Turquoise Hill Resources today announced its financial results
for the period ended September 30,
2019. All figures are in U.S. dollars unless otherwise
stated.
MONTREAL, Nov. 12, 2019 /CNW/ - "Operationally, the third
quarter of 2019 was another strong quarter for the Company from
both a production and safety perspective. Our Oyu Tolgoi team has
continued to maximize the production from the open pit and as a
result, we have once again increased our 2019 gold production with
the new target moving from 230,000 to 240,000 ounces," stated Ulf
Quellmann, Turquoise Hill's Chief Executive Officer. "We also
continued to build on our excellent safety track record as Oyu
Tolgoi achieved another strong All Injury Frequency Rate of 0.18
per 200,000 hours worked during the nine months ended September 30, 2019. As you know, safety is a top
priority for us and is at the heart of everything we do. Safely
mining this deposit is central to who we are and is critical to our
continued success."
"Turning to the Underground development, construction of Shaft 2
is now complete and has entered into the final stages of
commissioning. The service hoist transports 300 people per cage
cycle versus a maximum of 60 people per cage cycle through Shaft 1,
and enables us to accelerate the underground development and
monetize one of the best undeveloped ore bodies on the planet."
HIGHLIGHTS
- Our Oyu Tolgoi team has continued to maximize the production
from the open pit and as a result, we have increased our 2019 gold
in concentrates production guidance to 240,000 ounces from 230,000
ounces, while lowering our 2019 C1 copper cash cost range to
$1.5 - $1.70 from $1.75 –
$1.95 per pound of copper
produced.
- Underground development progressed successfully during Q3'19,
achieving 3.6 total equivalent kilometres, our best quarterly
result to date.
- Since the restart of underground development, 28.0 total
equivalent kilometres and 22.1 kilometres of lateral development
has been completed. In September, a record 1,385m of lateral development metres were
mined.
- The construction of Shaft 2 was completed in October and has
entered the final stages of commissioning. The shaft uses the
world's largest production hoist motor and can carry 300 people in
the service hoist and lift 60 tonne skips in the production hoist.
When operating at maximum capacity, the production hoist has the
ability to lift 35,000 tonnes of material to the surface daily.
This is a critical piece of infrastructure that also provides
additional ventilation capacity and will enable the acceleration of
underground development.
- Shafts 3 and 4 pre sink work is complete with both shafts at
80 m below the shaft collar as of
September 30, 2019. The sinking
headframes and sinking stages for the Shafts are being assembled to
enable the hard rock sinking to commence over the coming
months.
- A decision has been made to retain a mid-access drive only on
the apex level of the mine design of Panel 0. This is one of a
number of integral decision points in narrowing options to complete
the final P0 mine design, however it is too early to accurately
determine the potential impact on the overall cost or schedule.
Decisions on other key underground infrastructure such as the
location of the ore passes and options for panel sequencing, and
productivity will need to be completed before an update on the
development capital or schedule can be provided.
- Revenue of $209.2 million in
Q3'19 decreased 15.1% from $246.5
million in Q3'18, reflecting the transition from mining
Phase 4A to lower grade Phase 4B and
stockpiles.
- Income for the period was $45.1
million compared with income of $15.2
million in Q3'18 with the increase primarily due to
additional deferred tax assets recognized in Q3'19 compared to
Q3'18, partly offset by lower gross margin driven by the reduced
revenue. Income attributable to owners of Turquoise Hill in Q3'19
was $71.7 million or $0.04 per share, compared with income of
$53.2 million or $0.03 per share in Q3'18.
- Cost of sales was $2.44 per pound
of copper sold, C1 cash costs were $2.14 per pound of copper produced, and all-in
sustaining costs were $2.84 per pound
of copper produced.
- Operating cash costs1 of $175.1 million in Q3'19, decreased 10.8% from
$196.4 million in Q3'18. This was
principally due to a decrease in mining and milling costs
benefitting from cheaper fuel, lower freight costs and royalty
costs driven by lower sales volumes and revenues.
- At the end of September 2019,
Turquoise Hill has approximately $2.7
billion of available liquidity, split between remaining
project finance proceeds of $1.1
billion and $1.6 billion cash
and cash equivalents. We currently expect to have enough liquidity
to fund our operations and underground development into Q1
2021.
- During Q3'19 underground development spend was $296.8 million, resulting in total project spend
since January 1, 2016 of
approximately $3.2 billion.
__________________________
|
1 Please refer to Section – NON-GAAP
MEASURES – on page 19 of this MD&A for further
information.
|
OPERATIONAL OUTLOOK FOR 2019
2019 operational guidance for gold in concentrates has increased
to 240,000 ounces from 230,000 ounces, while copper in
concentrates remains in the 125,000 to 155,000 tonnes range.
Open-pit operations are expected to continue to mine the lower
grade Phase 4B ore and stockpiles
through the remainder of 2019 with mill throughput expected to be
approximately 40 million tonnes. Average copper mill head grades
are also expected to be lower over the remainder of the year,
however, the company remains on track to achieve the full year
copper and increased gold production guidance.
Operating cash cost expectations for 2019 have decreased to
approximately $800 million from an
$800 million to $850 million range.
For 2019 underground development, we continue to expect capital
expenditures of $1.1 billion to
$1.2 billion. Capital expenditures
for 2019 on a cash-basis for open-pit operations have decreased to
a range of $140 million to
$160 million from a range of
$150 million to $180 million due to a lower capitalization of
deferred stripping costs and the deferral of certain project costs
and equipment purchases. Open-pit capital is mainly comprised of
deferred stripping, equipment purchases, maintenance
componentization and tailings storage facility construction.
Underground development capital includes both expansion capital and
VAT.
C1 cash costs are now expected to be between $1.50 to $1.70 per
pound of copper produced due to the impact of the increase in the
gold production guidance provided above, combined with the revised
reduction in operating cash cost guidance. The previous 2019 C1
cash cost guidance of $1.75 to
$1.95 per pound of copper produced
had assumed the midpoint of expected 2019 copper and gold
production ranges and a gold price of $1,281 per ounce. Looking at Q3'19 in isolation,
C1 cash costs of $2.14 per pound of
copper produced were above the full year expected range due to the
impact of lower gold sales revenue driven by the 25,600 ounces of
gold in concentrates produced in the third quarter of 2019 (against
an expected full year production of up to 240,000 ounces).
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.
Turquoise Hill's ownership of the Oyu Tolgoi mine is held through a
66% interest in Oyu Tolgoi LLC (Oyu Tolgoi); the remaining 34%
interest is held by Erdenes Oyu Tolgoi LLC (Erdenes), a Mongolian
state-owned entity.
The Oyu Tolgoi mine is located approximately 550 kilometres
south of Ulaanbaatar, Mongolia's
capital city, and 80 kilometres north of the Mongolia-China border. Mineralization on the property
consists of porphyry-style copper, gold, silver and molybdenum
contained in a linear structural trend (the Oyu Tolgoi Trend) of
deposits distributed over a 12 km interval of a 25 km corridor of
mineralization. Oyu Tolgoi has the potential to operate for over
100 years from five known mineralized deposits. The first of those
(the Oyut deposit) was put into production as an open-pit operation
in 2013. A second deposit, Hugo
North (Lift One), is under development 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 improved operating
practices and gained experience, which has helped achieve a
consistent throughput of over 105,000 tonnes per day. Concentrator
throughput for 2019 is targeted at 110,000 tonnes per day and
expected to be approximately 40 million tonnes for the year due to
improvements in concentrator performance and ore
characteristics.
At the end of Q3'19, Oyu Tolgoi had a total workforce (employees
and contractors), including underground project construction, of
approximately 14,500 of which 92% were Mongolians.
