MONTREAL, July 28, 2020 /PRNewswire/ - Turquoise Hill
Resources Ltd. ("Turquoise Hill" or the "Company")
today announced its financial results for the period ended
June 30, 2020. All figures are in
U.S. dollars unless otherwise stated.
"Faced with the challenges of operating within the constraints
posed by the COVID-19 pandemic, the Oyu Tolgoi team posted
outstanding safety and production performance in the second quarter
of 2020. The open pit operations have continued uninterrupted, and
the underground development, while experiencing restrictions on
workforce numbers and the ability to repatriate specialists from
around the world, has continued to progress. The team's focus on
optimization initiatives has resulted in, among other things, an
increase to our 2020 gold production guidance.
We look forward to completing the 2020 Technical Report in the
third quarter. This report will provide shareholders with an
updated ramp-up schedule, which will highlight once again the
quality of the Oyu Tolgoi ore body and the value proposition for
investors. In addition, the updated data will greatly assist in our
on-going efforts to advance our long term funding strategy and
address our incremental liquidity requirements.
I'd like to thank the entire Turquoise Hill and Oyu Tolgoi
teams, who have come together in the face of the COVID-19 pandemic
to deliver yet another quarter of strong safety, production
and financial results," stated Ulf Quellmann, Chief Executive
Officer of Turquoise Hill.
HIGHLIGHTS
- Safety is our top priority. Oyu Tolgoi delivered a strong
safety performance as evidenced by an AIFR of 0.22 per 200,000
hours worked for the six months ended June
30, 2020.
- Despite the unprecedented challenges posed by the COVID-19
pandemic, the Oyu Tolgoi open pit has continued to operate
uninterrupted.
- In Q2'20, Oyu Tolgoi produced 36,495 tonnes of copper and
31,150 ounces of gold.
- Copper production remains on track to achieve guidance of
140,000 to 170,000 tonnes.
- Gold production guidance for 2020 has increased to 155,000 –
180,000 ounces from 120,000 – 150,000 ounces. The increase in gold
production guidance is due to a change in the open pit schedule
which has brought forward higher grade gold ore from the southwest
pit.
- C1 cost guidance range is being lowered to $1.60 - $2.00 from
$1.80 - $2.20 per pound of copper due to the positive
impact from the increased 2020 gold production forecast.
- Q2'20 mill throughput was 7.2% lower compared to Q2'19 due to
higher scheduled maintenance hours as well as the processing of
harder ore from the southwest pit.
- Revenue of $278.0 million in
Q2'20 decreased by 27.4% from $382.7
million in Q2'19, primarily due to both a 56.7% decrease in
gold production and a 6.9% decrease in copper production. Further,
the average price of copper fell by 12.3% from Q2'19 to Q2'20
primarily due to the impact of COVID-19 on global copper demand.
This was partly offset by the 30.6% increase in average gold price
from Q2'19 to Q2'20.
- Income for the period was $72.3
million compared with a loss of $736.7 million in Q2'19. This difference was
primarily due to a $0.6 billion
impairment charge that was recorded in Q2'19 following the
announcement on July 15, 2019,
wherein the Company confirmed projected increases in underground
development capital as well as a range of possible further delays
to sustainable first production. In addition, there was an increase
of $300.2 million in the amount of
deferred tax recognized in Q2'20 compared to Q2'19. Deferred tax of
$252.8 million was de-recognized in
Q2'19 again reflecting the impact of the July 15, 2019 announcement. These increases in
income in Q2'20 compared to Q2'19 were partly offset by the
$104.7 million reduction in revenue
from Q2'19 to Q2'20. Income attributable to owners of Turquoise
Hill in Q2'20 was $84.8 million or
$0.04 per share, compared with a loss
of $446.5 million or $0.22 per share in Q2'19.
- Cash generated from operating activities before interest and
taxes in Q2'20 was $34.7 million, a
decrease from $262.6 million
generated in Q2'19, primarily reflecting the impact of reduced
revenue and unfavourable movements in working capital. Trade
receivables increased significantly in Q2'20 due primarily to the
impact of rising copper prices on the revaluation of trade
receivables at June 30, 2020.
Conversely, the impact of falling copper prices at the end of Q2'19
led to a decrease in the amount of trade receivables. Trade
payables decreased in Q2'20 whereas trade payables increased in
Q2'19 primarily as a result of the impact of lower capital
expenditure spend in Q2'2 0 ($254.3
million) compared to Q2'19 ($335.0
million).
- In Q2'20, cost of sales was $2.08
per pound of copper sold, C1 cash costs1 were
$1.61 per pound of copper produced,
and all-in sustaining costs1 were $2.18 per pound of copper produced.
- Total operating cash costs1 of $180.8 million in Q2'20 decreased 12.5% from
$206.7 million in Q2'19. This was
principally due to lower mining costs as a result of lower fuel and
maintenance costs. Additionally, royalty costs were lower as a
result of lower sales revenue.
- Work on the Oyu Tolgoi underground continued, achieving strong
productivity in underground advancement during Q2'20 achieving
1,8302 equivalent metres (eqm) in June and a monthly
average of 1,8312 eqm for the quarter.
- During Q2'20, underground development spend was $242.4 million, resulting in total project spend
since January 1, 2016 of
approximately $4.0 billion.
- Routine Shaft 2 rope shortening was successfully completed in
May with remote presence technology from the vendor being used to
assist onsite teams to safely perform the task. Payload and speeds
have returned to planned levels and people and materials movement
via the service hoist continue to operate normally.
- Shafts 3 and 4 continued on care and maintenance during Q2'20,
and this is expected to continue until expert service providers can
return to site to complete technical commissioning of specialised
equipment and commence sinking activities. Work also slowed on some
essential underground material handling infrastructure, in
particular the construction of primary crusher one, which has now
returned to 24 hour shifts following a period of day shift only.
Personnel numbers on site have been limited in order to manage the
risks around COVID-19.
- On May 13, 2020, Turquoise Hill
announced a new block cave mine design for Panel 0 which
anticipates a base case development capital cost of $6.8 billion, with a range of $6.6 billion to $7.1
billion, and a target to first sustainable production of
February 2023, with a target range
between October 2022 and June 2023, inclusive of an allowance for schedule
contingency.
- Subsequently on July 2, 2020,
Turquoise Hill announced completion of the 2020 Oyu Tolgoi
Feasibility Study incorporating the revised mine design and updated
Mineral Reserves and Mineral Resources.
- As at June 30, 2020, Turquoise
Hill has $1.5 billion of available
liquidity, which under current projections is expected to be
sufficient to meet the requirements of the Company, including its
operations and underground development, into early 2022.
- 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, operations and our people
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 six months ended June 30, 2020 (the Q2 2020 MD&A).
