Turquoise Hill Resources (TSX:TRQ) (NYSE:TRQ) today announced its
financial results for the quarter ended September 30, 2018. All
figures are in U.S. dollars unless otherwise stated.
“During the third quarter, we delivered strong
operational results in the open-pit mine, continued to progress
underground construction while achieving industry-leading safety
performance,” said Ulf Quellmann, Chief Executive Officer. “The
high quality of our mining assets, as well as the strength of our
management team, were instrumental in our ability to successfully
deliver such results. We are focused on demonstrating the value of
Turquoise Hill to our shareholders and the broader market.
“In our open-pit mine, we generated increases of
nearly 150% in gold production and nearly 7% in copper production
resulting in lower unit production costs compared with the third
quarter of 2017. The higher volumes, which offset the impact of
lower copper and gold prices, allowed us to maintain stable revenue
in the third quarter of 2018 compared with a year earlier.
“Underground, we continued to move forward with
the construction of critical infrastructure to transform Oyu Tolgoi
into a true Tier One asset with the potential to operate for
approximately 100 years. Underground development will deliver one
of the largest copper mines globally, with cash costs at the bottom
of the cost curve.”
HIGHLIGHTS
- Oyu Tolgoi achieved a strong All Injury Frequency Rate of 0.19
per 200,000 hours worked for the nine months ended September 30,
2018.
- Copper production of 39,400 tonnes during Q3’18 increased 6.8%
versus Q3’17 as higher grades and recoveries were partially offset
by lower throughput.
- Gold production of 77,000 ounces during Q3’18 increased 148.4%
over Q3’17 due to higher grades and recoveries.
- Mill throughput in Q3’18 decreased 9.1% over Q3’17 due to
increased processing of harder Phase 4 ore as well as a planned
maintenance shutdown during the quarter.
- Revenue of $246.5 million in Q3’18 maintained at Q3’17 levels
by virtue of higher gold sales volumes offsetting lower copper and
gold prices.
- For Q3’18, Oyu Tolgoi’s cost of sales was generally lower than
in Q3’17 at $2.28 per pound of copper sold (down 6.2% from $2.43:
Q3’17), C1 cash costs of $1.65 per pound of copper produced (down
9.8% from $1.83: Q3’17) and all-in sustaining costs of $2.29 per
pound of copper produced (down 17.0% from $2.76:
Q3’17)1.
- Total operating cash costs2 of $196.4 million in Q3’18
increased 21.3% over Q3’17 mainly due to increased open-pit and
concentrator costs resulting from higher maintenance costs, higher
input costs as well as lower capitalization of production phase
stripping costs.
- Turquoise Hill has updated its guidance for 2018 operating cash
costs2 from approximately $700 million to approximately $800
million due to higher freight and royalty costs associated with
increased sales revenue, a reduction to deferred stripping costs
capitalized as well as higher input prices, maintenance and power
study costs.
- Turquoise Hill has also updated its guidance for 2018 open-pit
capital expenditure from approximately $150 million to
approximately $120 million due to lower capitalized deferred
stripping and deferral of projects from 2018 into
2019.
- During Q3’18, underground lateral development progressed 3.0
equivalent kilometres for a cumulative total of 15.7 equivalent
kilometres since project restart.
- Pre-sinking activities for Shafts 3 and 4 progressed during
Q3’18, including a box cut, and sinking for both shafts is expected
to commence mid-2019.
- Underground expansion capital for the nine months ended
September 30, 2018 was $866.5 million, resulting in total project
spend since January 1, 2016 of $1.9 billion.
1 Please refer to the NON-GAAP MEASURES section
of this press release for further information.
2 Please refer to the NON-GAAP MEASURES section
of this press release for further information.
FINANCIAL RESULTS
Income in Q3’18 was $15.2 million compared with
$47.7 million in Q3’17. The decrease is primarily due to
$86.0 million of additional deferred tax assets recognized in Q3’17
compared to Q3’18, partially offset by a reduction to finance costs
in Q3’18 compared to Q3’17, due to increased amounts capitalized to
property, plant and equipment. Cash generated from operating
activities in Q3’18 was $76.2 million compared to $109.1 million in
Q3’17. This decrease was due primarily to the impact of higher
vendor payments in Q3’18 compared to Q3’17 as a result of higher
operating cash costs incurred in Q2’18 compared to Q2’17. Capital
expenditure on property, plant and equipment was $328.8 million on
a cash basis in Q3’18 compared with $234.0 million in Q3’17,
attributed principally to underground ($304.8 million) with the
remainder related to open-pit capital activities.
Turquoise Hill’s cash and cash equivalents at
September 30, 2018 were approximately $1.5 billion.
OYU TOLGOI
The Oyu Tolgoi mine is 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 throughout this trend. They include, from south
to north, the Heruga Deposit, the Oyut deposit and the Hugo Dummett
deposits (Hugo South, Hugo North and Hugo North Extension).
The Oyu Tolgoi mine was initially developed as
an open-pit 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 2018 with harder ore is now expected to
be 38 million to 39 million tonnes compared to previous
expectations of approximately 40 million tonnes.
In August 2013, development of the underground
mine was suspended pending resolution of matters with the
Government of Mongolia. Following 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, Oyu Tolgoi received formal notice to
proceed approval by the boards of Turquoise Hill, Rio Tinto and Oyu
Tolgoi LLC in May 2016, which was the final requirement for the
re-start of underground development. Underground construction
recommenced in May 2016.
Oyu Tolgoi is expected to be the world’s
third-largest copper mine at peak metal production in 20253. Copper
and gold production is expected to increase by more than 340% and
150% respectively between 2018 and 20253. Average copper and gold
production from 2025 to 2030 is expected to be more than 550,000
tonnes of copper and over 450,000 ounces of gold per year.
At the end of Q3’18, Oyu Tolgoi had a total
workforce, including underground project construction, of more than
17,000, of which 92% were Mongolian.
3 Based on 2016 Oyu Tolgoi Technical Report
assumptions. Ranking based on analysis by Wood Mackenzie metal
forecast based on 2018 guidance. Subject to change based on review
of second Oyu Tolgoi annual schedule and cost re-forecast
outcomes.
Underground development
progress
The main focus of 2018 continues to be
underground lateral development, the fit out of Shaft 2, support
infrastructure and the convey-to-surface decline.
During Q3’18, Oyu Tolgoi continued to maintain
strong crew productivity and underground development with three
equivalent kilometres of development completed. Until the
completion of Shaft 2, Oyu Tolgoi is expected to experience
similar, but not increased, development rates as seen in Q3’18. At
the end 2018, underground development is expected to have completed
approximately 11 kilometres of equivalent development through a
mixture of mass excavation and lateral development. Turquoise Hill
has revised its expected advancement of underground development for
2018 to approximately 9.0 kilometres of lateral development from
approximately 10 kilometres resulting from a corresponding increase
in mass excavation. The following table provides a breakdown of the
various components of completed development since project
restart:
|
|
|
|
Year |
TotalEquivalentKilometres |
Lateral
Development(kilometres) |
Mass Excavation(’000
metres3) |
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 |
2.3 |
17.9 |
Total |
15.7 |
12.8 |
72.7 |
|
|
|
|
Pre-sinking activities for Shafts 3 and 4
progressed during Q3’18, including a box cut, and sinking for both
shafts is expected to commence mid-2019. Shaft 2 completed sinking
in January 2018 and was followed by the completion of stripping in
Q3’18 and the start of the fit-out process in the same quarter.
