MONTREAL, March 8, 2021 /CNW/ - Turquoise Hill Resources
today announced its financial results for the year ended
December 31, 2020. All figures are in
U.S. dollars unless otherwise stated.
"2020 was an important year for Turquoise Hill. In the face of
the COVID-19 pandemic that dominated 2020, the Oyu Tolgoi mine
achieved another year of excellent operational results, with copper
production in-line with original guidance, and gold production
exceeding original forecasts," stated Peter
Gillin, Chair of the Board of Directors of Turquoise
Hill.
"In addition to our operational excellence, the Oyu Tolgoi team
posted a new record safety performance while open-pit operations
continued uninterrupted throughout the entire year. Focusing on the
underground, milestones achieved during 2020 included updating the
mine design and completing both the 2020 Oyu Tolgoi Technical
Report and the Definitive Estimate. Overall, the underground
lateral development has now reached 53,000 equivalent meters with
development required before first drawbell substantially complete,
and all surface infrastructure required to support first
sustainable production of the Hugo North Lift 1 Panel 0 built.
Although we continue to face many challenges, we remain on track in
bringing Panel 0 to first sustainable production in October 2022."
Mr. Gillin noted that the Company, subsequent to its year end
and as previously disclosed, had recently announced a change to its
senior management team with the resignation of Ulf Quellmann
as Chief Executive Officer and the appointment of Mr. Steve Thibeault as Interim CEO. "On behalf of
the Board and management of Turquoise Hill and the Oyu Tolgoi team,
I want to thank Ulf for his contributions to the Company during his
tenure including the advancing of the financing plan for the
project. I am also pleased to welcome Steve
Thibeault as our interim CEO. Over the course of his career,
Mr. Thibeault has held senior finance positions at a number of
international mining companies and has worked on four different
continents. This is a bit of a homecoming for Steve who served as
CFO of Turquoise Hill between June
2014 and April 2017. Steve's
familiarity with the Company, the Oyu Tolgoi project and
Mongolia will help ensure a smooth
transition and maintain our positive momentum on project
development and financing."
Highlights
Full Year 2020
- Oyu Tolgoi open pit and underground workforce posted an All
Injury Frequency Rate (AIFR) of 0.15 per 200,000 hours worked. This
is the lowest full-year AIFR the team has achieved.
- As at December 31, 2020,
Turquoise Hill has $1.1 billion of
available liquidity, which under current projections is expected to
meet the Company's requirements, including the funding of
underground capital expenditure, into Q3'22.
- Turquoise Hill currently estimates a base case incremental
funding requirement of $2.3 billion,
compared to $3.0 billion estimated in
the Company's Q3'20 earnings release.
- Full year copper production of 149,631 tonnes is within the
Company's original guidance of 140,000 – 170,000 tonnes.
- Full year gold production of 181,858 ounces outperformed the
Company's original guidance of 120,000 – 150,000 ounces as well as
its updated guidance of 155,000 – 180,000 ounces.
- Full year mill throughput of 40.2 million tonnes was
slightly lower than 2019 due to processing more of the harder Phase
4B ore.
- Revenue of $1,078.2 million in
2020 decreased 7.5% versus 2019, primarily due to lower gold
production as the open pit worked through the lower grade areas of
Phase 4B and Phase 6B before reaching the higher-grade copper and
gold grades lower in Phase 4B, which
were accessed in Q4'20 and are planned to continue throughout
2021.
- Income was $494.6 million
compared with a loss of $476.9
million in 2019 due primarily to the $0.6 billion impairment charge recorded in 2019
together with $462.0 million of
additional deferred tax assets recognised in 2020 versus 2019.
Income attributable to owners of Turquoise Hill was $406.3 million or $2.02 per share, compared with loss of
$150.5 million or $0.75 per share in 2019.
- Cost of sales was $2.20 per pound
of copper sold and C1 cash costs1 were $1.45 per pound of copper produced, within the
updated 2020 guidance range of $1.30
to $1.70 per pound of copper
produced. All-in sustaining costs1 were $1.94 per pound of copper produced.
- Total operating cash costs1 of $747.9 million, which decreased 3.4% from
$774.5 million in 2019, were below
the low end of the 2020 guidance range of $780 million to $830
million. The decrease was driven by lower mining and milling
costs1 and certain COVID-19 related cost saving
initiatives.
