047
|
Trade and other
payables:
|
|
|
|
|
- trade payables and
accrued liabilities
|
|
(373,163)
|
|
(389,476)
|
- payable to related
parties
|
|
(82,910)
|
|
(65,903)
|
Consolidated working
capital
|
|
$
|
(228,443)
|
|
$
|
(252,613)
|
Contractual obligations
The following section of this press release discloses
contractual obligations in relation to the Company's lease,
purchase, power and asset retirement obligations. Amounts relating
to these obligations are calculated on the basis of the Company
carrying out its future business activities and operations as
planned at the period end. As such, contractual obligations
presented in this press release and in the Company's Q1 2020
MD&A will differ from amounts presented in the financial
statements, which are prepared on the basis of minimum
uncancellable commitments to pay in the event of contract
termination. The presentation of contractual obligations here and
in the Company's Q1 2020 MD&A are provided in order to give an
indication of future expenditure, for the disclosed categories,
arising from the Company's continuing operations and development
projects.
A reconciliation of contractual obligations at March 31, 2020 to the financial statements and
notes is provided below.
(Stated in $000's of
dollars)
|
Project
Finance
Facility
|
Purchase
obligations
|
Power
commitments
|
Lease
liabilities
|
Decommissioning
obligations
|
|
|
|
|
|
|
Commitments
(MD&A)
|
$
|
4,348,918
|
$
|
660,360
|
$
|
410,203
|
$
|
19,583
|
$
|
213,436
|
Cancellable
obligations
|
|
(501,983)
|
(188,379)
|
-
|
-
|
(net of exit
costs)
|
|
|
|
|
|
Accrued capital
expenditure
|
|
(117,824)
|
-
|
-
|
-
|
Discounting and other
adjustments
|
(152,714)
|
-
|
-
|
(166)
|
(108,285)
|
Financial
statement amount
|
$
|
4,196,204
|
$
|
40,553
|
$
|
221,824
|
$
|
19,417
|
$
|
105,151
|
QUALIFIED PERSON
Disclosure of information of a scientific or technical nature in
this press release and in the Company's Q1 2020 MD&A in respect
of the Oyu Tolgoi mine was approved by Jo-Anne Dudley (FAusIMM(CP)), Chief Operating
Officer of the Company. Jo-Anne
Dudley is a "qualified person" as that term is defined in
National Instrument 43-101 - Standards of Disclosure for Mineral
Projects ("NI 43-101").
SELECTED QUARTERLY DATA
The Company's interim financial statements are reported under
IFRS applicable to interim financial statements, including
International Accounting Standard (IAS) 34 Interim Financial
Reporting.
($ in millions,
except per share information)
|
|
Quarter
Ended
|
|
|
Mar-31
|
Dec-31
|
Sep-30
|
Jun-30
|
|
|
2020
|
2019
|
2019
|
2019
|
|
|
|
|
|
|
Revenue
|
|
$
|
130.7
|
$
|
221.4
|
$
|
209.2
|
$
|
382.7
|
|
|
|
|
|
|
Income (loss) for the
period
|
|
$
|
19.0
|
$
|
109.5
|
$
|
45.1
|
$
|
(736.7)
|
|
|
|
|
|
|
Income (loss)
attributable to owners of Turquoise Hill
|
|
$
|
55.4
|
$
|
113.1
|
$
|
71.7
|
$
|
(446.5)
|
|
|
|
|
|
|
Basic and diluted
income (loss) per share attributable to owners of Turquoise
Hill
|
|
$
|
0.03
|
$
|
0.06
|
$
|
0.04
|
$
|
(0.22)
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended
|
|
|
Mar-31
|
Dec-31
|
Sep-30
|
Jun-30
|
|