_________________________________
|
1 Please
refer to Section – NON-GAAP MEASURES – on page 17 of this press
release for further information.
|
2 Total
equivalent metres exclude conveyor to surface
progress.
|
OPERATIONAL OUTLOOK FOR 2020
Oyu Tolgoi is expected to produce 140,000 to 170,000 tonnes of
copper and 155,000 to 180,000 ounces of gold in concentrates in
2020 from both the open pit and the commencement of processing of
underground development material. Although the mid-point of the
2020 copper production range guidance is higher than 2019
production, lower gold production is expected for 2020 compared to
2019. This is due to the need to mine through lower gold 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. Initiatives implemented by Oyu
Tolgoi have been successful in bringing forward into 2020
higher gold bearing ore that was previously scheduled to be mined
in 2021. This has led to the increase in the 2020 gold production
guidance range, previously 120,000 to 150,000 ounces. This
initiative is not expected to impact 2021 gold production where a
significant increase is still anticipated. Mill throughput for 2020
is expected to be approximately 40 million tonnes.
Operating cash costs3 for 2020 are expected to
be $780 million to $830 million. The decrease from the previous
range of $800 million to $850 million was as a result of cost reduction
initiatives at Oyu Tolgoi.
Capital expenditure for 2020 on a cash-basis is expected to be
approximately $70 million to
$90 million for open-pit
operations and $1.0 billion to
$1.1 billion for the underground
development. The open-pit operations guidance range was reduced
from the initial range of $80 million
to $100 million due to lower
capitalised deferred stripping costs and lower estimated spend as a
result of COVID-19.
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 costs3 are expected to be in the range
of $1.60 to $2.00 per pound of copper produced, down from the
initial 2020 guidance of $1.80 to
$2.20, largely reflecting the impact
of the increase in the gold production guidance for 2020. Unit cost
guidance assumes the midpoint of expected 2020 copper and gold
production ranges and commodity price assumptions of $2.43 per pound copper and $1,659 per ounce gold.
2021 OUTLOOK
Production in 2021 is expected to remain in 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 southwest 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 Q2'20, Oyu Tolgoi had a total workforce (employees
and contractors), including underground project construction, of
approximately 12,200, of which 94% were Mongolians.
_________________________________
|
3 Please
refer to Section – NON-GAAP MEASURES – on page 17 of this press
release for further information.
|
SELECTED FINANCIAL METRICS (1)
|
Three months
ended
|
Six months
ended
|
($ in millions,
unless otherwise noted)
|
2Q
2020
|
2Q
2019
|
Change
%
|
6
months
2020
|
6 months
2019
|
Change %
|
Revenue
|
278.0
|
382.7
|
(27.4%)
|
408.6
|
735.4
|
(44.4%)
|
Income (loss) for the
period
|
72.3
|
(736.7)
|
--
|
91.3
|
(631.5)
|
--
|
Income (loss)
attributable to owners of Turquoise Hill
|
84.8
|
(446.5)
|
--
|
140.3
|
(335.3)
|
--
|
Basic and diluted
income (loss) per share attributable to owners of Turquoise
Hill
|
0.04
|
(0.22)
|
--
|
0.07
|
(0.17)
|
--
|
Revenue by metals in
concentrates
|
|
|
|
|
|
|
Copper
|
221.7
|
232.4
|
(4.6%)
|
318.5
|
456.3
|
(30.2%)
|
Gold
|
52.6
|
146.8
|
(64.2%)
|
84.2
|
272.5
|
(69.1%)
|
Silver
|
3.7
|
3.5
|
5.7%
|
5.9
|
6.6
|
(10.6%)
|
Cost of
sales
|
182.0
|
224.7
|
(19.0%)
|
327.9
|
393.8
|
(16.7%)
|
Production and
delivery costs
|
137.1
|
170.1
|
(19.4%)
|
241.8
|
296.1
|
(18.3%)
|
Depreciation and
depletion
|
51.1
|
54.6
|
(6.4%)
|
86.1
|
99.2
|
(13.2%)
|
Capital expenditure
on cash basis
|
254.3
|
335.0
|
(24.1%)
|
555.4
|
660.3
|
(15.9%)
|
Underground
|
242.4
|
292.0
|
(17.0%)
|
533.9
|
588.4
|
(9.3%)
|
Open pit
(2)
|
11.9
|
43.0
|
(72.3%)
|
21.5
|
71.9
|
(70.1%)
|
Royalties
|
14.2
|
20.7
|
(31.4%)
|
24.5
|
40.4
|
(39.4%)
|
Operating cash costs
(3)
|
180.8
|
206.7
|
(12.5%)
|
368.9
|
404.8
|
(8.9%)
|
Unit costs
($)
|
|
|
|
|
|
|
Cost of sales (per
pound of copper sold)
|
2.08
|
2.19
|
(5.0%)
|
2.27
|
2.10
|
8.1%
|
C1 (per pound of
copper produced) (3)
|
1.61
|
0.79
|
103.8%
|
1.84
|
0.78
|
135.9%
|
All-in sustaining
(per pound of copper produced) (3)
|
2.18
|
1.54
|
41.6%
|
2.29
|
1.48
|
54.7%
|
Mining costs (per
tonne of material mined) (3)
|
1.69
|
2.05
|
(17.4%)
|
1.71
|
2.07
|
(17.2%)
|
Milling costs (per
tonne of ore treated) (3)
|
6.77
|
6.17
|
9.7%
|
6.14
|
7.06
|
(13.0%)
|
G&A costs (per
tonne of ore treated)
|
3.25
|
3.34
|
(2.7%)
|
3.09
|
3.35
|
(7.8%)
|
Cash generated from
(used in) operating activities
|
(81.8)
|
141.5
|
(157.8%)
|
(106.3)
|
135.8
|
(178.3%)
|
Cash generated from
operating activities before interest and tax
|
34.7
|
262.6
|
(86.8%)
|
36.2
|
312.4
|
(88.4%)
|
Interest
paid
|
118.7
|
139.8
|
(15.1%)
|
145.5
|
218.3
|
(33.3%)
|
Total
assets
|
12,895
|
12,705
|
1.5%
|
12,895
|
12,705
|
1.5%
|
Total non-current
financial liabilities
|
4,374
|
4,399
|
(0.6%)
|
4,374
|
4,399
|
(0.6%)
|
|
|
•
|
(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 17 of this press
release for further information.
|
Q2'20 vs Q2'19
- Revenue of $278.0 million in
Q2'20 decreased 27.4% from $382.7
million in Q2'19, primarily due to both a 56.7% decrease in
gold production and a 6.9% decrease in copper production. Further,
the average price of copper fell by 12.3% from Q2'19 to Q2'20
primarily due to the impact of COVID-19 on global copper demand.
This was partly offset by the 30.6% increase in average gold price
from Q2'19 to Q2'20.