- Underground capital spend of $1,021.1
million, including $94.4
million of underground sustaining capital, was within the
original 2020 guidance range of $1.0
billion to $1.1 billion. Total
underground spend since January 1,
2016 is now approximately $4.5
billion, including $0.1
billion of underground sustaining capital.
- Cash generated from operating activities before interest and
taxes was $371.2 million, versus
$341.7 million in 2019.
- The project has exceeded one million tonnes of underground
material moved through Shaft 2 since commissioning.
- All surface infrastructure required to support first
sustainable production of Hugo North Lift 1 Panel 0 is
complete.
- In May 2020, the updated Panel 0
mine design was approved.
- In July 2020, the Oyu Tolgoi
Feasibility Study (OTFS20) was completed, followed by Turquoise
Hill filing its 2020 Oyu Tolgoi Technical Report (OTTR20) in
August 2020. Both the OTFS20 and
OTTR20 are based on the updated Panel 0 mine design. Engagement
with the Government of Mongolia
regarding OTFS20 is ongoing to enable its acceptance and subsequent
approval by the board of directors of Oyu Tolgoi LLC (the Oyu
Tolgoi Board).
- In December 2020, the Definitive
Estimate (DE) was completed. The DE refines the analysis contained
in the OTFS20 as well as the OTTR20, and includes a revised base
case project development capital cost estimate of $6.75 billion, and a revised base case Panel 0
sustainable first production forecast of October 2022. There is ongoing engagement with
our partner Erdenes Oyu Tolgoi LLC (Erdenes) regarding the DE to
enable its further consideration by the Oyu Tolgoi Board, which
engagement includes consideration of the cost and schedule update
reported in the DE by a Special Committee of the Oyu Tolgoi
Board.
- Oyu Tolgoi LLC was awarded The Copper Mark for meeting over 30
criteria for Responsible Environmental, Social and Governance (ESG)
operating practices. The Copper Mark is the first and only program
for responsible production in the copper industry.
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1
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Please refer to
Section – NON-GAAP MEASURES – on page 23 of this press release for
further information.
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Fourth Quarter 2020
- Both copper and gold production were higher in Q4'20 versus
Q4'19, benefiting from increased average head grades therefore
higher recovery as mining transitioned deeper into the higher grade
areas of Phase 4B. In Q4'20, Oyu
Tolgoi produced 41,647 tonnes of copper and 87,812 ounces of gold
compared to 32,906 tonnes of copper and 24,344 ounces of gold in
Q4'19.
- Revenue in Q4'20 of $405.1
million was 83% higher than the $221.4 million achieved in Q4'19, reflecting
increases of $101.9 million and
$80.3 million in revenue from copper
and gold, respectively.
- Mill throughput in Q4'20 was lower than Q4'19 due to higher
overall feed hardness and decreased mill availability due to a
shutdown for concentrator maintenance in December 2020.
- Cash generated from operating activities before interest and
taxes was $245.8 million in Q4'20, an
increase from $42.4 million generated
in Q4'19 due primarily to the increase in revenue.
- Cost of sales of $2.08 per pound
of copper sold, C1 cash costs2 of $0.76 per pound of copper produced and all-in
sustaining costs2 of $1.45
per pound of copper produced were achieved for Q4'20.
- Total operating cash costs2 of $197.7 million in Q4'20 increased 1.6% from
$194.6 million in Q4'19.
- Underground capital spend was $237.5
million in Q4'20, inclusive of $44.5
million in underground sustaining capital.
- Access to higher copper and gold grades in Q4'20 is expected to
continue throughout 2021. Shipments across the Chinese border were
maintained despite COVID-19 measures in Mongolia.
- Work on the project has continued to materially progress in
line with the DE despite the COVID-19 controls and ongoing travel
restrictions implemented by the Government of Mongolia. Ongoing impacts to domestic and
international movement could have an impact on key project
milestones.
- Remobilisation of international shaft-sinking specialists
occurred in Q4'20, with work at Shaft 4 focussed on completing all
construction and commissioning activities for load testing and
verification in preparation for the shaft sinking which commenced
in early February 2021.
