MONTREAL, Nov. 13, 2020 /CNW/ - Turquoise Hill Resources
Ltd. ("Turquoise Hill" or the "Company") today
announced its financial results for the period ended September 30, 2020. All figures are in U.S.
dollars unless otherwise stated.
"Despite ongoing challenges related to the COVID-19 pandemic,
Oyu Tolgoi posted another excellent quarter from a safety,
productivity and underground development perspective. The open pit
continued to operate uninterrupted, and first sustainable
production is now trending towards the earlier months of the
previously guided range of October
2022 to June 2023, with a
revised base case of October 2022. Our thanks also go to the
Government of Mongolia for its
continued support and cooperation in helping Oyu Tolgoi remobilise
the required specialist resources back into the country."
Our Oyu Tolgoi Technical Report (OTTR) issued in late August has
provided further evidence of Oyu Tolgoi's progress towards becoming
a Tier 1 asset that is on track to become one of the largest copper
mines in the world with first quartile cash costs. As part of the
Financing MoU that we signed with Rio Tinto we have also provided
clarity on our funding plan which prioritizes incremental funding
by way of debt and/or hybrid financing over equity funding for the
eventual balance of Oyu Tolgoi's funding requirements. We are
actively engaging with market participants to source attractive and
executable financing options designed to be in the best interests
of Oyu Tolgoi and our shareholders.
We look forward to the pending definitive estimate solidifying
Turquoise Hill as one of the premiere copper related investments in
the world," stated Ulf Quellmann, Chief Executive Officer of
Turquoise Hill.
HIGHLIGHTS
- Oyu Tolgoi's commitment to safety is evidenced by an AIFR of
0.17 per 200,000 hours worked for the nine months ended
September 30, 2020, which includes an
outstanding Q3 AIFR of 0.03.
- In Q3'20, the Oyu Tolgoi open pit continued to operate
uninterrupted and produced 36,286 tonnes of copper and 36,743
ounces of gold.
- Copper production remains on track to achieve guidance of
140,000 to 170,000 tonnes, while forecast 2020 gold production is
trending towards the higher end of the previously announced 155,000
to 180,000 ounce range.
- Q3'20 mill throughput was 0.3% higher compared to Q3'19 due to
slightly higher mill availability.
- Revenue of $264.4 million in
Q3'20 increased 26.4% from $209.2
million in Q3'19. Copper revenue increased by 29.5% driven
by higher sales volumes and a 12.5% increase in average copper
price. Gold revenue increased by 16.6% driven by a 29.7% increase
in average gold price partly offset by lower volumes of gold in
concentrate sold.
- Income for the period was $161.7
million compared with $45.1
million in Q3'19. This difference was primarily due to a
$55.2 million increase in revenue
versus Q3'19 together with $86.1
million of additional deferred tax assets recognized in
Q3'20 versus Q3'19. Income attributable to owners of Turquoise Hill
in Q3'20 was $128.6 million or
$0.64 per share, compared with
$71.7 million or $0.36 per share in Q3'19.
- Cash generated from operating activities before interest and
taxes in Q3'20 was $89.2 million,
versus $13.1 million used in
operating activities in Q3'19, primarily due to a $61.5 million improvement in gross margin
resulting from higher sales revenue, together with more favourable
movements in working capital.
- 2020 capital expenditure guidance on a cash-basis for open-pit
operations has been reduced to approximately $60 million to $70
million from $70 million to
$90 million.
- In Q3'20, cost of sales was $2.22
per pound of copper sold and C1 cash costs1 were
$1.48 per pound of copper produced.
All-in sustaining costs1 were $1.88 per pound of copper produced.
- Total operating cash costs1 of $181.4 million in Q3'20 increased 3.6% from
$175.1 million in Q3'19, principally
due to higher royalty costs resulting from higher sales revenue,
partially offset by lower milling costs.
- Total operating cash costs1 and C1 cash
costs1 guidance ranges for 2020 are based upon estimated
costs of sales of $2.10 to
$2.50 per pound of copper sold.
Operating cash costs1 guidance remains at $780 million to $830
million. C1 cash costs1 guidance range has been
reduced to $1.30 - $1.70 per pound of copper produced from
$1.60 - $2.00 per pound of copper produced.
- During Q3'20, underground development spend was $242.1 million, resulting in total project spend
since January 1, 2016 of
approximately $4.2 billion.
- As at September 30, 2020,
Turquoise Hill has $1.3 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 Q2'22.
- On September 9, 2020, Turquoise
Hill and Rio Tinto plc (Rio Tinto) signed a non-binding Memorandum
of Understanding (MOU) concerning the funding of Oyu Tolgoi that
reflects the parties' understanding to pursue a re-profiling of
existing project debt in line with current cash flow projections,
and further to seek to raise supplemental senior debt (SSR) in the
aggregate amount of up to $500
million.
- Overall, underground lateral development has now reached 48,604
eqm, and progress continues broadly in line with expectations set
forth in the Oyu Tolgoi Technical Report filed on August 28, 2020 (OTTR20).
- All surface infrastructure required for first sustainable
production is complete and the team is focused on the safe and
efficient delivery of the critical underground Material Handling
System 1 (MHS1). The balance of project infrastructure to be
delivered post the completion of MHS1 is not needed for first
sustainable production; however, it is needed to support the
production ramp-up profile and the life of mine production
capacity.
- Although shafts 3 and 4 continue on care and maintenance, some
commissioning activities have advanced in preparation for shaft
sinking, including rope installation and no-load testing of the
Shaft 4 hoisting system. Further substantial progress will require
the remobilisation of international shaft-sinking specialists, and
subject to local border restrictions, preparation is underway to
mobilise these contractors and commence sinking before the end of
Q4'20. The review of the impacts of the shaft 3 and 4 delays are
ongoing, but first sustainable production is not anticipated to be
affected. We will communicate any implications, particularly for
Panel 1 and Panel 2 ramp-ups that shaft 3 and 4 will support, at an
appropriate time.
- Preliminary indications from the definitive estimate process
are that first sustainable production is trending towards the
earlier months of the previously guided range of October 2022 to June
2023, including a base case of October 2022, and that the forecast development
capital cost remains within the range of $6.6 to $7.1
billion with a base case of $6.8
billion. Turquoise Hill is undertaking an independent
technical assurance process into the preliminary definitive
estimate communicated by the manager. The cost and schedule range
assumes an easing of travel restrictions and COVID-19 related
controls from the time of reporting, which will continue to be
monitored and reviewed.
- During Q3'20, Turquoise Hill built an exploration team,
employing six skilled personnel to add to the Ulaanbaatar-based
technical services team. Turquoise Hill is well-placed to be a
leader of exploration in South Gobi by harnessing the experience
and knowledge of the new team together with our established
in-country presence.
- Subsequent to the end of the quarter, on November 4, 2020, the Company announced that it
commenced arbitration proceedings seeking a declaration to clarify
the provisions of certain agreements with Rio Tinto International
Holdings Limited (RTIHL) relating to their role and obligations to
support the Company in seeking additional financing for the Oyu
Tolgoi project. The arbitration was commenced in British Columbia, in accordance with the
relevant agreements between the parties.
- 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
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 nine months
ended September 30, 2020 (the Q3 2020
MD&A).