SELECTED FINANCIAL METRICS
Oyu Tolgoi Key Financial Metrics(1)
|
Three months
ended
|
Nine months
ended
|
($ in millions,
unless otherwise noted)
|
3Q 2019
|
3Q 2018
|
Change
|
9
months 2019
|
9
months 2018
|
Change
|
|
|
|
|
|
|
|
Revenue
|
209.2
|
246.5
|
-15.1%
|
944.6
|
833.9
|
13.3%
|
Income (loss) for the
period
|
45.1
|
15.2
|
--
|
(586.4)
|
299.3
|
--
|
Income (loss)
attributable to owners of Turquoise Hill
|
71.7
|
53.2
|
--
|
(263.5)
|
310.2
|
--
|
Basic and diluted
income (loss) per share attributable to
|
0.04
|
0.03
|
--
|
(0.13)
|
0.15
|
--
|
owners of Turquoise
Hill
|
|
|
|
|
|
|
Revenue by metals in
concentrates
|
|
|
|
|
|
|
Copper
|
153.4
|
180.4
|
-15.0%
|
609.7
|
656.1
|
-7.1%
|
Gold
|
52.4
|
63.3
|
-17.2%
|
324.8
|
167.6
|
93.7%
|
Silver
|
3.4
|
2.9
|
17.2%
|
10.1
|
10.1
|
0.0%
|
Cost of
sales
|
174.2
|
181.0
|
-3.8%
|
568.0
|
589.5
|
-3.6%
|
Production and
delivery costs
|
137.8
|
135.9
|
1.4%
|
433.9
|
424.6
|
2.2%
|
Depreciation and
depletion
|
34.9
|
45.2
|
-22.8%
|
134.1
|
164.9
|
-18.7%
|
Capital expenditure
on cash basis
|
329.2
|
328.8
|
0.1%
|
989.4
|
932.6
|
6.1%
|
Underground
|
296.8
|
304.8
|
-2.6%
|
885.2
|
866.5
|
2.2%
|
Open
pit(2)
|
32.4
|
24.0
|
35.0%
|
104.2
|
66.0
|
57.9%
|
Royalties
|
11.1
|
15.5
|
-28.4%
|
51.5
|
50.7
|
1.6%
|
Operating cash
costs(3)
|
175.1
|
196.4
|
-10.8%
|
579.9
|
574.8
|
0.9%
|
Unit costs
($)
|
|
|
|
|
|
|
Cost of sales (per
pound of copper sold)
|
2.44
|
2.28
|
7.0%
|
2.19
|
2.30
|
-4.3%
|
C1 (per pound of
copper produced)(3)
|
2.14
|
1.65
|
29.7%
|
1.12
|
1.71
|
-34.5%
|
All-in sustaining (per
pound of copper produced)(3)
|
2.84
|
2.29
|
24.0%
|
1.82
|
2.26
|
-19.5%
|
Mining costs (per
tonne of material mined)(3)
|
1.87
|
2.18
|
-14.2%
|
2.00
|
2.07
|
-3.4%
|
Milling costs (per
tonne of ore treated)(3)
|
6.92
|
7.38
|
-6.2%
|
7.03
|
7.19
|
-2.2%
|
G&A costs (per
tonne of ore treated)
|
2.97
|
3.43
|
-13.4%
|
3.23
|
2.52
|
28.2%
|
Cash generated from
operating activities
|
6.1
|
76.2
|
-92.0%
|
141.9
|
143.9
|
-1.4%
|
|
|
|
|
|
|
|
Cash generated from
(used in) operating activities before
|
(13.1)
|
52.5
|
-125.0%
|
299.4
|
216.9
|
38.0%
|
interest and
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
2.5
|
0.1
|
2400%
|
220.8
|
130.9
|
68.7%
|
Total
assets
|
12,787
|
13,223
|
-3.3%
|
12,787
|
13,223
|
-3.3%
|
Total non-current
financial liabilities
|
4,411
|
4,344
|
1.6%
|
4,411
|
4,344
|
1.6%
|
|
|
(1)
|
Any financial
information in this MD&A should be reviewed in conjunction with
the Company's consolidated financial statements or condensed
interim consolidated financial statements for the reporting periods
indicated.
|
(2)
|
Open-pit capital
expenditure includes both sustaining and non-underground
development activities.
|
(3)
|
Please refer to
NON-GAAP MEASURES – on page 19 of this MD&A for further
information.
|
Q3'19 vs Q3'18
- Revenue of $209.2 million
decreased 15.1% from $246.5 million
primarily due to both the expected 66.8% decrease in gold
production and the 28.0% decrease in copper production. The
decreased production and a 5% decrease in copper price was partly
offset by a 22% increase in the average gold price in the
period.
- Income for the period was $45.1
million compared with income of $15.2
million in Q3'18. This was primarily due to $53 million of additional deferred tax assets
recognized in Q3'19 compared to Q3'18, partly offset by a
$30.5 million lower gross margin
driven by the reduced revenue.
- Cost of sales of $174.2 million
decreased 3.8% from $181.0 million
reflecting lower volumes of concentrates sold, partly offset by the
impact of increased unit cost of sales per pound of copper
sold.
- Unit cost of sales of $2.44 per
pound of copper sold increased 7.0% from $2.28 reflecting lower average mill head grades
and recoveries impacted by transitioning to the lower grade Phase
4B ore.
- Capital expenditure on a cash basis of $329.2 million compared to $328.8 million in Q3'18, comprised of
$296.8 million attributed to the
underground project and $32.4 million
to open-pit activities.
- Total operating cash costs2 of
$175.1 million decreased 10.8% from
$196.4 million principally due to
decrease mining and milling costs benefitting from cheaper fuel,
lower freight costs and royalty costs driven by lower sales volumes
and revenue, partially offset by increased power study costs.
Operating cash costs include the 5% royalty payable to the
Government of Mongolia and exclude
deferred stripping costs.
- Oyu Tolgoi's C1 cash costs3 of
$2.14 per pound of copper produced
increased 29.7% from $1.65 mainly
reflecting the impact of lower copper production.
- All-in sustaining costs4 of $2.84 increased 24.0% from $2.29. Similar to the C1 cash costs, the increase
was primarily due to a reduction in copper production, partly
offset by lower royalty costs resulting from the lower sales
revenue in Q3'19 versus Q3'18.
- Mining costs5 of $1.87 per tonne of material mined decreased 14.2%
from $2.18 per tonne of material
mined. The decrease was due to higher material mined driven by
increased truck payload together with lower fuel prices, partially
offset by higher tire costs associated with increased cycle time as
the open pit deepens.
- Milling costs6 of $6.92 of ore treated decreased 6.2% from
$7.38 of ore treated mainly due to
lower maintenance service costs and cost savings in major plant
shutdowns.
- G&A costs per tonne of ore treated of $2.97 per tonne of ore treated decreased 13.4%
from $3.43 per tonne of ore treated
due to lower administrative expenses partly offset by increased
power study costs.
- Cash generated from operating activities of $6.1 million decreased 92% from $76.2 million primarily reflecting the impact of
lower sales revenue and movements in working capital.
At the end of September 2019,
Turquoise Hill has approximately $2.7
billion of available liquidity, split between remaining
project finance proceeds of $1.1
billion and $1.6 billion cash
and cash equivalents. Turquoise Hill's cash and cash equivalents
were unchanged from December 31, 2018
and down 6.7% from $1.7 billion at
September 30, 2018.
__________________________
|
2
|
Please refer to the
section NON-GAAP MEASURES – on page 19 of this MD&A for further
information.
|
3
|
Please refer to the
section NON-GAAP MEASURES – on page 19 of this MD&A for further
information.
|
4
|
Please refer to the
section NON-GAAP MEASURES – on page 19 of this MD&A for further
information.
|
5
|
Please refer to the
section NON-GAAP MEASURES – on page 19 of this MD&A for further
information.
|
6
|
Please refer to the
section NON-GAAP MEASURES – on page 19 of this MD&A for further
information.
|
OYU TOLGOI
Safety performance
Underground development by its nature increases specific levels
of safety risk and reinforces why safety is Oyu Tolgoi's main
priority. The mine's management is committed to reducing risk and
injury. Oyu Tolgoi achieved a strong All Injury Frequency Rate of
0.18 per 200,000 hours worked for the nine months ended
September 30, 2019. In addition,
there are other safety metrics that are common in the mining
industry, utilized by Oyu Tolgoi to continuously monitor safety
performance.
