MONTREAL, March 21, 2020 /CNW/ - Turquoise Hill Resources
today announced its financial results for the year ended
December 31, 2019. All figures are in
U.S. dollars unless otherwise stated.
"For 2019, the Oyu Tolgoi mine recorded another year of
excellent operational results, and record industry-leading safety
performance," stated Ulf Quellmann, Turquoise Hill's Chief
Executive Officer. "Our team at Oyu Tolgoi continues to maximize
our production efficiencies, which resulted in our full year copper
production to fall within our original guidance, and our gold
production exceeding our original targets. In addition, the mill
throughput achieved its fourth year in a row of operating at above
name-plate capacity."
"2019 was also a pivotal year for the underground development
with the completion of the above-ground infrastructure and Shaft 2.
Shaft 2 is a critical piece of infrastructure that allows the team
to accelerate the underground development. Productivity gains in
the underground development over the last five months of 2019 have
shown steady improvements with December achieving a new record of
over 1,800 meters of lateral equivalent meters."
"Today, COVID-19 presents a pandemic on a global scale that is
affecting everyone and certainly also our business. We have
got measures in place including a business resilience team at Oyu
Tolgoi to monitor, manage and mitigate the effects of
COVID-19. At this stage, the situation is very fluid and
hence we are not in a position to specify the impact on cost and
schedule. In the meantime, we continue to work closely with our
customers, our suppliers and the Government of Mongolia".
Highlights
Full Year 2019
- Safety is a top priority and is critical to our continued
success. The Oyu Tolgoi mine achieved another strong AIFR of 0.16
per 200,000 hours worked for the year ended December 31, 2019. AIFR steadily declined since
2013, dropping 64% from 2013 through 2019.
- Full year copper production of 146,346 tonnes vs original
guidance range of 125,000 – 155,000 tonnes.
- Full year gold production of 241,840 ounces vs original
guidance range of 180,000 – 220,000 ounces.
- Full year mill throughput of 40,777,225 tonnes, an increase of
5% over 2018.
- Revenue of $1.2 billion in 2019
decreased 1.2% over 2018, impacted by lower copper production
partly offset by higher gold revenue driven by a higher average
annual gold price in 2019.
- Cash used in operating activities before interest and taxes was
$341.7 million, a decrease from
$363.0 million generated in 2018,
primarily reflecting the impact of reduced revenue.
- For 2019, Oyu Tolgoi's cost of sales was $2.25 per pound of copper sold (2018:
$2.25), C1 cash
costs1 were $1.37 per
pound of copper produced (2018: $1.59) and all-in sustaining costs1
were $2.08 per pound of copper
produced (2018: $2.20).
- Total operating cash costs1 of $774.5 million for 2019 came in under the
Company's revised guidance and decreased 5.2% over 2018. This
decrease was due to lower freight and royalty costs driven by lower
volumes of concentrate sold and lower sales revenue respectively,
and lower milling costs due to lower maintenance costs. These were
partly offset by higher power study costs in 2019 compared to
2018.
- Underground expansion capital for 2019 was $1.2 billion, meeting the upper-end of the
Company's revised guidance.
- At the end of December 2019,
Turquoise Hill had approximately $2.2
billion of available liquidity, split between remaining
project finance proceeds of $0.5
billion and $1.7 billion of
cash and cash equivalents. We currently expect to have enough
liquidity to fund our operations and underground development into
Q2 2021.
- Shaft 2 construction was completed in October 2019, and was fully commissioned in
February 2020. The service hoist
allows for the movement of 300 people per cage cycle, adding to the
maximum of 60 people per cage cycle through Shaft 1, while the
production hoist has the ability to lift 35,000 tonnes of material
to surface daily.
- Construction is progressing on Shafts 3 and 4 with both collars
now installed. Final preparations are now underway to enable
commencement of main sinking operations for both shafts during the
second quarter of 2020.
- Since the restart of underground development in June 2016, 32.9 total equivalent kilometres and
155.3 cubic kilometres of mass excavation has been completed.
Mining of the primary crusher 1 excavation which is over 30,000
cubic metres in volume was completed in June
2019 and handed over for civil construction work to
commence.
- Detailed analysis work on the final mine design is still
anticipated to be completed during the first half of 2020, and the
Definitive Estimate, which will include the estimate of cost and
schedule for the underground project based on the updated design of
Panel 0, is still expected to be delivered in the second half of
2020.
- In May 2019, the Parliamentary
Working Group (PWG) concluded and submitted its report to the
Economic Standing Committee. From the report, a Resolution was put
forward by the PWG and passed unanimously in a plenary session of
the Parliament of Mongolia on
November 21, 2019 and published on
December 6, 2019.
- The Tavan Tolgoi Power Plant (TTPP) Feasibility Study was
submitted to the Government of Mongolia on February
17, 2020 by Oyu Tolgoi LLC. The study is based on a 300 MW
coal fired power plant to be located at the Tavan Tolgoi coal
fields approximately 150 kilometres from Oyu Tolgoi.
- In February 2020, the Company
announced that Oyu Tolgoi LLC has been unable to reach a resolution
of its dispute with the Mongolian Tax Authority with respect to its
tax assessment, and will be proceeding with the initiation of a
formal international arbitration proceeding in accordance with the
dispute resolution provisions of the Investment Agreement and the
Underground Plan.
- In March 2020, the Company
announced that following the first positive test for COVID-19 in
Mongolia, the Government of
Mongolia increased its
restrictions on flights in and out of the country and on the
movement of goods and people within and across its borders. The
Company announced there would be a slowdown on the underground
project, the full impact of which is unknown at this time. The
Company will update the market once more information is
available.
_______________
|
1
|
Please refer to
Section – NON-GAAP MEASURES – on page 18 of this press release for
further information.
|
Fourth quarter 2019
- Copper production in Q4'19 of 32,906 tonnes was lower compared
to Q4'18 due to decreased head grade driven by the transition from
Phases 4A and 6A, to Phase 4B, Phase
6B and lower grade stockpiles. As
anticipated gold production in Q4'19 of 24,344 ounces was
significantly lower compared to Q4'18 due to the planned transition
from Phase 4A to the lower grade sources of Phase 4B and stockpiles.
- In Q4'19, mill throughput was higher than the same quarter of
2018 due to overall feed hardness being lower as a result of
increased Phase 4B ore and Phase
6B ore, as well as lower grade
stockpiles material feed in blending. Mill availability and
equipment utilization were higher in Q4'19 than the same period of
2018.
- Shaft 2 construction was completed in October 2019 and the fully certified state
commissioning certificate for Shaft 2 being received on
February 19, 2020.
- Work advanced at Shaft 4 with the sinking stage installed into
the shaft barrel and headframe modules installed. Work on the
commissioning of the headframe and winder buildings is well
advanced ahead of the commencement of sinking in the second quarter
of 2020. At Shaft 3, we completed the construction of the sinking
gantry and it was placed into the shaft during the first week of
January 2020. Headframe module
placement has commenced.
- A decision was made in Q4 to retain a mid-access drive only on
the apex level of the mine design of Panel 0 (P0). 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.
Recent work, including the mid-access drive decision, indicates
that the schedule delay is within the 16 to 30 months range but is
trending away from the lower end.
- Productivity improvements resulted in increased underground
lateral development rates during the fourth quarter, with an
average rate of 1,607 equivalent metres (eqm) per month compared to
1,214 eqm in the third quarter, with December seeing a record 1,809
eqm.
- Revenue of $221.4 million in
Q4'19 decreased 36.0% from $346.2
million in Q4'18, primarily due to both a 79.2% decrease in
gold production and a 20.7% decrease in copper production,
reflecting the transition from mining Phase 4A to lower grade Phase
4B and stockpiles.
- Cash used in operating activities before interest and taxes was
$42.4 million, a decrease from
$146.1 million generated in Q4'18,
primarily reflecting the impact of reduced revenue.
- Cost of sales was $2.46 per pound
of copper sold, C1 cash costs2 were $2.21 per pound of copper produced, and all-in
sustaining costs2 were $2.97 per pound of copper produced.
- Total operating cash costs2 of $194.6 million in Q4'19 decreased 19.7% from
$242.3 million in Q4'18. This was
principally due to lower milling and mining costs due to lower
maintenance costs and lower royalty costs due to lower sales
revenue.
- During Q4'19 underground development spend was $289.7 million, resulting in total project spend
since January 1, 2016 of
approximately $3.5 billion.
OPERATIONAL OUTLOOK FOR 2020
Oyu Tolgoi is expected to produce 140,000 to 170,000 tonnes of
copper and 120,000 to 150,000 ounces of gold in concentrates in
2020 from both the open pit and the beginning of the underground
development material being processed. Although the mid-point copper
production range guidance is higher in 2020 versus the 2019
guidance, a lower gold production year is expected for 2020. This
is due to the need to mine through lower grade material on the
periphery of the South West pit as Phase 4B sinks towards the highest gold and copper
grades in the bottom of the pit. It is anticipated that the higher
grade ore will be accessed in 2021, resulting in a significant
increase in gold production in 2021. Mill throughput for 2020 is
expected to be approximately 40 million tonnes.