____________
|
1
|
Please refer to
Section – NON-GAAP MEASURES – on page 18 of this press release for
further information.
|
OPERATIONAL OUTLOOK FOR 2020
Oyu Tolgoi production guidance from both the open pit and the
commencement of processing of underground development material
remains within the ranges of 140,000 to 170,000 tonnes of copper
and 155,000 to 180,000 ounces of gold respectively, with gold
production trending towards the higher end of the range. 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 thus far been successful in bringing forward into
2020 the higher gold bearing ore that was previously scheduled to
be mined in 2021, and this is expected to continue through the
remainder of the year. Even assuming these initiatives bear success
in 2020, the Company has maintained its 2021 gold production
outlook. Mill throughput for 2020 is expected to be approximately
40 million tonnes.
Operating cash costs2 and C1 cash
costs2 for 2020 are based upon an estimated costs
of sales of $2.10 to $2.50 per pound of copper sold. Operating cash
costs2 for 2020 are expected to be $780 million to $830
million. C1 cash costs2 are expected to be
in the range of $1.30 to $1.70 per pound of copper produced, reduced from
$1.60 to $2.00 per pound of copper produced, where unit
cost guidance assumes the midpoint of expected 2020 copper and the
high end of gold production ranges and commodity price assumptions
of $2.74 per pound of copper and
$1,837 per ounce gold. C1 cash
costs2 guidance range has been reduced due to the
impact of gold production which is expected to trend towards the
higher end of the 155,000 to 180,000 ounce range as well as the
impact of improved gold price estimates.
Capital expenditure for 2020 on a cash-basis is expected to be
approximately $1.0 billion to
$1.1 billion for the underground
development.
Capital expenditure for 2020 on a cash-basis for open-pit
operations has been reduced to approximately $60 million to $70
million from $70 million to
$90 million due primarily to a
deferral of projects into 2021.
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.
____________
|
2
|
Please refer to
Section – NON-GAAP MEASURES – on page 18 of this press release for
further information.
|
2021 OUTLOOK
Production in 2021 is expected to remain in a range of
170,000 to 200,000 tonnes of copper, and 500,000 to 550,000 ounces
of gold as we continue to 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 Q3'20, Oyu Tolgoi had a total workforce (employees
and contractors), including underground project construction, of
approximately 12,500, of which 93% were Mongolians.
SELECTED FINANCIAL
METRICS (1)
|
Three months
ended
|
Nine months
ended
|
($ in millions,
unless otherwise noted)
|
3Q
|
3Q
|
Change
|
9
months
|
9 months
|
Change
|
2020
|
2019
|
%
|
2020
|
2019
|
%
|
|
|
|
|
|
|
|
Revenue
|
264.4
|
209.2
|
26.4%
|
673.1
|
944.6
|
(28.7%)
|
Income (loss) for the
period
|
161.7
|
45.1
|
--
|
253.0
|
(586.4)
|
--
|
Income (loss)
attributable to owners of Turquoise Hill
|
128.6
|
71.7
|
--
|
246.4
|
(263.5)
|
--
|
Basic and diluted
income (loss) per share attributable to owners of Turquoise
Hill
|
0.64
|
0.36
|
--
|
1.22
|
(1.31)
|
--
|
Revenue by metals in
concentrates
|
|
|
|
|
|
|
Copper
|
198.7
|
153.4
|
29.5%
|
517.3
|
609.7
|
(15.2%)
|
Gold
|
61.1
|
52.4
|
16.6%
|
145.3
|
324.8
|
(55.3%)
|
Silver
|
4.6
|
3.4
|
35.3%
|
10.5
|
10.1
|
4.0%
|
Cost of
sales
|
168.0
|
174.2
|
(3.6%)
|
495.9
|
568.0
|
(12.7%)
|
Production and
delivery costs
|
125.7
|
137.8
|
(8.8%)
|
367.5
|
433.9
|
(15.3%)
|
Depreciation and
depletion
|
42.2
|
34.9
|
20.9%
|
128.3
|
134.1
|
(4.3%)
|
Capital expenditure
on cash basis
|
254.5
|
329.2
|
(22.7%)
|
817.5
|
989.4
|
(17.4%)
|
Underground
|
242.1
|
296.8
|
(18.4%)
|
783.6
|
885.2
|
(11.5%)
|
Open pit
(2)
|
12.4
|
32.4
|
(61.7%)
|
33.9
|
104.2
|
(67.5%)
|
Proceeds from
pre-production revenue
|
(18.5)
|
-
|
100.0%
|
(26.1)
|
-
|
100.0%
|
Royalties
|
15.5
|
11.1
|
39.6%
|
40.0
|
51.5
|
(22.3%)
|
Operating cash costs
(3)
|
181.4
|
175.1
|
3.6%
|
550.3
|
579.9
|
(5.1%)
|
Unit costs
($)
|
|
|
|
|
|
|
Cost of sales (per
pound of copper sold)
|
2.22
|
2.44
|
(9.0%)
|
2.25
|
2.19
|
2.7%
|
C1 (per pound of
copper produced) (3)
|
1.48
|
2.14
|
(30.8%)
|
1.72
|
1.12
|
53.6%
|
All-in sustaining (per
pound of copper produced) (3)
|
1.88
|
2.84
|
(33.8%)
|
2.13
|
1.82
|
17.0%
|
Mining costs (per
tonne of material mined) (3)
|
1.93
|
1.87
|
3.2%
|
1.78
|
2.00
|
(11.0%)
|
Milling costs (per
tonne of ore treated) (3)
|
5.90
|
6.92
|
(14.7%)
|
6.06
|
7.03
|
(13.8%)
|
G&A costs (per
tonne of ore treated)
|
2.98
|
2.97
|
0.3%
|
3.05
|
3.23
|
(5.6%)
|
Cash generated from
(used in) operating activities
|
77.6
|
6.1
|
1,172.1%
|
(28.6)
|
141.9
|
(120.2%)
|
Cash generated from
operating activities before interest and tax
|
89.2
|
(13.1)
|
780.9%
|
125.4
|
299.4
|
(58.1%)
|
Interest
paid
|
0.7
|
2.5
|
(72.0%)
|
146.2
|
220.8
|
(33.8%)
|
Total
assets
|
13,087
|
12,787
|
2.3%
|
13,087
|
12,787
|
2.3%
|
Total non-current
financial liabilities
|
4,390
|
4,411
|
(0.5%)
|
4,390
|
4,411
|
(0.5%)
|
(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 18 of of this press release for further
information.
|
Q3'20 vs Q3'19
- Revenue of $264.4 million in
Q3'20 increased 26.4% from $209.2
million in Q3'19. Copper revenue increased by 29.5% driven
by higher sales volumes and a 12.5% increase in average copper
price. Gold revenue increased by 16.6% driven by a 29.7% increase
in average gold price partly offset by lower volumes of gold
concentrate sold.
- Cost of sales in Q3'20 of $168.0
million decreased 3.6% versus $174.2
million in Q3'19 due to a 9.0% decrease in the unit cost of
sales per pound of copper sold, partly offset by a 6.9% increase in
the volume of concentrate sold.
- Q3'20 unit cost of sales of $2.22
per pound of copper sold decreased 9.0% from $2.44 in Q3'19 reflecting improved head grades
and lower milling costs3 benefitting from the processing
of softer ore.
- Income in Q3'20 was $161.7
million compared with $45.1
million in Q3'19. This difference was primarily due to a
$55.2 million increase in revenue
versus Q3'19 together with $86.1
million of additional deferred tax assets recognized in
Q3'20 versus Q3'19. Income attributable to owners of Turquoise Hill
in Q3'20 was $128.6 million or
$0.64 per share, compared with
$71.7 million or $0.36 per share in Q3'19.