- Income for the period was $72.3
million compared with a loss of $736.7 million in Q2'19. This difference was
primarily due to a $0.6 billion
impairment charge that was recorded in Q2'19 following the
announcement on July 15, 2019,
wherein the Company confirmed projected increases in underground
development capital as well as a range of possible further delays
to sustainable first production. In addition, there was an increase
of $300.2 million in the amount of
deferred tax recognized in Q2'20 compared to Q2'19. Deferred tax of
$252.8 million was de-recognized in
Q2'19 again reflecting the impact of the July 15, 2019 announcement. These increases in
income in Q2'20 compared to Q2'19 were partly offset by the
$104.7 million reduction in revenue
from Q2'19 to Q2'20. Income attributable to owners of Turquoise
Hill in Q2'20 was $84.8 million or
$0.04 per share, compared with a loss
of $446.5 million or $0.22 per share in Q2'19.
- Cost of sales in Q2'20 of $182.0
million decreased 19.0% from $224.7
million in Q2'19 reflecting 13.8% lower volumes of
concentrates sold together with the impact of decreased unit cost
of sales per pound of copper sold.
- Q2'20 unit cost of sales of $2.08
per pound of copper sold decreased 5.0% from $2.19 in Q2'19 reflecting the 2.2% increase in
copper head grades and the benefit of lower mining costs.
- Capital expenditure on a cash basis in Q2'20 of $254.3 million compared to $335.0 million in Q2'19, comprised of
$242.4 million attributed to the
underground project and $11.9 million
to open-pit activities.
- Total operating cash costs4 of $180.8 million in Q2'20 decreased 12.5% from
$206.7 million in Q2'19. This was
principally due to lower mining costs as a results of lower fuel
and maintenance costs. Additionally, royalty costs were lower as a
result of lower sales revenue.
- Oyu Tolgoi's Q2'20 C1 cash costs4 of $1.61 per pound of copper produced increased from
$0.79 in Q2'19, primarily reflecting
the impact of the 64.2% lower gold sales revenue credits in Q2'20
compared to Q2'19.
- All-in sustaining costs4 of $2.18 in Q2'20 increased 41.6% from $1.54 in Q2'19. Similar to the C1 cash costs, the
increase was primarily due to a reduction in gold revenue credits,
partly offset by the impact of lower open pit sustaining capital
expenditure and lower royalty costs resulting from the lower sales
revenue in Q2'20 compared to Q2'19.
- Mining costs4 of $1.69
per tonne of material mined in Q2'20 decreased 17.4% from
$2.05 in Q2'19.The decrease was
mainly due to lower fuel cost arising from a decreased global
market price for fuel and lower mine maintenance service costs due
to project deferrals.
- Milling costs4 of $6.77 per tonne of ore treated in Q2'20 increased
9.7% from $6.17 of ore treated in
Q2'19, mainly due to higher maintenance service and consumables
costs due to the planned major plant shutdowns that took place in
Q2'20 compared to in the second quarter of 2019.
- G&A costs per tonne of ore treated of $3.25 in Q2'20 decreased 2.7% from $3.34 per tonne of ore treated in Q2'19, mainly
due to ongoing cost saving initiatives in response to the COVID-19
pandemic.
- Cash generated from operating activities before interest and
taxes in Q2'20 was $34.7 million, a
decrease from $262.6 million
generated in Q2'19, primarily reflecting the impact of reduced
revenue and unfavourable movements in working capital. Trade
receivables increased significantly in Q2'20 due primarily to the
impact of rising copper prices on the revaluation of trade
receivables at June 30, 2020.
Conversely, the impact of falling copper prices at the end of Q2'19
led to a decrease in the amount of trade receivables. Trade
payables decreased in Q2'20 whereas trade payables increased in
Q2'19 primarily as a result of the impact of lower capital
expenditure spend in Q2'20 ($254.3
million) compared to Q2'19 ($335.0
million).
_________________________________
|
4 Please
refer to Section – NON-GAAP MEASURES – on page 17 of this press
release for further information.
|
OYU TOLGOI
Safety performance and COVID-19 Response
The Oyu Tolgoi mine recorded another strong AIFR of 0.22 per
200,000 hours worked for the six months ended June 30, 2020, including a surface operations
AIFR of 0.00 for the month of May. In addition to the continued
commitment to reducing health and safety risk and injury at the Oyu
Tolgoi mine site, preventing the spread of COVID-19 is a key
priority for all Oyu Tolgoi and Turquoise Hill employees. While the
open pit at Oyu Tolgoi has continued to operate uninterrupted
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
construction, such as Shafts 3 and 4 and the materials handling
system have been impacted, in Q2'20 underground development
continued as per expectations. The COVID-19 related impacts to
production and ramp-up from the affected infrastructure are
currently unknown with a program of work underway
to assess the implications. Restrictions imposed on total
personnel numbers at site may require redeployment of lateral
development crews onto other critical path activities in Q3'20 in
order to minimise any potential COVID-19 impacts.
Key operational metrics for Q2'20 are as
follows:
Oyu Tolgoi Production Data
All data represents
full production and sales on a 100% basis
|
2Q
2020
|
2Q
2019
|
Change
|
1H
2020
|
1H
2019
|
Change
|
|
|
|
|
|
|
|
Open pit material
mined ('000 tonnes)
|
23,218
|
24,408
|
(4.9%)
|
50,052
|
48,351
|
3.5%
|
Ore treated ('000
tonnes)
|
9,645
|
10,394
|
(7.2%)
|
20,534
|
19,649
|
4.5%
|
Average mill head
grades:
|
|
|
|
|
|
|
Copper (%)
|
0.47
|
0.46
|
2.2%
|
0.45
|
0.51
|
(12.7%)
|
Gold (g/t)
|
0.19
|
0.31
|
(38.7%)
|
0.17
|
0.44
|
(61.4%)
|
Silver
(g/t)
|
1.22
|
1.20
|
1.7%
|
1.18
|
1.23
|
(4.1%)
|
Concentrates produced
('000 tonnes)
|
169.9
|
180.6
|
(5.9%)
|
334.4
|
390.7
|
(14.4%)
|
Average concentrate
grade (% Cu)
|
21.5
|
21.7
|
(0.9%)
|
21.4
|
21.8
|
(1.8%)
|
Production of metals
in concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
36.5
|
39.2
|
(6.9%)
|
71.7
|
85.0
|
(15.6%)
|
Gold ('000
ounces)
|
31
|
72
|
(56.7%)
|
57
|
192
|
(70.2%)
|
Silver ('000
ounces)
|
212
|
238
|
(10.9%)
|
426
|
486
|
(12.3%)
|
Concentrate sold
('000 tonnes)
|
194.3
|
225.3
|
(13.8%)
|
320.2
|
410.3
|
(22.0%)
|
Sales of metals in
concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
39.7
|
46.6
|
(14.8%)
|
65.5
|
85.1
|
(23.0%)
|
Gold ('000
ounces)
|
31
|
116
|
(73.4%)
|
51
|
213
|
(76.3%)
|
Silver ('000
ounces)
|
220
|
245
|
(10.2%)
|
366
|
445
|
(17.8%)
|
Metal recovery
(%)
|
|
|
|
|
|
|
Copper
|
79.1
|
80.2
|
(1.4%)
|
76.7
|
82.2
|
(6.7%)
|
Gold
|
52.0
|
63.6
|
(18.2%)
|
49.3
|
68.2
|
(27.7%)
|
Silver
|
55.8
|
59.2
|
(5.7%)
|
53.6
|
61.2
|
(12.4%)
|
Copper production in Q2'20 decreased 7% compared to Q2'19 due to
lower throughput caused by higher scheduled maintenance hours as
well as processing of harder ore.
