MONTREAL, July 16, 2020 /PRNewswire/ - Turquoise Hill
Resources Ltd. ("Turquoise Hill" or the "Company") today announced
increased gold production guidance and other updates to 2020
guidance, its second quarter 2020 production for Oyu Tolgoi and
provided updates on underground development, COVID-19, liquidity
and funding and responded to Pentwater's allegations
Q2' 2020 Highlights
- Gold production guidance for 2020 has increased to a range of
155,000 – 180,000 ounces from 120,000 – 150,000 ounces, while
Copper production remains on track to achieve guidance of 140,000
to 170,000 tonnes.
- C1 cost guidance range is being lowered to $1.60 - $2.00 from
$1.80 - $2.20 per pound of copper due to the positive
impact from the increased 2020 gold production forecast.
- Due to cash cost reduction initiatives, the 2020 operating cash
cost range has been lowered to $780
million - $830 million from
$800 million - $850 million.
- The 2020 open pit sustaining capital range has been reduced to
$70 million - $90 million from $80
million - $100 million.
- Shaft 2 maintenance was successfully completed utilising remote
presence technology.
Q2' 2020 Production
- Q2' 2020 mill throughput was 7% lower due to higher scheduled
maintenance hours versus the same period last year, as well as the
processing of harder ore from the southwest pit.
- Copper production of 36,495 tonnes, a decrease of 7% vs Q2'
2019, due to higher scheduled maintenance hours as well as
processing of harder ore.
- Gold production of 31,150 ounces, a decrease of 57% vs Q2' 2019
due to planned processing of lower headgrade ore primarily driven
by the transition from Phase 4a to lower grade sources of Phase
4b and stockpiles as well as lower
milled tonnes.
- On a sequential basis both Copper and Gold head grade and
production increased from Q1' 2020 as open pit mining moved deeper
into higher grade Phase 4b and Phase
6b ore.
Open Pit, Underground Development, and COVID-19
- The Oyu Tolgoi open pit has continued to operate
uninterrupted.
- Sales increased in the second quarter with the easing of
COVID-19 trucking restrictions within China and improved border access.
- Work on the Oyu Tolgoi underground continued, achieving strong
productivity in underground advancement during Q2' 2020
(1,8301eqm in June, average monthly 1,8311eqm
for the quarter).
- Despite record underground development progress, the
unprecedented circumstances of COVID-19 had an impact on the
underground project in Q2' 2020 due to continued restrictions on
mine site access for teams from Oyu Tolgoi, Rio Tinto and our
construction partners.
- Shafts 3 and 4 continued on care and maintenance during Q2'
2020, and this is expected to continue until expert service
providers can return to site to complete technical commissioning of
specialised equipment and commence sinking activities. Work also
slowed on some essential underground material handling
infrastructure, in particular the construction of primary crusher
one, which has now returned to 24 hour shifts following a period of
day shift only. Personnel numbers on site have been limited in
order to manage the risks around COVID-19.
- Routine Shaft 2 rope shortening was successfully completed in
May with remote presence technology from the vendor used to assist
onsite teams to safely perform the task. Payload and speeds are
back to planned levels and people and materials movement via the
service hoist continue to operate normally.
_______________________
|
1
|
Total underground
development metres exclude conveyor to surface progress.
|
Liquidity Outlook
As at June 30, 2020, Turquoise
Hill has $1.5 billion of available
liquidity, which under current projections is expected to be
sufficient to meet the requirements of the Company, including its
operations and underground development, into early 2022. This
expectation has improved due mainly to lower estimated LIBOR rates
on project finance interest payments, continued focus on operating
cost savings and other optimisation efforts as well as updated
assumptions regarding the impacts of COVID-19. As announced by the
Company on July 2, 2020, Turquoise
Hill has decided to defer further discussions with Rio Tinto
regarding possible interim funding arrangements in light of its
improved liquidity outlook. If it becomes prudent to do so, the
Company may re-engage with Rio Tinto and / or third parties
regarding possible interim funding.