- Capital expenditure on a cash basis in Q3'20 was $254.5 million compared to $329.2 million in Q3'19, and is comprised of
$242.1 million attributed to the
underground project and $12.4 million
to open-pit activities.
- Total operating cash costs3 of $181.4 million in Q3'20 increased 3.6% from
$175.1 million in Q3'19. This was
principally due to higher royalty costs resulting from higher sales
revenue partially offset by lower milling costs.
- Oyu Tolgoi's C1 cash costs3 of $1.48 per pound of copper produced decreased
30.8% from $2.14 in Q3'19, primarily
reflecting the impact of the 27.8% increase in copper production
from Q3'19 to Q3'20. This had a positive impact on the unit cost
basis for both operating cash costs3 per pound of copper
produced and C1 cash costs3 per pound of copper
produced. The remaining decrease in C1 cash costs3 per
pound of copper produced in Q3'20 was due to ongoing cost savings
initiatives and lower milling costs.
- All-in sustaining cost3 of $1.88 per pound of copper produced in Q3'20
decreased 33.8% from $2.84 in Q3'19.
Similar to C1 cash costs3, the decrease was primarily
due to the positive impact of the increased copper production on a
unit cost basis. In addition, all-in sustaining costs3
in Q3'20 were further impacted by lower sustaining capital
expenditure. This was then partly offset by higher royalty costs
resulting from the higher sales revenue in Q3'20 compared to
Q3'19.
- Mining costs3 of $1.93
per tonne of material mined in Q3'20 increased 3.2% from
$1.87 in Q3'19. The increase was
mainly due to lower total material mined together with higher mine
maintenance service costs and higher consumables costs.
- Milling costs3 of $5.90 per tonne of ore treated in Q3'20 reduced
14.7% from $6.92 per tonne of ore
treated in Q3'19. The decrease was mainly due to lower consumption
of grinding balls and reagents, lower power costs benefitting from
a weaker Chinese yuan, and lower maintenance service costs due to
the planned major plant shutdowns for 2020 taking place in Q2'20
versus in Q3'19.
- G&A costs per tonne of ore treated of $2.98 in Q3'20 was consistent with $2.97 per tonne of ore treated in Q3'19.
- Cash generated from operating activities before interest and
taxes was $89.2 million in Q3'20, an
increase from $13.1 million used in
operating activities in Q3'19, primarily due to a $61.5 million improvement in gross margin
resulting mainly from higher sales revenue, together with more
favourable movements in working capital.
_____________
|
3
|
Please refer to
Section – NON-GAAP MEASURES – on page 18 of this press release for
further information.
|
OYU TOLGOI
Safety performance and COVID-19 Response
Oyu Tolgoi's safety performance improved with AIFR decreasing
from 0.22 per 200,000 hours worked for the six months ended
June 30, 2020 to 0.17 per 200,000
hours worked for the nine months ended September 30, 2020, with the AIFR for the quarter
0.03 per 200,000 hours worked. In addition to the continued
commitment to reducing health and safety risks and injury at Oyu
Tolgoi, preventing the spread of COVID-19 is a key priority for Oyu
Tolgoi and Turquoise Hill. While the open pit and ore processing
operations at Oyu Tolgoi have 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 these circumstances
have made it difficult for teams from Oyu Tolgoi, Rio Tinto and our
construction partners to access the site. Restrictions imposed on
total personnel numbers at site and excellent lateral development
productivity allowed the redeployment of lateral development crews
onto critical materials handling infrustructure
construction activities in Q3'20 in order to minimise any potential
COVID-19 impacts. Crews being redeployed away from lateral
development activities resulted in an associated reduction in
lateral development equivalent metres however this repriotisation
of work is not anticipated to impact first sustainable production.
Forty expatriates returned to Mongolia in July, which marked the first time
personnel from outside of Mongolia
were able to travel to the site since the onset of the pandemic.
Further flights are planned in order to return the required
specialists to site with two additional flights having arrived in
early November. COVID-19 related impacts to production and ramp-up
from the affected infrastructure will be included in the definitive
estimate due later in Q4'20.
On November 11, 2020, two cases of
COVID-19 were reported in Ulaanbaatar. As a consequence, the local
authorities have taken steps to minimise transmission and announced
initial restrictions until November 17,
2020, including a temporary halt on domestic flights which
includes travel to and from the Oyu Tolgoi mine site. As a result,
although OT Operations and Project work continues, COVID-19
restrictions in place at site are being reviewed in conjunction
with the relevant authorities. At this early stage the situation is
still under assessment and further information will be provided as
required.
Key operational metrics for Q3'20 are as
follows:
Oyu Tolgoi Production Data
All data represents
full production and sales on a 100% basis
Oyu Tolgoi
Production Data
|
All data
represents full production and sales on a 100% basis
|
|
|
Three months
Ended
|
Nine
months ended
|
|
3Q
|
3Q
|
Change
|
9 months
|
9 months
|
Change
|
|
2020
|
2019
|
|
2020
|
2019
|
|
|
|
|
|
|
|
|
Open pit material
mined ('000 tonnes)
|
23,979
|
24,844
|
(3.5%)
|
74,032
|
73,195
|
1.1%
|
Ore treated ('000
tonnes)
|
10,072
|
10,040
|
0.3%
|
30,606
|
29,689
|
3.1%
|
Average mill head
grades:
|
|
|
|
|
|
|
Copper (%)
|
0.45
|
0.37
|
21.6%
|
0.45
|
0.46
|
(2.2%)
|
Gold (g/t)
|
0.21
|
0.14
|
50.0%
|
0.18
|
0.34
|
(47.1%)
|
Silver
(g/t)
|
1.22
|
1.03
|
18.4%
|
1.19
|
1.16
|
2.6%
|
Concentrates produced
('000 tonnes)
|
168.5
|
131.3
|
28.3%
|
502.9
|
552.1
|
(8.9%)
|
Average concentrate
grade (% Cu)
|
21.5
|
21.7
|
(0.9%)
|
21.5
|
21.7
|
(0.9%)
|
Production of metals
in concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
36.3
|
28.4
|
27.8%
|
108.0
|
113.4
|
(4.8%)
|
Gold ('000
ounces)
|
37
|
26
|
42.3%
|
94
|
218
|
(56.9%)
|
Silver ('000
ounces)
|
219
|
191
|
14.7%
|
645
|
677
|
(4.7%)
|
Concentrate sold
('000 tonnes)
|
167.9
|
157.0
|
6.9%
|
488.1
|
567.2
|
(13.9%)
|
Sales of metals in
concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
34.4
|
32.4
|
6.2%
|
99.9
|
117.6
|
(15.1%)
|
Gold ('000
ounces)
|
34
|
35
|
(2.9%)
|
84
|
249
|
(66.3%)
|
Silver ('000
ounces)
|
201
|
207
|
(2.9%)
|
566
|
652
|
(13.2%)
|
Metal recovery
(%)
|
|
|
|
|
|
|
Copper
|
78.9
|
75.1
|
5.1%
|
77.4
|
80.3
|
(3.6%)
|
Gold
|
53.7
|
54.7
|
(1.8%)
|
51.0
|
66.2
|
(23.0%)
|
Silver
|
54.6
|
56.0
|
(2.5%)
|
54.0
|
59.6
|
(9.4%)
|
Copper production in Q3'20 increased 28% compared to Q3'19 due
to a planned increase in head grade as the open pit moves deeper
into the higher grade Phase 4B area
of the open pit.