Gold Production in Q2'20 decreased 57% over Q2'19 due to planned
processing of lower headgrade ore primarily driven by the
transition from Phase 4A to lower grade sources of Phase
4B and stockpiles as well as lower
milled tonnes.
Mill throughput in Q2'20 was 7% lower compared to Q2'19 due to
higher scheduled maintenance hours as well as the processing of
harder ore from the southwest pit.
Underground development
On May 13, 2020, Turquoise Hill
announced a new block cave mine design for Panel 0 which
anticipated a base case development capital cost of $6.8 billion, with a range of $6.6 billion to $7.1
billion, and a target to first sustainable production of
February 2023, with a target range
between October 2022 and June 2023, inclusive of an allowance for schedule
contingency.
Subsequently on July 2, 2020,
Turquoise Hill announced completion of the 2020 Oyu Tolgoi
Feasibility Study incorporating the revised mine design and updated
Mineral Reserves and Mineral Resources.
The Hugo North mine design for Panel 0 will now undergo 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.
Routine Shaft 2 rope shortening was successfully completed in
May with remote presence technology from the vendor used to assist
onsite teams to safely perform the task. Payload and speeds have
returned to planned levels and people and materials movement via
the service hoist continue to operate normally.
Shafts 3 and 4 continued on care and maintenance during Q2'20,
and this is expected to continue until expert service providers can
return to site to complete technical commissioning of specialised
equipment and commence sinking activities. Work also slowed on some
essential underground material handling infrastructure, in
particular the construction of primary crusher one, which has now
returned to 24 hour shifts following a period of day shift only
with concrete mass pour number 14 completed in June. Personnel
numbers on site have been limited in order to manage the risks
around COVID-19.
Underground development continued with a focus on productivity
gains in the most critical development areas, progressing 5.5 total
equivalent kilometres and completing 10.6 thousand cubic metres of
mass excavation during Q2'20. Since the restart of underground
development, 43.9 total equivalent kilometres and 169.1 thousand
cubic metres of mass excavation have been completed. The following
table provides a breakdown of the various components of completed
development 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
|
Q2'20
|
5.5
|
5.1
|
10.6
|
2020
|
11.0
|
10.4
|
13.9
|
Total
|
43.9
|
37.1
|
169.1
|
Notes:
|
Totals may not match
due to rounding.
|
*Lateral development and mass excavation amounts 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
|
Q2'20
|
1.0
|
0.9
|
2.6
|
2020
|
2.0
|
1.6
|
10.1
|
Total
|
11.0
|
9.9
|
26.6
|
Note: Totals may not
match due to rounding.
|
Oyu Tolgoi spent $242.4 million on
underground development during Q2'20. Total underground project
spend from January 1, 2016 to
June 30, 2020 was approximately
$4.0 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 contractual
obligations5 of $0.6
billion as at June 30, 2020.
Since the restart of project development, Oyu Tolgoi has made
underground commitments exceeding $3.3
billion to Mongolian vendors and contractors.
__________________________________
|
5 Please
refer to Section – NON-GAAP MEASURES – on page 17 of this press
release for further information.
|
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 at June 30, 2020, the
aggregate outstanding balance of shareholder loans extended by
subsidiaries of the Company to Oyu Tolgoi LLC was $6.9 billion, including accrued interest of
$1.5 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 at June 30, 2020, the
cumulative amount of such funding was $1.3
billion, representing 34% of invested common share equity,
with unrecognised interest on the amounts funded of $0.7 billion.
As at June 30, 2020, Turquoise
Hill has $1.5 billion of available
liquidity, which under current projections is expected to be
sufficient to meet the requirements of the Company, including its
operations and underground development, into early 2022. This
expectation has improved due mainly to lower estimated LIBOR rates
on project finance interest payments, continued focus on operating
cost savings and other optimisation efforts as well as updated
assumptions regarding the impacts of COVID-19. As announced by the
Company on July 2, 2020, Turquoise
Hill has decided to defer further discussions with Rio Tinto
regarding possible interim funding arrangements in light of its
improved liquidity outlook. If it becomes prudent to do so, the
Company may re-engage with Rio Tinto and / or third parties
regarding possible interim funding.
Going forward, Turquoise Hill's liquidity outlook will continue
to be impacted, either positively or negatively, by various
factors, many of which are outside the Company's control,
including:
- changes in commodity prices and other market-based
assumptions;
- open pit operating performance as well as the successful
implementation (or otherwise) of related optimisation efforts;
- further and / or unanticipated impacts on operations and
underground development related to the COVID-19 pandemic as
well as the uncertain duration and severity of the COVID-19
pandemic and the economic, commercial and financial consequences
thereof;
- the manner in which the amended PSFA is ultimately implemented;
and
- developments in the ongoing dispute with the Mongolian Tax
Authority, relating to which formal international arbitration
proceedings were initiated.
Turquoise Hill continues to monitor its liquidity outlook and
will provide updates as and when circumstances require.
In addition to its available liquidity, Turquoise Hill has
recently updated its long-term cash flow projections, which
incorporate the following:
- the updated Panel 0 mine design announced on May 13, 2020;
- the amendment to the PSFA (the PSFA Amendment) announced on
June 28, 2020, under which Oyu Tolgoi
LLC agreed to prioritise a SOPP to be developed and financed by the
Government of Mongolia (previous
projections assumed an Oyu Tolgoi-led, coal-fired power plant at
Tavan Tolgoi (TTPP) with an estimated total project cost of up to
$924 million);
- 2020 Oyu Tolgoi Feasibility Study announced on July 2, 2020;
- further updates to expected near-term impacts of COVID-19;
- the Company's current commodity price assumptions, which are
broadly in line with market consensus estimates; and
- expected open pit operating performance and the implementation
of current optimisation efforts.