Going forward, Turquoise Hill's liquidity outlook will continue
to be impacted, either positively or negatively, by various
factors, many of which are outside the Company's control,
including:
- changes in commodity prices and other market-based
assumptions;
- open pit operating performance as well as the successful
implementation (or otherwise) of related optimisation efforts;
- further and / or unanticipated impacts on operations and
underground development related to COVID-19;
- the manner in which the amended Power Source Framework
Agreement (PSFA) is ultimately implemented; and
- developments in the ongoing dispute with the Mongolian Tax
Authority, relating to which formal international arbitration
proceedings were initiated.
Turquoise Hill continues to monitor its liquidity outlook and
will provide updates as and when circumstances require.
Incremental Funding Update
In addition to its available liquidity, Turquoise Hill has
recently updated its long-term cash flow projections, which
incorporate the following:
- the updated Panel 0 mine design announced on May 13, 2020;
- the amendment to the PSFA announced on June 28, 2020, under which Oyu Tolgoi LLC agreed
to prioritise a State Owned Power Plant (SOPP) to be developed and
financed by the Government of Mongolia (previous projections assumed an Oyu
Tolgoi led, coal-fired power plant at Tavan Tolgoi (TTPP) with an
estimated total project cost of up to $924
million);
- 2020 Oyu Tolgoi Feasibility Study announced on July 2, 2020;
- further updates to expected near-term impacts of COVID-19;
- the Company's current commodity price assumptions, which are
broadly in line with market consensus estimates; and
- expected open pit operating performance and the implementation
of current optimisation efforts.
Based on these updated cash flow projections, Turquoise Hill's
incremental funding requirement (i.e., over and above its available
liquidity) is currently expected to be at least $3.0 billion, which compares favorably to the at
least $4 billion estimate provided in
the Company's Q1 2020 earnings release. The improvement in the
updated projections is mainly from assuming a Mongolian-government
funded SOPP instead of an OT-led TTPP, as contemplated by the
recently signed PSFA Amendment. Additionally, Turquoise Hill
currently estimates the base case for its incremental funding
requirement to be $3.6 billion. The
base case estimate, like the minimum estimate, incorporates
principal repayments of $1.9 billion
and interest and similar charges of $1.1
billion and does not assume any re-profiling of existing
principal repayments or additional external financing.
Compared to the base case estimate, the minimum estimate uses
upside pricing and assumes the lower end of the development capital
range noted below. Additionally, the incremental funding
requirement will continue to be influenced by various factors, many
of which are outside the Company's control, including:
- the amount of development capital required to bring the Hugo
North underground mine into production (the Panel 0 mine design
anticipates a base case development capital cost of $6.8 billion, with a range of $6.6 billion to $7.1
billion; accordingly, assuming the upper or lower end of
this range would have either a favorable or unfavorable impact on
the base case incremental funding requirement);
- the timing of sustainable first production and ramp-up profile
and their impact on cash flows (the Panel 0 mine design anticipates
a base case target of February 2023
for first sustainable production, with a target range between
October 2022 and June 2023, inclusive of an allowance for schedule
contingency; accordingly, assuming the upper or lower end of this
range would have either a favorable or unfavorable impact on the
base case incremental funding requirement);
- the manner in which the amended PSFA is ultimately implemented
(both the base case and the minimum estimates assume that the
construction of SOPP will be financed by the Government of
Mongolia, as contemplated by the
PSFA Amendment; if one of the alternatives to SOPP available under
the amended PSFA, such as an OT-based, coal-fired power plant, is
ultimately implemented, this could significantly increase both the
base case and the minimum incremental funding requirements);
- changes to the amount of cash flow expected to be generated
from open-pit operations, net of sustaining capital
requirements;
- further and / or unanticipated impacts on operations and
underground development related to COVID-19;
- changes in expected commodity prices and other market-based
assumptions (upside and downside pricing sensitivities would have,
respectively, a favorable or unfavorable impact on the base case
incremental funding requirement); and
- outcomes of the Definitive Estimate and potential optimisations
to Panels 1 and 2.