Gold production in Q3'20 increased 43% over Q3'19 due to
increased head grade as the open pit moves deeper into the higher
grade Phase 4B of the open pit.
Q3'20 mill throughput was slightly higher than Q3'19 due to
slightly higher mill availability and an increased milling rate
associated with softer ore.
Underground development
On May 13, 2020, Turquoise Hill
announced a new block cave mine design for Panel 0. Preliminary
indications from the definitive estimate process are that first
sustainable production is trending towards the earlier months of
the previously guided range of October
2022 to June 2023, including a base case of
October 2022, and that the forecast
development capital cost remains within the range of $6.6 to $7.1
billion, with a base case of $6.8
billion. The cost and schedule range assumes an easing of
travel restrictions and COVID-19 related controls from the time of
reporting, which will continue to be monitored and reviewed.
Turquoise Hill is undertaking an independent technical assurance
process into the preliminary definitive estimate communicated by
the manager. Turquoise Hill's assurance and approvals program
related to the definitive estimate is underway and expected to be
completed in Q4'20. On July 2, 2020,
Turquoise Hill announced completion of the 2020 Oyu Tolgoi
Feasibility Study (OTFS20) incorporating the revised mine design
and updated Mineral Reserves and Mineral Resources. On August 28, 2020, Turquoise Hill filed an updated
technical report based on OTFS20.
The definitive estimate is scheduled to be completed before the
end of 2020 and is expected to provide an update to the Panel 0
boundaries informed by optimisation and further review of
geotechnical data, minimising the exposure of drawpoints to the
lower fault area. Turquoise Hill is undertaking an independent
technical assurance review of the indications and findings of the
definitive estimate communicated by the manager.
Although Shafts 3 and 4 continued on care and maintenance during
Q3'20, preparation activities for the resumption of sinking
activities are underway, including rope installation and no-load
testing of the Shaft 4 hoisting system. Further substantial
progress in this regard will require the remobilsation of
international shaft-sinking specialists, which the Company expects
will occur before the end of Q4'20, subject to local border
restrictions which currently remain in place to help curb the
spread of COVID-19. During Q3'20, strategic redeployment of lateral
development crews to essential underground material handling
infrastructure work, including the construction of primary crusher
one, was undertaken in order to support the pathway to sustainable
first development and minimise any COVID-19 related schedule
impacts.
Underground development continued with a focus on productivity
gains in the most critical development areas, progressing 4.7 total
equivalent kilometres and completing 14.3 thousand cubic metres of
mass excavation during Q3'20. Since the restart of underground
development, 48.6 total equivalent kilometres and 183.4 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
|
Q3'20
|
4.7
|
4.1
|
14.3
|
2020
|
15.7
|
14.5
|
28.2
|
Total
|
48.6
|
41.2
|
183.4
|
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
|
Q3'20
|
0.9
|
0.9
|
0.0
|
2020
|
3.0
|
2.6
|
10.1
|
Total
|
12.0
|
10.9
|
26.6
|
Note: Totals may not
match due to rounding.
|
Oyu Tolgoi spent $242.1 million on
the underground development during Q3'20. Total underground project
spend from January 1, 2016 to
September 30, 2020 was approximately
$4.2 billion. Underground project
spend on a cash basis includes expansion capital, VAT and
capitalised management services payment and excludes capitalised
interest and capitalised revenue. In addition, Oyu Tolgoi
had contractual obligations4 of $0.6 billion as at September 30, 2020. Since the restart of project
development up to September 30, 2020,
Oyu Tolgoi has made underground commitments exceeding $3.5 billion to Mongolian vendors and
contractors.
Underground drilling and orebody characterisation work is near
completion for Panel 0 and the northern area of Panel 2, which will
be the next area to be mined. Work has now shifted to the remaining
central and southern portions of Panel 2 and Panel 1. During Q3'20,
6033 metres of underground and 11519 metres of surface drilling was
completed. The drilling is multi-purpose and includes cover holes
and cave tracker beacon holes in addition to holes for geology and
geotechnical data collection. Data collection and assessment is
being prioritised to complete assessments in line with mining
progression. Due to the size of Panel 2, a decision has been made
to consider the area as three mining zones assisting with
efficiency in assessment and design updates. Drilling, data
collection and analysis is expected to continue through 2021 and
into 2022 with significant progress on a design review and update
for the north and central areas of Panel 2 expected in H2'21.
Broader Studies for P1 and P2 South are also progressing and
include assessments of recoverability of the structural pillars
incorporated into OTTR20.
Block caves are initiated by the drilling and blasting of a
narrow slice of rock above the extraction horizon, known as the
undercut. The undercut is developed across the entire ore body with
"drawbells" excavated on the extraction level beneath the undercut.
The drawbells serve as a place for caving rock to flow into and are
designed for production equipment to load from. Due to the
friability of the ore body, the ore above the undercut caves and
flows into the drawbells. The void created in the ore removal
process allows gravity to continue forcing the ore body
downward.
The commencement of the undercut in 2021 is a key milestone and
it is critical to ensure that, once commenced, the undercut and
drawpoint construction continues unimpeded. This will require both
technical support, such as confidence in commissioning dates for
the materials handing system, as well as the achievement of
non-technical criteria. We are working with Oyu Tolgoi and other
stakeholders to ensure that critical supporting aspects for a
successful project are in place prior to commencing the
undercut.
In Q1'20, Oyu Tolgoi submitted a Resources and Reserves update
for registration as required pursuant to local regulatory
requirements in Mongolia. The
expert review of this document continues and the required OTFS20
Feasbility Study Update is complete and awaiting acceptance and
endorsement by the regulator.
Work on the project has continued to progress despite COVID-19
controls and ongoing international travel restrictions issued by
the Government of Mongolia.
Forty expatriates returned to Mongolia in July - the first time this has
been possible since the onset of the pandemic. Further flights are
planned in order to return the required specialists to site to
continue progressing the underground project , with two additional
flights having arrived in early November.
____________
|
4
|
Please refer to
Section – NON-GAAP MEASURES – on page 18 of this press release for
further information.
|
EXPLORATION UPDATE
During Q3'20, Turquoise Hill built an exploration team,
employing six skilled personnel to add to the Ulaanbaatar-based
technical services team. The primary focus of the exploration team
is to complete work on Turquoise Hill's existing licenses and to
provide a pipeline of discoveries, which will be critical to the
achievement of its long-term strategy. Turquoise Hill will now be
reporting exploration activities on a quarterly basis. Turquoise
Hill is well-placed to be a leader of exploration in South Gobi by
harnessing the experience and knowledge of this new team and our
established in-country presence.
Over the years Turquoise Hill-owned companies have held multiple
exploration licenses in the region. These licenses were either
relinquished or sold following exploration programs and
assessments. In recent times, Turquoise Hill's exploration efforts
have focused on the 50-100km "Buffer Zone" surrounding Turquoise
Hill's current mining leases. Turquoise Hill currently holds two
exploration licenses within the Buffer Zone, these are Bag and
Od-2.
During Q3'20, the exploration team mobilised to our Bag license
to undertake a geophysical survey. There are currently about 25
people on site which includes our team members and contractors. The
survey will be completed in Q4'20 and the results will be processed
and interpreted over the following months.