Operating cash costs2 for 2020 are expected to
be $800 million to $850 million.
Capital expenditure for 2020 on a cash-basis is expected to be
approximately $80 million to
$120 million for open-pit operations
and $1.2 billion to $1.3 billion for the underground development
exclusive of any expenditure on power.
Open-pit capital is mainly comprised of deferred stripping,
equipment purchases, tailings storage facility construction and
maintenance componentization. Underground development capital
includes both expansion capital and VAT.
C1 cash costs2 are expected to be in the range of
$1.80 to $2.20 per pound of copper produced, up from 2019
guidance largely reflecting the reduced gold production estimate.
Unit cost guidance assumes the midpoint of expected 2020 copper and
gold production ranges and commodity assumptions of $2.71 per pound copper and $1,362 per ounce gold.
______________________
|
2
|
Please refer to
Section – NON-GAAP MEASURES – on page 18 of this press release for
further information
|
2021 OUTLOOK
Production in 2021 is expected to increase to a range of
170,000 to 200,000 tonnes of copper, and 450,000 to 500,000 ounces
of gold, as we transition to the higher grade ore in the lower
benches of the pit and continue to increase the amount of
underground development material processed.
OUR BUSINESS
Turquoise Hill is an international mining company focused on the
operation and continued development of the Oyu Tolgoi copper-gold
mine in Mongolia, which is the
Company's principal and only material mineral resource property.
The Company's ownership of the Oyu Tolgoi mine is held through a
66% interest in Oyu Tolgoi LLC (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 kilometres interval of a 25
kilometres corridor of mineralization. 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 2020 is targeted at over 110,000 tonnes per day and
expected to be approximately 40 million tonnes for the year due to
improvements in concentrator performance and ore
characteristics.
At the end of Q4'19, Oyu Tolgoi had a total workforce (employees
and contractors), including underground project construction, of
approximately 13,800, of which 93% were Mongolians.
SELECTED ANNUAL FINANCIAL INFORMATION
($ in millions,
except per share information)
|
|
Year Ended December
31
|
|
|
|
|
|
|
|
2019
|
2018
|
2017
|
|
|
|
|
|
Revenue
|
|
$
|
1,166.0
|
$
|
1,180.0
|
$
|
939.8
|
|
|
|
|
|
Income (loss) for the
year
|
|
$
|
(476.9)
|
$
|
394.3
|
$
|
110.9
|
|
|
|
|
|
Net income (loss)
attributable to owners of Turquoise Hill
|
|
$
|
(150.5)
|
$
|
411.2
|
$
|
181.2
|
|
|
|
|
|
Basic and diluted
income (loss) per share attributable to owners of Turquoise
Hill
|
|
$
|
(0.07)
|
$
|
0.20
|
$
|
0.09
|
|
|
|
|
|
Total
assets
|
|
$
|
12,822.4
|
$
|
13,312.0
|
$
|
12,833.3
|
Long-term
liabilities
|
|
|
|
|
Borrowings and other
financial liabilities
|
|
$
|
4,187.3
|
$
|
4,187.3
|
$
|
4,159.1
|
Decommissioning
obligations
|
|
$
|
104.2
|
$
|
131.6
|
$
|
125.7
|
Deferred income tax
liabilities
|
|
$
|
79.2
|
$
|
47.9
|
$
|
25.8
|
|
Note: Annual
financial information has been extracted from the audited financial
statements of Turquoise Hill, which are prepared in accordance
with IFRS.
|
SELECTED FINANCIAL METRICS (1)
|
|
|
|
|
|
|
|
4Q
|
4Q
|
Change
|
12 months
|
12 months
|
Change
|
2019
|
2018
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
Revenue
|
221.4
|
346.2
|
-36.0%
|
1,166.0
|
1,180.0
|
-1.2%
|
Income (loss) for the
period
|
109.5
|
95.0
|
--
|
(476.9)
|
394.3
|
--
|
Income (loss)
attributable to owners of Turquoise Hill
|
113.1
|
101.0
|
--
|
(150.5)
|
411.2
|
--
|
Basic and diluted
income (loss) per share attributable to owners of
Turquoise Hill
|
0.06
|
0.05
|
--
|
(0.07)
|
0.20
|
--
|
Revenue by metals in
concentrates
|
|
|
|
|
|
|
Copper
|
178.1
|
210.3
|
-15.3%
|
787.8
|
866.5
|
-9.1%
|
Gold
|
40.1
|
132.7
|
-69.8%
|
365.0
|
300.4
|
21.5%
|
Silver
|
3.2
|
3.0
|
6.7%
|
13.2
|
13.1
|
0.8%
|
Cost of
sales
|
175.0
|
187.7
|
-6.8%
|
743.0
|
777.2
|
-4.4%
|
Production and
delivery costs
|
125.2
|
143.3
|
-12.6%
|
559.1
|
568.0
|
-1.6%
|
Depreciation and
depletion
|
49.8
|
44.6
|
11.7%
|
183.9
|
209.5
|
-12.2%
|
Capital expenditure
on cash basis
|
318.6
|
371.8
|
-14.3%
|
1,308.1
|
1,304.3
|
0.3%
|
Underground
|
289.7
|
347.3
|
-16.6%
|
1,174.9
|
1,213.8
|
-3.2%
|
Open pit
(2)
|
28.9
|
24.5
|
18.0%
|
133.2
|
90.5
|
47.2%
|
Royalties
|
12.5
|
20.1
|
-37.8%
|
64.0
|
70.8
|
-9.6%
|
Operating cash costs
(3)
|
194.6
|
242.3
|
-19.7%
|
774.5
|
817.0
|
-5.2%
|
Unit costs
($)
|
|
|
|
|
|
|
Cost of sales (per
pound of copper sold)
|
2.46
|
2.12
|
16.0%
|
2.25
|
2.25
|
0.0%
|
C1 (per pound of
copper produced) (3)
|
2.21
|
1.24
|
78.2%
|
1.37
|
1.59
|
-13.8%
|
All-in sustaining
(per pound of copper produced) (3)
|
2.97
|
2.01
|
47.8%
|
2.08
|
2.20
|
-5.5%
|
Mining costs (per
tonne of material mined) (3)
|
1.55
|
2.28
|
-31.9%
|
1.88
|
2.13
|
-11.7%
|
Milling costs (per
tonne of ore treated) (3)
|
5.01
|
6.82
|
-26.6%
|
6.48
|
7.11
|
-8.9%
|
G&A costs (per
tonne of ore treated)
|
3.49
|
4.55
|
-23.2%
|
3.30
|
3.03
|
9.1%
|
Cash generated from
(used in) operating activities
|
(153.6)
|
36.0
|
-526.7%
|
(11.7)
|
180.0
|
-106.5%
|
Cash generated from
operating activities before interest and tax
|
42.4
|
146.1
|
-71.0%
|
341.7
|
363.0
|
-5.9%
|
Interest
paid
|
206.6
|
130.5
|
58.3%
|
427.5
|
261.4
|
63.5%
|
Total
assets
|
12,822
|
13,312
|
-3.7%
|
12,822
|
13,312
|
-3.7%
|
Total non-current
financial liabilities
|
4,371
|
4,367
|
0.1%
|
4,371
|
4,367
|
0.1%
|
|
|
(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 18 of this press release for further
information.
|
2019 versus 2018
- Revenue of $1,166.0 million in
2019 decreased 1.2% compared to $1,180.0
million in 2018, primarily due to the 9.1% decrease in
copper revenue, driven by the 8% decrease in copper production,
reflecting the transition from mining Phase 4A to lower grade Phase
4B and stockpiles. This was partly
offset by higher gold revenue driven by a 9.9% increase in average
annual gold price from 2018 to 2019.
- Loss for 2019 was $476.9 million
compared with income of $394.3
million in 2018. This $0.9
billion differential was primarily due to the $0.6 billion impairment charge recorded in Q2'19
together with $0.3 billion of
additional deferred tax assets that were recognized in 2018
compared to 2019. Both items were impacted by the Company's update
on the Oyu Tolgoi underground project on July 15, 2019, wherein the Company disclosed a
projected increase in underground development capital ranging
between $1.2 billion and $1.9 billion over the $5.3
billion previously disclosed in addition to a range of
possible further delays to sustainable first production (now
expected between May 2022 and
June 2023). Recent work, including
the mid-access drive decision, indicates that the schedule delay is
within the 16 to 30 months range but is trending away from the
lower end.
- Cost of sales in 2019 was $743.0
million compared to $777.2
million in 2018, reflecting a 2.9% decrease in the volumes
of concentrates sold together with the impact of reduced
depreciation and depletion due to certain long-lived assets
reaching the end of their depreciable lives during 2018. This was
partly offset by a higher unit cost of production due to lower head
grades and recoveries.
- Capital expenditure on a cash basis for 2019 was $1,308.1 million compared to $1,304.3 million in 2018, comprising amounts
attributed to the underground project and open-pit activities of
$1,174.9 million and $133.2 million, respectively. Open-pit capital
expenditure includes deferred stripping of $48.0 million and tailings storage facility
spending of $24.9 million.