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2
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Please refer to
Section – NON-GAAP MEASURES – on page 23 of this press release for
further information.
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OPERATIONAL OUTLOOK FOR 2021
Oyu Tolgoi is expected to produce 160,000 to 180,000 tonnes of
copper and 500,000 to 550,000 ounces of gold in concentrates in
2021 from processing of both open pit and underground development
ore. The increase in gold production in 2021 compared with 2020 is
the result of transitioning lower into the higher grade areas of
Phase 4B. The Company has been
advised by the manager that a geotechnical event in Phase
4B in December
2020 has required changes to the mine design that will
slightly impact metal delivery in 2021 and 2022, but is expected to
remain within the outlook range. Additional optimisation of Phase
4B is currently underway, and the
Company anticipates releasing its 2022 outlook at the conclusion
thereof.
Operating cash costs3 for 2021 are expected to
be $800 million to $850 million.
Capital expenditure for 2021 on a cash-basis is expected to be
between $110 million to $140 million for the open-pit and $1.1 billion to $1.2
billion for the underground, including underground
sustaining capital expenditure but excluding any power-related
expenditure. Capital expenditure for 2021 is expected to be higher
than 2020 partly due to the impact of deferrals in spend from 2020
to 2021 resulting from the impact of the COVID-19 pandemic.
Open-pit capital is mainly comprised of deferred stripping,
equipment purchases, tailings storage facility construction and
maintenance componentization. Underground capital is inclusive of
VAT. Open pit capital expenditure guidance for 2021 has reduced
from the previous range of $120
million to $160 million to
reflect the deferral of certain non-critical projects.
2021 C1 cash costs3 are expected to be in the
range of negative $0.50 to negative
$0.80 per pound of copper produced,
an improvement upon 2020 due to the expected increase in gold
production and higher forecast copper and gold prices. Unit cost
guidance assumes the midpoint of the expected 2021 copper and gold
production ranges and a gold price of $1,880 per ounce.
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3
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Please refer to
Section – NON-GAAP MEASURES – on page 23 of this press release for
further information.
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OUR BUSINESS
Turquoise Hill is an international mining company focused on the
operation and continued development of the Oyu Tolgoi copper-gold
mine in Mongolia, which is the
Company's principal and only material mineral resource property.
The Company's ownership of the Oyu Tolgoi mine is held through a
66% interest in Oyu Tolgoi LLC; the remaining 34% interest is held
by Erdenes, a Mongolian state-owned entity.
The Oyu Tolgoi property is located approximately 550 kilometres
south of Ulaanbaatar, Mongolia's
capital city, and 80 kilometres north of the Mongolia-China border. The property is cut by the Oyu
Tolgoi trend, a 12 kilometres north-south orientated corridor which
is host to the known deposits, Hugo North, Hugo South, Oyut and Heruga. Open pit mining
operations commenced at Oyut in 2013. The Hugo North deposit (Lift
1) is currently being developed as an underground operation.
The copper concentrator plant, with related facilities and
necessary infrastructure, was originally designed to process
approximately 100,000 tonnes of ore per day from the Oyut open pit.
However, since 2014, the concentrator has consistently achieved a
throughput of over 105,000 tonnes per day due to improvements in
operating practices. Concentrator throughput for 2021 is targeted
at over 110,000 tonnes per day and expected to be approximately 40
million tonnes for the year due to improvements in concentrator
performance and more favourable ore characteristics.
At the end of Q4'20, Oyu Tolgoi had a total workforce (employees
and contractors), including for underground project construction,
of 12,364 workers, of which over 95.4% were Mongolians.