Q3'19 open-pit operations performance
Oyu Tolgoi Production Data
All data represents
full production and sales on a 100% basis
|
Three months
ended
|
Nine months
ended
|
|
3Q 2019
|
3Q 2018
|
Change
|
9
months 2019
|
9 months
2018
|
Change
|
|
|
|
|
|
|
|
Open pit material
mined ('000 tonnes)
|
24,844
|
22,523
|
10.3%
|
73,195
|
68,446
|
6.9%
|
Ore treated ('000
tonnes)
|
10,040
|
9,652
|
4%
|
29,689
|
29,377
|
1.1%
|
Average mill head
grades:
|
|
|
|
|
|
|
Copper (%)
|
0.37
|
0.51
|
-27.4%
|
0.46
|
0.50
|
-8%
|
Gold (g/t)
|
0.14
|
0.38
|
-63.2%
|
0.34
|
0.29
|
17.2%
|
Silver
(g/t)
|
1.03
|
1.19
|
-13.5%
|
1.16
|
1.22
|
-4.9%
|
Concentrates produced
('000 tonnes)
|
131.3
|
179.8
|
-27%
|
522.1
|
535.9
|
-2.6%
|
Average concentrate
grade (% Cu)
|
21.7
|
21.9
|
-0.9%
|
21.7
|
21.9
|
-0.9%
|
Production of metals
in concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
28.4
|
39.4
|
-28%
|
113.4
|
117.6
|
-3.6%
|
Gold ('000
ounces)
|
25.6
|
77
|
-66.8%
|
217.5
|
169
|
28.7%
|
Silver ('000
ounces)
|
191
|
230
|
-17%
|
676.8
|
676
|
0.1%
|
Concentrates sold
('000 tonnes)
|
157
|
171.9
|
-8.7%
|
567.2
|
555.0
|
2.2%
|
Sales of metals in
concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
32.4
|
36.0
|
-10%
|
117.6
|
116.4
|
1%
|
Gold ('000
ounces)
|
35.4
|
55
|
-35.6%
|
248.9
|
137
|
81.7%
|
Silver ('000
ounces)
|
207
|
201
|
-3%
|
652.2
|
657
|
-0.7%
|
Metal recovery
(%)
|
|
|
|
|
|
|
Copper
|
75.1
|
80.9
|
-7.2%
|
80.3
|
80.1
|
0.2%
|
Gold
|
54.7
|
64.7
|
-15.5%
|
66.2
|
61.2
|
8.2%
|
Silver
|
56
|
62.8
|
-10.8%
|
59.6
|
58.4
|
2.1%
|
Copper production in Q3'19 decreased 27.8% over Q3'18 due to
decreased head grade. Gold production in Q3'19 decreased 66.8% over
Q3'18 due to decreased head grade. Mill throughput in Q3'19
increased 4% year over year and decreased 3.4% sequentially.
Underground development
As previously announced on July
15th, improved information with respect to rock
mass and geotechnical data modelling has confirmed that there are
stability risks associated with components of the Feasibility Study
2016 mine design. Preliminary estimates indicate that sustainable
first production could be delayed by 16 to 30 months compared with
the Q1'21 estimate in the original feasibility study guidance in
2016, and the development capital spend for the project may
increase by $1.2 billion to
$1.9 billion over the $5.3 billion previously disclosed.
To address these risks, a number of refinements are under review
to determine the final mine design, and the first of the key
decisions that has been made is to retain a mid-access drive only
on the apex level of the mine design of Panel 0.
A mid-access drive is essentially a horizontal tunnel that cuts
transversely across the mine footprint and allows us to develop
both north and south within the ore body and accelerate the time to
first sustainable production. Although the ground conditions do not
enable us to incorporate the mid-access drive on all three levels
of the underground, the inclusion on the apex level will have a
positive impact on the schedule.
This is an integral step towards completing the final mine
design, however it is too early to accurately determine the
potential impact on the cost or schedule. Decisions on productivity
levels and key underground infrastructure such as the location and
design of the ore passes and options for panel sequencing, will
need to be completed before an update on the development capital or
schedule can be finalized.
Decisions regarding the sequencing of the first panel of mining,
Panel 0, productivity inputs and ore pass locations continue and
are expected to be completed by April
2020. The resulting Pre-Feasibility Study designs being
detailed to Feasibility Study standard, then scheduled and costed
to form the Definitive Estimate are due in the second half of 2020.
In the interim, underground development continues and we look
forward to providing the market with any updates to the schedule
and development capital spend as and when available.
Construction of Shaft 2 was completed and the service hoist was
successfully commissioned in October. This is a 10 metre diameter
shaft sunk to approximately 1.3 kilometers below the surface. The
shaft uses the world's largest production hoist motor able to lift
60 tonnes and can carry 300 people in the service hoist. When
operating at maximum capacity, the production hoist has the ability
to lift 35,000 tonnes of material to the surface daily.
Commissioning of the production hoist continues with over 2,700
tonnes of rock successfully hoisted to surface. We continue to work
with the regulatory agencies to complete the permitting of the
production hoist.
The Load out conveyor and Shaft 2 integrated materials handling
system is fully commissioned. This will enable ore to be conveyed
to the concentrator as soon as the production hoist system is
commissioned. The Shaft 2 production and logistics capability is a
key enabler of increased underground development and construction
of critical underground infrastructure such as the Primary Crusher
1 and the material handling systems that support the start of
production ramp-up.
Other key infrastructure components completed during Q3'19
include the central heating plant, the shaft 2 jaw crusher system
and the Shaft 2 surface discharge conveyor.
Shaft 3 pre-assembly of headframe modules commenced during the
third quarter while Shaft 4 vertical assembly of the sinking stage
was completed, along with the commencement of stage fit-out.
Primary Crusher 1 civil works are ongoing with the team
successfully constructing the 8 metres of wall at the underside of
the surge bin.
Lateral underground development in Q3'19 has accelerated.
Extensive focus on productivity gains on the most critical
development areas over the past five months has reaped substantial
improvements. Underground development progressed 3.6 total
equivalent kilometres amd 3.2 lateral kilometres during the
quarter. Since the restart of underground development, 28.0
total equivalent kilometres and 22.1 kilometres of lateral
development have been completed. The following table provides a
breakdown of the various components of completed development since
project restart:
Year
|
Total Equivalent Kilometres
|
Lateral Development (kilometres)
|
Mass Excavation ('000 metres1)
|
2016
|
1.6
|
1.5
|
3.0
|
2017
|
6.1
|
4.8
|
31.7
|
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
|
Total
|
28.0
|
22.1
|
146.3
|
|
|
Notes:
|
|
1.
|
Totals may not match
due to rounding.
|
Oyu Tolgoi spent $296.8 million on
underground development during Q3'19. Total underground project
spend from January 1, 2016 to
September 30, 2019 was approximately
$3.2 billion. Underground project
spend on a cash basis includes expansion capital, VAT and
capitalized management services payment and excludes capitalized
interest. In addition, Oyu Tolgoi had further capital
commitments7 of $0.8
billion as of September 30,
2019. Since the restart of project development, Oyu Tolgoi
has committed over $2.83 billion to
Mongolian vendors and contractors.