- Total operating cash costs3 of $774.5 million for 2019 decreased 5.2% over 2018
due to lower freight and royalty costs driven by lower volumes of
concentrate sold and lower sales revenue respectively, and lower
milling costs due to lower maintenance costs. These were partly
offset by higher power study costs in 2019 compared to 2018.
- Cost of sales were $2.25 per
pound of copper sold in 2019, consistent with $2.25 per pound of copper sold in 2018 reflecting
lower volumes of metals in concentrate sold offset by higher unit
cost of production due to lower head grades and recoveries.
- Oyu Tolgoi's C1 cash costs3 in 2019 were
$1.37 per pound of copper produced, a
decrease from $1.59 per pound of
copper produced in 2018, and are presented net of revenues from
gold and silver sales. The decrease was mainly due to higher gold
and silver credits driven by the 21.5% increase in gold sales
revenue from 2018. This also led to the 2019 C1 cash
costs3 of $1.37 per pound
of copper produced coming in under the previous guidance range of
$1.50 to $1.70 per pound of copper produced.
- All-in sustaining costs3 in 2019 were $2.08 per pound of copper produced, compared with
$2.20 per pound of copper produced in
2018. The decrease was impacted by the same factors that led to the
lower C1 cash costs. This was partly offset by higher major parts
costs and higher other sustaining open pit capital resulting mainly
from capitalized deferred stripping in 2019 driven by an increase
in the proportion of waste removed.
- Mining costs3 in 2019 were $1.88 per tonne of material mined compared with
$2.13 per tonne of material mined in
2018. The decrease was mainly due to increased material mined as
well as lower maintenance costs and fuel costs.
- Milling costs3 in 2019 were $6.48 per tonne of ore treated compared with
$7.11 per tonne of ore treated in
2018. The decrease was mainly due to increased milled ore, lower
maintenance cost due to savings in major shutdown and lower
consumables costs due to lower power costs.
- G&A costs in 2019 were $3.30
per tonne of ore treated compared with $3.03 per tonne of ore treated in 2018. The
increase was due to increased power plant study costs.
- Cash used in operating activities of $11.7 million decreased from cash generated of
$180.0 million in 2018. This was
principally due to $166.0 additional
interest paid in 2019 compared to 2018 resulting mainly from the
difference in timing of payment of the completion support fee to
Rio Tinto. In addition, the decrease was impacted by lower sales
revenue and negative movements in working capital.
___________
|
3
|
Please refer to
Section – NON-GAAP MEASURES – on page 18 of this press release for
further information.
|
Q4'19 vs Q4'18
- Revenue of $221.4 million
decreased 36.0% from $346.2 million
primarily due to a 79.2% decrease in gold production and the 20.7%
decrease in copper production. The decreased production and a 3.9%
decrease in copper price was partly offset by a 17.1% increase in
the average gold price in the period.
- Income for the period was $109.5
million compared with income of $95.0
million in Q4'18. This was primarily due to $112.0 million higher deferred tax assets
recognized in Q4'19 compared to Q4'18 partly offset by lower gross
margin driven by the reduced revenue. Income attributable to owners
of Turquoise Hill in Q4'19 was $113.1
million or $0.06 per share,
compared with income of $101.0
million or $0.05 per share in
Q4'18.
- Cost of sales of $175.0 million
decreased 6.8% from $187.7 million in
Q4'18 reflecting 17.7% lower volumes of concentrates sold partly
offset by the impact of increased unit cost of sales per pound of
copper sold due to decreased head grades.
- Unit cost of sales of $2.46 per
pound of copper sold increased 16.0% from $2.12 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 $318.6 million compared to $371.8 million in Q4'18, comprised of
$289.7 million attributed to the
underground project and $28.9 million
to open-pit activities.
- Total operating cash costs of $194.6
million in Q4'19 decreased 19.7% from $242.3 million in Q4'18. This was principally due
to lower milling and mining costs due to lower maintenance costs
and lower royalty costs due to lower sales revenue.
- Oyu Tolgoi's C1 cash costs4 of $2.21 per pound of copper produced increased from
$1.24 primarily reflecting the impact
of the 69.8% lower gold sales revenue credits in Q4'19 compared to
Q4'18.
- All-in sustaining costs4 of $2.97 increased 47.8% from $2.01 in Q4'18. Similar to the C1 cash costs, the
increase was primarily due to a reduction in gold revenue credits,
partly offset by lower royalty costs resulting from the lower sales
revenue in Q4'19 compared to Q4'18.
- Mining costs4 of $1.55
per tonne of material mined decreased 31.9% from $2.28 per tonne of material mined in Q4'18. The
decrease was due to higher material mined resulting in lower cycle
time and lower fuel costs as a result of mining in higher
benches.
- Milling costs4 of $5.01 per tonne of ore treated decreased 26.6%
from $6.82 of ore treated in Q4'18
mainly due to lower maintenance service costs and cost savings in
major plant shutdowns.
- G&A costs per tonne of ore treated of $3.49 per tonne of ore treated decreased 23.2%
from $4.55 per tonne of ore treated
due to lower administrative expenses partly offset by increased
power study costs.
- Cash used in operating activities of $153.6 million decreased from cash generated of
$36.0 million in Q4'18. This was
principally due to $76.1 million
higher interest paid in 2019 compared to 2018 resulting mainly from
the difference in timing of payment of the completion support fee
to Rio Tinto. In addition, the decrease was impacted by the 36.0%
decrease in sales revenue.
___________________
|
4
|
Please refer to
Section – NON-GAAP MEASURES – on page 18 of this press release 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. Overall, in 2019 Oyu Tolgoi achieved an industry leading
AIFR of 0.16 per 200,000 hours worked against a target of 0.21. Oyu
Tolgoi Operations ended the year of 2019 with AIFR of 0.09 against
target of 0.15, which represents the best safety performance to
date. Oyu Tolgoi Underground ended the year of 2019 with AIFR of
0.21 against a target of 0.26. In addition, there are other safety
metrics that are common in the mining industry, utilized by Oyu
Tolgoi to continuously monitor safety performance.
COVID-19 Response
The Company is closely monitoring the impact of the COVID-19
virus on its business and operations. The Oyu Tolgoi Business
Resilience Team is meeting on a daily basis and taking a considered
and risk-based approach to managing our response and actions for
the prevention of COVID-19. As part of a range of broader measures,
we have temperature and health screenings in place, and a dedicated
hotline for employees who are on or off site to call in for advice
or information sharing. To assist with the battle against COVID-19,
Oyu Tolgoi LLC has donated MNT100
million to the Government of Mongolia, and through the Oyu Tolgoi-sponsored
Gobi Oyu Development Support Fund, we further committed
MNT200 million to the Umnugobi
emergency committee, and MNT10
million to the Khanbogd Emergency Commission for prevention
support. We are also sharing our prevention and hygiene controls we
have in place with local companies as they prepare to resume their
operations and border crossings.
Key operational metrics for 2019 and Q4'19 are as
follows:
Oyu Tolgoi Production Data
All data represents full
production and sales on a 100% basis
|
4Q
|
4Q
|
Change
|
Full
Year
|
Full Year
|
Change
|
|
2019
|
2018
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
Open pit material
mined ('000 tonnes)
|
28,122
|
22,863
|
23.0%
|
101,316
|
91,310
|
11.0%
|
Ore treated ('000
tonnes)
|
11,088
|
9,361
|
18.4%
|
40,777
|
38,738
|
5.3%
|
Average mill head
grades:
|
|
|
|
|
|
|
Copper (%)
|
0.42
|
0.55
|
-23.6%
|
0.45
|
0.51
|
-11.8%
|
Gold (g/t)
|
0.15
|
0.56
|
-73.2%
|
0.29
|
0.36
|
-19.4%
|
Silver
(g/t)
|
1.06
|
1.22
|
-13.1%
|
1.13
|
1.22
|
-7.4%
|
Concentrates produced
('000 tonnes)
|
152.6
|
189
|
-19.3%
|
674.6
|
724.9
|
-6.9%
|
Average concentrate
grade (% Cu)
|
21.6
|
21.9
|
-1.4%
|
21.7
|
21.9
|
-0.9%
|
Production of metals
in concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
32.9
|
41.5
|
-20.7%
|
146.3
|
159.1
|
-8.0%
|
Gold ('000
ounces)
|
24.3
|
117
|
-79.2%
|
241.8
|
285
|
-15.2%
|
Silver ('000
ounces)
|
190
|
238
|
-20.2%
|
866.6
|
914
|
-5.2%
|
Concentrate sold
('000 tonnes)
|
157.5
|
191.4
|
-17.7%
|
724.7
|
746.4
|
-2.9%
|
Sales of metals in
concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
32.3
|
40.2
|
-19.7%
|
149.9
|
156.7
|
-4.3%
|
Gold ('000
ounces)
|
24.7
|
111
|
-77.7%
|
273.6
|
248
|
10.3%
|
Silver ('000
ounces)
|
243.6
|
216
|
12.8%
|
895.9
|
873
|
2.6%
|
Metal recovery
(%)
|
|
|
|
|
|
|
Copper
|
74.2
|
84.8
|
-12.5%
|
78.7
|
81.4
|
-3.3%
|
Gold
|
48.2
|
71.7
|
-32.8%
|
63.6
|
65.2
|
-2.5%
|
Silver
|
53.5
|
67.1
|
-20.3%
|
58.1
|
60.9
|
-4.6%
|
Underground development
As previously announced on July 15,
2019, 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.