|
2019
|
2018
|
2018
|
2018
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
352.7
|
$
|
346.2
|
$
|
246.5
|
$
|
341.7
|
|
|
|
|
|
|
Income for the
period
|
|
$
|
105.2
|
$
|
95.0
|
$
|
15.2
|
$
|
204.4
|
|
|
|
|
|
|
Income attributable
to owners of Turquoise Hill
|
|
$
|
111.2
|
$
|
101.0
|
$
|
53.2
|
$
|
171.3
|
|
|
|
|
|
|
Basic and diluted
income per share attributable to owners of Turquoise
Hill
|
|
$
|
0.06
|
$
|
0.05
|
$
|
0.03
|
$
|
0.09
|
Consolidated
Statements of Income (Loss)
|
(Stated in
thousands of U.S. dollars)
|
(Unaudited)
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Revenue
|
4
|
|
$
|
130,659
|
|
$
|
352,680
|
Cost of
sales
|
5
|
|
(145,924)
|
|
(169,134)
|
Gross
margin
|
|
|
(15,265)
|
|
183,546
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
6
|
|
(44,911)
|
|
(70,346)
|
Corporate
administration expenses
|
|
|
(4,717)
|
|
(4,544)
|
Other
income
|
|
|
3,218
|
|
1,243
|
Income (loss)
before finance items and taxes
|
|
|
(61,675)
|
|
109,899
|
|
|
|
|
|
|
|
|
|
Finance
items
|
|
|
|
|
|
Finance
income
|
7
|
|
11,412
|
|
32,829
|
Finance
costs
|
7
|
|
(1,809)
|
|
(2,018)
|
|
|
|
|
|
|
9,603
|
|
30,811
|
Income (loss) from
operations before taxes
|
|
|
$
|
(52,072)
|
|
$
|
140,710
|
|
|
|
|
|
|
|
|
|
Income and other
taxes
|
|
|
71,028
|
|
(35,510)
|
Income for the
period
|
|
|
$
|
18,956
|
|
$
|
105,200
|
|
|
|
|
|
|
|
|
|
Attributable to owners
of Turquoise Hill Resources Ltd.
|
|
|
55,405
|
|
111,237
|
Attributable to owner
of non-controlling interest
|
|
|
(36,449)
|
|
(6,037)
|
Income for the
period
|
|
|
$
|
18,956
|
|
$
|
105,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings per share attributable
|
|
|
|
|
|
|
|
to Turquoise Hill
Resources Ltd.
|
|
|
$
|
0.03
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
Basic and diluted
weighted average number of shares outstanding (000's)
|
|
|
|
2,012,314
|
|
|
2,012,314
|
|
The notes to the
Company's financial statements, which are available on the
Company's website, are part of its consolidated financial
statements.
|
Consolidated
Statements of Comprehensive Income
|
(Stated in
thousands of U.S. dollars)
|
(Unaudited)
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Income for the
period
|
|
$
|
18,956
|
|
$
|
105,200
|
|
|
|
|
|
|
|
|
Other
comprehensive loss:
|
|
|
|
|
Items that will not
be reclassified to income:
|
|
|
|
|
Changes in the fair
value of marketable securities at FVOCI
|
|
(1,375)
|
|
(535)
|
Other
comprehensive loss for the period (a)
|
|
$
|
(1,375)
|
|
$
|
(535)
|
|
|
|
|
|
|
|
|
Total
comprehensive income for the period
|
|
$
|
17,581
|
|
$
|
104,665
|
|
|
|
|
|
|
|
|
Attributable to owners
of Turquoise Hill
|
|
54,030
|
|
110,702
|
Attributable to owner
of non-controlling interest
|
|
(36,449)
|
|
(6,037)
|
Total
comprehensive income for the period
|
|
$
|
17,581
|
|
$
|
104,665
|
(a) No tax charges
and credits arose on items recognized as other comprehensive income
or loss in 2020 (2019: nil).
|
|
The notes to the
Company's financial statements, which are available on the
Company's website, are part of its consolidated financial
statements.