Consistent with the way we work, Turquoise Hill sets out to
build enduring relationships with our neighbours that demonstrate
mutual respect, active partnership, and long term commitment. Our
newly-formed exploration team has re-engaged with the host
communities on our licenses to identifiy issues important to them
and areas our teams can contribute meaningfully. One example of
this has been our team's ability to secure additonal hay for local
livestock that were at risk over the winter due to poor local
conditions for pasture.
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 September 30, 2020,
the aggregate outstanding balance of shareholder loans extended by
subsidiaries of the Company to Oyu Tolgoi LLC was $7.0 billion, including accrued interest of
$1.6 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 September 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
$0.8 billion.
As at September 30, 2020,
Turquoise Hill has $1.3 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 Q2'22. This
expectation has improved due mainly to improved commodity price
estimates, continued focus on operating cost savings and other
optimisation efforts as well as updated assumptions regarding the
impacts of COVID-19 on our operations.
On September 9, 2020, Turquoise
Hill and Rio Tinto signed the non-binding MOU concerning the
funding of Oyu Tolgoi reflecting the parties' understanding to
pursue a re-profiling of existing project debt in line with current
cash flow projections, including by deferring scheduled principal
repayments and extending tenors (Re-profiling). The MOU reflected
the parties' understanding with respect to the raising of SSD, the
process for identifying and considering other funding options, and
the scope and timing for a Turquoise Hill equity offering (to the
extent required) to address any remaining funding gap with respect
to Oyu Tolgoi, all within the framework of existing agreements
between Turquoise Hill and Rio Tinto. Such options include
additional debt from banks or international financial institutions,
an offering of global medium-term notes and a gold streaming
transaction.
A successful Re-profiling would reduce the currently projected
funding requirements of Oyu Tolgoi by up to US$1.4 billion and extend political risk
mitigation.
The MOU also provided that Turquoise Hill and Rio Tinto would
seek to raise SSD in the form of amortizing term loans to Oyu
Tolgoi in the aggregate amount of up to US$500 million from selected international
financial institutions. Under the terms of its existing project
finance facility, Oyu Tolgoi LLC is permitted to arrange up to
$1.6 billion of SSD, subject to
meeting certain requirements relating to the tenor, amount and
timing of debt service obligations of such SSD and other customary
conditions.
Turquoise Hill will continue to prioritise funding by way of
debt and/or hybrid financing over equity funding for the eventual
balance of Oyu Tolgoi's funding requirements. Pursuant to the MOU,
Rio Tinto has advised Turquoise Hill that it does not currently
support, or expect to consent to, additional debt or other
non-equity sources of funding at Turquoise Hill or Oyu Tolgoi other
than as provided for above. Rio Tinto has committed in the
MOU to consider all reasonable financing proposals presented to it
by Turquoise Hill, subject to the parties' respective rights and
obligations under the existing agreements between them.
To the extent that the funding gap to complete the Oyu Tolgoi
underground project is not eliminated by the Re-profiling, the
raising of additional SSD, and additional debt and/or hybrid
financing, Turquoise Hill and Rio Tinto have acknowledged that the
balance of the funding gap will need to be satisfied by way of a
TRQ equity offering. In the MOU, the parties have recorded their
shared objective of ensuring that any required equity offering is
completed not less than 90 days prior to Turquoise Hill becoming
unable to meet its obligations as they become due.
If the Re-profiling is achieved and SSD in the amount of
US$500 million is raised but no other
debt or hybrid financing option is successfully completed,
Turquoise Hill estimates that it would need to raise additional
equity of at least US$ 1.1 billion.
If the Re-profiling is not achieved and no additional debt
(including SSD) or hybrid financing is completed, Turquoise Hill
expects that it would need to raise additional equity of at least
US$3.0 billion (based on the same
assumptions).
Each of these aforementioned funding 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 with the relevant stakeholders
(including Rio Tinto, existing lenders, any potential new lenders
and the Government of Mongolia),
market conditions and other factors. As there appears to be a
difference of views between the parties as to their respective
rights and obligations with respect to the financing process, the
Company has commenced arbitration proceedings in British Columbia seeking a declaration to
clarify the provisions of relevant agreements with Rio Tinto and a
related party relating to their role and obligations to support the
Company in seeking additional financing for the project. The
arbitration process is confidential and is expected to take between
three and five months to reach a decision. The arbitrator's
decision will be final and binding on the parties.
In the meantime, as contemplated in the MOU, the Company is
actively advancing its evaluation of financing options for the
project that could address the funding gap, in whole or in part.
Such options include additional debt from banks or international
financial institutions, an offering of global medium-term notes and
a gold streaming transaction. It is expected that details of the
Company's preferred funding options will be presented to Rio Tinto
for consideration in accordance with the MOU prior to December 31, 2020.
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 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, with respect 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. Turquoise
Hill currently estimates its base case incremental funding
requirement to be $3.0 billion
(compared to $3.6 billion estimated
in the Company's Q2'20 earnings release), taking into consideration
improved metal price assumptions for copper and gold over the peak
funding period as well as the preliminary findings of the
Definitive Estimate, which assumes:
- first sustainable production trending toward the earlier months
of the guided range of October 2022
to June 2023, including a target base
case of October 2022;
- Forecast development capital cost remaining within the range of
$6.6 to $7.1
billion with a base case of $6.8
billion;
- easing of travel restrictions and COVID-19 related controls;
and
- reduction in schedule contingency due to a combination of
project stage and completion of engineering and analysis work
streams.
Additionally, Turquoise Hill currently estimates its base case
incremental funding 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
underground mine into production, assuming the upper or lower end
of the capital cost range, as noted above, 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 . Assuming the upper or lower end of
the range for first sustainable first production, as noted above,
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
(the base case assumes the construction of a state-owned power
plant (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
the base case incremental funding requirement);
- 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 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
- the final 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 or less than
the $3.0 billion base case estimate
and such variance may be significant.
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 Oyu Tolgoi LLC.
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 restart 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 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.
Parliamentary Resolution 92
Upon completion of the Mongolian Parliamentary Working Group's
review of certain contractual agreements with the Government of
Mongolia that underpin Turquoise
Hill's investment in the Oyu Tolgoi copper-gold mine, 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 have engaged in
discussions with representatives of the relevant 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 had been concluded
and the first instance criminal court had 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.
Class Action Complaint
On October 14, 2020, a class
action complaint was filed in the U.S. District Court, Southern
District of New York against the
Company, certain of its current and former officers as well as Rio
Tinto and certain of its officers. The complaint alleges that the
defendants made material misstatements and material omissions with
respect to, among other things, the schedule, cost and progress to
completion of the development of Oyu Tolgoi in violation of Section
10(b) of the U.S. Securities Exchange Act and Rule 10b-5 thereunder. The Company believes that
the complaint against it is without merit. See the risk factor
titled "The Company may be subject to public allegations,
regulatory investigations or litigation that could materially and
adversely affect the Company's business" in the "RISKS AND
UNCERTAINTIES" section of the Company's MD&A for the year ended
December 31, 2019.
CORPORATE ACTIVITIES
2020 Oyu Tolgoi Technical Report
On August 28, 2020, the Company
filed an updated technical report for Oyu Tolgoi prepared in
accordance with the requirements of National Instrument 43-101 –
Standards of Disclosure of Mineral Projects and CIM
definition standards for Mineral Resources and Mineral Reserves
(2014). The 2020 Oyu Tolgoi Technical Report (2020 OTTR) was
prepared with the assistance of AMC Consultants Pty Ltd, and
superseded the Oyu Tolgoi Technical Report dated October 14, 2016.