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 development both to the north and
south within the orebody and accelerates the time to first
sustainable production.
Current 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. The range of project durations
under consideration influence the differences in capital costs
estimated to complete the project and the increase includes Shaft 2
delay related costs. These ranges incorporate a range of
productivity assumptions. A new program of work is underway to
optimize performance, while technical reviews are ongoing to guide
the final inputs into an updated detailed cost estimate for the
Hugo North Lift 1 development. Recent work, including the
mid-access drive decision, indicates that the schedule delay is
within the 16 to 30 months range but is trending away from the
lower end.
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 the first half of 2020. These will
take into consideration the consequential impacts on cost, schedule
and other key variables such as Mineral Reserves, project ramp-up
profile and peak production together with improvements in
productivity. The resulting Pre-Feasibility Study designs are 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.
Shaft 2 has now been successfully commissioned and the
operational passport documentation has been accepted by General
Agency for Specialized Inspection (GASI) as complete. First full
load and full speed testing of the Production Hoist has been
witnessed by GASI, and the full system has been operated to move
material from the Shaft 2 jaw crusher to the surface. The first
large-scale personnel movements using the Shaft 2 service cage
commenced during the fourth quarter.
On December 13, 2019, the
Mongolian Minister of Mining and Heavy Industry and company
executives attended a celebration for the opening of Shaft 2 on
site. A full trial of the Shaft 2 Production Hoist system to the
Coarse Ore Stockpile was completed in December and successfully
delivered approximately 20,000 tonnes of ore to the
concentrator.
Shaft 2 is a 10-metre diameter shaft sunk to approximately 1.3
kilometres 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.
The Load out conveyor and Shaft 2 integrated materials handling
system is fully 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.
Primary Crusher 1 civil works are ongoing, and the team has
successfully poured the sixth level crusher wall and installed
steel for preparation of pour seven. The Surge Bin chute and Spile
Bar chute were both installed. Additional resources have been
mobilised to assist with contractor management and training.
Work advanced at Shaft 4 with the sinking stage installed into
the shaft barrel and headframe modules installed. Work on the
commissioning of the headframe and winder buildings is well
advanced ahead of the commencement of sinking in the second quarter
of 2020. At Shaft 3, we completed the construction of the sinking
gantry and it was placed into the shaft during the first week of
January 2020. Headframe module
placement has commenced.
Underground development in Q4'19 has accelerated. Focus on
productivity gains on the most critical development areas over the
past five months has reaped substantial improvements. Underground
development progressed 4.8 total equivalent kilometres and
completed 9 cubic kilometres of mass excavation during the quarter.
Since the restart of underground development, 32.9 total equivalent
kilometres and 155.3 cubic kilometres of mass excavation have been
completed. The following table provides a breakdown of the various
components of completed development (excluding conveyor declines)
since project restart:
Oyu Tolgoi
Underground Project Development Progress Excluding Conveyor
Declines
|
Year
|
Total
Equivalent
Development
(Km)
|
Lateral
Development
(Km)
|
Mass
Excavation
('000'
m3)
|
2016
|
1.6
|
1.5
|
3.0
|
Q1'17
|
1.0
|
0.8
|
5.2
|
Q2'17
|
1.4
|
0.9
|
9.2
|
Q3'17
|
1.4
|
1.2
|
8.3
|
Q4'17
|
2.2
|
1.9
|
8.9
|
2017
|
6.1
|
4.8
|
31.6
|
Q1'18
|
2.6
|
2.1
|
11.6
|
Q2'18
|
2.4
|
2.1
|
8.6
|
Q3'18
|
3.0
|
2.1*
|
23.3*
|
Q4'18
|
2.3
|
1.6
|
16.0
|
2018
|
10.3
|
7.9
|
59.5
|
Q1'19
|
3.2
|
2.3
|
21.4
|
Q2'19
|
3.2
|
2.4
|
19.3
|
Q3'19
|
3.6
|
3.2
|
11.4
|
Q4'19
|
4.8
|
4.5
|
9.0
|
2019
|
14.9
|
12.4
|
61.1
|
Total
|
32.9
|
26.7
|
155.3
|
Notes:
|
Totals may not match
due to rounding.
|
*Lateral development
and mass excavation amount for Q3'18 have been updated to reflect
revised results.
|
Oyu Tolgoi
Conveyor Decline Project Development Progress
|
Year
|
Total
Equivalent
Development
(Km)
|
Lateral
Development
(Km)
|
Mass
Excavation
('000'
m3)
|
2016
|
0.0
|
0.0
|
0.0
|
Q1'17
|
0.1
|
0.1
|
0.0
|
Q2'17
|
0.4
|
0.4
|
0.2
|
Q3'17
|
0.9
|
0.9
|
0.5
|
Q4'17
|
0.9
|
0.8
|
0.5
|
2017
|
2.3
|
2.3
|
1.2
|
Q1'18
|
0.8
|
0.8
|
0.1
|
Q2'18
|
0.8
|
0.8
|
0.1
|
Q3'18
|
0.8
|
0.8
|
0.3
|
Q4'18
|
0.6
|
0.6
|
0.1
|
2018
|
3.0
|
3.0
|
0.6
|
Q1'19
|
0.8
|
0.8
|
0.8
|
Q2'19
|
0.9
|
0.9
|
0.8
|
Q3'19
|
0.9
|
0.7
|
4.9
|
Q4'19
|
1.1
|
0.7
|
8.3
|
2019
|
3.7
|
3.1
|
14.7
|
Total
|
9.0
|
8.3
|
16.5
|
Note: Totals may not
match due to rounding.
|
Oyu Tolgoi spent $289.7 million on
underground development during Q4'19. Total underground project
spend from January 1, 2016 to
December 31, 2019 was approximately
$3.5 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
commitments5 of $0.8
billion as of December 31,
2019. Since the restart of project development, Oyu Tolgoi
has committed over $3.0 billion to
Mongolian vendors and contractors.
FUNDING OF OYU TOLGOI LLC BY TURQUOISE HILL
In accordance with the Amended and Restated Shareholders'
Agreement dated June 8, 2011 (ARSHA),
Turquoise Hill has funded Oyu Tolgoi LLC's cash requirements beyond
internally generated cash flows by a combination of equity
investment and shareholder debt.
For amounts funded by debt, Oyu Tolgoi LLC must repay such
amounts, including accrued interest, before it can pay common share
dividends. As of December 31, 2019,
the aggregate outstanding balance of shareholder loans extended by
subsidiaries of the Company to Oyu Tolgoi LLC was $6.2 billion, including accrued interest of
$1.2 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 December 31, 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 $0.7 billion.
At the end of December 2019,
Turquoise Hill has approximately $2.2
billion of available liquidity, split between remaining
project finance proceeds of $0.5
billion, which are drawn and currently deposited with Rio
Tinto, and $1.7 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 the proposed Tavan Tolgoi-based power plant, into Q2
2021. Taking into consideration the estimated impacts of the
announced increases to underground development capital, as well as
delays to first sustainable production, the Company expects to need
significant incremental financing to sustain its underground
development as well as construction of the proposed Tavan
Tolgoi-based power plant beyond this timeframe. The Company will
have greater clarity on this incremental funding requirement as the
Definitive Estimate progresses and as discussions progress with the
Government of Mongolia to conclude
a mutually acceptable basis on which to proceed with securing long
term domestic power supply for Oyu Tolgoi; nevertheless, current
estimates indicate an incremental funding requirement, over and
above the $2.2 billion in liquidity
currently available, of at least $4.5
billion.
Turquoise Hill and Oyu Tolgoi LLC have the option to raise
additional external financing, subject to required approvals, to
assist in funding development going forward, including during
underground commissioning and ramp up. This additional
external funding, as well as any possible re-profiling of the
principal repayments relating to the existing project financing
facility, have not been assumed in estimating the incremental
funding requirement. Further, important variables impacting the
estimated incremental funding requirement include:
- The amount of incremental underground development capital
required;
- Whether a Tavan Tolgoi-based power plant is ultimately selected
as the long-term domestic power solution for Oyu Tolgoi;
- The timing of sustainable first production and its resulting
cash flows. Recent work, including the mid-access drive decision,
indicates that the schedule delay range is within the 16 to 30
months previously disclosed but is trending away from the lower end
of this range;
- The timing of principal repayments on amounts currently drawn
under the project finance facility (for additional information see
the CONTRACTUAL OBLIGATIONS section of this MD&A) as well as
on-going debt service costs;
- The amount of cash flow that can be generated from open-pit
operations; and
- The impact of COVID-19 on Oyu Tolgoi's open-pit operations and
underground development.