Based on these updated cash flow projections, Turquoise Hill's
incremental funding requirement (i.e., over and above its available
liquidity) is currently expected to be at least $3.0 billion, which compares favourably to the at
least $4 billion estimate provided in
the Company's Q1'20 earnings release. The improvement in the
updated projections is mainly from assuming a Mongolian-government
funded SOPP instead of an Oyu Tolgoi-led TTPP, as contemplated by
the recently signed PSFA Amendment. Additionally, Turquoise Hill
currently estimates the base case for its incremental funding
requirement to be $3.6 billion. The
base case estimate, like the minimum estimate, incorporates
principal repayments of $1.9 billion
and interest and similar charges of $1.1
billion and does not assume any re-profiling of existing
principal repayments or additional external financing. Compared to
the base case estimate, the minimum estimate uses upside pricing
and assumes the lower end of the development capital range noted
below. Additionally, the incremental funding requirement will
continue to be influenced by various factors, many of which are
outside the Company's control, including:
- the amount of development capital required to bring the Hugo
North underground mine into production (the Panel 0 mine design
anticipates a base case development capital cost of $6.8 billion, with a range of $6.6 billion to $7.1
billion; accordingly, assuming the upper or lower end of
this range would have either a favourable or unfavourable impact on
the base case incremental funding requirement);
- the timing of sustainable first production and ramp-up profile
and their impact on cash flows (the Panel 0 mine design anticipates
a base case target of February 2023
for first sustainable production, with a target range between
October 2022 and June 2023, inclusive of an allowance for schedule
contingency; accordingly, assuming the upper or lower end of this
range would have either a favourable or unfavourable impact on the
base case incremental funding requirement);
- the manner in which the amended PSFA is ultimately implemented
(both the base case and the minimum estimates assume that the
construction of SOPP will be financed by the Government of
Mongolia, as contemplated by the
PSFA Amendment; if one of the alternatives to SOPP available under
the PSFA Amendment, such as an Oyu Tolgoi-based, coal-fired power
plant, is ultimately implemented, this could significantly increase
both the base case and the minimum incremental funding
requirements);
- changes to the amount of cash flow expected to be generated
from open-pit operations, net of sustaining capital
requirements;
- further and/or unanticipated impacts on operations and
underground development related to the COVID-19 pandemic as well as
the uncertain duration and severity of the COVID-19 pandemic and
the economic, commercial and financial consequences thereof;
- changes in expected commodity prices and other market-based
assumptions (upside and downside pricing sensitivities would have,
respectively, a favourable or unfavourable impact on the base case
incremental funding requirement); and
- outcomes of the Definitive Estimate and potential optimisations
to Panels 1 and 2.
More generally, any changes in the above factors will impact the
incremental funding requirement and, as a result, the actual
quantum of incremental funding required may be greater than the
$3.6 billion base case estimate and
such variance may be significant.
Under the terms of its existing project finance facility, Oyu
Tolgoi LLC is permitted to arrange up to $
1.6 billion of supplemental senior debt, subject to meeting
certain requirements relating to the tenor, amount and timing of
debt service obligations of such supplemental senior debt and other
customary conditions. Under the 2015 Financing Support Agreement,
the incurrence of additional senior debt including this
$1.6 billion by Oyu Tolgoi LLC is
subject to Rio Tinto's consent. Moreover, the Debt Service
Undertaking and Completion Support Undertaking provided by
Turquoise Hill and Rio Tinto, respectively, in connection with Oyu
Tolgoi LLC's existing project finance facility would not extend to
any additional senior debt without the consent of such parties.
Turquoise Hill intends to further progress its engagement with
several key stakeholders, including Rio Tinto, to address the
longer-term funding requirements of Oyu Tolgoi LLC. Turquoise Hill
has (together with its financial and other advisors) already
considered, evaluated and prioritised a range of financing options,
including a possible re-profiling of Oyu Tolgoi LLC's existing debt
as well as the possibility of raising additional financing by Oyu
Tolgoi LLC. Each of these options, if implemented, would have the
effect of reducing the Company's incremental funding requirement.
However, successful implementation of such options is subject to
achieving alignment and / or agreement with the relevant
stakeholders (including Rio Tinto, existing lenders, any potential
new lenders and the Government of Mongolia), market conditions and other
factors.
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 Mongolia's National Power Transmission Grid
JSC (NPTG), the relevant Mongolian power authority, and Inner
Mongolia Power International Cooperation Co., Ltd (IMPIC), the
Chinese power generation company.
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 PSFA entered into between Oyu Tolgoi LLC and
the Government of Mongolia on
December 31, 2018 provides a binding
framework and pathway for long-term power supply to the Oyu Tolgoi
mine. The PSFA originally contemplated the construction of a
coal-fired power plant at Tavan Tolgoi (TTPP), which 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. In April
2020, the Government of Mongolia advised that it was unwilling to
support Oyu Tolgoi LLC's proposal to develop TTPP and announced its
intention to fund and construct a SOPP at Tavan Tolgoi.
On June 26, 2020, Oyu Tolgoi LLC
and the Government of Mongolia
amended the PSFA (PSFA Amendment) to reflect their agreement to
jointly prioritise and progress SOPP, in accordance with and
subject to agreed milestones, as the domestic source of power for
the Oyu Tolgoi mine. The milestones include: signing a Power
Purchase Agreement for the supply of power to the Oyu Tolgoi mine
by March 31, 2021, commencing
construction of SOPP by no later than July
1, 2021, commissioning SOPP within four years thereafter,
and reaching agreement with IMPIC on an extension to the existing
power import arrangements by March 1,
2021 in order to ensure there is no disruption to the power
supply required to safeguard the Oyu Tolgoi mine's ongoing
operations and development.
The PSFA Amendment provides that if certain agreed milestones
are not met in a timely manner (subject to extension for Delay
Events as defined) then Oyu Tolgoi LLC will be entitled to select
from, and implement, the alternative power solutions specified in
the PSFA (as amended), including an Oyu Tolgoi LLC-led coal-fired
power plant and a primary renewables solution, and the Government
of Mongolia would be obliged to
support such decision.
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 preparing to re-engage discussions with the newly appointed
Cabinet members of 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 has 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.
In July 2020, Oyu Tolgoi LLC
advised the Company that the ACA investigation has been concluded
and the first instance criminal court has sentenced certain former
Government officials.
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
US trading price non-compliance and share
consolidation
On July 31, 2019, the Company
received an automatic notice from the New York Stock Exchange
(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 Stock Market (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 Company's next meeting of shareholders for a consolidation
(reverse stock split) 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 March 5, 2020, the Company's common shares were
delisted from the NASDAQ.
On July 24, 2020 at the Company's
annual general and special meeting of shareholders, the Company's
shareholders approved a special resolution granting the board of
directors the authority, in its sole discretion, to implement a
consolidation (or reverse stock split) of the Company's issued and
outstanding common shares into a lesser number of common shares and
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. The approval of the special
resolution by shareholders granted the board of directors authority
and discretion to implement the share consolidation at any time
prior to July 24, 2021.