__________________________
|
7
|
Please refer to the
section NON-GAAP MEASURES on page 19 of this MD&A for further
information.
|
FUNDING OF OYU TOLGOI LLC BY TURQUOISE HILL
In accordance with ARSHA, Turquoise Hill has funded Oyu Tolgoi
LLC's cash requirements beyond internally generated cash flows by a
combination of equity investment and shareholder debt.
For amounts funded by debt, Oyu Tolgoi LLC must repay such
amounts, including accrued interest, before it can pay common share
dividends. As of September 30, 2019,
the aggregate outstanding balance of shareholder loans extended by
subsidiaries of the Company to Oyu Tolgoi LLC was $5.7 billion, including accrued interest of
$1.1 billion. These loans bear
interest at an effective annual rate of LIBOR plus 6.5%.
In accordance with the ARSHA, a subsidiary of the Company has
funded the common share investments in Oyu Tolgoi LLC on behalf of
state-owned Erdenes. These funded amounts earn interest at an
effective annual rate of LIBOR plus 6.5% and are repayable, by
Erdenes to a subsidiary of the Company, via a pledge over Erdenes'
share of Oyu Tolgoi LLC common share dividends. Erdenes also has
the right to reduce the outstanding balance by making cash payments
at any time. As of September 30,
2019, the cumulative amount of such funding was $1.2 billion, representing 34% of invested common
share equity, with unrecognized interest on the funding amounting
to $0.6 billion.
At the end of September 2019,
Turquoise Hill has approximately $2.7
billion of available liquidity, split between remaining
project finance proceeds of $1.1
billion, which are drawn and currently deposited with Rio
Tinto, and $1.6 billion of cash and
cash equivalents. In addition, we expect to generate free cash flow
at our existing open pit operations, which will also be available
to help fund the underground development.
Turquoise Hill currently expects to have enough liquidity to
fund its operations and underground development including
progression of a Tavan Tolgoi-based power plant, into Q1 2021.
Taking into consideration the estimated impacts of recently
announced increases to underground development capital, as well as
delays to first sustainable production, the Company expects to need
significant incremental financing to sustain its underground
development and construction of a Tavan Tolgoi-based power plant
beyond this timeframe. As has been previously noted, Turquoise Hill
and Oyu Tolgoi LLC have the option to raise additional external
financing subject to required approvals, to assist in funding
development going forward, including during underground
commissioning and ramp up. Important variables impacting the
ultimate amount of additional financing required include: the
amount of incremental underground development and power plant
capital needed, timing of sustainable first production and its
resulting cash flows, on-going debt service costs and timing of
principal repayments drawn on the project finance facility and the
amount of cash flow that can be generated from open-pit operations.
The Company will have greater clarity on its incremental funding
requirement as the Definitive Estimate progresses; however,
preliminarily estimates indicate significant incremental financing
will be required above the $2.7
billion in liquidity currently available.
As the work to complete the Definitive Estimate progresses,
Turquoise Hill continues to evaluate the impact of the estimated
increases to underground capital expenditure as well as delays to
sustainable first production, and the other important variable
discussed above, on its cash flows, liquidity and financing
projections and will update the market in due course. Further,
while progression of the Definitive Estimate will continue to
clarify the Company's funding requirements, Turquoise Hill has put
forward a proposal to Rio Tinto as to how best to source
incremental funding necessary to progress underground development
over and above its $2.7 billion of
available liquidity.
Oyu Tolgoi Mine Power Supply
Oyu Tolgoi LLC is obliged under the 2009 Oyu Tolgoi Investment
Agreement (Investment Agreement) to secure a long-term domestic
source of power for the Oyu Tolgoi mine. The Power Source Framework
Agreement (PSFA) entered into between Oyu Tolgoi LLC and the
Government of Mongolia on
December 31, 2018 provides a binding
framework and pathway for the construction of a Tavan Tolgoi-based
power solution for the Oyu Tolgoi mine by June 30, 2023. The power plant 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.
The PSFA specifies target dates for milestones to be achieved
through mutual cooperation between Oyu Tolgoi LLC and the
Government of Mongolia, several of
which have now passed. Oyu Tolgoi LLC is currently seeking to agree
to adjustments to the milestone timetable in the PSFA with the
Government of Mongolia and
continues to progress the project by finalizing the feasibility
study (including cost estimates), negotiating with contractors and
other third parties, and advancing commercial documentation. Oyu
Tolgoi LLC has shared certain preliminary cost estimates for the
project with Turquoise Hill and the Government of Mongolia, and Turquoise Hill, with the
assistance of advisors, has commenced its own internal processes to
independently review and validate the cost estimates.
Oyu Tolgoi LLC is at an advanced stage with a competitive tender
process to award a "turnkey" engineering, procurement and
construction (EPC) contract for construction of the project. The
timing of any award and commencement of construction will depend
upon the outcome of the on-going PSFA milestone timetable and
related discussions with the Government of Mongolia.
It is necessary for Oyu Tolgoi LLC to complete a feasibility
study for the power station and conclude negotiation of commercial
documents, and for Turquoise Hill to complete its review, to
finalize estimates of the expected cost of the power project and
the amount of Oyu Tolgoi LLC's related funding requirement. There
is a provision under Oyu Tolgoi LLC's existing project finance
documentation that permits, subject to certain conditions, an
increase of Oyu Tolgoi LLC's senior debt cap to permit additional
borrowings in connection with an expansion facility, such as the
proposed Tavan Tolgoi-based power plant project.
Oyu Tolgoi tax assessment
On January 16, 2018, Turquoise
Hill announced that Oyu Tolgoi had received and was evaluating a
tax assessment for approximately $155
million 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
paid an amount of approximately $4.8
million to settle unpaid taxes, fines and penalties for
accepted items.
Following engagement with the MTA, Oyu Tolgoi was advised that
the MTA could not resolve Oyu Tolgoi's objections to the tax
assessment. Accordingly, on March 15,
2018, Oyu Tolgoi issued a notice of dispute to the
Government under the Investment Agreement and on April 13, 2018, Oyu Tolgoi submitted a claim to
the Mongolian Administrative Court. The Administrative Court had
suspended the processing of the case for an indefinite period based
on procedural uncertainty in relation to the tax assessment
disputes. The Administrative Court has now reopened the case on the
tax dispute and has resumed court proceedings.
Chapter 14 of the Investment Agreement sets out a dispute
resolution process. The issuance of a notice of dispute is the
first step in the dispute resolution process and includes a
60-working-day negotiation period. The parties were unable to reach
a resolution during the 60-working-day period; however, the parties
have continued discussions in an attempt to resolve the dispute in
good faith. Should Oyu Tolgoi not be able to reach an agreement
with the Government of Mongolia
before the court renders a decision, the next step would be to
formally commence the dispute resolution proceedings under the
international arbitration process.
The Company is of the opinion that Oyu Tolgoi has now paid all
taxes and charges required under the Investment Agreement, "ARSHA",
the Underground Plan and Mongolian law.
Mongolian parliamentary working group
In March 2018, the Speaker of the
Mongolian Parliament appointed a Parliamentary Working Group
(Working Group) that consisted of 13 Members of Parliament to
review the implementation of the Investment Agreement. The Working
Group established five sub-working groups consisting of
representatives from government ministries, agencies, political
parties, non-governmental organizations and professors, to help and
support the Working Group. The Working Group was initially expected
to report to the Parliament before the end of spring session in
late June 2018.
On December 13, 2018, Oyu Tolgoi
received a letter from the head of the Working Group confirming
that the consolidated report, conclusions and recommendations of
the Working Group had been finalized and was ready to be presented
to the Parliament.
On March 22, 2019, the
Parliamentary press office announced that the Working Group report
had been submitted to the National Security Council (President,
Prime Minister and Speaker of the Parliament). On May 3, 2019, a summary of the Working Group
report was received by Oyu Tolgoi. On May 6, 2019, Oyu Tolgoi provided the Economic
Standing Committee of the Parliament with a written response to the
summary of the Working Group report.