Board appointment
On September 18, 2020, the Company
announced the resignation of director Alan
Chirgwin, effective September 17,
2020, and the appointment of Alfie
Grigg to the Company's Board of Directors, effective
September 18, 2020.
Completion of share consolidation
Subsequent to the end of the quarter, on October 1, 2020, the Company announced that it
was proceeding with the previously-approved consolidation (reverse
stock split) of the Company's issued and outstanding common shares
at a ratio of one post-consolidation share for every ten
pre-consolidation shares and on October 23,
2020, the consolidation was implemented, effective as of
5:00 p.m. (Eastern Standard Time) on
the same date. The consolidation reduced the number of issued and
outstanding common shares of the Company from 2,012,314,469 shares
to 201,231,430 shares. Proportionate adjustments were made to the
Company's outstanding performance share units, restricted share
units and deferred share units. The Company's Common Shares
commenced trading on both the NYSE and the TSX on a
post-consolidation basis at market open on Monday, October 26, 2020 under their existing
ticker symbols.
Commencement of Arbitration with Rio Tinto International
Holdings Limited
Subsequent to the end of the quarter, on November 4, 2020, the Company announced that,
following approval by the Special Committee of the Company's Board,
it commenced arbitration proceedings seeking a declaration to
clarify the provisions of certain agreements with Rio Tinto
International Holdings Limited (RTIHL) and a related party relating
to their role and obligations to support the Company in seeking
additional financing for the Oyu Tolgoi project. The arbitration
was commenced in British Columbia,
in accordance with the relevant agreements between the parties.
See also section "Funding of Oyu Tolgoi LLC by Turquoise
Hill" of this MD&A.
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)
|
(Nine Months
Ended)
|
C1 costs
(Stated in $000's of dollars)
|
September 30,
2020
|
September 30,
2019
|
September 30,
2020
|
September 30,
2019
|
Cost of
sales
|
167,991
|
174,188
|
495,871
|
567,978
|
Cost of sales:
$/lb of copper sold
|
2.22
|
2.44
|
2.25
|
2.19
|
Depreciation and
depletion
|
(42,268)
|
(34,944)
|
(128,340)
|
(134,119)
|
Provision against
carrying value of copper-gold concentrate
|
-
|
(1,493)
|
-
|
40
|
Change in
inventory
|
(1,702)
|
(14,868)
|
18,182
|
(42,711)
|
Other operating
expenses
|
49,909
|
40,835
|
144,713
|
169,078
|
Less:
|
|
|
|
|
- Inventory
(write-down) reversal
|
252
|
6,197
|
2,611
|
1,765
|
-
Depreciation
|
(629)
|
(2,373)
|
(4,579)
|
(6,004)
|
Management services
payment to Turquoise Hill
|
7,885
|
7,569
|
21,839
|
23,864
|
Operating cash
costs
|
181,438
|
175,112
|
550,297
|
579,891
|
Operating cash
costs: $/lb of copper produced
|
2.27
|
2.80
|
2.31
|
2.32
|
Adjustments to
operating cash costs(1)
|
3,086
|
14,442
|
15,732
|
35,609
|
Less: Gold and silver
revenues
|
(65,700)
|
(55,783)
|
(155,790)
|
(334,906)
|
C1 costs
($'000)
|
118,824
|
133,771
|
410,239
|
280,594
|
C1 costs: $/lb of
copper produced
|
1.48
|
2.14
|
1.72
|
1.12
|
|
|
|
|
|
All-in
sustaining costs (Stated in $000's of dollars)
|
|
|
|
|
Corporate
administration
|
6,496
|
3,640
|
21,068
|
13,943
|
Asset retirement
expense
|
(3,076)
|
2,100
|
(145)
|
6,163
|
Royalty
expenses
|
15,505
|
11,134
|
39,960
|
51,595
|
Ore stockpile and
stores write-down (reversal)
|
(252)
|
(6,197)
|
(2,611)
|
(1,765)
|
Other
expenses
|
603
|
804
|
4,069
|
1,063
|
Sustaining cash
capital including deferred stripping
|
12,420
|
32,518
|
33,913
|
104,373
|
All-in sustaining
costs ($'000)
|
150,520
|
177,770
|
506,493
|
455,966
|
All-in sustaining
costs: $/lb of copper produced
|
1.88
|
2.84
|
2.13
|
1.82
|
(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 Q3'20 are
calculated by reference to total mining costs of $45.9 million (Q3'19: $46.5 million) and total material mined of 23.8
million tonnes (Q3'19: 24.9 million tonnes).
Milling costs per tonne of ore treated in Q2'20 are calculated
by reference to total milling costs of $59.4
million (Q3'19: $69.7 million)
and total ore treated of 10.1 million tonnes (Q3'19: 10.1 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
|
September
30,
|
|
December
31,
|
(Stated in $000's of
dollars)
|
2020
|
|
2019
|
|
|
|
|
Inventories
(current)
|
$
|
185,656
|
|
$
|
175,719
|
Trade and other
receivables
|
32,059
|
|
27,047
|
Trade and other
payables:
|
|
|
|
|
- trade payables and
accrued liabilities
|
(292,250)
|
|
(389,476)
|
|
- payable to related
parties
|
(79,422)
|
|
(65,903)
|
Consolidated working
capital
|
$
|
(153,957)
|
|
$
|
(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
assumptions 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 Q3 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 Q3 2020 MD&A is 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 September 30, 2020 to the financial statements
and notes is provided below.
(Stated in $000's of
dollars)
|
Project
Finance
Facility
|
Purchase
obligations
|
Other
Obligations
|
Power
commitments
|
Lease
liabilities
|
Decommissioning
obligations
|
|
|
|
|
|
|
|
Commitments
(MD&A)
|
$
|
4,347,375
|
$
|
589,218
|
$
|
336,617
|
$
|
320,362
|
$
|
21,303
|
$
|
225,993
|
Cancellable
obligations
|
|
(467,128)
|
|
(173,965)
|
-
|
-
|
(net of exit
costs)
|
|
|
|
|
|
|
Accrued capital
expenditure
|
|
(84,860)
|
84,860
|
-
|
-
|
-
|
Discounting and other
adjustments
|
(144,732)
|
-
|
|
-
|
(4,619)
|
(114,732)
|
Financial
statement amount
|
$
|
4,202,643
|
$
|
37,230
|
$
|
421,477
|
$
|
146,397
|
$
|
16,684
|
$
|
111,261
|
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 three
months ended September 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 Q3 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
|
|
|
Sep-30
|
|
Jun-30
|
|
Mar-31
|
|
Dec-31
|
|
|
2020
|
|
2020
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
264.4
|
$
|
278.0
|
$
|
130.7
|
$
|
221.4
|
|
|
|
|
|
|
|
|
|
Income for the
period
|
$
|
161.7
|
$
|
72.3
|
$
|
19.0
|
$
|
109.5
|
|
|
|
|
|
|
|
|
|
Income attributable
to owners of Turquoise Hill
|
$
|
128.6
|
$
|
72.6
|
$
|
45.2
|
$
|
113.1
|
|
|
|
|
|
|
|
|
|
Basic and diluted
income per share attributable to
owners of Turquoise Hill
|
$
|
0.64
|
$
|
0.36
|
$
|
0.22
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended
|
|
|
Sep-30
|
|
Jun-30
|
|
Mar-31
|
|
Dec-31
|
|
|
2019
|
|
2019
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
209.2
|
$
|
382.7
|
$
|
352.7
|
$
|
346.2
|
|
|
|
|
|
|
|
|
|
Income (loss) for the
period
|
$
|
45.1
|
$
|
(736.7)
|
$
|
105.2
|
$
|
95.0
|
|
|
|
|
|
|
|
|
|
Income (loss)
attributable to owners of Turquoise Hill
|
$
|
71.7
|
$
|
(446.5)
|
$
|
111.2
|
$
|
101.0
|
|
|
|
|
|
|
|
|
|
Basic and diluted
income (loss) per share attributable to owners
|
|
|
|
|
|
|
|
|
of Turquoise
Hill
|
$
|
0.36
|
$
|
(2.22)
|
$
|
0.55
|
$
|
0.50
|
TURQUOISE HILL
RESOURCES LTD.