2020 Oyu Tolgoi Technical Report
The Company will be relying upon the temporary relief in
Décision N°2020-PDG-00037 granted by the Autorité des marchés
financiers in relation to the filing and delivery of the 2020 Oyu
Tolgoi Technical Report ("2020 OTTR"). The Company will file
the 2020 Oyu Tolgoi Technical Report ("2020 OTTR") within 90
days of the news release issued on July 2,
2020 announcing the update to its Mineral Resources and
Mineral Reserves. The Company confirms that its management and
other Company insiders are subject to an insider trading black-out
policy that reflects the principles in section 9 of National Policy
11-207 Failure to File Cease Trade Orders and Revocations in
Multiple Jurisdictions.
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)
|
(Six Months
Ended)
|
C1 costs
(Stated in $000's of dollars)
|
June 30,
2020
|
June 30,
2019
|
June 30,
2020
|
June 30,
2019
|
Cost of
sales
|
181,956
|
224,656
|
327,880
|
393,790
|
Cost of sales:
$/lb of copper sold
|
2.08
|
2.19
|
2.27
|
2.10
|
Depreciation and
depletion
|
(51,106)
|
(54,546)
|
(86,072)
|
(99,175)
|
Provision against
carrying value of copper-gold concentrate
|
6,254
|
86
|
-
|
1,533
|
Change in
inventory
|
(12,265)
|
(34,275)
|
19,884
|
(27,843)
|
Other operating
expenses
|
49,893
|
57,897
|
94,804
|
128,243
|
Less:
|
|
|
|
|
- Inventory
(write-down) reversal
|
1,195
|
8,126
|
2,359
|
(4,432)
|
-
Depreciation
|
(1,997)
|
(3,321)
|
(3,950)
|
(3,631)
|
Management services
payment to Turquoise Hill
|
6,872
|
8,105
|
13,954
|
16,295
|
Operating cash
costs
|
180,802
|
206,728
|
368,859
|
404,780
|
Operating cash
costs: $/lb of copper produced
|
2.25
|
2.39
|
2.33
|
2.16
|
Adjustments to
operating cash costs(1)
|
6,564
|
12,065
|
12,646
|
21,168
|
Less: Gold and silver
revenues
|
(57,428)
|
(150,378)
|
(91,253)
|
(279,124)
|
C1 costs
($'000)
|
129,938
|
68,415
|
290,252
|
146,824
|
C1 costs: $/lb of
copper produced
|
1.61
|
0.79
|
1.84
|
0.78
|
|
|
|
|
|
All-in
sustaining costs (Stated in $000's of dollars)
|
|
|
|
|
Corporate
administration
|
9,855
|
5,759
|
14,572
|
10,303
|
Asset retirement
expense
|
1,502
|
2,322
|
2,931
|
4,063
|
Royalty
expenses
|
14,216
|
20,722
|
24,455
|
40,461
|
Ore stockpile and
stores write-down (reversal)
|
(1,195)
|
(8,126)
|
(2,359)
|
4,432
|
Other
expenses
|
2,998
|
696
|
3,466
|
259
|
Sustaining cash
capital including deferred stripping
|
18,355
|
42,973
|
27,904
|
71,855
|
All-in sustaining
costs ($'000)
|
175,669
|
132,761
|
361,221
|
278,197
|
All-in sustaining
costs: $/lb of copper produced
|
2.18
|
1.54
|
2.29
|
1.48
|
|
|
(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 Q2'20 are
calculated by reference to total mining costs of $39.3 million (Q2'19: $49.9 million) and total material mined of 23.2
million tonnes (Q2'19: 24.4 million tonnes).
Milling costs per tonne of ore treated in Q2'20 are calculated
by reference to total milling costs of $65.3
million (Q2'19: $64.1 million)
and total ore treated of 9.6 million tonnes (Q2'19: 10.4 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
|
June
30,
|
December
31,
|
(Stated in $000's of
dollars)
|
2020
|
2019
|
|
|
|
Inventories
(current)
|
$
|
166,355
|
$
|
175,719
|
Trade and other
receivables
|
53,339
|
27,047
|
Trade and other
payables:
|
|
|
- trade payables and
accrued liabilities
|
(322,924)
|
(389,476)
|
- payable to related
parties
|
(85,153)
|
(65,903)
|
Consolidated working
capital
|
$
|
(188,383)
|
$
|
(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
assumption 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 Q2 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 Q2 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 as at June 30, 2020 to the financial statements and
notes is provided below.
|
|
|
|
|
|
(Stated in $000's of
dollars)
|
Project
Finance
|
Purchase
obligations
|
Power
commitments
|
Lease
liabilities
|
Decommissioning
obligations
|
|
|
|
|
|
|
Commitments
(MD&A)
|
$
|
4,347,375
|
$
|
603,220
|
$
|
356,408
|
$
|
22,027
|
$
|
213,769
|
Cancellable
obligations
|
|
(469,897)
|
(177,396)
|
-
|
-
|
(net of exit
costs)
|
|
|
|
|
|
Accrued capital
expenditure
|
|
(93,686)
|
-
|
-
|
-
|
Discounting and other
adjustments
|
(148,745)
|
-
|
-
|
(4,651)
|
(107,931)
|
Financial
statement amount
|
$
|
4,198,630
|
$
|
39,637
|
$
|
179,012
|
$
|
17,376
|
$
|
105,838
|
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE
CONTROLS AND PROCEDURES
There were no changes in the Company's internal control over
financial reporting (as such term is defined in Rule 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the six
months ended June 30, 2020 that have
materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
Disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed by
the Company under applicable securities legislation is gathered and
reported to senior management, including the Company's CEO and CFO,
on a timely basis so that appropriate decisions can be made
regarding public disclosures.