As an outcome of the hearing, a new working group of nine
Members of Parliament was established to take the Working Group
Report and draft resolutions directing the Cabinet on
recommendations related to Oyu Tolgoi. The newly established
working group is in the process of drafting the resolution with the
draft resolution expected to be reviewed by the Economic Standing
Committee.
Anti-Corruption Authority information requests
On March 13, 2018, we announced
that Oyu Tolgoi LLC received information requests from the
Mongolian Anti-Corruption Authority (ACA) for information relating
to Oyu Tolgoi LLC. The ACA has also conducted interviews with
representatives of Oyu Tolgoi LLC in connection with its
investigation. Turquoise Hill has inquired as to the status of
the investigation and Oyu Tolgoi LLC has informed the Company that
the investigation appears to relate primarily to possible abuses of
power by certain former Government officials in relation to the
Investment Agreement, and that Oyu Tolgoi LLC is complying with the
ACA's requests in accordance with relevant laws.
To date, neither Turquoise Hill nor Oyu Tolgoi LLC have received
notice from the ACA, or indeed from any regulator, that either
company or their employees are subjects of any investigation
involving the Oyu Tolgoi project.
The Investment Agreement framework was authorized by the
Mongolian Parliament, concluded after 16 months of negotiations and
reviewed by numerous constituencies within the
Government. Turquoise Hill has been operating in good faith
under the terms of the Investment Agreement since 2009, and we
believe not only that it is a valid and binding agreement, but that
it has proven to be beneficial for all parties.
Adherence to the principles of the Investment Agreement, ARSHA
and Underground Plan has allowed for the development of the Oyu
Tolgoi mine in a manner that has given rise to significant
long-term benefits to Mongolia.
Benefits from the Oyu Tolgoi open-pit operations and underground
development include, but are not limited to, employment, royalties
and taxes, local procurement, economic development and
sustainability investments.
CORPORATE ACTIVITIES
US Trading Price Non-Compliance
On August 28, 2019 we received
receipt of an automatic notice of non-compliance from the Nasdaq
Stock Market LLC ("Nasdaq"). The non-compliance results from a
decline below $1.00 in the average
trading price of our shares over a consecutive 30-day trading
period. The Nasdaq notice follows a similar, previously disclosed
notice from the New York Stock Exchange. Our shares also trade on
the Toronto Stock Exchange which does not have such a trading price
policy.
Under both Nasdaq and NYSE rules, the Company has six months
from receipt of the notice to cure the share price non-compliance
(or, under the NYSE's rules, until the Company's next annual
meeting of shareholders if shareholder approval is required to
effect such cure) and the Company can regain compliance at any time
during the cure period if (i) under the NYSE's rules, on the last
trading day of any calendar month during the cure period the
Company's common shares have a closing price of at least
US$1.00 and an average closing price
of at least US$1.00 over the 30
trading-day period ending on the last trading day of that month or
on the last day of the cure period and (ii) under the Nasdaq's
rules, the Company's common shares have a closing price of at least
US$1.00 over a 10 trading-day
period.
The Company has notified the Nasdaq and the NYSE that it intends
to pursue measures to cure the share price non-compliance, and
currently expects that it will seek shareholder approval at the
Company's next annual meeting to complete a consolidation of the
Company's common shares (also known as a reverse stock split). The
Company is in compliance with all other Nasdaq and NYSE continued
listing standard rules. The Company's common shares will continue
to be listed and traded on the NYSE during the cure period, subject
to compliance with other continued listing standards. Under
the Nasdaq's rules, on or about February 24,
2020, we expect that the Company's common shares will be
transferred from The Nasdaq Global Select Market to The Nasdaq
Capital Market until the share price non-compliance is
remedied.
SELECTED QUARTERLY DATA
The Company's interim financial statements are reported under
IFRS applicable to interim financial statements, including
International Accounting Standard (IAS) 34 Interim Financial
Reporting. Factors necessary to understand general trends in
the select unaudited quarterly financial information are summarized
below.
($ in millions,
except per share information)
|
|
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
|
|
$
|
0.04
|
$
|
(0.22)
|
$
|
0.06
|
$
|
0.05
|
|
|
|
|
|
|
|
|
Quarter
Ended
|
|
|
Sep-30
|
Jun-30
|
Mar-31
|
Dec-31
|
|
|
2018
|
2018
|
2018
|
2017
|
|
|
|
|
|
|
Revenue
|
|
$
|
246.5
|
$
|
341.7
|
$
|
245.6
|
$
|
251.7
|
|
|
|
|
|
|
Income for the
period
|
|
$
|
15.2
|
$
|
204.4
|
$
|
79.7
|
$
|
33.9
|
|
|
|
|
|
|
Income attributable
to owners of Turquoise Hill
|
|
$
|
53.2
|
$
|
171.3
|
$
|
85.7
|
$
|
51.1
|
|
|
|
|
|
|
Basic and diluted
income per share attributable to owners of Turquoise
Hill
|
|
$
|
0.03
|
$
|
0.09
|
$
|
0.04
|
$
|
0.03
|
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 pexrformance 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.
|
|
|
Operating and unit
costs
|
|
|
|
(Three Months
Ended)
|
|
(Nine Months
Ended)
|
C1 costs
(Stated in $000's of dollars)
|
|
|
September 30,
2019
|
September 30,
2018
|
|
September 30,
2019
|
|
September 30,
2018
|
Cost of
sales
|
|
|
174,188
|
181,027
|
|
567,978
|
|
589,518
|
Cost of sales:
$/lb of copper sold
|
|
|
2.44
|
2.28
|
|
2.19
|
|
2.30
|
Depreciation and
depletion
|
|
|
(34,944)
|
(45,175)
|
|
(134,119)
|
|
(164,871)
|
Provision against
carrying value of copper-gold concentrate
|
|
|
(1,493)
|
-
|
|
40
|
|
-
|
Change in
inventory
|
|
|
(14,868)
|
(2,106)
|
|
(42,711)
|
|
(16,927)
|
Other operating
expenses
|
|
|
40,835
|
62,590
|
|
169,078
|
|
148,954
|
Less:
|
|
|
|
|
|
|
|
|
- Inventory
(write-down) reversal
|
|
|
6,197
|
(7,701)
|
|
1,765
|
|
(2,400)
|
-
Depreciation
|
|
|
(2,373)
|
(231)
|
|
(6,004)
|
|
(1,489)
|
Management services
payment to Turquoise Hill
|
|
|
7,569
|
8,034
|
|
23,864
|
|
22,020
|
Operating cash
costs
|
|
|
175,112
|
196,438
|
|
579,891
|
|
574,805
|
Operating cash
costs: $/lb of copper produced
|
|
|
2.80
|
2.26
|
|
2.32
|
|
2.22
|
Adjustments to
operating cash costs
|
|
|
14,442
|
13,092
|
|
35,609
|
|
46,166
|
Less: Gold and silver
revenues
|
|
|
(55,783)
|
(66,042)
|
|
(334,906)
|
|
(177,709)
|
C1 costs
($'000)
|
|
|
133,771
|
143,488
|
|
280,594
|
|
443,262
|
C1 costs: $/lb of
copper produced
|
|
|
2.14
|
1.65
|
|
1.12
|
|
1.71
|
|
|
|
|
|
|
|
|
|
All-in
sustaining costs (Stated in $000's of dollars)
|
|
|
|
|
Corporate
administration
|
|
|
3,640
|
5,818
|
|
13,943
|
|
18,083
|
Asset retirement
expense
|
|
|
2,100
|
1,654
|
|
6,163
|
|
5,056
|
Royalty
expenses
|
|
|
11,134
|
15,504
|
|
51,595
|
|
50,678
|
Ore stockpile and
stores write-down (reversal)
|
|
|
(6,197)
|
7,701
|
|
(1,765)
|
|
2,400
|
Other
expenses
|
|
|
804
|
789
|
|
1,063
|
|
962
|
Sustaining cash
capital including deferred stripping
|
|
|
32,518
|
24,083
|
|
104,373
|
|
66,242
|
All-in sustaining
costs ($'000)
|
|
|
177,770
|
199,037
|
|
455,966
|
|
586,683
|
All-in sustaining
costs: $/lb of copper produced
|
|
|
2.84
|
2.29
|
|
1.82
|
|
2.26
|
(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 for the three
months ended September 30, 2019 are
calculated by reference to total mining costs of $46.5 million (Q3'18: $49.0 million) and total material mined of 24.9
million tonnes (Q3'18: 22.5 million tonnes).