|
Consolidated
Statements of Cash Flows
|
(Stated in
thousands of U.S. dollars)
|
(Unaudited)
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Cash generated
from operating activities before interest and tax
|
16
|
|
$
|
1,495
|
|
$
|
49,838
|
|
|
|
|
|
|
|
|
|
Interest
received
|
|
|
11,831
|
|
23,757
|
Interest
paid
|
|
|
(26,822)
|
|
(78,574)
|
Income and other
taxes paid
|
|
|
(10,951)
|
|
(710)
|
Net cash used in
operating activities
|
|
|
$
|
(24,447)
|
|
$
|
(5,689)
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
|
|
Receivable from
related party: amounts withdrawn
|
17
|
|
307,000
|
|
275,000
|
Expenditures on
property, plant and equipment
|
|
|
(301,096)
|
|
(325,294)
|
Other investing cash
flows
|
|
|
63
|
|
-
|
Cash generated
from (used in) investing activities
|
|
|
$
|
5,967
|
|
$
|
(50,294)
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
|
|
Payment of lease
liability
|
|
|
(1,907)
|
|
(2,408)
|
Cash used in
financing activities
|
|
|
$
|
(1,907)
|
|
$
|
(2,408)
|
|
|
|
|
|
|
|
|
|
Effects of exchange
rates on cash and cash equivalents
|
|
|
16
|
|
119
|
Net decrease in
cash and cash equivalents
|
|
|
$
|
(20,371)
|
|
$
|
(58,272)
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents - beginning of period
|
|
|
$
|
1,651,985
|
|
$
|
1,603,067
|
Cash and cash
equivalents - end of period
|
|
|
1,631,614
|
|
1,544,795
|
Cash and cash
equivalents as presented on the balance sheets
|
|
|
$
|
1,631,614
|
|
$
|
1,544,795
|
|
The notes to the
Company's financial statements, which are available on the
Company's website, are part of its consolidated financial
statements.
|
Consolidated
Balance Sheets
|
(Stated in
thousands of U.S. dollars)
|
(Unaudited)
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
|
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents
|
8
|
|
$
|
1,631,614
|
|
$
|
1,651,985
|
Inventories
|
9
|
|
211,305
|
|
175,719
|
Trade and other
receivables
|
|
|
16,325
|
|
27,047
|
Prepaid expenses and
other assets
|
|
|
106,695
|
|
99,671
|
Receivable from
related party
|
17
|
|
204,284
|
|
511,284
|
|
|
|
|
|
|
2,170,223
|
|
2,465,706
|
Non-current
assets
|
|
|
|
|
|
Property, plant and
equipment
|
10
|
|
10,090,069
|
|
9,782,647
|
Inventories
|
9
|
|
28,793
|
|
28,985
|
Deferred income tax
assets
|
13
|
|
616,118
|
|
534,078
|
Other financial
assets
|
|
|
10,033
|
|
10,978
|
|
|
|
|
|
|
10,745,013
|
|
10,356,688
|
Total
assets
|
|
|
$
|
12,915,236
|
|
$
|
12,822,394
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
12
|
|
$
|
24,962
|
|
$
|
26,547
|
Trade and other
payables
|
11
|
|
523,303
|
|
466,206
|
Deferred
revenue
|
|
|
34,482
|
|
27,896
|
|
|
|
|
|
|
582,747
|
|
520,649
|
Non-current
liabilities
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
12
|
|
4,190,659
|
|
4,187,270
|
Deferred income tax
liabilities
|
13
|
|
87,746
|
|
79,180
|
Decommissioning
obligations
|
14
|
|
105,151
|
|
104,238
|
|
|
|
|
|
|
4,383,556
|
|
4,370,688
|
Total
liabilities
|
|
|
$
|
4,966,303
|
|
$
|
4,891,337
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Share
capital
|
|
|
$
|
11,432,122
|
|
$
|
11,432,122
|
Contributed
surplus
|
|
|
1,559,106
|
|
1,558,811
|
Accumulated other
comprehensive loss
|
|
|
(2,188)
|
|
(813)
|
Deficit
|
|
|
|
(3,766,484)
|
|
(3,821,889)
|
Equity
attributable to owners of Turquoise Hill
|
|
|
9,222,556
|
|
9,168,231
|
Attributable to
non-controlling interest
|
15
|
|
(1,273,623)
|
|
(1,237,174)
|
Total
equity
|
|
|
$
|
7,948,933
|
|
$
|
7,931,057
|
|
|
|
|
|
|
|
|
|
Total liabilities
and equity
|
|
|
$
|
12,915,236
|
|
$
|
12,822,394
|
|
The notes to the
Company's financial statements, which are available on the
Company's website, are part of its consolidated financial
statements.