During Q3’18, Shaft 2 collar doors and controls were commissioned
and mechanical installation of the rock breaker on the shaft’s jaw
crusher was completed. Shaft 2 capabilities, along with increased
development, are critical path items to the start of production
ramp-up. The following table outlines the status of shafts for
underground development as of September 30, 2018.
|
|
|
|
|
|
|
Shaft 1(early developmentand ventilation) |
Shaft 2(production and ventilation) |
Shaft 5(ventilation) |
Shaft 3(ventilation) |
Shaft 4(ventilation) |
Total Depth |
1,385 metres |
1,284 metres |
1,178 metres |
1,148 metres |
1,149 metres |
Diameter |
6.7 metres |
10 metres |
6.7 metres |
10 metres |
11 metres |
Completion |
2008 |
Q1’18 |
Q1’18 |
Expected 2021 |
Expected 2021 |
Remaining |
Complete |
Complete |
Complete |
Not started |
Not started |
|
|
|
|
|
|
During Q3’18, development of the
convey-to-surface decline also continued to progress with the
permanent ventilation facility being commissioned and becoming
operational. The convey-to-surface system enables production ramp
up beyond the Shaft 2, 30,000 tonnes per day capacity to the full
95,000 tonne per day underground production from the mine.
Oyu Tolgoi spent $304.8 million on underground
expansion during Q3’18. Total underground project spend from
January 1, 2016 to September 30, 2018 was approximately $1.9
billion. In addition, Oyu Tolgoi had further capital commitments4
of $1.2 billion as of September 30, 2018. At the end of Q3’18, the
underground project had committed almost 81% of direct project
contracts and procurement packages, of which 75% were to Mongolian
companies. Since the restart of project development, Oyu Tolgoi has
committed over $2.1 billion to Mongolian vendors and
contractors.
Rio Tinto, in its role as manager of Oyu Tolgoi,
has undertaken its second annual schedule and cost re-forecast for
the project. According to this re-forecast, lateral development has
progressed well, construction completion schedule remains on track
for 2022 and the project is expected to be completed at the $5.3
billion budget estimate disclosed in the 2016 Oyu Tolgoi
Feasibility Study and the 2016 Oyu Tolgoi Technical Report.
Additionally, several key facilities have been completed, including
Shaft 5, various underground infrastructure and a new camp to house
5,500 workers.
Despite significant progress in the development
of the project, Rio Tinto has notified Turquoise Hill, based on
preliminary results, of a delay to achievement of sustainable first
production which is now expected to occur by the end of Q3‘21
instead of Q1’21. This is a result of certain delays including, but
not limited to, the completion of Shaft 2, which includes over four
months of schedule contingency, and challenging ground conditions.
First draw bell remains on track for mid-2020, partly due to a
change in the draw bell sequencing strategy.
Shaft 2 production capability is a key enabler
of increased underground development as well as further
construction of critical underground infrastructure, such as
Primary Crusher One and the material handling systems, that support
the start of production ramp-up. While the full effect of some
critical path impacts, including the Shaft 2 delay, has been partly
mitigated, the net effect is sustainable first production has been
forecast by Rio Tinto to be delayed by up to nine months, and is
now anticipated to occur in late Q3’21.
Turquoise Hill has commenced its own review,
with the assistance of the Company’s independent Qualified Person,
of the cost and schedule re-forecast and its impact on the
project’s critical path as a result of the anticipated delay in
sustainable first production. The Company will assess the impact of
this delay including, among other things, to the Company’s cash
flows and liquidity during the affected period, any potential
increase in funding requirements and the timing of such funding
requirements, as well as investigate potential mitigation options
relating to cash flow and longer-term project funding. Turquoise
Hill will update the market at the conclusion of that process.
Rio Tinto and Turquoise Hill will also commence
a definitive estimate review in Q4’18. The definitive estimate
review is projected to conclude in early Q3’19 and will provide the
next cost and schedule review of the project.
4 Please refer to the NON-GAAP MEASURES section
of this press release for further information.
Q3’18 open-pit operations
performance
Safety performance
Safety is a major focus throughout Oyu Tolgoi’s
operations and the mine’s management is committed to reducing risk
and injury. Oyu Tolgoi achieved a strong All Injury Frequency Rate
of 0.19 per 200,000 hours worked for the nine months ended
September 30, 2018.
Key financial metrics for Q3’18 are as
follows:
Oyu Tolgoi Key Financial
Metrics(1)
($ in millions, unless otherwise
noted) |
3Q2017 |
4Q2017 |
1Q2018 |
2Q2018 |
3Q2018 |
9 months2018 |
9 months2017 |
Full Year2017 |
|
|
|
|
|
|
|
|
|
Revenue |
246.9 |
251.7 |
245.6 |
341.7 |
246.5 |
833.9 |
688.1 |
939.8 |
Revenue
by metals in concentrates |
|
|
|
|
|
|
|
|
Copper |
209.2 |
216.1 |
202.1 |
273.7 |
180.4 |
656.1 |
579.5 |
795.6 |
Gold |
34.2 |
32.5 |
40.3 |
64.1 |
63.3 |
167.6 |
98.3 |
130.8 |
Silver |
3.5 |
3.2 |
3.2 |
4.0 |
2.9 |
10.1 |
10.3 |
13.4 |
Cost of
sales |
197.8 |
182.7 |
168.9 |
239.6 |
181.0 |
589.5 |
581.0 |
763.8 |
Production and delivery costs |
123.4 |
106.6 |
114.6 |
174.2 |
135.9 |
424.6 |
361.8 |
468.4 |
Depreciation and depletion |
77.4 |
73.4 |
55.6 |
64.1 |
45.2 |
164.9 |
230.7 |
304.1 |
Capital
expenditure on cash basis |
234.0 |
330.4 |
285.7 |
318.0 |
328.8 |
932.6 |
587.1 |
917.5 |
Underground |
205.6 |
309.0 |
270.5 |
291.2 |
304.8 |
866.5 |
526.7 |
835.7 |
Open pit(2) |
28.4 |
21.4 |
15.2 |
26.8 |
24.0 |
66.0 |
60.4 |
81.8 |
Royalties |
14.5 |
15.8 |
14.9 |
20.3 |
15.5 |
50.7 |
41.4 |
57.1 |
Operating cash costs(3) |
161.9 |
217.7 |
176.6 |
201.7 |
196.4 |
574.8 |
494.0 |
711.6 |
Unit
costs ($) |
|
|
|
|
|
|
|
|
Cost of sales (per pound of copper sold) |
2.43 |
2.32 |
2.23 |
2.36 |
2.28 |
2.30 |
2.32 |
2.32 |
C1 (per pound of copper produced)(3) |
1.83 |
2.05 |
1.76 |
1.72 |
1.65 |
1.71 |
1.87 |
1.92 |
All-in sustaining (per pound of copper produced)(3) |
2.76 |
2.40 |
2.07 |
2.42 |
2.29 |
2.26 |
2.39 |
2.39 |
|
|
|
|
|
|
|
|
|
(1) |
Any
financial information in this press release should be reviewed in
conjunction with the Company‘s consolidated financial statements or
condensed interim consolidated financial statements for the
reporting periods indicated. |
(2) |
Open-pit
capital expenditure includes both sustaining and non-underground
development activities. |
(3) |
Please
refer to the NON-GAAP MEASURES of this press release for further
information. |
|
|
Revenue of $246.5 million in Q3’18 was
consistent with $246.9 million in Q3’17 as higher gold sales
volumes in Q3’18 were offset by lower copper and gold prices.
Cost of sales for Q3’18 was $181.0 million
compared to $197.8 million in Q3’17 primarily reflecting decreased
cost of sales per pound of copper sold due to higher average mill
head grades and recoveries in Q3’18 compared to Q3’17.