SELECTED ANNUAL FINANCIAL INFORMATION
($ in millions,
except per share information)
|
|
Year Ended December
31
|
|
|
2020
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,078.2
|
$
|
1,166.0
|
$
|
1,180.0
|
|
|
|
|
|
Income (loss) for the
year
|
|
$
|
494.6
|
$
|
(476.9)
|
$
|
394.3
|
|
|
|
|
|
Net income (loss)
attributable to owners of Turquoise Hill
|
|
$
|
406.3
|
$
|
(150.5)
|
$
|
411.2
|
|
|
|
|
|
Basic and diluted
income (loss) per share attributable to owners of Turquoise
Hill
|
|
$
|
2.02
|
$
|
(0.75)
|
$
|
2.04
|
|
|
|
|
|
Total
assets
|
|
$
|
13,368.8
|
$
|
12,822.4
|
$
|
13,312.0
|
Long-term
liabilities
|
|
|
|
|
Borrowings and other
financial liabilities
|
|
$
|
4,173.5
|
$
|
4,187.3
|
$
|
4,187.3
|
Decommissioning
obligations
|
|
$
|
134.0
|
$
|
104.2
|
$
|
131.6
|
Deferred income tax
liabilities
|
|
$
|
111.7
|
$
|
79.2
|
$
|
47.9
|
|
|
|
|
|
Note: Annual
financial information has been extracted from the audited financial
statements of Turquoise Hill, which are prepared in accordance
with IFRS. The long-term liabilities for the year ended December
31, 2018 does not reflect the adoption by the Company of IFRS 16
Leases as of January 1, 2019.
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SELECTED FINANCIAL
METRICS (1)
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Three months
ended
|
Year ended
|
($ in millions,
unless otherwise noted)
|
4Q
|
4Q
|
Change
|
12 months
|
12 months
|
Change
|
2020
|
2019
|
%
|
2020
|
2019
|
%
|
|
|
|
|
|
|
|
Revenue
|
405.1
|
221.4
|
83.0%
|
1,078.2
|
1,166.0
|
(7.5%)
|
Income (loss) for the
period
|
241.6
|
109.5
|
--
|
494.6
|
(476.9)
|
--
|
Income (loss)
attributable to owners of Turquoise Hill
|
159.9
|
113.1
|
--
|
406.3
|
(150.5)
|
--
|
Basic and diluted
income (loss) per share attributable to owners of Turquoise
Hill
|
0.79
|
0.56
|
--
|
2.02
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(0.75)
|
--
|
Revenue by metals in
concentrates
|
|
|
|
|
|
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Copper
|
280.0
|
178.1
|
57.2%
|
797.3
|
787.8
|
1.2%
|
Gold
|
120.4
|
40.1
|
200.2%
|
265.7
|
365.0
|
(27.2%)
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Silver
|
4.7
|
3.2
|
46.9%
|
15.2
|
13.2
|
15.2%
|
Cost of
sales
|
173.6
|
175.0
|
(0.8%)
|
669.4
|
743.0
|
(9.9%)
|
Production and
delivery costs
|
125.9
|
125.2
|
0.6%
|
493.4
|
559.1
|
(11.8%)
|
Depreciation and
depletion
|
47.7
|
49.8
|
(4.2%)
|
176.0
|
183.9
|
(4.3%)
|
Capital expenditure
on cash basis
|
263.0
|
318.6
|
(17.5%)
|
1,080.5
|
1,308.1
|
(17.4%)
|
Underground-Development
|
193.0
|
289.7
|
(33.4%)
|
926.7
|
1,174.9
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(21.1%)
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Underground-Sustaining
|
44.5
|
-
|
100.0%
|
94.4
|
-
|
100.0%
|
Open pit
|
25.5
|
28.9
|
(11.8%)
|
59.4
|
133.2
|
(55.4%)
|
Proceeds from
pre-production revenue
|
-
|
-
|
--
|
(26.1)
|
-
|
100.0%
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Royalties
|
23.4
|
12.5
|
87.2%
|
63.4
|
64.0
|
(0.9%)
|
Operating cash costs
(2)
|
197.7
|
194.6
|
1.6%
|
747.9
|
774.5
|
(3.4%)
|
Unit costs
($)
|
|
|
|
|
|
|
Cost of sales (per
pound of copper sold)
|
2.08
|
2.46
|
(15.4%)
|
2.20
|
2.25
|
(2.2%)
|
C1 (per pound of
copper produced) (2)
|
0.76
|
2.21
|
(65.6%)
|
1.45
|
1.37
|
5.8%
|
All-in
sustaining (per pound of copper produced) (2)
|
1.45
|
2.97
|
(51.2%)
|
1.94
|
2.08
|
(6.7%)
|
Mining costs (per
tonne of material mined) (2)
|
1.85
|
1.55
|
19.4%
|
1.80
|
1.88
|
(4.1%)
|
Milling costs (per
tonne of ore treated) (2)
|
7.29
|
5.01
|
45.6%
|
6.35
|
6.48
|
(2.0%)
|
G&A costs (per
tonne of ore treated)
|
3.28
|
3.49
|
(6.0%)
|
3.11
|
3.30
|
(5.9%)
|
Cash generated from
(used in) operating activities
|
69.5
|
(153.6)
|
145.2%
|
40.9
|
(11.7)
|
449.6%
|
Cash generated from
operating activities before interest and tax
|
245.8
|
42.4
|
479.7%
|
371.2
|
341.7
|
8.6%
|
Interest
paid
|
170.6
|
206.6
|
(17.4%)
|
316.8
|
427.5
|
(25.9%)
|
Total
assets
|
13,369
|
12,822
|
4.3%
|
13,369
|
12,822
|
4.3%
|
Total non-current
financial liabilities
|
4,419
|
4,371
|
1.1%
|
4,419
|
4,371
|
1.1%
|
|
|
|
|
|
|
|
(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)
|
Please refer to
Section – NON-GAAP MEASURES – on page 23 of this press release for
further information.