|
Consolidated
Statements of Equity
|
(Stated in
thousands of U.S. dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
Attributable to
owners of Turquoise Hill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
Non-controlling
|
|
|
|
|
|
|
|
Contributed
|
|
comprehensive
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Share
capital
|
|
surplus
|
|
loss
|
|
Deficit
|
|
Total
|
|
(Note 15)
|
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
balance
|
|
$
|
11,432,122
|
|
$
|
1,558,811
|
|
$
|
(813)
|
|
$
|
(3,821,889)
|
|
$
|
9,168,231
|
|
$
|
(1,237,174)
|
|
$
|
7,931,057
|
Income for the
period
|
|
-
|
|
-
|
|
-
|
|
55,405
|
|
55,405
|
|
(36,449)
|
|
18,956
|
Other comprehensive
loss for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
|
|
-
|
|
-
|
|
(1,375)
|
|
-
|
|
(1,375)
|
|
-
|
|
(1,375)
|
Employee share
plans
|
|
-
|
|
295
|
|
-
|
|
-
|
|
295
|
|
-
|
|
295
|
Closing
balance
|
|
$
|
11,432,122
|
|
$
|
1,559,106
|
|
$
|
(2,188)
|
|
$
|
(3,766,484)
|
|
$
|
9,222,556
|
|
$
|
(1,273,623)
|
|
$
|
7,948,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2019
|
|
Attributable to
owners of Turquoise Hill
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
Non-controlling
|
|
|
|
|
|
|
|
Contributed
|
|
comprehensive
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Share
capital
|
|
surplus
|
|
income
(loss)
|
|
Deficit
|
|
Total
|
|
(Note 15)
|
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
balance
|
|
$
|
11,432,122
|
|
$
|
1,558,264
|
|
$
|
844
|
|
$
|
(3,670,310)
|
|
$
|
9,320,920
|
|
$
|
(910,135)
|
|
$
|
8,410,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of change in
accounting policy
|
|
-
|
|
-
|
|
-
|
|
(1,342)
|
|
(1,342)
|
|
(691)
|
|
(2,033)
|
Restated opening
balance
|
|
$
|
11,432,122
|
|
$
|
1,558,264
|
|
$
|
844
|
|
$
|
(3,671,652)
|
|
$
|
9,319,578
|
|
$
|
(910,826)
|
|
$
|
8,408,752
|
Income for the
period
|
|
-
|
|
-
|
|
-
|
|
111,237
|
|
111,237
|
|
(6,037)
|
|
105,200
|
Other comprehensive
loss for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
|
|
-
|
|
-
|
|
(535)
|
|
-
|
|
(535)
|
|
-
|
|
(535)
|
Employee share
plans
|
|
-
|
|
150
|
|
-
|
|
-
|
|
150
|
|
-
|
|
150
|
Closing
balance
|
|
$
|
11,432,122
|
|
$
|
1,558,414
|
|
$
|
309
|
|
$
|
(3,560,415)
|
|
$
|
9,430,430
|
|
$
|
(916,863)
|
|
$
|
8,513,567
|
|
The notes to the
Company's financial statements, which are available on the
Company's website, are part of its consolidated financial
statements.
|
About Turquoise Hill Resources
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.