Capital expenditure on a cash basis for Q3’18
was $328.8 million compared to $234.0 million in Q3’17, comprising
amounts attributed to the underground project and open-pit
activities of $304.8 million and $24.0 million respectively.
Total operating cash costs5 at Oyu Tolgoi was
$196.4 million in Q3’18 compared to $161.9 million in Q3’17. This
was mainly due to increased open-pit and concentrator costs
resulting from higher maintenance costs and higher input costs such
as fuel and tires, in addition to lower capitalization of
production phase stripping costs. Operating cash costs include the
5% royalty payable to the Government of Mongolia and exclude
deferred stripping costs.
Cost of sales was $2.28 per pound of copper sold
in Q3’18 compared with $2.43 per pound of copper sold in Q3’17,
reflecting higher average mill head grades and recoveries in Q3’18
compared to Q3’17.
Oyu Tolgoi’s C1 cash costs5 in Q3’18 were $1.65
per pound of copper produced, a decrease from $1.83 per pound of
copper produced in Q3’17, due primarily to higher gold sales.
All-in sustaining costs5 in Q3’18 were $2.29 per
pound of copper produced, compared with $2.76 per pound of copper
produced in Q3’17, mainly due to the impact of higher gold sales
and a larger write down to ore stockpile and inventory in Q3’17
compared to Q3’18.
5 Please refer to the NON-GAAP MEASURES section
of this press release for further information.
Key operational metrics for Q3’18 are as
follows:
Oyu Tolgoi Production DataAll
data represents full production and sales on a 100% basis
|
|
|
|
|
|
|
|
|
|
3Q2017 |
4Q2017 |
1Q2018 |
2Q2018 |
3Q2018 |
9 months2018 |
9 months2017 |
Full Year2017 |
|
|
|
|
|
|
|
|
|
Open pit
material mined (‘000 tonnes) |
27,466 |
28,929 |
23,131 |
22,792 |
22,523 |
68,446 |
76,992 |
105,921 |
Ore
treated (‘000 tonnes) |
10,615 |
10,838 |
9,561 |
10,164 |
9,652 |
29,377 |
30,339 |
41,177 |
Average
mill head grades: |
|
|
|
|
|
|
|
|
Copper (%) |
0.48 |
0.53 |
0.51 |
0.48 |
0.51 |
0.50 |
0.50 |
0.51 |
Gold (g/t) |
0.18 |
0.20 |
0.25 |
0.26 |
0.38 |
0.29 |
0.16 |
0.17 |
Silver (g/t) |
1.34 |
1.54 |
1.32 |
1.17 |
1.19 |
1.22 |
1.34 |
1.39 |
Concentrates produced (‘000 tonnes) |
170.0 |
205.4 |
177.3 |
178.8 |
179.8 |
535.9 |
517.0 |
722.5 |
Average concentrate grade (% Cu) |
21.7 |
22.0 |
21.9 |
22.0 |
21.9 |
21.9 |
21.7 |
21.8 |
Production of metals in concentrates: |
|
|
|
|
|
|
|
|
Copper (‘000 tonnes) |
36.9 |
45.3 |
38.8 |
39.4 |
39.4 |
117.6 |
112.1 |
157.4 |
Gold (‘000 ounces) |
31 |
35 |
42 |
50 |
77 |
169 |
80 |
114 |
Silver (‘000 ounces) |
239 |
285 |
221 |
225 |
230 |
676 |
689 |
974 |
Concentrates sold (‘000 tonnes) |
176.6 |
175.5 |
163.1 |
220.0 |
171.9 |
555.0 |
548.8 |
724.3 |
Sales of
metals in concentrates: |
|
|
|
|
|
|
|
|
Copper (‘000 tonnes) |
36.9 |
35.7 |
34.3 |
46.1 |
36.0 |
116.4 |
113.6 |
149.3 |
Gold (‘000 ounces) |
29 |
27 |
31 |
51 |
55 |
137 |
84 |
111 |
Silver (‘000 ounces) |
229 |
205 |
206 |
250 |
201 |
657 |
656 |
860 |
Metal
recovery (%) |
|
|
|
|
|
|
|
|
Copper |
73.5 |
78.0 |
79.5 |
79.7 |
80.9 |
80.1 |
74.3 |
75.4 |
Gold |
51.2 |
50.5 |
55.0 |
59.8 |
64.7 |
61.2 |
49.4 |
49.7 |
Silver |
52.8 |
53.0 |
54.6 |
58.4 |
62.8 |
58.4 |
51.8 |
52.9 |
|
|
|
|
|
|
|
|
|
Mill throughput in Q3’18 decreased 9.1% over
Q3’17 due to increased processing of harder Phase 4 ore as well as
a planned maintenance shutdown during the quarter. Copper
production increased 6.8% over Q3’17 as higher grades and
recoveries were partially offset by lower throughput. Gold
production increased 148.4% over Q3’17 due to higher grades and
recoveries. Third quarter sales volumes were generally lower than
Q3’17 due to the impact of torrential rain in July and August,
which consequently affected Chinese road and rail availability.
Operational outlook
Turquoise Hill has updated Oyu Tolgoi’s expected
copper production for 2018 from between 125,000 and 155,000 tonnes
of copper to between 140,000 and 155,000 tonnes of copper in
concentrates. The Company continues to expect production of gold in
concentrates from between 240,000 and 280,000 ounces for 2018.
Turquoise Hill has updated its guidance for 2018
operating cash costs from approximately $700 million to
approximately $800 million. Nearly half of this increase is
due to higher freight and royalty costs associated with increased
sales revenue and a reduction in the amount of costs capitalized as
deferred stripping resulting from a decrease in the proportion of
waste removed as mining resources prioritized movement of ore
during the year. Other contributors include higher input prices for
key items such as fuel and power, higher maintenance costs
resulting from major shut-downs not originally planned for 2018,
and an increase in power study costs.
The Company has also updated its guidance for
open-pit capital expenditure for 2018 from approximately $150
million to approximately $120 million. The decrease is due
primarily to lower capitalized deferred stripping costs resulting
from a decrease in the proportion of waste removed as mining
resources prioritized movement of ore during the year and a
deferral of specific sustaining capital projects from 2018 into
2019.
Funding of Oyu Tolgoi by Turquoise
Hill
In accordance with the Amended and Restated
Shareholders’ Agreement (ARSHA) dated June 8, 2011, Turquoise Hill
has funded Oyu Tolgoi’s cash requirements beyond internally
generated cash flows by a combination of equity investment and
shareholder debt.
For amounts funded by debt, Oyu Tolgoi must
repay such amounts, including accrued interest, before it can pay
common share dividends. As of September 30, 2018, the aggregate
outstanding balance of shareholder loans extended by subsidiaries
of the Company to Oyu Tolgoi was $4.7 billion, including accrued
interest of $0.6 billion. These loans bear interest at an effective
annual rate of LIBOR plus 6.5%.
In accordance with the ARSHA, a subsidiary of
the Company has funded the common share investments in Oyu Tolgoi
on behalf of 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 common share dividends. Erdenes also has the
right to reduce the outstanding balance by making cash payments at
any time. As of September 30, 2018, the cumulative amount of such
funding was $1.0 billion, representing 34% of invested common share
equity; unrecognized interest on the funding amounted to $0.5
billion.