|
Full Year 2020 vs. 2019
- Revenue of $1,078.2 million in
2020 decreased 7.5% when compared to $1,166.0 million in 2019, primarily driven by a
27.2% decrease in gold revenue due to a 45.3% decrease in volumes
of gold in concentrates sold, as gold production reduced as lower
grade gold areas of Phase 4B and
Phase 6B were mined through the
majority of 2020. This reduced gold production was partly offset by
a 27.1% increase in the average price of gold as well as by higher
copper revenue, which was primarily driven by a 2.3% increase in
copper production.
- Income for 2020 was $494.6
million compared with a loss of $476.9 million in 2019. This change was primarily
due to the $0.6 billion impairment
charge recorded in 2019 together with $462.0
million of additional deferred tax assets recognised in 2020
versus 2019. The change in the amount of deferred tax recognised
was due to an adjustment recorded in 2019 to reflect the impact of
cost overruns and scheduled delays announced on July 15, 2019; deferred tax recognised in 2020
increased by $346.6 million driven
primarily by improved near-term commodity price estimates, which
increased taxable income forecasts and subsequently increased the
amount of loss carry forwards and temporary differences estimated
to be utilised prior to expiration.
- Cost of sales in 2020 was $669.4
million compared to $743.0
million in 2019, primarily driven by a 7.6% decrease in the
volume of concentrates sold and a reduction in the unit cost of
production resulting from reduced mining and milling unit
costs4.
- Capital expenditure on a cash basis for 2020 was $1,080.5 million compared to $1,308.1 million in 2019, comprising $1,021.1 million (2019 – $1,174.9 million) of underground capital spend
(including $94.4 million in
underground sustaining capital) and open-pit spend of $59.4 million (2019 - $133.2 million). 2020 open-pit capital
expenditure includes deferred stripping of $5.1 million and tailings storage facility spend
of $29.4 million.
- Total operating cash costs4 of $747.9 million in 2020 decreased 3.4% when
compared to 2019, driven by lower mining costs4 due to
reduced fuel and maintenance costs as well as lower milling
costs4 from lower grinding material and reagent
consumption. In addition, 2020 benefitted from certain COVID-19
related cost saving initiatives.
- Cost of sales was $2.20 per pound
of copper sold in 2020, compared to $2.25 per pound of copper sold in 2019,
reflecting a lower unit cost of production due to reduced mining
and milling unit costs4. This was partly offset by the
impact of lower volumes of metals in concentrate sold.
- C1 cash costs4 in 2020 were $1.45 per pound of copper produced, increasing
from $1.37 per pound of copper
produced in 2019. The increase was primarily driven by the impact
of lower gold credits due to the lower gold revenue in 2020.
- Operating cash costs4 were lower in 2020 versus
2019, benefiting from lower mining and milling unit
costs4.
- All-in sustaining costs4 in 2020 were $1.94 per pound of copper produced, compared with
$2.08 per pound of copper produced in
2019. All-in sustaining costs4 were impacted by the same
factors that impacted C1 cash costs4, however the
$73.8 million decrease in open pit
sustaining capital expenditure ultimately led to a decrease in
all-in sustaining costs4 when compared to 2019.