As the work to complete the Definitive Estimate and to secure a
long-term domestic power solution progress, Turquoise Hill
continues to evaluate the impact of the estimated increases to
underground capital expenditure, as well as delays to sustainable
first production and the other important variables discussed above,
on its cash flows, liquidity and financing projections and will
update the market in due course. While the Company's funding
requirements will be clarified by the ongoing work on the
Definitive Estimate, which is still expected to be delivered in the
second half of 2020, and by the power discussions, Turquoise Hill
is well progressed in its discussions with Rio Tinto regarding its
proposal for sourcing incremental interim funding to ensure the
Company can progress the underground development over and above its
$2.2 billion of available
liquidity.
___________
|
5
|
Please refer to
Section – NON-GAAP MEASURES – on page 18 of this press release for
further information.
|
GOVERNMENT RELATIONS
Turquoise Hill's ownership of the Oyu Tolgoi mine is held
through a 66% interest in Oyu Tolgoi LLC. The remaining 34%
interest in Oyu Tolgoi LLC is held by Erdenes Oyu Tolgoi LLC
(Erdenes), a Mongolian state-owned entity. Turquoise Hill is
obliged to fund Erdenes' share of the capital costs under the
ARSHA.
Underground construction recommenced in May 2016 when Oyu Tolgoi LLC received the final
requirement for the re-start of underground development: formal
notice to proceed approval by the boards of Turquoise Hill, Rio
Tinto (as project manager) and Oyu Tolgoi LLC. Approval followed
the signing of the Oyu Tolgoi Underground Mine Development and
Financing Plan (Underground Plan) in May
2015 and the signing of a $4.4
billion project finance facility in December 2015. Development had been suspended in
August 2013 pending resolution of
matters with the Government of Mongolia.
Turquoise Hill's investment in the Oyu Tolgoi mine is governed
by a 2009 Investment Agreement (Investment Agreement). The
Investment Agreement framework was authorized by the Mongolian
Parliament and was concluded after 16 months of negotiations. It
was reviewed by numerous constituencies within the
Government. Turquoise Hill has been operating in good faith
under the terms of the Investment Agreement since 2009, and we
believe not only that it is a valid and binding agreement, but that
it has proven to be beneficial for all parties.
Adherence to the principles of the Investment Agreement, the
ARSHA and the Underground Plan has allowed for the development of
the Oyu Tolgoi mine in a manner that has given rise to significant
long-term benefits to Mongolia.
Benefits from the Oyu Tolgoi mine open-pit operations and
underground development include, but are not limited to,
employment, royalties and taxes, local procurement, economic
development and sustainability investments.
Oyu Tolgoi Mine Power Supply
Oyu Tolgoi currently sources power from China's Inner Mongolian Western Grid via
overhead power lines, via a back-to-back power purchase agreement
with National Power Transmission Grid JSC (NPTG), the power
importing entity, and the Inner Mongolian Power Company (IMPC).
Oyu Tolgoi LLC is obliged under the 2009 Oyu Tolgoi Investment
Agreement to secure a long-term domestic source of power for
the Oyu Tolgoi mine. The Power Source Framework Agreement (PSFA)
entered into between Oyu Tolgoi LLC and the Government of
Mongolia on December 31, 2018 provides a binding framework
and pathway for the construction of a Tavan Tolgoi-based power
solution (TTPP) 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.
On February 14, 2020, Oyu Tolgoi
LLC submitted the TTPP Feasibility Study to the Government of
Mongolia. The Feasibility Study
comprises a 300 MW coal fired power plant and extensive regional
infrastructure, including a 55 kilimetres water pipeline and a 126
kilometres power line. The project cost estimate for TTPP is up to
$924 million, including consideration of certain amounts yet
to be finalized such as government fees, licenses and certain
reimbursements per previous agreements in relation to a Tavan
Tolgoi based power solution. Oyu Tolgoi LLC has made significant
progress to develop a cost competitive and optimal solution for
TTPP with a fully negotiated EPC contract. As agreed under the
PSFA, the Feasibility Study anticipates back-up power requirements
for TTPP will be provided by IMPC until such time as they can be
provided within Mongolia. The TTPP
project aligns with the Parliament Resolution No.73 (2018) and the
government policies to develop a power plant at the Tavan Tolgoi
coal fields.
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 in connection with
an expansion facility, such as the proposed TTPP.
The PSFA specifies target dates for milestones to be achieved
through mutual cooperation between Oyu Tolgoi LLC and the
Government of Mongolia; several of
those milestones have now passed. In accordance with the
Contingency Arrangements clause 7.4 a ii of the PSFA, on
February 14, 2020 Oyu Tolgoi LLC gave
notice to the Government of Mongolia and it is currently seeking a
mutually acceptable pathway to proceed with securing long term
domestic power supply for Oyu Tolgoi. Under this Contingency
process, the parties have two months to agree the way forward on
TTPP or move forward with an alternative option thereafter.
Alternative options may include an Oyu Tolgoi mine site based power
plant, a primary renewables solution or grid supply.
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 (which was converted from Mongolian Tugrik to U.S.
dollars at the exchange rate on that date) from the Mongolian
Tax Authority (MTA) relating to an audit on taxes imposed and paid
by Oyu Tolgoi LLC between 2013 and 2015. In January 2018, Oyu Tolgoi paid an amount of
approximately $4.8 million to settle
unpaid taxes, fines and penalties for accepted items.
On February 20, 2020, the Company
announced that Oyu Tolgoi will be proceeding with the initiation of
a formal international arbitration proceeding in accordance with
dispute resolution provisions within Chapter 14 of the Investment
Agreement entered into with the Government of Mongolia in 2009 and Chapter 8 of the Oyu
Tolgoi Underground Mine Development and Financing Plan entered into
with the Government of Mongolia in
2015. The dispute resolution provisions call for arbitration under
the United Nations Commission on International Trade Law (UNCITRAL)
seated in London before a panel of
three arbitrators.
By agreeing to resolve the dispute under UNCITRAL Arbitration
Rules, both parties have agreed that the arbitral award shall be
final and binding on both parties and the parties shall carry out
the award without delay.
The Company remains of the opinion that Oyu Tolgoi 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 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.
Upon completion of the Working Group review and its report, a
resolution was submitted to the Economic Standing Committee, and
subsequently passed in a plenary session of the Parliament of
Mongolia on November 21, 2019. The resolution was published
on December 6, 2019 and includes
resolutions to take comprehensive measures to improve the
implementation of the Investment Agreement and the ARSHA, to
improve the Underground Plan and to explore and resolve options to
have a product sharing arrangement or swap Mongolia's equity holding of 34 per cent for a
special royalty. Both Turquoise Hill and Rio Tinto announced that
it noted the Parliament Resolution no.92.
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, the
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
Management change
On June 3, 2019, Turquoise Hill
announced the appointment of Jo-Anne
Dudley as Turquoise Hill's Chief Operating Officer.
Board resignation announcement
On July 10, 2019, Turquoise Hill
announced that the Company's Board of Directors had accepted the
resignation of director Dr. James
Gill.
Board appointment
On January 21, 2020, Turquoise
Hill announced the appointment of George R.
Burns to the Company's Board of Directors as an independent
director.
US Trading Price Non-Compliance
On July 31, 2019, the Company
received an automatic notice from the NYSE advising that the
average closing price of the Common Shares had fallen below
US$1.00 for 30 consecutive trading
days and that, as a result, the Common Shares no longer met the
minimum US$1.00 average closing price
requirement. Under the NYSE rules, a company that fails to meet
this continued listing requirement must bring its share price and
average closing price above US$1.00
by the end of the six-month period following receipt of the NYSE's
notification. However, where a company has notified the NYSE that
it intends to cure its minimum price deficiency by a corporate
transaction requiring approval of its shareholders, it must obtain
shareholder approval by no later than its next annual meeting and
implement the transaction promptly thereafter, in which case the
minimum price deficiency will be deemed to be cured if the share
price promptly exceeds US$1.00 and
the price remains above that level for at least the following 30
consecutive trading days.
On August 28, 2019, the Company
received an automatic notice from the NASDAQ advising that the
minimum bid price of the Common Shares had fallen below
US$1.00 for 30 consecutive trading
days and that, as a result, the Common Shares no longer met the
minimum US$1.00 bid price
requirement. Under the Listing Rules of the NASDAQ, the Company had
180 calendar days to regain compliance.
On November 12, 2019, the Company
announced that it expected to seek approval from Shareholders at
the Meeting for a consolidation of its outstanding Common Shares.
The announcement stated that the expected consolidation was
intended to cure the share price non-compliance under the continued
listing rules of both the NYSE and the NASDAQ.
On February 14, 2020, the Company
announced that it had provided written notice to NASDAQ regarding
its intention to voluntarily delist from the NASDAQ. Given that
trading on the NASDAQ represented only approximately 5% of the
worldwide trading volume of the Common Shares in 2019, the Company
believes that the NYSE and the TSX listings provide investors with
sufficient liquidity. In addition, delisting from the NASDAQ will
reduce the Company's administrative costs. The NASDAQ
delisting became effective on March 5, 2020.