QUALIFIED PERSON
Disclosure of information of a scientific or technical nature in
this press release and in the Company's Q2 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 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
|
|
Jun-30
|
Mar-31
|
Dec-31
|
Sep-30
|
|
2020
|
2020
|
2019
|
2019
|
|
|
|
|
|
Revenue
|
$
|
278.0
|
$
|
130.7
|
$
|
221.4
|
$
|
209.2
|
|
|
|
|
|
Income for the
period
|
$
|
72.3
|
$
|
19.0
|
$
|
109.5
|
$
|
45.1
|
|
|
|
|
|
Income attributable
to owners of Turquoise Hill
|
$
|
84.8
|
$
|
55.4
|
$
|
113.1
|
$
|
71.7
|
|
|
|
|
|
Basic and diluted
income per share attributable to owners of Turquoise
Hill
|
$
|
0.04
|
$
|
0.03
|
$
|
0.06
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended
|
|
Jun-30
|
Mar-31
|
Dec-31
|
Sep-30
|
|
2019
|
2019
|
2018
|
2018
|
|
|
|
|
|
Revenue
|
$
|
382.7
|
$
|
352.7
|
$
|
346.2
|
$
|
246.5
|
|
|
|
|
|
Income (loss) for the
period
|
$
|
(736.7)
|
$
|
105.2
|
$
|
95.0
|
$
|
15.2
|
|
|
|
|
|
Income (loss)
attributable to owners of Turquoise Hill
|
$
|
(446.5)
|
$
|
111.2
|
$
|
101.0
|
$
|
53.2
|
|
|
|
|
|
Basic and diluted
income (loss) per share attributable to owners of Turquoise
Hill
|
$
|
(0.22)
|
$
|
0.06
|
$
|
0.05
|
$
|
0.03
|
Consolidated
Statements of Income (Loss)
|
|
|
|
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
Note
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
4
|
|
$
|
277,967
|
|
$
|
382,748
|
|
$
|
408,626
|
|
$
|
735,428
|
Cost of
sales
|
5
|
|
(181,956)
|
|
(224,656)
|
|
(327,880)
|
|
(393,790)
|
Gross
margin
|
|
|
96,011
|
|
158,092
|
|
80,746
|
|
341,638
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
6
|
|
(49,893)
|
|
(57,897)
|
|
(94,804)
|
|
(128,243)
|
Corporate
administration expenses
|
|
|
(9,855)
|
|
(5,759)
|
|
(14,572)
|
|
(10,303)
|
Other income
(expenses)
|
|
|
(1,418)
|
|
1,279
|
|
1,800
|
|
2,522
|
Impairment
charges
|
10
|
|
-
|
|
(596,906)
|
|
-
|
|
(596,906)
|
Income (loss)
before finance items and taxes
|
|
|
34,845
|
|
(501,191)
|
|
(26,830)
|
|
(391,292)
|
|
|
|
|
|
|
|
|
|
|
Finance
items
|
|
|
|
|
|
|
|
|
|
Finance
income
|
7
|
|
3,212
|
|
29,062
|
|
14,624
|
|
61,891
|
Finance
costs
|
7
|
|
(1,516)
|
|
(1,709)
|
|
(3,325)
|
|
(3,727)
|
|
|
|
1,696
|
|
27,353
|
|
11,299
|
|
58,164
|
Income (loss) from
operations before taxes
|
|
|
$
|
36,541
|
|
$
|
(473,838)
|
|
$
|
(15,531)
|
|
$
|
(333,128)
|
|
|
|
|
|
|
|
|
|
|
Income and other
taxes
|
|
|
35,777
|
|
(262,844)
|
|
106,805
|
|
(298,354)
|
Income (loss) for
the period
|
|
|
$
|
72,318
|
|
$
|
(736,682)
|
|
$
|
91,274
|
|
$
|
(631,482)
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners
of Turquoise Hill Resources Ltd.
|
|
|
84,849
|
|
(446,515)
|
|
140,254
|
|
(335,278)
|
Attributable to owner
of non-controlling interest
|
|
|
(12,531)
|
|
(290,167)
|
|
(48,980)
|
|
(296,204)
|
Income (loss) for
the period
|
|
|
$
|
72,318
|
|
$
|
(736,682)
|
|
$
|
91,274
|
|
$
|
(631,482)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings (loss) per share attributable
|
|
|
|
|
|
|
|
|
|
to Turquoise Hill
Resources Ltd.
|
|
|
$
|
0.04
|
|
$
|
(0.22)
|
|
$
|
0.07
|
|
$
|
(0.17)
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average number of shares outstanding (000's)
|
|
|
2,012,314
|
|
2,012,314
|
|
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 (Loss)
|
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June 30,
|
|
June 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Income (loss) for
the period
|
$
|
72,318
|
|
$
|
(736,682)
|
|
$
|
91,274
|
|
$
|
(631,482)
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
Items that will not
be reclassified to income:
|
|
|
|
|
|
|
|
Changes in the fair
value of marketable securities at FVOCI
|
1,502
|
|
(74)
|
|
127
|
|
(609)
|
Other
comprehensive income (loss) for the period (a)
|
$
|
1,502
|
|
$
|
(74)
|
|
$
|
127
|
|
$
|
(609)
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss) for the period
|
$
|
73,820
|
|
$
|
(736,756)
|
|
$
|
91,401
|
|
$
|
(632,091)
|
|
|
|
|
|
|
|
|
Attributable to owners
of Turquoise Hill
|
86,351
|
|
(446,589)
|
|
140,381
|
|
(335,887)
|
Attributable to owner
of non-controlling interest
|
(12,531)
|
|
(290,167)
|
|
(48,980)
|
|
(296,204)
|
Total
comprehensive income (loss) for the period
|
$
|
73,820
|
|
$
|
(736,756)
|
|
$
|
91,401
|
|
$
|
(632,091)
|
|
|
(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
|
|
Six Months
Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
Note
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Cash generated
from operating activities
|
|
|
|
|
|
|
|
|
|
before interest and
tax
|
16
|
|
$
|
34,698
|
|
$
|
262,568
|
|
$
|
36,193
|
|
$
|
312,406
|
|
|
|
|
|
|
|
|
|
|
Interest
received
|
|
|
5,367
|
|
22,353
|
|
17,198
|
|
46,110
|
Interest
paid
|
|
|
(118,696)
|
|
(139,751)
|
|
(145,518)
|
|
(218,325)
|
Income and other
taxes paid
|
|
|
(3,198)
|
|
(3,643)
|
|
(14,149)
|
|
(4,353)
|
Net cash generated
from (used in) operating activities
|
|
|
$
|
(81,829)
|
|
$
|
141,527
|
|
$
|
(106,276)
|
|
$
|
135,838
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
|
Receivable from
related party: amounts withdrawn
|
17
|
|
204,284
|
|
255,000
|
|
511,284
|
|
530,000
|
Expenditures on
property, plant and equipment
|
|
|
(254,341)
|
|
(334,989)
|
|
(555,437)
|
|
(660,283)
|
Other investing cash
flows
|
|
|
184
|
|
-
|
|
247
|
|
-
|
Cash used in
investing activities
|
|
|
$
|
(49,873)
|
|
$
|
(79,989)
|
|
$
|
(43,906)
|
|
$
|
(130,283)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
|
|
|
|
|
|
Net proceeds from
project finance facility
|
|
|
-
|
|
1,511
|
|
-
|
|
1,511
|
Repayment of project
finance facility
|
|
|
(1,545)
|
|
-
|
|
(1,545)
|
|
-
|
Payment of project
finance fees
|
|
|
-
|
|
(107)
|
|
-
|
|
(107)
|
Payment of lease
liability
|
|
|
(1,992)
|
|
(1,405)
|
|
(3,899)
|
|
(3,813)
|
Cash used in
financing activities
|
|
|
$
|
(3,537)
|
|
$
|
(1)
|
|
$
|
(5,444)
|
|
$
|
(2,409)
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange
rates on cash and cash equivalents
|
|
|
420
|
|
(111)
|
|
436
|
|
8
|