Turquoise Hill's ownership of the Oyu Tolgoi mine is held through a
66% interest in Oyu Tolgoi LLC (Oyu Tolgoi); Erdenes Oyu Tolgoi LLC
(Erdenes), a Mongolian state-owned entity, holds the remaining 34%
interest.
Forward-looking statements and forward-looking
information
Certain statements made herein, including statements relating to
matters that are not historical facts and statements of the
Company's beliefs, intentions and expectations about developments,
results and events which will or may occur in the future,
constitute "forward-looking information" within the meaning of
applicable Canadian securities legislation and "forward-looking
statements" within the meaning of the "safe harbor" provisions of
the United States Private Securities Litigation Reform Act of 1995.
Forward-looking statements and information relate to future events
or future performance, reflect current expectations or beliefs
regarding future events and are typically identified by words such
as "anticipate", "could", "should", "expect", "seek", "may",
"intend", "likely", "plan", "estimate", "will", "believe" and
similar expressions suggesting future outcomes or statements
regarding an outlook. These include, but are not limited to,
information regarding the timing and amount of production and
potential production delays, statements in respect of the impacts
of any delays on the Company's cash flows, expected copper and gold
grades, liquidity, funding requirements and planning, statements
regarding timing and status of underground development, the mine
design for Panel 0 of Hugo North Lift 1 and the related cost and
production schedule implications, the re-design study for Panels 1
and 2 of Hugo North Lift 1, the expectations set out in the Tavan
Tolgoi Power Plant ("TTPP") Feasibility Study, the possible
progression of the TTPP and alternative power supply options to the
TTPP, the potential impact of COVID-19 on the Company's business,
operations and financial condition, capital and operating cost
estimates, timing of completion of the Definitive Estimate review,
mill and concentrator throughput, the outcome of formal
international arbitration proceedings, anticipated business
activities, planned expenditures, corporate strategies, and other
statements that are not historical facts.
Forward-looking statements and information are made based upon
certain assumptions and other important factors that, if untrue,
could cause the actual results, performance or achievements of the
Company to be materially different from future results, performance
or achievements expressed or implied by such statements or
information. There can be no assurance that such statements or
information will prove to be accurate. Such statements and
information are based on numerous assumptions regarding present and
future business strategies, local and global economic conditions,
and the environment in which the Company will operate in the
future, including the price of copper, gold and silver and
projected gold, copper and silver grades, anticipated capital and
operating costs, anticipated future production and cash flows, the
anticipated location of certain infrastructure in Hugo North Lift 1
and sequence of mining within and across panel boundaries, the
availability and timing of required governmental and other
approvals for the construction of the TTPP or alternative power
supply options to the TTPP, the status of the Company's
relationship and interaction with the Government of Mongolia on the continued operation and
development of Oyu Tolgoi and Oyu Tolgoi LLC internal
governance.
Certain important factors that could cause actual results,
performance or achievements to differ materially from those in the
forward-looking statements and information include, among others,
copper; gold and silver price volatility; discrepancies between
actual and estimated production, mineral reserves and resources and
metallurgical recoveries; development plans for processing
resources; the outcome of the Definitive Estimate review; public
health crises such as COVID-19; matters relating to proposed
exploration or expansion; mining operational and development risks,
including geotechnical risks and ground conditions; litigation
risks; regulatory restrictions (including environmental regulatory
restrictions and liability); Oyu Tolgoi LLC's ability to deliver a
domestic power source for the Oyu Tolgoi project within the
required contractual time frame; communications with local
stakeholders and community relations; activities, actions or
assessments, including tax assessments, by governmental
authorities; events or circumstances (including strikes, blockages
or similar events outside of the Company's control) that may affect
the Company's ability to deliver its products in a timely manner;
currency fluctuations; the speculative nature of mineral
exploration; the global economic climate; dilution; share price
volatility; competition; loss of key employees; cyber security
incidents; additional funding requirements, including in respect of
the development or construction of a long-term domestic power
supply for the Oyu Tolgoi project; capital and operating costs,
including with respect to the development of additional deposits
and processing facilities; and defective title to mineral claims or
property. Although the Company has attempted to identify important
factors that could cause actual actions, events or results to
differ materially from those described in forward-looking
statements and information, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or
intended. All such forward-looking statements and information are
based on certain assumptions and analyses made by the Company's
management in light of their experience and perception of
historical trends, current conditions and expected future
developments, as well as other factors management believes are
appropriate in the circumstances. These statements, however, are
subject to a variety of risks and uncertainties and other factors
that could cause actual events or results to differ materially from
those projected in the forward-looking statements or
information.