- Mining costs4 in 2020 were $1.80 per tonne of material mined, compared to
$1.88 per tonne of material mined in
2019. The decrease from 2019 was mainly due to decreased fuel costs
and maintenance costs, partly offset by a reduction in material
mined.
- Milling costs4 in 2020 were $6.35 per tonne of ore treated, compared to
$6.48 per tonne of ore treated in
2019. The decrease from 2019 was mainly due to lower consumption of
grinding materials, reagents, lime and bulk bags, together with
lower maintenance and consumables spend.
- G&A costs in 2020 were $3.11
per tonne of ore treated, compared to $3.30 per tonne of ore treated in 2019. The
decrease from 2019 was mainly due to COVID-19 related cost savings,
such as travel.
- Cash generated from operating activities was $40.9 million in 2020, compared to $11.7 million used in operated activities during
2019. This was due to positive movements in working
capital4 and a decrease in net interest paid of
$47.0 million due primarily to lower
LIBOR rates. These improvements were partly offset by an increase
of $23.9 million in taxes paid in
2020.
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4
|
Please refer to
Section – NON-GAAP MEASURES – on page 23 of this press release for
further information.
|
Q4'20 vs. Q4'19
- Revenue of $405.1 million in
Q4'20 increased 83.0% from $221.4
million in Q4'19, reflecting increases of $101.9 million and $80.3
million in revenue from copper and gold, respectively. The
increase in copper revenue was impacted by a 21.7% increase in the
average price of copper as well as a 26.4% increase in copper
production. Gold revenue benefitted from a 26.5% increase in the
average price of gold and a 266.7% increase in gold production,
reflecting the scheduled move to higher grade gold areas of Phase
4B.
- Income for the period was $241.6
million in Q4'20 compared with income of $109.5 million in Q4'19, primarily reflecting the
impact of increased revenue partly offset by the impact of lower
deferred tax assets recognised in Q4'20 versus Q4'19. Income
attributable to owners of Turquoise Hill in Q4'20 was $159.9 million, or $0.79 per share, compared to $113.1 million, or $0.56 per share, in Q4'19.
- Cost of sales of $173.6 million
in Q4'20 decreased 0.8% from $175.0
million in Q4'19, due mainly to lower depreciation and
depletion as certain long-lived assets subject to straight line
depreciation reached the end of their depreciable lives.
- Capital expenditure on a cash basis was $263.0 million in Q4'20, compared to $318.6 million in Q4'19, comprised of
$237.5 million (Q4'19 – $289.7 million) in underground capital spend
(including $44.5 million in
underground sustaining capital) and $25.5
million (Q4'19 - $28.9
million) open-pit sustaining capital expenditure.
- Total operating cash costs5 of $197.7 million in Q4'20 increased 1.6% from
$194.6 million in Q4'19, principally
due to increased milling costs5 from the timing of a
major plant shutdown in Q4'20 versus in Q3'19, together with
increased royalty costs driven by higher sales revenue. These
increases were partly offset by lower fuel and G&A costs.
- Unit cost of sales of $2.08 per
pound of copper sold in Q4'20 decreased 15.4% from $2.46 per pound of copper sold in Q4'19,
reflecting a 17.3% increase in the volumes of copper in
concentrates sold during Q4'20.
- Oyu Tolgoi's C1 cash costs5 of $0.76 per pound of copper produced in Q4'20
decreased from $2.21 in Q4'19,
primarily reflecting the impact of the $80.3
million increase in gold revenue as well as the impact of a
26.4% increase in copper production.
- All-in sustaining costs5 of $1.45 in Q4'20 decreased 51.2% from $2.97 in Q4'19. Similar to the decrease in C1
cash costs5 over the same periods, the decrease
primarily reflects the impact of higher gold revenues and higher
copper production. Additionally, all-in sustaining
costs5 were impacted by lower open-pit sustaining
capital spend in Q4'20.
- Mining costs5 of $1.85
per tonne of material mined in Q4'20 increased 19.4% from
$1.55 per tonne of material mined in
Q4'19. The increase was mainly due to lower material mined,
increased haul truck rental costs and higher spend on maintenance
and consumables. These increases were partly offset by lower fuel
costs.