As part of its review of the second schedule and
cost re-forecast, Turquoise Hill is assessing the impact of delay
on, amongst other things, the Company’s cash flows and liquidity
during the impacted period and is investigating any potential
mitigation options. Turquoise Hill has at its disposal substantial
current funding options, including cash generated from operating
activities and the remaining net proceeds from project finance,
which are currently held on deposit with Rio Tinto. While still
subject to finalization of the review, it may be determined for Oyu
Tolgoi to undertake to secure supplemental senior debt or other
permitted debt to continue to progress its underground activities,
the exact timing and quantum of which is still under consideration
as part of the on-going review. Finally, Turquoise Hill may
determine to meet funding requirements through use of its cash and
cash equivalents.
Oyu Tolgoi power supply
Per the Investment Agreement, Oyu Tolgoi has
been exploring two domestic power options – a power plant built and
operated by Oyu Tolgoi at the mine site or an independent power
producer located at the Tavan Tolgoi coal field.
On May 12, 2017, Oyu Tolgoi LLC signed a new
power purchase agreement (PPA) with the National Power Transmission
Grid (NPTG) of Mongolia. The PPA was executed in connection with
the power import arrangement between NPTG and the Inner Mongolia
Power International Corporation (IMPIC). The new arrangement took
effect on July 4, 2017, subsequent to the expiry of the existing
IMPIC agreement, for a term of up to six years, with possibility of
early cancellation after the fourth year, if a domestic power plant
is commissioned earlier. The extension is essential for Oyu Tolgoi
to have secure access to power while it works with the Government
of Mongolia (Government) on establishing a permanent domestic power
source.
On February 15, 2018, Oyu Tolgoi received
notification that the Government had cancelled the PSCA, which was
signed in August 2014. The Government’s cancellation, under Section
1.3 of the PSCA, indicated the Tavan Tolgoi power project was no
longer a viable option. As a result of the Government’s
cancellation, effective February 15, 2018, long-term power for Oyu
Tolgoi must be domestically sourced within four years, in
accordance with the Investment Agreement. Oyu Tolgoi, Turquoise
Hill and Rio Tinto are committed to fulfilling all requirements
under the Investment Agreement and are continuing to evaluate all
viable power options.
Subject to further agreement between the
Government and Oyu Tolgoi, an Oyu Tolgoi-based power plant
continues to be progressed, as it remains the most feasible option
that could deliver a domestic source of power within the shortest
timeframe. As part of its efforts to progress this option, Oyu
Tolgoi LLC has entered into agreements with three Chinese EPC
contractors – China Machinery Engineering Corporation, Harbin
Electric International Company Limited and Power Construction
Corporation of China – as part of a competitive tender
process. Each contractor has been requested to submit a bid for
engineering, design and construction of a power station for Oyu
Tolgoi LLC in Mongolia. The agreement entered into with each bidder
provides that, where a bidder submits a conforming bid and it is
not accepted by Oyu Tolgoi LLC, Oyu Tolgoi will pay $500,000 to
that bidder to offset the costs of preparing that bid and the early
engineering and design work packs. Bids are expected in Q4’18 and
there may potentially be a requirement for Oyu Tolgoi to order some
long-lead items before the end of 2018 to meet the 2022 Investment
Agreement deadline.
A Tavan Tolgoi-based power plant also remains as
an important alternative option. Further study of this option is
underway.
Overall, both alternatives continue to be
studied and progressed, and negotiations with Government continue.
A final decision on the outcome, cost and financing of a domestic
power supply has not yet been concluded.
Oyu Tolgoi tax assessment
On January 16, 2018, Turquoise Hill announced
that Oyu Tolgoi had received and was evaluating a tax assessment
for approximately $155 million from the Mongolian Tax Authority
(the 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 $5.0 million to settle unpaid taxes,
fines and penalties for accepted items.
Following engagement with the MTA, Oyu Tolgoi
was advised that the MTA could not resolve Oyu Tolgoi’s objections
to the tax assessment. Accordingly, on March 15, 2018, Oyu Tolgoi
issued a notice of dispute to the Government under the Investment
Agreement and on April 13, 2018, Oyu Tolgoi submitted a claim to
the Mongolian Administrative Court. The Administrative Court
has currently suspended the processing of the case for an
indefinite period based on current procedural uncertainty in
relation to the tax assessment disputes.
Chapter 14 of the Investment Agreement sets out
a dispute resolution process. The issuance of a notice of
dispute is the first step in the dispute resolution process and
includes a 60-working-day negotiation period. The parties were
unable to reach a resolution during the 60-working-day period;
however, the parties have continued discussions in an attempt to
resolve the dispute in good faith. If unsuccessful, the next step
would be dispute resolution through international arbitration.
Turquoise Hill is of the opinion that Oyu Tolgoi
has paid all taxes and charges required under the Investment
Agreement, the ARSHA, the Underground Plan and Mongolian law.
Mongolian parliamentary working
group
In March 2018, the Speaker of the Mongolian
Parliament appointed a Parliamentary Working Group (Working Group)
that consisted of 13 Members of Parliament to review the
implementation of the Investment Agreement. The Working Group
established five sub-working groups consisting of representatives
from government ministries, agencies, political parties,
non-governmental organizations and professors, to help and support
the Working Group. The Working Group’s fieldwork has been completed
and they were due to report to Parliament before the end of spring
session in late June; however, this has been delayed. Any reporting
is now expected to be in the autumn parliamentary session, which
started on October 1, 2018.
Anti-Corruption Authority information
requests
Oyu Tolgoi LLC has received information requests
from the Mongolian Anti-Corruption Authority (ACA) for information
relating to Oyu Tolgoi. The ACA has also conducted interviews
in connection with its investigation. Turquoise Hill has
inquired as to the status of the investigation and Oyu Tolgoi 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 Oyu Tolgoi Investment Agreement, and
that Oyu Tolgoi is complying with the ACA’s requests in accordance
with relevant laws. To date, neither Turquoise Hill nor Oyu
Tolgoi has received notice from the ACA, or indeed from any
regulator, that either company or their employees are subjects of
any investigation involving the Oyu Tolgoi project.
The Investment Agreement framework was
authorized by the Mongolian Parliament, concluded after 16 months
of negotiations and reviewed by numerous constituencies within the
Mongolian 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 has allowed for the development of Oyu Tolgoi in a manner
that has given rise to significant long-term benefits to Mongolia.
Benefits from Oyu Tolgoi’s 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 July 30, 2018, the Company announced the
appointment of Ulf Quellmann as Turquoise Hill Chief Executive
Officer effective August 1, 2018. The appointment of Mr. Quellmann
follows the retirement of Jeff Tygesen.
Board appointment
On September 7, 2018, Turquoise Hill announced
the appointment of Alan Chirgwin to the Company’s Board of
Directors effective September 6, 2018.
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 Oyu
Tolgoi 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.
It 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 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 as a result of 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 to support sustaining capital expenditures
for future production from the generation of operating cash
flows.