With respect to specific forward-looking information concerning
the continued operation and development of Oyu Tolgoi, the Company
has based its assumptions and analyses on certain factors which are
inherently uncertain. Uncertainties and assumptions include, among
others: the timing and cost of the construction and expansion of
mining and processing facilities; the timing and availability of a
long-term domestic power source (or the availability of financing
for the Company to construct such a source) for Oyu Tolgoi; the
ability to secure and draw down on the supplemental debt under the
Oyu Tolgoi project financing facility and the availability of
additional financing on terms reasonably acceptable to Oyu Tolgoi
LLC, Rio Tinto and the Company to further develop Oyu Tolgoi; the
potential impact of COVID-19; the impact of changes in, changes in
interpretation to or changes in enforcement of, laws, regulations
and government practices in Mongolia; the availability and cost of skilled
labour and transportation; the obtaining of (and the terms and
timing of obtaining) necessary environmental and other government
approvals, consents and permits; delays, and the costs which would
result from delays, in the development of the underground mine
(which could significantly exceed the costs projected in the 2016
Oyu Tolgoi Feasibility Study and the 2016 Oyu Tolgoi Technical
Report); projected copper, gold and silver prices and their market
demand; and production estimates and the anticipated yearly
production of copper, gold and silver at Oyu Tolgoi.
The cost, timing and complexities of mine construction and
development are increased by the remote location of a property such
as Oyu Tolgoi. It is common in mining operations and in the
development or expansion of existing facilities to experience
unexpected problems and delays during development, construction and
mine start-up. Additionally, although Oyu Tolgoi has achieved
commercial production, there is no assurance that future
development activities will result in profitable mining
operations.
Readers are cautioned not to place undue reliance on
forward-looking information or statements. By their nature,
forward-looking statements involve numerous assumptions, inherent
risks and uncertainties, both general and specific, which
contribute to the possibility that the predicted outcomes will not
occur. Events or circumstances could cause the Company's actual
results to differ materially from those estimated or projected and
expressed in, or implied by, these forward-looking statements.
Important factors that could cause actual results to differ from
these forward-looking statements are included in the "Risk Factors"
section in the Company's Annual Information Form dated as of
March 18, 2020 in respect of the year
ended December 31, 2019 (the AIF), as
supplemented by our Q1 2020 MD&A.
Readers are further cautioned that the list of factors
enumerated in the "Risk Factors" section of the AIF and in the
"Risks and Uncertainties" section of the Q1 2020 MD&A that may
affect future results is not exhaustive. When relying on the
Company's forward-looking statements and information to make
decisions with respect to the Company, investors and others should
carefully consider the foregoing factors and other uncertainties
and potential events. Furthermore, the forward-looking statements
and information contained herein are made as of the date of this
document and the Company does not undertake any obligation to
update or to revise any of the included forward-looking statements
or information, whether as a result of new information, future
events or otherwise, except as required by applicable law. The
forward-looking statements and information contained herein are
expressly qualified by this cautionary statement.
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SOURCE TURQUOISE HILL RESOURCES LTD