The Company's common shares will continue to trade on the NYSE
and the TSX now that the NASDAQ delisting has become effective. The
delisting did not affect the Company's continuing obligation to
file required reports with the U.S. Securities and Exchange
Commission ("SEC") and Canadian securities regulatory authorities.
The Company will comply with, and continue to be subject to, the
laws of the Yukon, the
jurisdiction in which the Company is incorporated, as well as
applicable U.S. and Canadian securities laws and corporate
governance rules applicable to Canadian publicly listed companies,
including the rules of the NYSE and the TSX.
NON-GAAP MEASURES
The Company presents and refers to the following non-GAAP
measures, which are not defined in IFRS. A description and
calculation of each measure is given below and may differ from
similarly named measures provided by other issuers. These measures
are presented in order to provide investors and other stakeholders
with additional understanding of performance and operations at the
Oyu Tolgoi mine and are not intended to be used in isolation from,
or as a replacement for, measures prepared in accordance with
IFRS.
Operating cash costs
The measure of operating cash costs excludes: depreciation and
depletion; exploration and evaluation; charges for asset write-down
(including write-down of materials and supplies inventory) and
includes management services payments to Rio Tinto and management
services payments to Turquoise Hill which are eliminated in the
consolidated financial statements of the Company.
C1 cash costs
C1 cash costs is a metric representing the cash cost per unit of
extracting and processing the Company's principal metal product,
copper, to a condition in which it may be delivered to customers
net of gold and silver credits from concentrates sold. This metric
is provided in order to support peer group comparability and to
provide investors and other stakeholders with additional
information about the underlying cash costs of Oyu Tolgoi LLC and
the impact of gold and silver credits on the operations' cost
structure. C1 cash costs are relevant to understanding the
Company's operating profitability and ability to generate cash
flow. When calculating costs associated with producing a pound of
copper, the Company deducts gold and silver revenue credits as the
production cost is reduced by selling these products.
All-in sustaining costs
All-in sustaining costs (AISC) is an extended cash-based cost
metric providing further information on the aggregate cash, capital
and overhead outlay per unit and is intended to reflect the costs
of producing the Company's principal metal product, copper, in both
the short term and over the life-cycle of its operations. As a
result, sustaining capital expenditure on a cash basis is included
rather than depreciation. As the measure seeks to present a full
cost of copper production associated with sustaining current
operations, development project capital is not included. AISC
allows Turquoise Hill to assess the ability of Oyu Tolgoi LLC to
support sustaining capital expenditures for future production from
the generation of operating cash flows.
A reconciliation of total operating cash costs, C1 cash costs
and all-in sustaining costs are provided below.
|
|
|
|
|
|
(Three Months
Ended)
|
(Twelve Months
Ended)
|
C1 costs
(Stated in $000's of dollars)
|
|
December 30,
2019
|
December 30,
2018
|
December 30,
2019
|
December 30,
2018
|
Cost of
sales
|
|
175,007
|
187,730
|
742,985
|
777,248
|
Cost of sales:
$/lb of copper sold
|
|
2.46
|
2.12
|
2.25
|
2.25
|
Depreciation and
depletion
|
|
(49,800)
|
(44,625)
|
(183,919)
|
(209,496)
|
Provision against
carrying value of copper-gold concentrate
|
|
(40)
|
255
|
-
|
255
|
Change in
inventory
|
|
11,618
|
17,910
|
(31,093)
|
983
|
Other operating
expenses
|
|
52,415
|
85,118
|
221,493
|
234,072
|
Less:
|
|
|
|
|
|
- Inventory
(write-down) reversal
|
|
396
|
(11,886)
|
2,161
|
(14,286)
|
-
Depreciation
|
|
(2,129)
|
(216)
|
(8,133)
|
(1,705)
|
Management services
payment to Turquoise Hill
|
|
7,177
|
8,035
|
31,041
|
30,055
|
Operating cash
costs
|
|
194,644
|
242,321
|
774,535
|
817,126
|
Operating cash
costs: $/lb of copper produced
|
|
2.68
|
2.65
|
2.40
|
2.33
|
Adjustments to
operating cash costs
|
|
8,728
|
6,738
|
44,337
|
52,904
|
Less: Gold and silver
revenues
|
|
(43,298)
|
(135,629)
|
(378,204)
|
(313,338)
|
C1 costs
($'000)
|
|
160,074
|
113,430
|
440,668
|
556,692
|
C1 costs: $/lb of
copper produced
|
|
2.21
|
1.24
|
1.37
|
1.59
|
|
|
|
|
|
|
All-in
sustaining costs (Stated in $000's of dollars)
|
|
|
|
|
|
Corporate
administration
|
|
9,500
|
6,287
|
23,443
|
24,370
|
Asset retirement
expense
|
|
(99)
|
1,741
|
6,064
|
6,797
|
Royalty
expenses
|
|
12,453
|
20,104
|
64,048
|
70,782
|
Ore stockpile and
stores write-down (reversal)
|
|
(396)
|
11,886
|
(2,161)
|
14,286
|
Other
expenses
|
|
4,921
|
5,809
|
5,984
|
6,771
|
Sustaining capex
(cash basis)
|
|
|
|
|
|
Deferred stripping
(cash basis)
|
|
|
|
|
|
Sustaining cash
capital including deferred stripping
|
|
28,969
|
24,554
|
133,342
|
90,796
|
All-in sustaining
costs ($'000)
|
|
215,422
|
183,811
|
671,388
|
770,494
|
All-in sustaining
costs: $/lb of copper produced
|
|
2.97
|
2.01
|
2.08
|
2.20
|
|
|
(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 year
ended December 31, 2019 are
calculated by reference to total mining costs of $190.2 million (2018: $194.1 million) and total material mined of 101.3
million tonnes (2018: 91.3 million tonnes). Mining costs per tonne
of material mined for the three months ended December 31, 2019 are calculated by reference to
total mining costs of $43.7 million
(Q4'18: $52.1 million) and total
material mined of 28.1 million tonnes (Q4'18: 22.9 million
tonnes).
Milling costs per tonne of ore treated for the year ended
December 31, 2019 are calculated by
reference to total milling costs of $264.3
million (2018: $275.2 million)
and total ore treated of 40.8 million tonnes (2018: 38.7 million
tonnes). Milling costs per tonne of ore treated for the three
months ended December 31, 2019 are
calculated by reference to total milling costs of $55.5 million (Q4'18: $64.1 million) and total ore treated of 11.1
million tonnes (Q4'18: 9.4 million tonnes).
Working capital
Consolidated working capital comprises those components of
current assets and liabilities which support and result from the
Company's ongoing running of its current operations. It is provided
in order to give a quantifiable indication of the Company's
short-term cash generation ability and business efficiency. As a
measure linked to current operations and the sustainability of the
business, the Company's definition of working capital excludes:
non-trade receivables and payables; financing items; cash and cash
equivalents; deferred revenue and non-current inventory.
A reconciliation of consolidated working capital to the
financial statements and notes is provided below.
Working
capital
|
December
31,
|
|
December
31,
|
(Stated in $000's of
dollars)
|
2019
|
|
2018
|
|
|
|
|
Inventories
(current)
|
$
|
175,719
|
|
$
|
242,970
|
Trade and other
receivables
|
$
|
27,047
|
|
30,264
|
Trade and other
payables:
|
|
|
|
- trade payables and
accrued liabilities
|
(389,476)
|
|
(395,883)
|
- payable to related
parties
|
(65,903)
|
|
(51,490)
|
Consolidated working
capital
|
$
|
(252,613)
|
|
$
|
(174,139)
|
Contractual obligations
The following section of this MD&A discloses contractual
obligations in relation to the Company's lease, purchase,
power and asset retirement obligations. Amounts relating to these
obligations are calculated on the basis of the Company carrying out
its future business activities and operations as planned at the
period end. As such, contractual obligations presented in this
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 December 31, 2019 to the financial statements and
notes is provided below.
(Stated in $000's of
dollars)
|
Project
Finance
Facility
|
Purchase
obligations
|
Power
commitments
|
Lease
liabilities
|
Decommissioning
obligations
|
|
|
|
|
|
|
Commitments
(MD&A)
|
$
|
4,348,918
|
$
|
769,172
|
$
|
404,283
|
$
|
21,755
|
$
|
212,633
|
Cancellable
obligations
|
|
(601,627)
|
(172,797)
|
-
|
-
|
(net of exit
costs)
|
|
|
|
|
|
Accrued capital
expenditure
|
|
(123,089)
|
-
|
-
|
-
|
Discounting and other
adjustments
|
(156,683)
|
-
|
-
|
(173)
|
(108,395)
|
Financial
statement amount
|
$
|
4,192,235
|
$
|
44,456
|
$
|
231,486
|
$
|
21,582
|
$
|
104,238
|
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 (FAusIMM(CP)), Chief
Operating Officer of the Company. Jo-Anne
Dudley is a "qualified person" as that term is defined in
National Instrument 43-101 - Standards of Disclosure for Mineral
Projects ("NI 43-101").