|
Consolidated
Statements of Income (Loss)
|
(Stated in
thousands of U.S. dollars)
|
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
Note
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
4
|
|
$
|
264,520
|
|
$
|
209,189
|
|
$
|
673,146
|
|
$
|
944,617
|
Cost of
sales
|
5
|
|
(167,991)
|
|
(174,188)
|
|
(495,871)
|
|
(567,978)
|
Gross
margin
|
|
|
96,529
|
|
35,001
|
|
177,275
|
|
376,639
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
6
|
|
(49,909)
|
|
(40,835)
|
|
(144,713)
|
|
(169,078)
|
Corporate
administration expenses
|
|
|
(6,496)
|
|
(3,640)
|
|
(21,068)
|
|
(13,943)
|
Other income
(expenses)
|
|
|
(250)
|
|
(1,751)
|
|
1,550
|
|
771
|
Impairment
charges
|
10
|
|
-
|
|
-
|
|
-
|
|
(596,906)
|
Income (loss)
before finance items and taxes
|
|
|
39,874
|
|
(11,225)
|
|
13,044
|
|
(402,517)
|
|
|
|
|
|
|
|
|
|
|
Finance
items
|
|
|
|
|
|
|
|
|
|
Finance
income
|
7
|
|
1,590
|
|
25,693
|
|
16,214
|
|
87,584
|
Finance
costs
|
7
|
|
(1,503)
|
|
(3,987)
|
|
(4,828)
|
|
(7,714)
|
|
|
|
87
|
|
21,706
|
|
11,386
|
|
79,870
|
Income (loss) from
operations before taxes
|
|
|
$
|
39,961
|
|
$
|
10,481
|
|
$
|
24,430
|
|
$
|
(322,647)
|
|
|
|
|
|
|
|
|
|
|
Income and other
taxes
|
|
|
121,803
|
|
34,591
|
|
228,608
|
|
(263,763)
|
Income (loss) for
the period
|
|
|
$
|
161,764
|
|
$
|
45,072
|
|
$
|
253,038
|
|
$
|
(586,410)
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to
owners of Turquoise Hill Resources Ltd.
|
|
|
128,612
|
|
71,730
|
|
246,380
|
|
(263,548)
|
|
Attributable to owner
of non-controlling interest
|
|
|
33,152
|
|
(26,658)
|
|
6,658
|
|
(322,862)
|
Income (loss) for
the period
|
|
|
$
|
161,764
|
|
$
|
45,072
|
|
$
|
253,038
|
|
$
|
(586,410)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings (loss) per share attributable
|
|
|
|
|
|
|
|
|
|
|
to Turquoise Hill
Resources Ltd.
|
|
|
$
|
0.64
|
|
$
|
0.36
|
|
$
|
1.22
|
|
$
|
(1.31)
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average number of shares
|
|
|
|
|
|
|
|
|
|
|
outstanding
(000's)
|
17
|
|
201,231
|
|
201,231
|
|
201,231
|
|
201,231
|
The notes to the Company's financial statements, which are
available on the Company's website, are part of its consolidated
financial statements.
TURQUOISE HILL
RESOURCES LTD.
|
Consolidated
Statements of Comprehensive Income (Loss)
|
(Stated in
thousands of U.S. dollars)
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Income (loss) for
the period
|
|
$
|
161,764
|
|
$
|
45,072
|
|
$
|
253,038
|
|
$
|
(586,410)
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Items that will not
be reclassified to income:
|
|
|
|
|
|
|
|
|
|
|
Changes in the fair
value of marketable securities at FVOCI
|
|
283
|
|
(2,353)
|
|
410
|
|
(2,962)
|
Other
comprehensive income (loss) for the period (a)
|
|
$
|
283
|
|
$
|
(2,353)
|
|
$
|
410
|
|
$
|
(2,962)
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss) for the period
|
|
$
|
162,047
|
|
$
|
42,719
|
|
$
|
253,448
|
|
$
|
(589,372)
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to
owners of Turquoise Hill
|
|
128,895
|
|
69,377
|
|
246,790
|
|
(266,510)
|
|
Attributable to owner
of non-controlling interest
|
|
33,152
|
|
(26,658)
|
|
6,658
|
|
(322,862)
|
Total
comprehensive income (loss) for the period
|
|
$
|
162,047
|
|
$
|
42,719
|
|
$
|
253,448
|
|
$
|
(589,372)
|
(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.
TURQUOISE HILL
RESOURCES LTD.