More generally, any changes in the above factors will impact the
incremental funding requirement and, as a result, the actual
quantum of incremental funding required may be greater than the
$3.6 billion base case estimate and
such variance may be significant.
Under the terms of its existing project finance facility, Oyu
Tolgoi LLC is permitted to arrange up to US$
1.6 billion of supplemental senior debt, subject to meeting
certain requirements relating to the tenor and amount / timing of
debt service obligations of such supplemental senior debt and other
customary conditions. Under the 2015 Financing Support Agreement,
the incurrence of additional senior debt including this
$1.6 billion by Oyu Tolgoi LLC is
subject to Rio Tinto's consent. Moreover, the Debt Service
Undertaking and Completion Support Undertaking provided by
Turquoise Hill and Rio Tinto, respectively, in connection with Oyu
Tolgoi LLC's existing project finance facility would not extend to
any additional senior debt without the consent of such parties.
Turquoise Hill intends to further progress its engagement with
several key stakeholders, including Rio Tinto, to address the
longer-term funding requirements of Oyu Tolgoi LLC. Turquoise Hill
has (together with its financial and other advisors) already
considered, evaluated and prioritised a range of financing options,
including a possible re-profiling of Oyu Tolgoi LLC's existing debt
as well as the possibility of raising additional financing by Oyu
Tolgoi LLC. Each of these options, if implemented, would have the
effect of reducing the Company's incremental funding requirement.
However, successful implementation of such options is subject to
achieving alignment and / or agreement with the relevant
stakeholders (including Rio Tinto, existing lenders, any potential
new lenders and the Government of Mongolia), market conditions and other
factors.
Board Comments on Upcoming AGM and Pentwater's misleading
statements
Over the course of the past few months, Pentwater has made
several misleading statements regarding the Company's disclosures
particularly as they relate to the funding requirements for the
development of the OT project. The Company has previously provided
full disclosure in its MD&A and the contents of this current
release provide a complete update on the state of the Company's
liquidity position and funding requirements. The Company
believes it is in the best interest of all stakeholders to share
full and comprehensive information as it becomes available and has
not concealed either positive or negative financial information.
Such accusations are without merit and are merely part of a
campaign where Pentwater has attempted to paint an inaccurate
picture of the both the board and management of TRQ. We have
not sought to partake in this media campaign and have elected to
share the clear facts with our stakeholders as soon as
practical. The board believes the disruptive actions taken by
Matt Halbower on behalf of Pentwater
coupled with the inattention to properly assess critical
information demonstrate a lack of understanding of the mining
industry and the complexities of the Oyu Tolgoi project. This
highlight's concerns that the Board had and reaffirms the decision
to reject his candidacy. The independent directors along with
proper governance measures that are in place ensure that minority
shareholder interests are well represented and that any potential
conflicts are appropriately managed.
We are pleased that Glass Lewis has endorsed our recommendations
and has recommended that shareholders vote against the election of
Matthew Halbower to the board of
directors and against the proposal for minority shareholders
electing directors. In its report issued this week, Glass Lewis
stated that:
- "We find that the Company's governance framework and board
composition appear to facilitate appropriate independence within
the context of a controlled company, including appropriate
safeguards to protect the interests of minority shareholders and to
manage conflicts of interest with Rio."
- "The Dissident has failed to provide a convincing argument that
the board suffers from a lack of independent directors or that the
director selection process is actually controlled by Rio
Tinto."
- "We believe Rio Tinto's 50.8% equity stake in the Company
provides it with a considerable financial interest that is aligned
with the interest of minority shareholders."
- "In our view, the Company has clearly disclosed the ongoing
nature of the evaluation of various aspects of the project as well
as the associated risks and uncertainties."