SELECTED QUARTERLY DATA
The Company's interim financial statements are reported under
IFRS applicable to interim financial statements, including
International Accounting Standard (IAS) 34 Interim Financial
Reporting.
($ in millions,
except per share information)
|
|
Quarter
Ended
|
|
|
Dec-31
|
Sep-30
|
Jun-30
|
Mar-31
|
|
|
2019
|
2019
|
2019
|
2019
|
|
|
|
|
|
|
Revenue
|
|
$
|
221.4
|
$
|
209.2
|
$
|
382.7
|
$
|
352.7
|
|
|
|
|
|
|
Income (loss) for the
period
|
|
$
|
109.5
|
$
|
45.1
|
$
|
(736.7)
|
$
|
105.2
|
|
|
|
|
|
|
Income (loss)
attributable to owners of Turquoise Hill
|
|
$
|
113.1
|
$
|
71.7
|
$
|
(446.5)
|
$
|
111.2
|
|
|
|
|
|
|
Basic and diluted
income (loss) per share attributable to owners of Turquoise
Hill
|
|
$
|
0.06
|
$
|
0.04
|
$
|
(0.22)
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended
|
|
|
Dec-31
|
Sep-30
|
Jun-30
|
Mar-31
|
|
|
2018
|
2018
|
2018
|
2018
|
|
|
|
|
|
|
Revenue
|
|
$
|
346.2
|
$
|
246.5
|
$
|
341.7
|
$
|
245.6
|
|
|
|
|
|
|
Income for the
period
|
|
$
|
95.0
|
$
|
15.2
|
$
|
204.4
|
$
|
79.7
|
|
|
|
|
|
|
Income attributable
to owners of Turquoise Hill
|
|
$
|
101.0
|
$
|
53.2
|
$
|
171.3
|
$
|
85.7
|
|
|
|
|
|
|
Basic and diluted
income per share attributable to owners of Turquoise
Hill
|
|
$
|
0.05
|
$
|
0.03
|
$
|
0.09
|
$
|
0.04
|
Consolidated
Statements of Income (Loss)
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
|
|
Note
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
4
|
|
$
|
1,166,014
|
|
$
|
1,180,022
|
Cost of
sales
|
5
|
|
(742,985)
|
|
(777,248)
|
Gross
margin
|
|
|
423,029
|
|
402,774
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
6
|
|
(221,493)
|
|
(234,072)
|
Corporate
administration expenses
|
|
|
(23,443)
|
|
(24,370)
|
Other
income
|
|
|
2,714
|
|
7,119
|
Impairment
charges
|
13
|
|
(596,906)
|
|
-
|
Income (loss)
before finance items and taxes
|
|
|
(416,099)
|
|
151,451
|
|
|
|
|
|
|
|
|
|
Finance
items
|
|
|
|
|
|
Finance
income
|
7
|
|
106,335
|
|
154,668
|
Finance
costs
|
7
|
|
(10,021)
|
|
(52,489)
|
|
|
|
|
|
|
96,314
|
|
102,179
|
Income (loss) from
operations before taxes
|
|
|
$
|
(319,785)
|
|
$
|
253,630
|
|
|
|
|
|
|
|
|
|
Income and other
taxes
|
16
|
|
(157,133)
|
|
140,644
|
Income (loss) for
the year
|
|
|
$
|
(476,918)
|
|
$
|
394,274
|
|
|
|
|
|
|
|
|
|
|
Attributable to
owners of Turquoise Hill Resources
Ltd.
|
|
|
(150,457)
|
|
411,198
|
|
Attributable to owner
of non-controlling interest
|
|
|
(326,461)
|
|
(16,924)
|
Income (loss) for
the year
|
|
|
$
|
(476,918)
|
|
$
|
394,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings (loss) per share attributable
|
|
|
|
|
|
|
to Turquoise Hill
Resources Ltd.
|
21
|
|
$
|
(0.07)
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
Basic weighted
average number of shares outstanding (000's)
|
|
|
2,012,314
|
|
2,012,314
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
Consolidated
Statements of Comprehensive Income (Loss)
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Income (loss) for
the year
|
|
$
|
(476,918)
|
|
$
|
394,274
|
|
|
|
|
|
|
|
|
Other
comprehensive loss:
|
|
|
|
|
Items that will not
be reclassified to income:
|
|
|
|
|
|
Changes in the fair
value of marketable securities at FVOCI
|
|
(1,657)
|
|
(2,875)
|
Other
comprehensive loss for the year (a)
|
|
$
|
(1,657)
|
|
$
|
(2,875)
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss) for the year
|
|
$
|
(478,575)
|
|
$
|
391,399
|
|
|
|
|
|
|
|
|
|
Attributable to
owners of Turquoise Hill
|
|
(152,114)
|
|
408,323
|
|
Attributable to owner
of non-controlling
interest
|
|
(326,461)
|
|
(16,924)
|
Total
comprehensive income (loss) for the year
|
|
$
|
(478,575)
|
|
$
|
391,399
|
|
|
|
|
|
|
|
|
(a) No tax charges
and credits arose on items recognized as other comprehensive income
or loss in 2019 (2018: nil).
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
|
|
Note
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Cash generated
from operating activities before interest and tax
|
20
|
|
$
|
341,730
|
|
$
|
363,006
|
|
|
|
|
|
|
|
|
|
Interest
received
|
|
|
84,080
|
|
88,267
|
Interest
paid
|
|
|
(427,464)
|
|
(261,431)
|
Income and other
taxes paid
|
|
|
(9,998)
|
|
(9,874)
|
Net cash generated
from (used in) operating activities
|
|
|
$
|
(11,652)
|
|
$
|
179,968
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
|
|
Receivable from
related party: amounts withdrawn
|
22
|
|
1,375,000
|
|
1,270,000
|
Expenditures on
property, plant and equipment
|
|
|
(1,308,073)
|
|
(1,304,347)
|
Other investing cash
flows
|
|
|
-
|
|
616
|
Cash generated
from (used in) investing activities
|
|
|
$
|
66,927
|
|
$
|
(33,731)
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
|
|
Net proceeds of
project finance facility
|
15
|
|
1,511
|
|
13,261
|
Payment of project
finance fees
|
|
|
(107)
|
|
(363)
|
Payment of lease
liability
|
|
|
(7,892)
|
|
-
|
Cash generated
from (used in) financing activities
|
|
|
$
|
(6,488)
|
|
$
|
12,898
|
|
|
|
|
|
|
|
|
|
Effects of exchange
rates on cash and cash equivalents
|
|
|
131
|
|
(851)
|
Net increase in
cash and cash equivalents
|
|
|
$
|
48,918
|
|
$
|
158,284
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents - beginning of year
|
|
|
$
|
1,603,067
|
|
$
|
1,444,783
|
Cash and cash
equivalents - end of year
|
|
|
1,651,985
|
|
1,603,067
|
Cash and cash
equivalents as presented on the balance sheets
|
|
|
$
|
1,651,985
|
|
$
|
1,603,067
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
|
Note
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents
|
8
|
|
$
|
1,651,985
|
|
$
|
1,603,067
|
Inventories
|
9
|
|
175,719
|
|
242,970
|
Trade and other
receivables
|
10
|
|
27,047
|
|
30,264
|
Prepaid expenses and
other assets
|
11
|
|
99,671
|
|
30,213
|
Receivable from
related party
|
12
|
|
511,284
|
|
1,620,073
|
|
|
|
2,465,706
|
|
3,526,587
|
Non-current
assets
|
|
|
|
|
|
Property, plant and
equipment
|
13
|
|
9,782,647
|
|
8,838,305
|
Inventories
|
9
|
|
28,985
|
|
18,655
|
Deferred income tax
assets
|
16
|
|
534,078
|
|
649,421
|
Receivable from
related party and other financial assets
|
12
|
|
10,978
|
|
279,019
|
|
|
|
10,356,688
|
|
9,785,400
|
Total
assets
|
|
|
$
|
12,822,394
|
|
$
|
13,311,987
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
15
|
|
$
|
26,547
|
|
$
|
-
|
Trade and other
payables
|
14
|
|
466,206
|
|
459,244
|
Deferred
revenue
|
|
|
27,896
|
|
75,162
|
|
|
|
520,649
|
|
534,406
|
Non-current
liabilities
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
15
|
|
4,187,270
|
|
4,187,297
|
Deferred income tax
liabilities
|
16
|
|
79,180
|
|
47,934
|
Decommissioning
obligations
|
17
|
|
104,238
|
|
131,565
|
|
|
|
4,370,688
|
|
4,366,796
|
Total
liabilities
|
|
|
$
|
4,891,337
|
|
$
|
4,901,202
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Share
capital
|
18
|
|
$
|
11,432,122
|
|
$
|
11,432,122
|
Contributed
surplus
|
|
|
1,558,811
|
|
1,558,264
|
Accumulated other
comprehensive income
|
|
|
(813)
|
|
844
|
Deficit
|
|
|
(3,821,889)
|
|
(3,670,310)
|
Equity
attributable to owners of Turquoise Hill
|
|
|
9,168,231
|
|
9,320,920
|
Attributable to
non-controlling interest
|
19
|
|
(1,237,174)
|
|
(910,135)
|
Total
equity
|
|
|
$
|
7,931,057
|
|
$
|
8,410,785
|
|
|
|
|
|
|
Total liabilities
and equity
|
|
|
$
|
12,822,394
|
|
$
|
13,311,987
|
|
|
|
|
|
|
Commitments and
contingencies and subsequent events (Note 23)
|
|
|
|
|
|
Subsequent events
(Notes 23 and 26)
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
Consolidated
Statements of Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2019
|
|
Attributable to
owners of Turquoise Hill
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
Non-controlling
|
|
|
|
|
|
|
|
Contributed
|
|
comprehensive
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Share
capital
|
|
surplus
|
|
income
(loss)
|
|
Deficit
|
|
Total
|
|
(Note 19)
|
|
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)
|
|
(578)
|
|
(1,700)
|
Restated opening
balance
|
|
$
|
11,432,122
|
|
$
|
1,558,264
|
|
$
|
844
|
|
$
|
(3,671,432)
|
|
$
|
9,319,798
|
|
$
|
(910,713)
|
|
$
|
8,409,085
|
Loss for the
year
|
|
-
|
|
-
|
|
-
|
|
(150,457)
|
|
(150,457)
|
|
(326,461)
|
|
(476,918)
|
Other comprehensive
loss for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year
|
|
-
|
|
-
|
|
(1,657)
|
|
-
|
|
(1,657)
|
|
-
|
|
(1,657)
|
Employee share
plans
|
|
-
|
|
547
|
|
-
|
|
-
|
|
547
|
|
-
|
|
547
|
Closing
balance
|
|
$
|
11,432,122
|
|
$
|
1,558,811
|
|
$
|
(813)
|
|
$
|
(3,821,889)
|
|
$
|
9,168,231
|
|
$
|
(1,237,174)
|
|
$
|
7,931,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2018
|
|
Attributable to
owners of Turquoise Hill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
Non-controlling
|
|
|
|
|
|
|
|
Contributed
|
|