- Milling costs5 of $7.29 per tonne of ore treated in Q4'20 increased
45.6% from $5.01 per tonne of ore
treated in Q4'19. The increase was mainly due to higher maintenance
and consumables costs associated with the plant shutdown in Q4'20
versus in Q3'19.
- G&A costs of $3.28 per tonne
of ore treated in Q4'20 decreased 6% from $3.49 per tonne of ore treated in Q4'19. The
decrease was mainly due to COVID-19 related cost savings, such as
travel.
- Cash generated from operating activities was $69.5 million in Q4'20, compared to cash used in
operating activities of $153.6
million in Q4'19, due primarily to the $183.7 million increase in revenue as well as
lower net interest paid in Q4'20 due to reduced LIBOR rates.
|
|
|
5
|
Please refer to
Section – NON-GAAP MEASURES – on page 23 of this press release for
further information.
|
OYU TOLGOI
Safety Performance and COVID-19 Response
Oyu Tolgoi's safety performance improved in Q4'20, with the AIFR
decreasing from 0.17 per 200,000 hours worked for the nine months
ended September 30, 2020 to 0.15 per
200,000 hours worked for the year ended December 31, 2020. In addition to its commitment
to reducing health and safety risks and injury at Oyu Tolgoi,
preventing the spread of COVID-19 continued to be a key priority
for Oyu Tolgoi.
While the open pit and ore processing operations at Oyu Tolgoi
continued to operate uninterrupted despite COVID-19, the
unprecedented impact of this pandemic has seen restrictions imposed
by the Government of Mongolia on
travel and the movement of goods and people both across and within
its borders, making it more difficult for teams to access the site.
Expatriate specialists continued to return to Mongolia in Q4'20, including key specialists
required to advance preparations for Shaft 3 and Shaft 4
sinking.
The safety and health of the workforce continues to be the major
focus throughout Oyu Tolgoi, and management is committed to
reducing COVID 19-related health risks. Site COVID-19 controls
include social distancing practices, mandatory wearing of masks,
hand washing and temperature measurements in high traffic areas.
Employees in Ulaanbaatar have been working from home when required.
Four rapid test screening hubs have been implemented to monitor the
exposure of the workforce to COVID-19. Since the first confirmed
COVID-19 community transmission case in Mongolia, Oyu Tolgoi LLC has continued to
cooperate with the Government of Mongolia and the State Emergency Committee and
has adhered to the necessary compliance requirements and guidance.
Quarantine restrictions in Ulaanbaatar and other provinces,
including South Gobi, resulted in implementation of an elongated
roster for and impacted planned shift-change frequency of the site
workforce. Consequently, fatigue management has required ongoing
management. Continued focus on reducing the potential exposure to
COVID-19 is critical to maintaining uninterrupted operations and to
minimising its impacts on the underground development.
The key operational metrics for full year
and Q4 2020 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
|
|
2020
|
2019
|
|
2020
|
2019
|
|
|
|
|
|
|
|
|
Open pit material
mined ('000 tonnes)
|
23,663
|
28,122
|
(15.9%)
|
97,694
|
101,316
|
(3.6%)
|
Ore treated ('000
tonnes)
|
9,594
|
11,088
|
(13.5%)
|
40,200
|
40,777
|
(1.4%)
|
Average mill head
grades:
|
|
|
|
|
|
|
Copper (%)
|
0.50
|
0.42
|
19.0%
|
0.46
|
0.45
|
2.2%
|
Gold (g/t)
|
0.41
|
0.15
|
173.3%
|
0.24
|
0.29
|
(17.2%)
|
Silver
(g/t)
|
1.16
|
1.06
|
9.4%
|
1.18
|
1.13
|
4.4%
|
Concentrates produced
('000 tonnes)
|
190.2
|
152.6
|
24.6%
|
693.1
|
674.6
|
2.7%
|
Average concentrate
grade (% Cu)
|
21.9
|
21.6
|
1.4%
|
21.6
|
21.7
|
(0.5%)
|
Production of metals
in concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
41.6
|
32.9
|
26.4%
|
149.6
|
146.3
|
2.3%
|
Gold ('000
ounces)
|
88
|
24
|
266.7%
|
182
|
242
|
(24.8%)
|
Silver ('000
ounces)
|
231
|
190
|
21.6%
|
876
|
867
|
1.0%
|
Concentrate sold
('000 tonnes)
|
181.5
|
157.5
|
15.2%
|
669.6
|
724.7