- "While Turquoise Hill experienced a decline in shareholder
value in recent years and has faced challenges developing the Oyu
Tolgoi project, we do not believe the Dissident has made a credible
argument that these issues are the result of mismanagement or poor
oversight. We recognise that Oyu Tolgoi is a large complex project
with considerable risks and development uncertainties and that the
project's cost overruns compare favourably with cost overruns at
similar projects."
We encourage shareholders to vote for TRQ's nominees to the
board at the upcoming Annual and Special Meeting of shareholders
being held on Friday July 24, 2020,
9:00 a.m. (Pacific Time), at Crystal
Pavilion Ballroom BC, Pan Pacific Hotel, located at 300- 999 Canada
Place, Vancouver, British Columbia
(the "Meeting"). VOTE USING THE WHITE PROXY CARD prior to
9:00 a.m. (Pacific Time) on
July 22, 2020. If you have any
questions regarding the forms, please contact the Corporation's
strategic shareholder advisor and proxy solicitation agent,
Kingsdale Advisors, at 1-888-370-3955 (toll free in North America), or at 416-867-2272 (collect
outside North America), or by
email at contactus@kingsdaleadvisors.com.
Turquoise Hill Resources Ltd. will be transmitting the Meeting
via conference call. The conference call can be accessed
through the following dial-in details: 416-764-8688 (Toronto), 778-383-7413 (Vancouver), 1-888-390-0546 (North American
Toll-free), 08006522435 (United
Kingdom), 1800076068 (Australia), or 8001013217 (Singapore). The Meeting will also be
simultaneously webcast on Turquoise Hill's website at
www.turquoisehill.com. The conference call and webcast will provide
an audio stream of the Meeting and will be in listen-only mode. An
archived replay of the webcast will be available following the
conclusion of the call. To access the replay, you can dial
416-764-8677 (Local) or 1-888-390-0541 (North America). The replay entry code for the
Annual and Special Meeting call is 763863 #. The replay will be
available through August 24,
2020.
Oyu Tolgoi Production Data
All data represents
full production and sales on a 100% basis
|
2Q
|
3Q
|
4Q
|
1Q
|
2Q
|
1H
|
1H
|
Full Year
|
|
2019
|
2019
|
2019
|
2020
|
2020
|
2020
|
2019
|
2019
|
|
|
|
|
|
|
|
|
|
Open pit material
mined ('000 tonnes)
|
24,408
|
24,844
|
28,122
|
26,834
|
23,218
|
50,052
|
48,351
|
101,316
|
Ore treated ('000
tonnes)
|
10,394
|
10,040
|
11,088
|
10,889
|
9,645
|
20,534
|
19,649
|
40,777
|
Average mill head
grades:
|
|
|
|
|
|
|
|
|
Copper (%)
|
0.46
|
0.37
|
0.42
|
0.42
|
0.47
|
0.45
|
0.51
|
0.45
|
Gold (g/t)
|
0.31
|
0.14
|
0.15
|
0.15
|
0.19
|
0.17
|
0.44
|
0.29
|
Silver
(g/t)
|
1.20
|
1.03
|
1.06
|
1.14
|
1.22
|
1.18
|
1.23
|
1.13
|
Concentrates produced
('000 tonnes)
|
180.6
|
131.3
|
152.6
|
164.5
|
169.9
|
334.4
|
390.7
|
674.6
|
Average concentrate
grade (% Cu)
|
21.7
|
21.7
|
21.6
|
21.4
|
21.5
|
21.4
|
21.8
|
21.7
|
Production of metals
in concentrates:
|
|
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
39.2
|
28.4
|
32.9
|
35.2
|
36.5
|
71.7
|
85
|
146.3
|
Gold ('000
ounces)
|
72
|
26
|
24
|
26
|
31
|
57
|
192
|
242
|
Silver ('000
ounces)
|
238
|
191
|
190
|
214
|
212
|
426
|
486
|
867
|
Concentrate sold
('000 tonnes)
|
225.3
|
157.0
|
157.5
|
125.9
|
194.3
|
320.2
|
410.3
|
724.7
|
Sales of metals in
concentrates:
|
|
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
46.6
|
32.4
|
32.3
|
25.8
|
39.7
|
65.5
|
85.1
|
149.9
|
Gold ('000
ounces)
|
116
|
35
|
25
|
20
|
31
|
51
|
213
|
274
|
Silver ('000
ounces)
|
245
|
207
|
244
|
146
|
220
|
366
|
445
|
896
|
Metal recovery
(%)
|
|
|
|
|
|
|
|
|
Copper
|
80.2
|
75.1
|
74.2
|
74.3
|
79.1
|
76.7
|
82.2
|
78.7
|
Gold
|
63.6
|
54.7
|
48.2
|
46.0
|
52.0
|
49.3
|
68.2
|
63.6
|
Silver
|