Milling costs per tonne of ore treated for the three months
ended September 30, 2019 are
calculated by reference to total milling costs of $69.7 million (Q3'18: $71.6 million) and total ore treated of 10.1
million tonnes (Q3'18: 9.7 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)
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Inventories
(current)
|
|
|
|
|
|
$
|
182,171
|
|
$
|
242,970
|
Trade and other
receivables
|
|
|
|
|
|
20,466
|
|
30,264
|
Trade and other
payables:
|
|
|
|
|
|
|
|
|
- trade payables and
accrued liabilities
|
|
|
|
|
|
(367,703)
|
|
(395,883)
|
- payable to related
parties
|
|
|
|
|
|
(66,886)
|
|
(51,490)
|
Consolidated working
capital
|
|
$
|
(231,952)
|
|
$
|
(174,139)
|
Contractual obligations
The following section of this MD&A discloses contractual
obligations in relation to the Company's lease, purchase and asset
retirement obligations. Amounts relating to these obligations are
calculated on the basis of the Company carrying out its future
business activities and operations as planned at the period end. As
such, contractual obligations presented in this 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 MD&A presentation
of contractual obligations 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 at September 30, 2019 to the financial statements
and notes is provided below.
(Stated in $000's of
dollars)
|
Purchase
obligations
|
Power
commitments
|
Lease
liabilities
|
Decommissioning
obligations
|
|
|
|
|
|
Commitments
(MD&A)
|
$
|
846,536
|
$
|
430,721
|
$
|
24,013
|
$
|
275,582
|
Cancellable
obligations
|
(674,957)
|
(171,802)
|
-
|
-
|
(net of exit
costs)
|
|
|
|
|
Accrued capital
expenditure
|
(130,453)
|
-
|
-
|
-
|
Discounting and other
adjustments
|
-
|
-
|
(122)
|
(141,152)
|
Financial
statement amount
|
$
|
41,126
|
$
|
258,919
|
$
|
23,891
|
$
|
134,430
|
INTERNAL CONTROL OVER FINANCIAL REPORTING
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, 2019 that
have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial
reporting.
QUALIFIED PERSON
Disclosure of information of a scientific or technical nature in
this MD&A in respect of the Oyu Tolgoi mine was approved by
Jo-Anne Dudley, Chief Operating
Officer of Turquoise Hill. Ms. Dudley is a "qualified person" as
that term is defined in National Instrument 43-101 - Standards
of Disclosure for Mineral Projects ("NI 43-101").
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
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
4
|
|
$
|
209,189
|
|
$
|
246,536
|
|
$
|
944,617
|
|
$
|
833,871
|
Cost of
sales
|
5
|
|
(174,188)
|
|
(181,027)
|
|
(567,978)
|
|
(589,518)
|
Gross
margin
|
|
|
35,001
|
|
65,509
|
|
376,639
|
|
244,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
6
|
|
(40,835)
|
|
(62,590)
|
|
(169,078)
|
|
(148,954)
|
Corporate
administration expenses
|
|
|
(3,640)
|
|
(5,818)
|
|
(13,943)
|
|
(18,083)
|
Other income
(expenses)
|
|
|
(1,751)
|
|
4,428
|
|
771
|
|
4,762
|
Impairment
charges
|
11
|
|
-
|
|
-
|
|
(596,906)
|
|
-
|
Income (loss)
before finance items and taxes
|
|
|
(11,225)
|
|
1,529
|
|
(402,517)
|
|
82,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
items
|
|
|
|
|
|
|
|
|
|
Finance
income
|
7
|
|
25,693
|
|
38,644
|
|
87,584
|
|
118,934
|
Finance
costs
|
7
|
|
(3,987)
|
|
(9,509)
|
|
(7,714)
|
|
(50,311)
|
|
|
|
|
|
|
21,706
|
|
29,135
|
|
79,870
|
|
68,623
|
Income (loss) from
operations before taxes
|
|
|
$
|
10,481
|
|
$
|
30,664
|
|
$
|
(322,647)
|
|
$
|
150,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income and other
taxes
|
14
|
|
34,591
|
|
(15,510)
|
|
(263,763)
|
|
148,603
|
Income (loss) for
the period
|
|
|
$
|
45,072
|
|
$
|
15,154
|
|
$
|
(586,410)
|
|
$
|
299,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners
of Turquoise Hill Resources Ltd.
|
|
|
71,730
|
|
53,169
|
|
(263,548)
|
|
310,156
|
Attributable to owner
of non-controlling interest
|
|
|
(26,658)
|
|
(38,015)
|
|
(322,862)
|
|
(10,852)
|
Income (loss) for
the period
|
|
|
$
|
45,072
|
|
$
|
15,154
|
|
$
|
(586,410)
|
|
$
|
299,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings (loss) per share attributable
|
|
|
|
|
|
|
|
|
to Turquoise Hill
Resources Ltd.
|
|
|
$
|
0.04
|
|
$
|
0.03
|
|
$
|
(0.13)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average number of shares outstanding (000's)
|
|
2,012,314
|
|
2,012,314
|
|
2,012,314
|
|
2,012,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes to these
financial statements, which are available on our website, are part
of the 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,
|
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) for
the period
|
|
$
|
45,072
|
|
$
|
15,154
|
|
$
|
(586,410)
|
|
$
|
299,304
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
Items that will not
be reclassified to income:
|
|
|
|
|
|
|
|
|
Changes in the fair
value of marketable securities at FVOCI
|
|
(2,353)
|
|
(1,111)
|
|
(2,962)
|
|
(3,409)
|
Other
comprehensive loss for the period (a)
|
|
$
|
(2,353)
|
|
$
|
(1,111)
|
|
$
|
(2,962)
|
|
$
|
(3,409)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss) for the period
|
|
$
|
42,719
|
|
$
|
14,043
|
|
$
|
(589,372)
|
|
$
|
295,895
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners
of Turquoise Hill
|
|
69,377
|
|
52,058
|
|
(266,510)
|
|
306,747
|
Attributable to owner
of non-controlling interest
|
|
(26,658)
|
|
(38,015)
|
|
(322,862)
|
|
(10,852)
|
Total
comprehensive income (loss) for the period
|
|
$
|
42,719
|
|
$
|
14,043
|
|
$
|
(589,372)
|
|
$
|
295,895
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) No tax charges
and credits arose on items recognized as other comprehensive income
or loss in 2019 (2018: nil).