A reconciliation of total operating cash costs,
C1 cash costs and all-in sustaining costs is provided below.
|
|
|
Operating and unit costs |
|
(Three Months Ended) |
|
(Nine Months Ended) |
C1 costs
(Stated in $000's of dollars) |
September 30, 2018 |
September 30, 2017 |
|
September 30, 2018 |
September 30, 2017 |
Cost of sales |
181,027 |
|
197,774 |
|
589,518 |
|
581,010 |
|
Cost of sales:
$/lb of copper sold |
2.28 |
|
2.43 |
|
2.30 |
|
2.32 |
|
Depreciation and
depletion |
(45,175 |
) |
(77,355 |
) |
(164,871 |
) |
(230,653 |
) |
Provision against
carrying value of copper-gold concentrate |
- |
|
2,967 |
|
- |
|
11,429 |
|
Change in
inventory |
(2,106 |
) |
(16,579 |
) |
(16,927 |
) |
(30,144 |
) |
Other operating
expenses |
62,590 |
|
74,465 |
|
148,954 |
|
150,760 |
|
Less: |
|
|
|
|
- Inventory
(write-down) reversal |
(7,701 |
) |
(25,040 |
) |
(2,400 |
) |
(4,978 |
) |
-
Depreciation |
(231 |
) |
(797 |
) |
(1,489 |
) |
(2,656 |
) |
Management services
payment to Turquoise Hill |
8,034 |
|
6,508 |
|
22,020 |
|
19,206 |
|
Operating cash
costs |
196,438 |
|
161,943 |
|
574,805 |
|
493,974 |
|
Operating cash
costs: $/lb of copper produced |
2.26 |
|
1.99 |
|
2.22 |
|
2.00 |
|
Adjustments to
operating cash costs |
13,092 |
|
24,948 |
|
46,166 |
|
77,052 |
|
Less: Gold and silver
revenues |
(66,042 |
) |
(37,742 |
) |
(177,709 |
) |
(108,603 |
) |
C1 costs
($'000) |
143,488 |
|
149,149 |
|
443,262 |
|
462,423 |
|
C1 costs: $/lb
of copper produced |
1.65 |
|
1.83 |
|
1.71 |
|
1.87 |
|
|
|
|
|
|
All-in
sustaining costs (Stated in $000's of dollars) |
|
|
|
|
Corporate
administration |
5,818 |
|
4,099 |
|
18,083 |
|
14,253 |
|
Asset retirement
expense |
1,654 |
|
1,771 |
|
5,056 |
|
4,914 |
|
Royalty expenses |
15,504 |
|
14,532 |
|
50,678 |
|
41,428 |
|
Ore stockpile and
stores write-down (reversal) |
7,701 |
|
25,040 |
|
2,400 |
|
4,978 |
|
Other expenses |
789 |
|
1,554 |
|
962 |
|
2,782 |
|
Sustaining cash capital
including deferred stripping |
24,083 |
|
28,331 |
|
66,242 |
|
60,342 |
|
All-in
sustaining costs ($'000) |
199,037 |
|
224,476 |
|
586,683 |
|
591,120 |
|
All-in
sustaining costs: $/lb of copper produced |
2.29 |
|
2.76 |
|
2.26 |
|
2.39 |
|
|
|
(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. |
|
|
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, working capital excludes:
non-trade receivables and payables; financing items; cash and cash
equivalents; deferred revenue and non-current inventory.
A reconciliation of consolidated working capital
to the financial statements and notes is provided below.
Working
capital |
September 30, |
|
December 31, |
(Stated in $000's of
dollars) |
2018 |
|
2017 |
|
|
|
|
Inventories
(current) |
$ |
245,458 |
|
|
$ |
274,142 |
|
Trade and other
receivables |
|
43,942 |
|
|
|
29,089 |
|
Trade and other
payables: |
|
|
|
- trade
payables and accrued liabilities |
|
(386,050 |
) |
|
|
(360,697 |
) |
- payable
to related parties |
|
(42,668 |
) |
|
|
(52,308 |
) |
Consolidated working capital |
$ |
(139,318 |
) |
|
$ |
(109,774 |
) |
|
|
|
|
Contractual obligations
Section 9 of the Company’s Management Discussion
& Analysis of Financial Condition and Results of Operations for
the nine months ended September 30, 2018 (MD&A) discloses
contractual obligations in relation to the Company’s lease,
purchase and asset retirement obligations. Amounts relating to
these obligations are calculated on the basis of the Company
carrying out its future business activities and operations as
planned at the period end. As such, contractual obligations
presented in the MD&A will differ from amounts presented in the
financial statements, which are prepared on the basis of minimum
uncancellable commitments to pay in the event of contract
termination. The MD&A presentation of contractual obligations
is provided in order to give an indication of future expenditure,
for the disclosed categories, arising from the Company’s continuing
operations and development projects.
A reconciliation of contractual obligations at
September 30, 2018 to the financial statements and notes is
provided below.
|
|
|
|
|
|
(Stated
in $000's of dollars) |
Purchaseobligations |
Powercommitments |
Operatingleases |
Financeleases |
Decommissioningobligations |
|
|
|
|
|
|
Commitments
(MD&A) |
$ |
1,302,436 |
|
$ |
534,628 |
|
$ |
29,045 |
$ |
12,175 |
$ |
268,409 |
|
Cancellable
obligations |
|
(1,055,596 |
) |
|
(167,795 |
) |
|
- |
|
- |
|
- |
|
(net of exit
costs) |
|
|
|
|
|
Accrued capital
expenditure |
|
(195,379 |
) |
|
- |
|
|
- |
|
- |
|
- |
|
Discounting and other
adjustments |
|
- |
|
|
- |
|
|
- |
|
- |
|
(140,046 |
) |
Financial statement amount |
$ |
51,461 |
|
$ |
366,833 |
|
$ |
29,045 |
$ |
12,175 |
$ |
128,363 |
|
|
|
|
|
|
|
QUALIFIED PERSON
Disclosure of a scientific or technical nature
in this press release in respect of the Oyu Tolgoi mine was
prepared under the supervision of Bernard Peters, Technical
Director – Mining, OreWin Pty Ltd., B. Eng. (Mining), FAusIMM
(201743), and Sharron Sylvester, Technical Director – Geology,
OreWin Pty Ltd., BSc (Geol.), RPGeo AIG (10125). Each of these
individuals is a “qualified person” as that term is defined in NI
43-101.