59.2
|
56.0
|
53.5
|
51.5
|
55.8
|
53.6
|
61.2
|
58.1
|
Forward-looking statements and forward-looking
information
Certain statements made herein, including statements relating to
matters that are not historical facts and statements of the
Company's beliefs, intentions and expectations about developments,
results and events which will or may occur in the future,
constitute "forward looking information" within the meaning of
applicable Canadian securities legislation and "forward-looking
statements" within the meaning of the "safe harbor" provisions of
the United States Private Securities Litigation Reform Act of 1995.
Forward-looking statements and information relate to future events
or future performance, reflect current expectations or beliefs
regarding future events and are typically identified by words such
as "anticipate", "could", "should", "expect", "seek", "may",
"intend", "likely", "plan", "estimate", "will", "believe" and
similar expressions suggesting future outcomes or statements
regarding an outlook. These include, but are not limited to,
statements and information regarding: the expectations set out in
the 2020 Oyu Tolgoi Feasibility Study ("OTFS20"); timing and amount
of production and potential production delays; statements in
respect of the impacts of any delays on the Company's cash flows;
expected copper and gold grades; liquidity, funding sources,
funding requirements and planning; timing and status of underground
development; the mine design for Hugo North Lift 1 and the related
cost and production schedule implications; the re-design studies
for Panels 1 and 2 of Hugo North Lift 1 and the possible outcomes,
content and timing thereof; expectations regarding the possible
recovery of ore in the two structural pillars, to the north and
south of Panel 0; the possible progression of the 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 COVID19 on the
Company's business, operations and financial condition; capital and
operating cost estimates, timing of completion of the Definitive
Estimate review and the scope thereof; mill and concentrator
throughput; the outcome of formal international arbitration
proceedings; anticipated business activities, planned expenditures,
corporate strategies, and other statements that are not historical
facts.
Forward-looking statements and information are made based upon
certain assumptions and other important factors that, if untrue,
could cause the actual results, performance or achievements of the
Company to be materially different from future results, performance
or achievements expressed or implied by such statements or
information. There can be no assurance that such statements or
information will prove to be accurate. Such statements and
information are based on numerous assumptions regarding present and
future business strategies, local and global economic conditions,
and the environment in which the Company will operate in the
future, including the price of copper, gold and silver and
projected gold, copper and silver grades, anticipated capital and
operating costs, anticipated future production and cash flows, the
anticipated location of certain infrastructure in Hugo North Lift 1
and sequence of mining within and across panel boundaries, the
availability and timing of required governmental and other
approvals for the construction of the SOPP, the ability of the
Government of Mongolia to finance
and procure the SOPP within the timeframes anticipated in the PSFA,
as amended, the willingness of third parties to extend existing
power arrangements, the status of the Company's relationship and
interaction with the Government of Mongolia on the continued operation and
development of Oyu Tolgoi and Oyu Tolgoi LLC internal
governance.