comprehensive
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Share
capital
|
|
surplus
|
|
income
(loss)
|
|
Deficit
|
|
Total
|
|
(Note 19)
|
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
balance
|
|
$
|
11,432,122
|
|
$
|
1,558,102
|
|
$
|
3,719
|
|
$
|
(4,081,508)
|
|
$
|
8,912,435
|
|
$
|
(893,211)
|
|
$
|
8,019,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) for the
year
|
|
-
|
|
-
|
|
-
|
|
411,198
|
|
411,198
|
|
(16,924)
|
|
394,274
|
Other comprehensive
loss for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year
|
|
-
|
|
-
|
|
(2,875)
|
|
-
|
|
(2,875)
|
|
-
|
|
(2,875)
|
Employee share
plans
|
|
-
|
|
162
|
|
-
|
|
-
|
|
162
|
|
-
|
|
162
|
Closing
balance
|
|
$
|
11,432,122
|
|
$
|
1,558,264
|
|
$
|
844
|
|
$
|
(3,670,310)
|
|
$
|
9,320,920
|
|
$
|
(910,135)
|
|
$
|
8,410,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
|
Turquoise Hill has filed its Annual Information Form (AIF),
Audited Consolidated Financial Statements and accompanying notes,
as well as Management's Discussion and Analysis for the year ended
December 31, 2018. These documents
are available on the Turquoise Hill investor website at
www.turquoisehill.com/s/investors.asp or the Canadian
Securities Administrators website at www.sedar.com. Turquoise Hill
has also filed its Annual Report on Form 40-F with the U.S.
Securities and Exchange Commission (SEC), which is available
through the SEC website at www.sec.gov/edgar.shtml. Turquoise Hill
shareholders may request a printed copy of any of these documents,
free of charge, from the investor contact noted below.
About Turquoise Hill Resources
Turquoise Hill is an international mining company focused on the
operation and continued development of the Oyu Tolgoi copper-gold
mine in Mongolia, which is the
Company's principal and only material mineral resource property.
Turquoise Hill's ownership of the Oyu Tolgoi mine is held through a
66% interest in Oyu Tolgoi LLC (Oyu Tolgoi); Erdenes Oyu Tolgoi LLC
(Erdenes), a Mongolian state-owned entity, holds the remaining 34%
interest.
Forward-Looking Statements
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 Panel 0
and the related cost and schedule implications, timing and status
of the Tavan Tolgoi-based power project, the expectations set out
in the Tavan Tolgoi Power Plant Feasibility Study, the potential
impact of COVID-19 on the Company's business, operations and
financial condition, capital and operating cost estimates, timing
of completion of the definitive estimate review, mill and
concentrator throughput, the initiation 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 and sequence of
mining in Panel 0, the availability and timing of required
governmental and other approvals for the construction of the Tavan
Tolgoi Power Plant, the status of the Company's relationship and
interaction with the Government of Mongolia on the continued operation and
development of Oyu Tolgoi and Oyu Tolgoi LLC internal governance.
Certain important factors that could cause actual results,
performance or achievements to differ materially from those in the
forward-looking statements and information include, among others,
copper; gold and silver price volatility; discrepancies between
actual and estimated production, mineral reserves and resources and
metallurgical recoveries; development plans for processing
resources; the outcome of the definitive estimate review; public
health crises such as COVID-19; matters relating to proposed
exploration or expansion; mining operational and development risks,
including geotechnical risks and ground conditions; litigation
risks; regulatory restrictions (including environmental regulatory
restrictions and liability); Oyu Tolgoi LLC's ability to deliver a
domestic power source for the Oyu Tolgoi project within the
required contractual time frame; communications with local
stakeholders and community relations; activities, actions or
assessments, including tax assessments, by governmental
authorities; events or circumstances (including strikes, blockages
or similar events outside of the Company's control) that may affect
the Company's ability to deliver its products in a timely manner;
currency fluctuations; the speculative nature of mineral
exploration; the global economic climate; dilution; share price
volatility; competition; loss of key employees; cyber security
incidents; additional funding requirements, including in respect of
the development or construction of a long-term domestic power
supply for the Oyu Tolgoi project; capital and operating costs,
including with respect to the development of additional deposits
and processing facilities; and defective title to mineral claims or
property. Although the Company has attempted to identify important
factors that could cause actual actions, events or results to
differ materially from those described in forward-looking
statements and information, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or
intended. All such forward-looking statements and information are
based on certain assumptions and analyses made by the Company's
management in light of their experience and perception of
historical trends, current conditions and expected future
developments, as well as other factors management believes are
appropriate in the circumstances. These statements, however, are
subject to a variety of risks and uncertainties and other factors
that could cause actual events or results to differ materially from
those projected in the forward-looking statements or
information.
With respect to specific forward-looking information concerning
the continued operation and development of Oyu Tolgoi, the Company
has based its assumptions and analyses on certain factors which are
inherently uncertain. Uncertainties and assumptions include, among
others: the timing and cost of the construction and expansion of
mining and processing facilities; the timing and availability of a
long-term domestic power source (or the availability of financing
for the Company to construct such a source) for Oyu Tolgoi; the
ability to secure and draw down on the supplemental debt under the
Oyu Tolgoi project financing facility and the availability of
additional financing on terms reasonably acceptable to Oyu Tolgoi
LLC, Rio Tinto and the Company to further develop Oyu Tolgoi; the
potential impact of COVID-19; the impact of changes in, changes in
interpretation to or changes in enforcement of, laws, regulations
and government practices in Mongolia; the availability and cost of skilled
labour and transportation; the obtaining of (and the terms and
timing of obtaining) necessary environmental and other government
approvals, consents and permits; delays, and the costs which would
result from delays, in the development of the underground mine
(which could significantly exceed the costs projected in the 2016
Oyu Tolgoi Feasibility Study and the 2016 Oyu Tolgoi Technical
Report); projected copper, gold and silver prices and their market
demand; and production estimates and the anticipated yearly
production of copper, gold and silver at Oyu Tolgoi.
The cost, timing and complexities of mine construction and
development are increased by the remote location of a property such
as Oyu Tolgoi. It is common in mining operations and in the
development or expansion of existing facilities to experience
unexpected problems and delays during development, construction and
mine start-up. Additionally, although Oyu Tolgoi has achieved
commercial production, there is no assurance that future
development activities will result in profitable mining
operations.
Readers are cautioned not to place undue reliance on
forward-looking information or statements. By their nature,
forward-looking statements involve numerous assumptions, inherent
risks and uncertainties, both general and specific, which
contribute to the possibility that the predicted outcomes will not
occur. Events or circumstances could cause the Company's actual
results to differ materially from those estimated or projected and
expressed in, or implied by, these forward-looking statements.
Important factors that could cause actual results to differ from
these forward-looking statements are included in the "Risk Factors"
section in the Company's Annual Information Form dated as of
March 18, 2020 in respect of the year
ended December 31, 2019 (the "AIF")
as supplemented by our Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended
December 31, 2019 ("MD&A").
Readers are further cautioned that the list of factors enumerated
in the "Risk Factors" section of the AIF and in the 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.
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SOURCE Turquoise Hill Resources Ltd.