SELECTED QUARTERLY DATA
|
|
($ in millions, except
per share information) |
Quarter Ended |
|
Sep-30 |
|
Jun-30 |
|
Mar-31 |
Dec-31 |
|
|
2018 |
|
2018 |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
246.5 |
$ |
341.7 |
|
$ |
245.6 |
$ |
251.7 |
|
|
|
|
|
Income for the period |
$ |
15.2 |
$ |
204.4 |
|
$ |
79.7 |
$ |
33.9 |
|
|
|
|
|
Income attributable to owners of Turquoise Hill |
$ |
53.2 |
$ |
171.3 |
|
$ |
85.7 |
$ |
51.1 |
|
|
|
|
|
Basic and diluted income per share attributable to owners of
Turquoise Hill |
$ |
0.03 |
$ |
0.09 |
|
$ |
0.04 |
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Sep-30 |
|
Jun-30 |
|
Mar-31 |
Dec-31 |
|
|
2017 |
|
2017 |
|
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
246.9 |
$ |
203.7 |
|
$ |
237.5 |
$ |
224.6 |
|
|
|
|
|
Income (loss) for the period |
$ |
47.7 |
$ |
(0.4 |
) |
$ |
29.7 |
$ |
86.8 |
|
|
|
|
|
Income attributable to owners of Turquoise Hill |
$ |
65.3 |
$ |
23.8 |
|
$ |
41.0 |
$ |
93.3 |
|
|
|
|
|
Basic and diluted income per share attributable to owners of
Turquoise Hill |
$ |
0.03 |
$ |
0.01 |
|
$ |
0.02 |
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KEY STATISTICS1
|
|
|
|
|
|
|
|
|
|
3Q2017 |
4Q2017 |
1Q2018 |
2Q2018 |
3Q2018 |
9 months2018 |
9 months2017 |
Full Year2017 |
Operating results |
|
|
|
|
|
|
|
|
Open pit
material mined (‘000 tonnes) |
27,466 |
28,929 |
23,131 |
22,792 |
22,523 |
68,446 |
76,992 |
105,921 |
Ore
treated (‘000 tonnes) |
10,615 |
10,838 |
9,561 |
10,164 |
9,652 |
29,377 |
30,339 |
41,177 |
Average
mill head grades: |
|
|
|
|
|
|
|
|
Copper (%) |
0.48 |
0.53 |
0.51 |
0.48 |
0.51 |
0.50 |
0.50 |
0.51 |
Gold (g/t) |
0.18 |
0.20 |
0.25 |
0.26 |
0.38 |
0.29 |
0.16 |
0.17 |
Silver (g/t) |
1.34 |
1.54 |
1.32 |
1.17 |
1.19 |
1.22 |
1.34 |
1.39 |
Concentrates produced (‘000 tonnes) |
170.0 |
205.4 |
177.3 |
178.8 |
179.8 |
535.9 |
517.0 |
722.5 |
Average concentrate grade (% Cu) |
21.7 |
22.0 |
21.9 |
22.0 |
21.9 |
21.9 |
21.7 |
21.8 |
Production of metals in concentrates: |
|
|
|
|
|
|
|
|
Copper (‘000 tonnes) |
36.9 |
45.3 |
38.8 |
39.4 |
39.4 |
117.6 |
112.1 |
157.4 |
Gold (‘000 ounces) |
31 |
35 |
42 |
50 |
77 |
169 |
80 |
114 |
Silver (‘000 ounces) |
239 |
285 |
221 |
225 |
230 |
676 |
689 |
974 |
Concentrates sold (‘000 tonnes) |
176.6 |
175.5 |
163.1 |
220.0 |
171.9 |
555.0 |
548.8 |
724.3 |
Sales of
metals in concentrates: |
|
|
|
|
|
|
|
|
Copper (‘000 tonnes) |
36.9 |
35.7 |
34.3 |
46.1 |
36.0 |
116.4 |
113.6 |
149.3 |
Gold (‘000 ounces) |
29 |
27 |
31 |
51 |
55 |
137 |
84 |
111 |
Silver (‘000 ounces) |
229 |
205 |
206 |
250 |
201 |
657 |
656 |
860 |
Metal
recovery (%) |
|
|
|
|
|
|
|
|
Copper |
73.5 |
78.0 |
79.5 |
79.7 |
80.9 |
80.1 |
74.3 |
75.4 |
Gold |
51.2 |
50.5 |
55.0 |
59.8 |
64.7 |
61.2 |
49.4 |
49.7 |
Silver |
52.8 |
53.0 |
54.6 |
58.4 |
62.8 |
58.4 |
51.8 |
52.9 |
|
|
|
|
|
|
|
|
|
Financial results ($ in millions, unless otherwise
noted) |
|
|
|
|
|
|
|
|
Revenue |
246.9 |
251.7 |
245.6 |
341.7 |
246.5 |
833.9 |
688.1 |
939.8 |
Revenue
by metals in concentrates |
|
|
|
|
|
|
|
|
Copper |
209.2 |
216.1 |
202.1 |
273.7 |
180.4 |
656.1 |
579.5 |
795.6 |
Gold |
34.2 |
32.5 |
40.3 |
64.1 |
63.3 |
167.6 |
98.3 |
130.8 |
Silver |
3.5 |
3.2 |
3.2 |
4.0 |
2.9 |
10.1 |
10.3 |
13.4 |
Operating cash flow |
94.7 |
91.1 |
14.7 |
149.6 |
52.5 |
216.9 |
234.7 |
325.8 |
Cost of
sales |
197.8 |
182.7 |
168.9 |
239.6 |
181.0 |
589.5 |
581.0 |
763.8 |
Production and delivery costs |
123.4 |
106.6 |
114.6 |
174.2 |
135.9 |
424.6 |
361.8 |
468.4 |
Depreciation and depletion |
77.4 |
73.4 |
55.6 |
64.1 |
45.2 |
164.9 |
230.7 |
304.1 |
Capital
expenditure on cash basis |
234.0 |
330.4 |
285.7 |
318.0 |
328.8 |
932.6 |
587.1 |
917.5 |
Underground |
205.6 |
309.0 |
270.5 |
291.2 |
304.8 |
866.5 |
526.7 |
835.7 |
Open pit (2) |
28.4 |
21.4 |
15.2 |
26.8 |
24.0 |
66.0 |
60.4 |
81.8 |
Royalties |
14.5 |
15.8 |
14.9 |
20.3 |
15.5 |
50.7 |
41.4 |
57.1 |
Operating cash costs(3) |
161.9 |
217.7 |
176.6 |
201.7 |
196.4 |
574.8 |
494.0 |
711.6 |
Unit
costs ($) |
|
|
|
|
|
|
|
|
Cost of sales (per pound of copper sold) |
2.43 |
2.32 |
2.23 |
2.36 |
2.28 |
2.30 |
2.32 |
2.32 |
C1 (per pound of copper produced) (3) |
1.83 |
2.05 |
1.76 |
1.72 |
1.65 |
1.71 |
1.87 |
1.92 |
All-in sustaining (per pound of copper produced) (3) |
2.76 |
2.40 |
2.07 |
2.42 |
2.29 |
2.26 |
2.39 |
2.39 |
|
|
|
|
|
|
|
|
|
Financial position |
|
|
|
|
|
|
|
|
Cash and
cash equivalents ($’000,000) |
1,485.5 |
1,444.8 |
1,498.4 |
1,463.3 |
1,520.6 |
|
|
1,444.8 |
(1) |
Any
financial information in this press release should be reviewed in
conjunction with the Company‘s consolidated financial statements or
condensed interim consolidated financial statements for the
reporting periods indicated. |
(2) |
Open-pit
capital expenditure includes both sustaining and non-underground
development activities. |
(3) |
Please
refer to the NON-GAAP MEASURES section of this press release for
further information. |
|
|
TURQUOISE HILL RESOURCES LTD. |
|
|
|
|
|
|
Consolidated Statements of Income |
|
|
|
|
|
|
|
|
(Stated in thousands of U.S.
dollars) |
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
|
September 30, |
|
September 30, |
|
|
Note |
|
|
2018 |
|
|
|
2017 |
|
|
|
2018 |
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
4 |
|
$ |
246,536 |
|
|
$ |
246,944 |
|
|
$ |
833,871 |
|
|
$ |
688,078 |
|
Cost of sales |
5 |
|
|
(181,027 |
) |
|
|
(197,774 |
) |
|
|
(589,518 |
) |
|
|
(581,010 |
) |
Gross margin |
|
|
|
65,509 |
|
|
|
49,170 |
|
|
|
244,353 |
|
|
|
107,068 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
6 |
|
|
(62,590 |
) |
|
|
(74,465 |
) |
|
|
(148,954 |
) |
|
|
(150,760 |
) |
Corporate
administration expenses |
|
|
|
(5,818 |
) |
|
|
(4,099 |
) |
|
|
(18,083 |
) |
|
|
(14,253 |
) |
Other income |
|
|
|
4,428 |
|
|
|
4,013 |
|
|
|
4,762 |
|
|
|
5,327 |
|
Income (loss) before finance items and taxes |
|
|
|
1,529 |
|
|
|
(25,381 |
) |
|
|
82,078 |
|
|
|
(52,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
Finance items |
|
|
|
|
|
|
|
|
|
Finance
income |
7 |
|
|
38,644 |
|
|
|
39,074 |
|
|
|
118,934 |
|
|
|
118,458 |
|
Finance costs |
7 |
|
|
(9,509 |
) |
|
|
(37,072 |
) |
|
|
(50,311 |
) |
|
|
(122,075 |
) |
|
|
|
|
|
29,135 |
|
|
|
2,002 |
|
|
|
68,623 |
|
|
|
(3,617 |
) |
Income (loss) from operations before taxes |
|
|
$ |
30,664 |
|
|
$ |
(23,379 |
) |
|
$ |
150,701 |
|
|
$ |
(56,235 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income and other taxes |
|
|
|
(15,510 |
) |
|
|
71,061 |
|
|
|
148,603 |
|
|
|
133,238 |
|
Income for the period |
|
|
$ |
15,154 |
|
|
$ |
47,682 |
|
|
$ |
299,304 |
|
|
$ |
77,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners of Turquoise Hill Resources Ltd. |
|
|
53,169 |
|
|
|
65,345 |
|
|
|
310,156 |
|
|
|
130,159 |
|
|
Attributable to owner
of non-controlling interest |
|
|
|
(38,015 |
) |
|
|
(17,663 |
) |
|
|
(10,852 |
) |
|
|
(53,156 |
) |
Income for the period |
|
|
$ |
15,154 |
|
|
$ |
47,682 |
|
|
$ |
299,304 |
|
|
$ |
77,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share
attributable |
|
|
|
|
|
|
|
|
|
|
to Turquoise
Hill Resources Ltd. |
18 |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.15 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
The notes to these financial statements, which are
available on our website, are an integral part of the consolidated
financial statements. |
TURQUOISE HILL RESOURCES LTD. |
|
|
|
|
|
|
Consolidated Statements of Comprehensive
Income |
|
|
|
|
(Stated in thousands of U.S.