Certain important factors that could cause actual results,
performance or achievements to differ materially from those in the
forward looking statements and information include, among others:
copper, gold and silver price volatility; discrepancies between
actual and estimated production; mineral reserves and resources and
metallurgical recoveries; development plans for processing
resources; the outcome of the Definitive Estimate review; public
health crises such as COVID-19; matters relating to proposed
exploration or expansion; mining operational and development risks,
including geotechnical risks and ground conditions; litigation
risks; regulatory restrictions (including environmental regulatory
restrictions and liability); Oyu Tolgoi LLC or the Government of
Mongolia's ability to deliver a
domestic power source for the Oyu Tolgoi project within the
required contractual time frame; communications with local
stakeholders and community relations; activities, actions or
assessments, including tax assessments, by governmental
authorities; events or circumstances (including strikes, blockades
or similar events outside of the Company's control) that may affect
the Company's ability to deliver its products in a timely manner;
currency fluctuations; the speculative nature of mineral
exploration; the global economic climate; dilution; share price
volatility; competition; loss of key employees; cyber security
incidents; additional funding requirements, including in respect of
the development or construction of a long-term domestic power
supply for the Oyu Tolgoi project; capital and operating costs,
including with respect to the development of additional deposits
and processing facilities; and defective title to mineral claims or
property. Although the Company has attempted to identify important
factors that could cause actual actions, events or results to
differ materially from those described in forward-looking
statements and information, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or
intended. All such forward-looking statements and information are
based on certain assumptions and analyses made by the Company's
management in light of their experience and perception of
historical trends, current conditions and expected future
developments, as well as other factors management believes are
reasonable and appropriate in the circumstances. These statements,
however, are subject to a variety of risks and uncertainties and
other factors that could cause actual events or results to differ
materially from those projected in the forward-looking statements
or information.
With respect to specific forward-looking information concerning
the continued operation and development of Oyu Tolgoi, the Company
has based its assumptions and analyses on certain factors which are
inherently uncertain. Uncertainties and assumptions include, among
others: the timing and cost of the construction and expansion of
mining and processing facilities; the timing and availability of a
long-term domestic power source (or the availability of financing
for the Company or the Government of Mongolia to construct such a source) for Oyu
Tolgoi; the ability to secure and draw down on the supplemental
debt under the Oyu Tolgoi project financing facility and the
availability of additional financing on terms reasonably acceptable
to Oyu Tolgoi LLC, Rio Tinto and the Company to further develop Oyu
Tolgoi; the potential impact of COVID-19; the impact of changes in,
changes in interpretation to or changes in enforcement of, laws,
regulations and government practices in Mongolia; the availability and cost of skilled
labour and transportation; the obtaining of (and the terms and
timing of obtaining) necessary environmental and other government
approvals, consents and permits; delays, and the costs which would
result from delays, in the development of the underground mine
(which could significantly exceed the costs projected in OTFS20);
projected copper, gold and silver prices and their market demand;
and production estimates and the anticipated yearly production of
copper, gold and silver at Oyu Tolgoi.
The cost, timing and complexities of mine construction and
development are increased by the remote location of a property such
as Oyu Tolgoi. It is common in mining operations and in the
development or expansion of existing facilities to experience
unexpected problems and delays during development, construction and
mine start-up. Additionally, although Oyu Tolgoi has achieved
commercial production, there is no assurance that future
development activities will result in profitable mining
operations.
Readers are cautioned not to place undue reliance on
forward-looking information or statements. By their nature,
forward-looking statements involve numerous assumptions, inherent
risks and uncertainties, both general and specific, which
contribute to the possibility that the predicted outcomes will not
occur. Events or circumstances could cause the Company's actual
results to differ materially from those estimated or projected and
expressed in, or implied by, these forward-looking statements.
Important factors that could cause actual results to differ from
these forward-looking statements are included in the "Risk Factors"
section in Company's AIF, as supplemented by the "Risks and
Uncertainties" section in the Company's Q1 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 Company's Q1 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