Net increase
(decrease) in cash and cash equivalents
|
|
|
$
|
(134,819)
|
|
$
|
61,426
|
|
$
|
(155,190)
|
|
$
|
3,154
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents - beginning of period
|
|
|
$
|
1,631,614
|
|
$
|
1,544,795
|
|
$
|
1,651,985
|
|
$
|
1,603,067
|
Cash and cash
equivalents - end of period
|
|
|
1,496,795
|
|
1,606,221
|
|
1,496,795
|
|
1,606,221
|
Cash and cash
equivalents as presented on the balance sheets
|
|
|
$
|
1,496,795
|
|
$
|
1,606,221
|
|
$
|
1,496,795
|
|
$
|
1,606,221
|
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)
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents
|
8
|
|
$
|
1,496,795
|
|
$
|
1,651,985
|
Inventories
|
9
|
|
166,355
|
|
175,719
|
Trade and other
receivables
|
|
|
53,339
|
|
27,047
|
Prepaid expenses and
other assets
|
|
|
85,533
|
|
99,671
|
Receivable from
related party
|
17
|
|
-
|
|
511,284
|
|
|
|
1,802,022
|
|
2,465,706
|
Non-current
assets
|
|
|
|
|
|
Property, plant and
equipment
|
10
|
|
10,356,666
|
|
9,782,647
|
Inventories
|
9
|
|
61,271
|
|
28,985
|
Deferred income tax
assets
|
13
|
|
663,479
|
|
534,078
|
Other financial
assets
|
|
|
11,642
|
|
10,978
|
|
|
|
11,093,058
|
|
10,356,688
|
Total
assets
|
|
|
$
|
12,895,080
|
|
$
|
12,822,394
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
12
|
|
$
|
44,164
|
|
$
|
26,547
|
Trade and other
payables
|
11
|
|
416,766
|
|
466,206
|
Deferred
revenue
|
|
|
37,511
|
|
27,896
|
|
|
|
498,441
|
|
520,649
|
Non-current
liabilities
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
12
|
|
4,171,842
|
|
4,187,270
|
Deferred income tax
liabilities
|
13
|
|
96,184
|
|
79,180
|
Decommissioning
obligations
|
14
|
|
105,838
|
|
104,238
|
|
|
|
4,373,864
|
|
4,370,688
|
Total
liabilities
|
|
|
$
|
4,872,305
|
|
$
|
4,891,337
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Share
capital
|
|
|
$
|
11,432,122
|
|
$
|
11,432,122
|
Contributed
surplus
|
|
|
1,559,128
|
|
1,558,811
|
Accumulated other
comprehensive income (loss)
|
|
|
(686)
|
|
(813)
|
Deficit
|
|
|
(3,681,635)
|
|
(3,821,889)
|
Equity
attributable to owners of Turquoise Hill
|
|
|
9,308,929
|
|
9,168,231
|
Attributable to
non-controlling interest
|
15
|
|
(1,286,154)
|
|
(1,237,174)
|
Total
equity
|
|
|
$
|
8,022,775
|
|
$
|
7,931,057
|
|
|
|
|
|
|
Total liabilities
and equity
|
|
|
$
|
12,895,080
|
|
$
|
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)
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2020
|
Attributable to
owners of Turquoise Hill
|
|
|
|
|
Share
capital
|
Contributed
surplus
|
Accumulated
other
comprehensive
income (loss)
|
Deficit
|
Total
|
|
Non-controlling
interest
(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
|
|
-
|
|
-
|
|
-
|
|
140,254
|
|
140,254
|
|
|
(48,980)
|
|
91,274
|
Other comprehensive
income for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
|
|
-
|
|
-
|
|
127
|
|
-
|
|
127
|
|
|
-
|
|
127
|
Employee share
plans
|
|
-
|
|
317
|
|
-
|
|
-
|
|
317
|
|
|
-
|
|
317
|
Closing
balance
|
$
|
11,432,122
|
$
|
1,559,128
|
$
|
(686)
|
$
|
(3,681,635)
|
$
|
9,308,929
|
|
$
|
(1,286,154)
|
$
|
8,022,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2019
|
Attributable to
owners of Turquoise Hill
|
|
|
|
|
|
|
|
Share
capital
|
Contributed
surplus
|
Accumulated
other
comprehensive
income (loss)
|
Deficit
|
Total
|
|
Non-controlling interest
(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
|
|
-
|
|
-
|
|
-
|
|
(1,122)
|
|
(1,122)
|
|
|
(579)
|
(1,701)
|
Restated opening
balance
|
$
|
11,432,122
|
$
|
1,558,264
|
$
|
844
|
$
|
(3,671,432)
|
$
|
9,319,798
|
|
$
|
(910,714)
|
$
|
8,409,084
|
Loss for the
period
|
|
-
|
|
-
|
|
-
|
|
(335,278)
|
|
(335,278)
|
|
|
(296,204)
|
(631,482)
|
Other comprehensive
loss for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
|
|
-
|
|
-
|
|
(609)
|
|
-
|
|
(609)
|
|
|
-
|
(609)
|
Employee share
plans
|
|
-
|
|
(13)
|
|
-
|
|
-
|
|
(13)
|
|
|
-
|
(13)
|
Closing
balance
|
$
|
11,432,122
|
$
|
1,558,251
|
$
|
235
|
$
|
(4,006,710)
|
$
|
8,983,898
|
|
$
|
(1,206,918)
|
$
|
7,776,980
|
The notes to the Company's financial statements, which are
available on the Company's website, are part of its consolidated
financial statements.
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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,
statements and information regarding: the expectations set out in
the 2020 Oyu Tolgoi Feasibility Study ("OTFS20"); 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 sources,
funding requirements and planning; timing and status of underground
development; the mine design for Hugo North Lift 1 and the related
cost and production schedule implications; the re-design studies
for Panels 1 and 2 of Hugo North Lift 1 and the possible outcomes,
content and timing thereof; expectations regarding the possible
recovery of ore in the two structural pillars, to the north and
south of Panel 0; the possible progression of SOPP and related
amendments to the PSFA as well as power purchase agreements; the
timing of construction and commissioning of the potential SOPP;
sources of interim power; 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 and the scope thereof; 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 SOPP, the ability of the
Government of Mongolia to finance
and procure the SOPP within the timeframes anticipated in the PSFA,
as amended, the willingness of third parties to extend existing
power arrangements, 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 or the Government of
Mongolia'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, blockades
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
reasonable and 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 or the Government of Mongolia 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 OTFS20);
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 Company's AIF, as supplemented by the "Risks and
Uncertainties" section of the Q2 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 this 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