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes to these
financial statements, which are available on our website, are part
of the 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
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash generated
from (used in) operating activities
|
|
|
|
|
|
|
|
|
|
before interest
and
tax
|
17
|
|
$
|
(13,050)
|
|
$
|
52,548
|
|
$
|
299,356
|
|
$
|
216,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
received
|
|
|
22,347
|
|
24,196
|
|
68,457
|
|
64,164
|
Interest
paid
|
|
|
(2,518)
|
|
(77)
|
|
(220,843)
|
|
(130,884)
|
Income and other
taxes paid
|
|
|
(715)
|
|
(509)
|
|
(5,068)
|
|
(6,211)
|
Net cash generated
from operating activities
|
|
|
$
|
6,064
|
|
$
|
76,158
|
|
$
|
141,902
|
|
$
|
143,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
|
Receivable from
related party: amounts withdrawn
|
18
|
|
260,000
|
|
310,000
|
|
790,000
|
|
860,000
|
Expenditures on
property, plant and equipment
|
|
|
(329,166)
|
|
(328,845)
|
|
(989,449)
|
|
(932,609)
|
Other investing cash
flows
|
|
|
-
|
|
-
|
|
-
|
|
616
|
Cash used in
investing activities
|
|
|
$
|
(69,166)
|
|
$
|
(18,845)
|
|
$
|
(199,449)
|
|
$
|
(71,993)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
|
|
|
|
|
|
Net proceeds from
project finance facility
|
|
|
-
|
|
-
|
|
1,511
|
|
4,158
|
Payment of project
finance fees
|
|
|
-
|
|
-
|
|
(107)
|
|
(192)
|
Proceeds from bank
overdraft facility
|
|
|
25,000
|
|
-
|
|
25,000
|
|
-
|
Payment of lease
liability
|
|
|
(1,925)
|
|
-
|
|
(5,738)
|
|
-
|
Cash generated
from financing activities
|
|
|
$
|
23,075
|
|
$
|
-
|
|
$
|
20,666
|
|
$
|
3,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange
rates on cash and cash equivalents
|
|
|
80
|
|
35
|
|
88
|
|
(78)
|
Net increase
(decrease) in cash and cash equivalents
|
|
|
$
|
(39,947)
|
|
$
|
57,348
|
|
$
|
(36,793)
|
|
$
|
75,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents - beginning of period
|
|
|
$
|
1,606,221
|
|
$
|
1,463,274
|
|
$
|
1,603,067
|
|
$
|
1,444,783
|
Cash and cash
equivalents - end of period
|
|
|
1,566,274
|
|
1,520,622
|
|
1,566,274
|
|
1,520,622
|
Cash and cash
equivalents as presented on the balance sheets
|
|
|
$
|
1,566,274
|
|
$
|
1,520,622
|
|
$
|
1,566,274
|
|
$
|
1,520,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes to these
financial statements, which are available on our website, are part
of the consolidated financial statements.
|
TURQUOISE HILL
RESOURCES LTD.
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
|
|
|
Note
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
8
|
|
$
|
1,566,274
|
|
$
|
1,603,067
|
Inventories
|
|
9
|
|
182,171
|
|
242,970
|
Trade and other
receivables
|
|
|
|
20,466
|
|
30,264
|
Prepaid expenses and
other assets
|
|
|
|
42,913
|
|
30,213
|
Receivable from
related party
|
|
10
|
|
1,096,284
|
|
1,620,073
|
|
|
|
|
|
|
|
2,908,108
|
|
3,526,587
|
Non-current
assets
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
11
|
|
9,437,373
|
|
8,838,305
|
Inventories
|
|
9
|
|
16,116
|
|
18,655
|
Deferred income tax
assets
|
|
14
|
|
415,963
|
|
649,421
|
Receivable from
related party and other financial assets
|
|
10
|
|
9,478
|
|
279,019
|
|
|
|
|
|
|
|
9,878,930
|
|
9,785,400
|
Total
assets
|
|
|
|
$
|
12,787,038
|
|
$
|
13,311,987
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
|
13
|
|
$
|
31,120
|
|
$
|
-
|
Trade and other
payables
|
|
12
|
|
506,159
|
|
459,244
|
Deferred
revenue
|
|
|
|
18,142
|
|
75,162
|
|
|
|
|
|
|
|
555,421
|
|
534,406
|
Non-current
liabilities
|
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
|
13
|
|
4,205,993
|
|
4,187,297
|
Deferred income tax
liabilities
|
|
14
|
|
71,039
|
|
47,934
|
Decommissioning
obligations
|
|
15
|
|
134,430
|
|
131,565
|
|
|
|
|
|
|
|
4,411,462
|
|
4,366,796
|
Total
liabilities
|
|
|
|
$
|
4,966,883
|
|
$
|
4,901,202
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Share
capital
|
|
|
|
$
|
11,432,122
|
|
$
|
11,432,122
|
Contributed
surplus
|
|
|
|
1,558,707
|
|
1,558,264
|
Accumulated other
comprehensive income (loss)
|
|
|
|
(2,118)
|
|
844
|
Deficit
|
|
|
|
|
(3,934,980)
|
|
(3,670,310)
|
Equity
attributable to owners of Turquoise Hill
|
|
|
|
9,053,731
|
|
9,320,920
|
Attributable to
non-controlling interest
|
|
16
|
|
(1,233,576)
|
|
(910,135)
|
Total
equity
|
|
|
|
$
|
7,820,155
|
|
$
|
8,410,785
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and equity
|
|
|
|
$
|
12,787,038
|
|
$
|
13,311,987
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies (Note 19)
|
|
|
|
|
|
|
|
|
|
|
The notes to these
financial statements, which are available on our website, are part
of the consolidated financial statements.
|
TURQUOISE HILL
RESOURCES LTD.
|
Consolidated
Statements of Equity
|
(Stated in
thousands of U.S. dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
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 16)
|
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 (Note
2)
|
|
-
|
-
|
-
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2018
|
Attributable to
owners of Turquoise Hill
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
Non-controlling
|
|
|
|
|
|
Contributed
|
comprehensive
|
|
|
|
Interest
|
|
|
|
|
Share
capital
|
surplus
|
income
(loss)
|
Deficit
|
Total
|
|
(Note 16)
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
Opening
balance
|
|
$
|
11,432,122
|
$
|
1,558,102
|
$
|
3,719
|
$
|
(4,081,508)
|
$
|
8,912,435
|
|
$
|
(893,211)
|
$
|
8,019,224
|
|
|
|
|
|
|
|
|
|
|
|
Income for the
period
|
|
-
|
-
|
-
|
310,156
|
310,156
|
|
(10,852)
|
299,304
|
Other comprehensive
loss for the
|
|
|
|
|
|
|
|
|
|
|
period
|
|
-
|
-
|
(3,409)
|
-
|
(3,409)
|
|
-
|
(3,409)
|
Employee share
plans
|
|
-
|
27
|
-
|
-
|
27
|
|
-
|
27
|
Closing
balance
|
|
$
|
11,432,122
|
$
|
1,558,129
|
$
|
310
|
$
|
(3,771,352)
|
$
|
9,219,209
|
|
$
|
(904,063)
|
$
|
8,315,146
|
|
The notes to these
financial statements, which are available on our website, are part
of the consolidated financial statements.
|
About Turquoise Hill Resources
Turquoise Hill is an international mining company focused on the
operation and continued development of the Oyu Tolgoi copper-gold
mine in Mongolia, which is the
Company's principal and only material mineral resource property.
Turquoise Hill's ownership of the Oyu Tolgoi mine is held through a
66% interest in Oyu Tolgoi LLC (Oyu Tolgoi); the remaining 34%
interest is held by Erdenes Oyu Tolgoi LLC (Erdenes), a Mongolian
state-owned entity.
Forward-looking statements
Certain statements made
herein, including statements relating to matters that are not
historical facts and statements of the Company's beliefs,
intentions and expectations about developments, results and events
which will or may occur in the future, constitute "forward-looking
information" within the meaning of applicable Canadian securities
legislation and "forward-looking statements" within the meaning of
the "safe harbor" provisions of the
United States Private Securities Litigation Reform Act of
1995. Forward-looking statements and information relate to
future events or future performance, reflect current expectations
or beliefs regarding future events and are typically identified by
words such as "anticipate", "could", "should", "expect", "seek",
"may", "intend", "likely", "plan", "estimate", "will", "believe"
and similar expressions suggesting future outcomes or statements
regarding an outlook. These include, but are not limited to,
information regarding the timing and amount of production and
potential production delays, statements in respect of the impacts
of any delays on the Company's cash flows, expected copper and gold
grades, liquidity, funding requirements and planning, statements
regarding timing and status of underground development, the
development options under consideration for the design of the Panel
0 and the related cost and schedule implications, timing and status
of the Tavan Tolgoi-based power project, capital and operating cost
estimates, timing of completion of the definitive estimate review,
mill and concentrator throughput anticipated business activities,
planned expenditures, corporate strategies including the potential
reverse stock split, and other statements that are not historical
facts.