dollars) |
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
|
September 30, |
|
September 30, |
|
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
2018 |
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Income for the period |
|
$ |
15,154 |
|
|
$ |
47,682 |
|
|
$ |
299,304 |
|
|
$ |
77,003 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Items that
will not be reclassified to income: |
|
|
|
|
|
|
|
|
|
Changes in
the fair value of marketable securities at FVOCI |
|
|
(1,111 |
) |
|
|
983 |
|
|
|
(3,409 |
) |
|
|
1,822 |
|
|
|
|
|
|
|
|
|
|
|
|
Items that
have been reclassified to income: |
|
|
|
|
|
|
|
|
|
Gain on
revaluation of marketable securities transferred |
|
|
|
|
|
|
|
|
|
|
to the statement of
income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(39 |
) |
Other comprehensive income (loss) for the
period (a) |
|
$ |
(1,111 |
) |
|
$ |
983 |
|
|
$ |
(3,409 |
) |
|
$ |
1,783 |
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the
period |
|
$ |
14,043 |
|
|
$ |
48,665 |
|
|
$ |
295,895 |
|
|
$ |
78,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners of Turquoise Hill |
|
|
52,058 |
|
|
|
66,328 |
|
|
|
306,747 |
|
|
|
131,942 |
|
|
Attributable to owner of non-controlling interest |
|
|
(38,015 |
) |
|
|
(17,663 |
) |
|
|
(10,852 |
) |
|
|
(53,156 |
) |
Total comprehensive income for the
period |
|
$ |
14,043 |
|
|
$ |
48,665 |
|
|
$ |
295,895 |
|
|
$ |
78,786 |
|
|
|
|
|
|
|
|
|
|
|
|
The notes
to these financial statements, which are available on our website,
are an integral part of the consolidated financial
statements. |
|
|
|
|
|
|
|
|
|
|
|
TURQUOISE HILL RESOURCES LTD. |
Consolidated Statements of Cash Flows |
(Stated in thousands of U.S.
dollars) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
|
September 30, |
|
September 30, |
|
|
Note |
|
|
2018 |
|
|
|
2017 |
|
|
|
2018 |
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash generated from operating
activities |
|
|
|
|
|
|
|
|
|
|
before interest and tax |
17 |
|
$ |
52,548 |
|
|
$ |
94,715 |
|
|
$ |
216,875 |
|
|
$ |
234,659 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
received |
|
|
|
24,196 |
|
|
|
15,982 |
|
|
|
64,164 |
|
|
|
42,656 |
|
Interest
paid |
|
|
|
(77 |
) |
|
|
(494 |
) |
|
|
(130,884 |
) |
|
|
(120,311 |
) |
Income and other taxes paid |
|
|
|
(509 |
) |
|
|
(1,145 |
) |
|
|
(6,211 |
) |
|
|
(5,623 |
) |
Net cash generated from operating
activities |
|
|
$ |
76,158 |
|
|
$ |
109,058 |
|
|
$ |
143,944 |
|
|
$ |
151,381 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Receivable
from related party: amounts withdrawn |
19 |
|
|
310,000 |
|
|
|
230,000 |
|
|
|
860,000 |
|
|
|
500,000 |
|
Expenditures on property, plant and equipment |
|
|
|
(328,845 |
) |
|
|
(234,029 |
) |
|
|
(932,609 |
) |
|
|
(587,071 |
) |
Proceeds
from sale and redemption of financial assets |
|
|
|
- |
|
|
|
984 |
|
|
|
- |
|
|
|
1,047 |
|
Other investing cash flows |
|
|
|
- |
|
|
|
- |
|
|
|
616 |
|
|
|
173 |
|
Cash used in investing activities |
|
|
$ |
(18,845 |
) |
|
$ |
(3,045 |
) |
|
$ |
(71,993 |
) |
|
$ |
(85,851 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Net
proceeds from project finance facility |
|
|
|
- |
|
|
|
1,118 |
|
|
|
4,158 |
|
|
|
4,200 |
|
Payment of
project finance fees |
|
|
|
- |
|
|
|
(384 |
) |
|
|
(192 |
) |
|
|
(2,294 |
) |
Cash generated from financing
activities |
|
|
$ |
- |
|
|
$ |
734 |
|
|
$ |
3,966 |
|
|
$ |
1,906 |
|
|
|
|
|
|
|
|
|
|
|
|
Effects of
exchange rates on cash and cash equivalents |
|
|
35 |
|
|
|
235 |
|
|
|
(78 |
) |
|
|
301 |
|
Net increase in cash and cash
equivalents |
|
|
$ |
57,348 |
|
|
$ |
106,982 |
|
|
$ |
75,839 |
|
|
$ |
67,737 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents - beginning of period |
|
|
$ |
1,463,274 |
|
|
$ |
1,378,509 |
|
|
$ |
1,444,783 |
|
|
$ |
1,417,754 |
|
Cash and cash equivalents - end of period |
|
|
|
1,520,622 |
|
|
|
1,485,491 |
|
|
|
1,520,622 |
|
|
|
1,485,491 |
|
Cash and cash equivalents as presented on the
balance sheets |
$ |
1,520,622 |
|
|
$ |
1,485,491 |
|
|
$ |
1,520,622 |
|
|
$ |
1,485,491 |
|
|
|
|
|
|
|
|
|
|
|
|
The notes
to these financial statements, which are available on our website,
are an integral part of the consolidated financial
statements. |
|
|
|
|
|
|
|
|
|
|
|
TURQUOISE HILL RESOURCES
LTD. |
Consolidated Balance Sheets |
(Stated in thousands of U.S.