|
Consolidated
Statements of Cash Flows
|
(Stated in
thousands of U.S. dollars)
|
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
Note
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Cash generated
from (used in) operating activities
|
|
|
|
|
|
|
|
|
|
before interest and
tax
|
16
|
|
$
|
89,252
|
|
$
|
(13,050)
|
|
$
|
125,445
|
|
$
|
299,356
|
|
|
|
|
|
|
|
|
|
|
Interest
received
|
|
|
2,393
|
|
22,347
|
|
19,591
|
|
68,457
|
Interest
paid
|
|
|
(658)
|
|
(2,518)
|
|
(146,176)
|
|
(220,843)
|
Income and other
taxes paid
|
|
|
(13,277)
|
|
(715)
|
|
(27,426)
|
|
(5,068)
|
Net cash generated
from (used in) operating activities
|
|
|
$
|
77,710
|
|
$
|
6,064
|
|
$
|
(28,566)
|
|
$
|
141,902
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
|
Receivable from
related party: amounts withdrawn
|
18
|
|
-
|
|
260,000
|
|
511,284
|
|
790,000
|
Expenditures on
property, plant and equipment
|
|
|
(254,510)
|
|
(329,166)
|
|
(817,540)
|
|
(989,449)
|
Proceeds from
pre-production revenue
|
|
|
18,498
|
|
-
|
|
26,091
|
|
-
|
Purchase of other
financial assets
|
|
|
(383)
|
|
-
|
|
(383)
|
|
-
|
Other investing cash
flows
|
|
|
859
|
|
-
|
|
1,106
|
|
-
|
Cash used in
investing activities
|
|
|
$
|
(235,536)
|
|
$
|
(69,166)
|
|
$
|
(279,442)
|
|
$
|
(199,449)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
|
|
|
|
|
|
Net proceeds from
project finance facility
|
|
|
-
|
|
-
|
|
-
|
|
1,511
|
Repayment of project
finance facility
|
|
|
-
|
|
-
|
|
(1,545)
|
|
-
|
Payment of project
finance fees
|
|
|
-
|
|
-
|
|
-
|
|
(107)
|
Proceeds from bank
overdraft facility
|
|
|
-
|
|
25,000
|
|
-
|
|
25,000
|
Payment of lease
liability
|
|
|
(341)
|
|
(1,925)
|
|
(4,240)
|
|
(5,738)
|
Cash generated
from (used in) financing activities
|
|
|
$
|
(341)
|
|
$
|
23,075
|
|
$
|
(5,785)
|
|
$
|
20,666
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange
rates on cash and cash equivalents
|
|
|
|
544
|
|
80
|
|
980
|
|
88
|
Net decrease in
cash and cash equivalents
|
|
|
$
|
(157,623)
|
|
$
|
(39,947)
|
|
$
|
(312,813)
|
|
$
|
(36,793)
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents - beginning of period
|
|
|
$
|
1,496,795
|
|
$
|
1,606,221
|
|
$
|
1,651,985
|
|
$
|
1,603,067
|
Cash and cash
equivalents - end of period
|
|
|
1,339,172
|
|
1,566,274
|
|
1,339,172
|
|
1,566,274
|
Cash and cash
equivalents as presented on the balance sheets
|
|
|
$
|
1,339,172
|
|
$
|
1,566,274
|
|
$
|
1,339,172
|
|
$
|
1,566,274
|
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)
|
|
|
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents
|
8
|
|
$
1,339,172
|
|
$
1,651,985
|
Inventories
|
9
|
|
185,656
|
|
175,719
|
Trade and other
receivables
|
|
|
32,059
|
|
27,047
|
Prepaid expenses and
other assets
|
|
|
69,493
|
|
99,671
|
Receivable from
related party
|
18
|
|
-
|
|
511,284
|
|
|
|
1,626,380
|
|
2,465,706
|
Non-current
assets
|
|
|
|
|
|
Property, plant and
equipment
|
10
|
|
10,614,929
|
|
9,782,647
|
Inventories
|
9
|
|
36,482
|
|
28,985
|
Deferred income tax
assets
|
13
|
|
794,599
|
|
534,078
|
Other financial
assets
|
|
|
15,062
|
|
10,978
|
|
|
|
11,461,072
|
|
10,356,688
|
Total
assets
|
|
|
$13,087,452
|
|
$
12,822,394
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
12
|
|
$
44,277
|
|
$
26,547
|
Trade and other
payables
|
11
|
|
421,477
|
|
466,206
|
Deferred
revenue
|
|
|
46,911
|
|
27,896
|
|
|
|
512,665
|
|
520,649
|
Non-current
liabilities
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
12
|
|
4,175,050
|
|
4,187,270
|
Deferred income tax
liabilities
|
13
|
|
103,893
|
|
79,180
|
Decommissioning
obligations
|
14
|
|
111,261
|
|
104,238
|
|
|
|
4,390,204
|
|
4,370,688
|
Total
liabilities
|
|
|
$
4,902,869
|
|
$
4,891,337
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Share
capital
|
|
|
$11,432,122
|
|
$
11,432,122
|
Contributed
surplus
|
|
|
1,558,889
|
|
1,558,811
|
Accumulated other
comprehensive loss
|
|
|
(403)
|
|
(813)
|
Deficit
|
|
|
(3,575,509)
|
|
(3,821,889)
|
Equity
attributable to owners of Turquoise Hill
|
|
|
9,415,099
|
|
9,168,231
|
Attributable to
non-controlling interest
|
15
|
|
(1,230,516)
|
|
(1,237,174)
|
Total
equity
|
|
|
$
8,184,583
|
|
$
7,931,057
|
|
|
|
|
|
|
Total liabilities
and equity
|
|
|
$13,087,452
|
|
$
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)
|
|
|
|
|
Nine Months Ended
September 30, 2020
|
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
|
|
$
|
1,558,811
|
|
$
|
(813)
|
|
$
|
(3,821,889)
|
|
$
|
9,168,231
|
|
$
|
(1,237,174)
|
|
$
|
7,931,057
|
Income for the
period
|
-
|
|
-
|
|
-
|
|
246,380
|
|
246,380
|
|
6,658
|
|
253,038
|
Other comprehensive
income for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
|
-
|
|
-
|
|
410
|
|
-
|
|
410
|
|
-
|
|
410
|
Employee share
plans
|
-
|
|
78
|
|
-
|
|
-
|
|
78
|
|
-
|
|
78
|
Closing
balance
|
$
|
11,432,122
|
|
$
|
1,558,889
|
|
$
|
(403)
|
|
$
|
(3,575,509)
|
|
$
|
9,415,099
|
|
$
|
(1,230,516)
|
|
$
|
8,184,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 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
|
-
|
|
-
|
|
-
|
|
(1,122)
|
|
(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
|
-
|
|
-
|
|
-
|
|
(263,548)
|
|
(263,548)
|
|
(322,862)
|
|
(586,410)
|
Other comprehensive
loss for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
|
-
|
|
-
|
|
(2,962)
|
|
-
|
|
(2,962)
|
|
-
|
|
(2,962)
|
Employee share
plans
|
-
|
|
443
|
|
-
|
|
-
|
|
443
|
|
-
|
|
443
|
Closing
balance
|
$
|
11,432,122
|
|
$
|
1,558,707
|
|
$
|
(2,118)
|
|
$
|
(3,934,980)
|
|
$
|
9,053,731
|
|
$
|
(1,233,576)
|
|
$
|
7,820,155
|
The notes to the Company's financial statements, which are
available on the Company's website, are part of its consolidated
financial statements.
Follow us on Twitter @TurquoiseHillRe
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 arbitration proceedings,
including the potential benefits, timing and outcome of the
arbitration proceedings; the expectations set out in the OTTR20;
the timing and amount of future 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; the merits
of the class action complaint filed against the
Company; liquidity, funding sources, funding requirements and
planning and the status and nature of the Company's ongoing
discussions with Rio Tinto and its subsidiaries with respect to
future funding plans and requirements (including as contemplated by
the MOU); the amount of any funding gap to complete the Oyu Tolgoi
Project; the amount and potential sources of additional funding;
the Company's ability to re-profile its existing project debt in
line with current cash flow projections; the amount by which a
successful re-profiling of the Company's existing debt would reduce
the Company's currently projected funding requirements; the
Company's and Rio Tinto's understanding regarding the raising of
supplemental senior debt and the Company's ability to raise
supplemental senior debt; the Company's and Rio Tinto's
understanding regarding the process for identifying and considering
other funding options; the Company's and Rio Tinto's understanding
regarding the scope and timing for an equity offering by the
Company to address any remaining funding gap; the Company's
intention to prioritise funding by way of debt and/or hybrid
financing over equity funding; the Company's expectation of the
anticipated funding gap; the timing of studies, announcements and
analyses; 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 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; 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;
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;
the status and nature of the Company's ongoing discussions with Rio
Tinto and its subsidiaries with respect to future funding plans and
requirements (including as contemplated by the MoU) as well as the
commencement and conclusion of the arbitration proceedings,
including the potential benefits, timing and outcome of the
arbitration proceedings.
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, including the outcome of the class action complaint filed
against the Company; 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 as well as the status and nature of the Company's ongoing
discussions with Rio Tinto and its subsidiaries with respect to
future funding plans and requirements (including as contemplated by
the MOU); 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 OTTR20);
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 AIF, as supplemented by the "Risks and
Uncertainties" section of the Q3 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 Q3 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