Forward-looking statements and information are made based upon
certain assumptions and other important factors that, if untrue,
could cause the actual results, performance or achievements of the
Company to be materially different from future results, performance
or achievements expressed or implied by such statements or
information. There can be no assurance that such statements or
information will prove to be accurate. Such statements and
information are based on numerous assumptions regarding present and
future business strategies, local and global economic conditions,
and the environment in which the Company will operate in the
future, including the price of copper, gold and silver and
projected gold, copper and silver grades, anticipated capital and
operating costs, anticipated future production and cash flows, the
anticipated location of certain infrastructure and sequence of
mining in Panel 0 and the status of the Company's relationship and
interaction with the Government of Mongolia on the continued operation and
development of the Oyu Tolgoi mine and Oyu Tolgoi LLC internal
governance. Certain important factors that could cause actual
results, performance or achievements to differ materially from
those in the forward-looking statements and information include,
among others, copper; gold and silver price volatility;
discrepancies between actual and estimated production, mineral
reserves and resources and metallurgical recoveries; development
plans for processing resources; the outcome of the definitive
estimate review; matters relating to proposed exploration or
expansion; mining operational and development risks, including
geotechnical risks and ground conditions; litigation risks;
regulatory restrictions (including environmental regulatory
restrictions and liability); Oyu Tolgoi LLC's ability to deliver a
domestic power source for the Oyu Tolgoi project within the
required contractual time frame; communications with local
stakeholders and community relations; activities, actions or
assessments, including tax assessments, by governmental
authorities; events or circumstances (including strikes, blockages
or similar events outside of the Company's control) that may affect
the Company's ability to deliver its products in a timely manner;
currency fluctuations; the speculative nature of mineral
exploration; the global economic climate; dilution; share price
volatility; competition; loss of key employees; cyber security
incidents; additional funding requirements, including in respect of
the development or construction of a long-term domestic power
supply for the Oyu Tolgoi project; capital and operating costs,
including with respect to the development of additional deposits
and processing facilities; and defective title to mineral claims or
property. Although the Company has attempted to identify important
factors that could cause actual actions, events or results to
differ materially from those described in forward-looking
statements and information, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or
intended. All such forward-looking statements and information are
based on certain assumptions and analyses made by the Company's
management in light of their experience and perception of
historical trends, current conditions and expected future
developments, as well as other factors management believes are
appropriate in the circumstances. These statements, however, are
subject to a variety of risks and uncertainties and other factors
that could cause actual events or results to differ materially from
those projected in the forward-looking statements or
information.
With respect to specific forward-looking information concerning
the continued operation and development of the Oyu Tolgoi mine, the
Company has based its assumptions and analyses on certain factors
which are inherently uncertain. Uncertainties and assumptions
include, among others: the timing and cost of the construction and
expansion of mining and processing facilities; the timing and
availability of a long-term domestic power source (or the
availability of financing for the Company to construct such a
source) for Oyu Tolgoi; the ability to secure and draw down on the
supplemental debt under the Oyu Tolgoi project financing facility
and the availability of additional financing on terms reasonably
acceptable to Oyu Tolgoi LLC, Rio Tinto and the Company to further
develop the Oyu Tolgoi mine; the impact of changes in, changes in
interpretation to or changes in enforcement of, laws, regulations
and government practices in Mongolia; the availability and cost of skilled
labour and transportation; the obtaining of (and the terms and
timing of obtaining) necessary environmental and other government
approvals, consents and permits; delays, and the costs which would
result from delays, in the development of the underground mine
(which could significantly exceed the costs projected in the 2016
Oyu Tolgoi Feasibility Study and the 2016 Oyu Tolgoi Technical
Report); the anticipated location of certain infrastructure
and sequence of mining in Panel 0, projected copper, gold and
silver prices and their market demand; and production estimates and
the anticipated yearly production of copper, gold and silver at the
Oyu Tolgoi mine.
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 the Oyu Tolgoi mine has
achieved commercial production, there is no assurance that future
development activities will result in profitable mining
operations.
This MD&A also contains references to estimates of mineral
reserves and mineral resources. The estimation of reserves and
resources is inherently uncertain and involves subjective judgments
about many relevant factors. The mineral resource estimates
contained in this MD&A are inclusive of mineral reserves.
Further, mineral resources that are not mineral reserves do not
have demonstrated economic viability. The accuracy of any such
estimates is a function of the quantity and quality of available
data, and of the assumptions made and judgments used in engineering
and geological interpretation (including future production from the
Oyu Tolgoi mine, the anticipated tonnages and grades that will be
achieved or the indicated level of recovery that will be realized),
which may prove to be unreliable. There can be no assurance that
these estimates will be accurate or that such mineral reserves and
mineral resources can be mined or processed profitably. See the
discussion under the headings "Language Regarding Reserves and
Resources" and "Note to United States Investors Concerning
Estimates of Measured, Indicated and Inferred Resources" in the
section – CAUTIONARY STATEMENTS – of this MD&A. Such estimates
are, in large part, based on the following:
- Interpretations of geological data obtained from drill holes
and other sampling techniques. Large scale mineral continuity and
character of the deposits can be improved with additional drilling
and sampling; actual mineralization or formations may be different
from those predicted. It may also take many years from the initial
phase of drilling before production is possible, and during that
time the economic feasibility of exploiting a deposit may change.
Reserve and resource estimates are materially dependent on
prevailing metal prices and the cost of recovering and processing
minerals at the individual mine sites. Market fluctuations in the
price of metals or increases in the costs to recover metals or the
actual recovery percentage of the metal(s) from the Company's
mining projects may render mining of ore reserves uneconomic and
affect the Company's operations in a materially adverse manner.
Moreover, various short-term operating factors may cause a mining
operation to be unprofitable in any particular accounting
period;
- Assumptions relating to commodity prices and exchange rates
during the expected life of production, mineralization of the area
to be mined, the projected cost of mining, and the results of
additional planned development work. Actual future production rates
and amounts, revenues, taxes, operating expenses, environmental and
regulatory compliance expenditures, development expenditures, and
recovery rates may vary substantially from those assumed in the
estimates. Any significant change in these assumptions, including
changes that result from variances between projected and actual
results, could result in material downward revision to current
estimates;
- Assumptions relating to projected future metal prices. The
Company uses prices reflecting market pricing projections in the
financial modeling for the Oyu Tolgoi mine which are subjective in
nature. It should be expected that actual prices will be different
than the prices used for such modeling (either higher or lower),
and the differences could be significant; and
- Assumptions relating to the costs and availability of treatment
and refining services for the metals mined from Oyu Tolgoi, which
require arrangements with third parties and involve the potential
for fluctuating costs to transport the metals and fluctuating costs
and availability of refining services. These costs can be
significantly impacted by a variety of industry-specific as well as
regional and global economic factors (including, among others,
those which affect commodity prices). Many of these factors are
beyond the Company's control.
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 "Risks and
Uncertainties" section in this MD&A.
Readers are further cautioned that the list of factors
enumerated in the "Risks and Uncertainties" section of this
MD&A that may affect future results is not exhaustive. When
relying on the Company's forward-looking statements and information
to make decisions with respect to the Company, investors and others
should carefully consider the foregoing factors and other
uncertainties and potential events. Furthermore, the
forward-looking statements and information contained in this
MD&A 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 in this MD&A are expressly qualified by
this cautionary statement.
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SOURCE Turquoise Hill Resources Ltd.