dollars) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
December 31, |
|
|
Note |
|
|
2018 |
|
|
|
2017 |
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
Cash and cash
equivalents |
8 |
|
$ |
1,520,622 |
|
|
$ |
1,444,783 |
|
Inventories |
9 |
|
|
245,458 |
|
|
|
274,142 |
|
Trade and other
receivables |
|
|
|
43,942 |
|
|
|
29,089 |
|
Prepaid expenses and
other assets |
|
|
|
33,893 |
|
|
|
49,552 |
|
Receivable from related party |
10 |
|
|
1,067,500 |
|
|
|
1,367,586 |
|
|
|
|
|
2,911,415 |
|
|
|
3,165,152 |
|
Non-current
assets |
|
|
|
|
|
Property, plant and
equipment |
11 |
|
|
8,404,514 |
|
|
|
7,346,972 |
|
Inventories |
9 |
|
|
22,263 |
|
|
|
43,379 |
|
Deferred income tax
assets |
14 |
|
|
643,290 |
|
|
|
473,742 |
|
Receivable from related party and other financial assets |
10 |
|
|
1,241,322 |
|
|
|
1,804,074 |
|
|
|
|
|
10,311,389 |
|
|
|
9,668,167 |
|
Total assets |
|
|
$ |
13,222,804 |
|
|
$ |
12,833,319 |
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
Trade and other
payables |
12 |
|
$ |
500,669 |
|
|
$ |
435,869 |
|
Deferred
revenue |
|
|
|
63,037 |
|
|
|
67,598 |
|
|
|
|
|
563,706 |
|
|
|
503,467 |
|
Non-current
liabilities |
|
|
|
|
|
Borrowings and other
financial liabilities |
13 |
|
|
4,174,489 |
|
|
|
4,159,119 |
|
Deferred income tax
liabilities |
14 |
|
|
41,100 |
|
|
|
25,788 |
|
Decommissioning obligations |
15 |
|
|
128,363 |
|
|
|
125,721 |
|
|
|
|
|
4,343,952 |
|
|
|
4,310,628 |
|
Total liabilities |
|
|
$ |
4,907,658 |
|
|
$ |
4,814,095 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
|
$ |
11,432,122 |
|
|
$ |
11,432,122 |
|
Contributed
surplus |
|
|
|
1,558,129 |
|
|
|
1,558,102 |
|
Accumulated other
comprehensive income |
|
|
|
310 |
|
|
|
3,719 |
|
Deficit |
|
|
|
(3,771,352 |
) |
|
|
(4,081,508 |
) |
Equity
attributable to owners of Turquoise Hill |
|
|
|
9,219,209 |
|
|
|
8,912,435 |
|
Attributable to non-controlling interest |
16 |
|
|
(904,063 |
) |
|
|
(893,211 |
) |
Total
equity |
|
|
$ |
8,315,146 |
|
|
$ |
8,019,224 |
|
|
|
|
|
|
|
Total liabilities and equity |
|
|
$ |
13,222,804 |
|
|
$ |
12,833,319 |
|
|
|
|
|
|
|
Commitments and
contingencies (Note 20) |
|
|
|
|
|
|
|
|
|
|
|
The notes
to these financial statements, which are available on our website,
are an integral part of the consolidated financial
statements. |
|
|
|
|
|
|
TURQUOISE HILL RESOURCES LTD. |
Consolidated Statements of Equity
|
(Stated in thousands of U.S.
dollars) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
2018 |
Attributable to owners of Turquoise
Hill |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
|
|
|
|
Non-controlling |
|
|
|
|
|
|
Contributed |
|
comprehensive |
|
|
|
|
|
|
Interest |
|
|
|
|
Share capital |
|
surplus |
|
income (loss) |
|
Deficit |
|
Total |
|
|
(Note 16) |
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
$ |
11,432,122 |
|
$ |
1,558,102 |
|
$ |
3,719 |
|
|
$ |
(4,081,508 |
) |
|
$ |
8,912,435 |
|
|
|
$ |
(893,211 |
) |
|
$ |
8,019,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income for the period |
|
- |
|
|
- |
|
|
- |
|
|
|
310,156 |
|
|
|
310,156 |
|
|
|
|
(10,852 |
) |
|
|
299,304 |
|
Other comprehensive loss for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period |
|
- |
|
|
- |
|
|
(3,409 |
) |
|
|
- |
|
|
|
(3,409 |
) |
|
|
|
- |
|
|
|
(3,409 |
) |
Employee share plans |
|
- |
|
|
27 |
|
|
- |
|
|
|
- |
|
|
|
27 |
|
|
|
|
- |
|
|
|
27 |
|
Closing balance |
$ |
11,432,122 |
|
$ |
1,558,129 |
|
$ |
310 |
|
|
$ |
(3,771,352 |
) |
|
$ |
9,219,209 |
|
|
|
$ |
(904,063 |
) |
|
$ |
8,315,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
2017 |
Attributable to owners of Turquoise
Hill |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
|
|
|
|
Non-controlling |
|
|
|
|
|
|
Contributed |
|
comprehensive |
|
|
|
|
|
|
Interest |
|
|
|
|
Share capital |
|
surplus |
|
income (loss) |
|
Deficit |
|
Total |
|
|
(Note 16) |
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
$ |
11,432,122 |
|
$ |
1,557,913 |
|
$ |
(402 |
) |
|
$ |
(4,262,755 |
) |
|
$ |
8,726,878 |
|
|
|
$ |
(822,892 |
) |
|
$ |
7,903,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income for the period |
|
- |
|
|
- |
|
|
- |
|
|
|
130,159 |
|
|
|
130,159 |
|
|
|
|
(53,156 |
) |
|
|
77,003 |
|
Other comprehensive income for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period |
|
- |
|
|
- |
|
|
1,783 |
|
|
|
- |
|
|
|
1,783 |
|
|
|
|
- |
|
|
|
1,783 |
|
Employee share plans |
|
- |
|
|
84 |
|
|
- |
|
|
|
- |
|
|
|
84 |
|
|
|
|
- |
|
|
|
84 |
|
Closing balance |
$ |
11,432,122 |
|
$ |
1,557,997 |
|
$ |
1,381 |
|
|
$ |
(4,132,596 |
) |
|
$ |
8,858,904 |
|
|
|
$ |
(876,048 |
) |
|
$ |
7,982,856 |
|
|
|
|
|
|
|
|
|
|
|
The notes to these financial statements, which are
available on our website, are an integral part of the consolidated
financial statements. |
|
ContactInvestors and Media
Tony Shaffer+ 604 648
3934tony.shaffer@turquoisehill.com
Follow us on Twitter @TurquoiseHillRe About
Turquoise Hill Resources
Turquoise Hill Resources (TRQ: NYSE, NASDAQ
& TSX) is expanding its 66%-owned Oyu Tolgoi mining operation
in Mongolia from an open pit into one of the world’s largest new
copper-gold underground producers. Oyu Tolgoi, which commenced
production in 2013, has the potential to operate for approximately
100 years.
Cautionary Statement
The potential to operate for approximately 100
years is based on a preliminary economic assessment (Alternative
Production Case) that is preliminary in nature, and that includes
inferred mineral resources that are considered too speculative
geologically to have the economic considerations applied to them
that would enable them to be categorized as mineral reserves. There
is no certainty that the Alternative Production Case will be
realized. Mineral resources that are not mineral reserves do not
have demonstrated economic viability. For more information about
the Alternative Production Case, readers are referred to the 2016
Oyu Tolgoi Technical Report.
Forward-looking
statementsCertain 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,
liquidity, funding requirements and planning, statements regarding
timing and status of underground development, capital and operating
cost estimates, 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, anticipated capital and operating costs, anticipated future
production and cash flows, and 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; matters relating to proposed
exploration or expansion; mining operational and development risks;
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 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
15, 2018 in respect of the year ended December 31, 2017 (the
“AIF”), as supplemented by our Management’s Discussion and Analysis
of Financial Condition and Results of Operations for the nine
months ended September 30, 2018 (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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