|
(7.6%)
|
Sales of metals in
concentrates:
|
|
|
|
|
|
|
Copper ('000
tonnes)
|
37.9
|
32.3
|
17.3%
|
137.8
|
149.9
|
(8.1%)
|
Gold ('000
ounces)
|
66
|
25
|
164.0%
|
150
|
274
|
(45.3%)
|
Silver ('000
ounces)
|
194
|
244
|
(20.5%)
|
760
|
896
|
(15.2%)
|
Metal recovery
(%)
|
|
|
|
|
|
|
Copper
|
85.9
|
74.2
|
15.8%
|
79.6
|
78.7
|
1.1%
|
Gold
|
68.8
|
48.2
|
42.7%
|
58.6
|
63.6
|
(7.9%)
|
Silver
|
64.3
|
53.5
|
20.2%
|
56.4
|
58.1
|
(2.9%)
|
|
|
|
|
|
|
|
In Q4'20, processed ore tonnage was lower than the same period
of 2019 due to the processing of more higher grade material, in
addition to a planned maintenance shutdown in December that reduced
mill availability and effective utilisation. Q4'20 copper
production was higher compared to the same quarter of the previous
year. This was due to a 19% increase in copper head grade to the
mill from 0.42 in Q4'19 to 0.50 in Q4'20. This increase was more
than sufficient to offset the lower milled tonnes in the period
compared to 2019. Q4'20 gold production was higher compared to the
same quarter of the previous year. This was due to a significant
increase in average gold head grade of 173% and higher recovery as
the mining transitioned deeper into the higher grade areas of Phase
4B.
2020 processed ore tonnage was slightly lower than 2019
primarily due to mill feed composition. 2020 copper
production was slightly higher compared to 2019 driven by higher
head grade and recovery due to a move of ore source from Phases 4A
and 6A into Phases 4B and
6B. 2020 gold production was
lower compared to 2019 primarily due to lower average gold grades
and recovery experienced in Phase 4B
compared to Phase 4A mined in 2019.
Oyu Tolgoi Underground Update
Work on the project has continued to progress within the
COVID-19 controls and ongoing travel restrictions implemented by
the Government of Mongolia.
Although expatriates began returning to Mongolia from July
2020, community transmitted COVID-19 cases in-country
resulted in increased restrictions, including on both domestic and
international travel.
With the assistance of vendor representatives now on site,
installation and commissioning of sinking related equipment
continues at Shafts 3 and 4. Activities at Shaft 4 in Q4'20 were
focused on completing all construction and commissioning activities
for load testing and verification in preparation for shaft sinking,
which commenced in early February
2021. Should flight restrictions continue, productivity on
the project and the ability to perform specialised maintenance and
commissioning activities could be impacted. First sustainable
production for Panel 0 is on track, however progress is being
monitored and we will communicate any implications, particularly
for Panel 1 and Panel 2 ramp-up which Shaft 3 and 4 support, at an
appropriate time.
Materials Handling System 1 progress continues with civil work
complete on Primary Crusher 1 and steel and cable installation
continuing thereon.
Overall, the underground lateral development has now reached
53,000 equivalent metres (eqm) with development required
before first drawbell substantially complete.
The project has now exceeded one million tonnes of material
moved through Shaft 2 since commissioning, and scheduled annual
maintenance of the Shaft was successfully completed in
October 2020 using remote technology.
The DE, which was completed in December
2020, forecasts first sustainable production in October 2022 and estimates a development capital
cost of $6.75 billion. The level of
work and scope of the review were completed to an accuracy range of
-5% to +10% however, given the uncertainty of COVID-19-related and
other business case risks identified by Rio Tinto, the go-forward
capital expenditure estimate and schedule, as approved by the
Company's board, are at a -10% to +15% level of accuracy. There is
ongoing engagement with our partner Erdenes regarding the DE to
enable its further consideration by the Oyu Tolgoi Board, which
includes an assessment of cost and schedule impacts by a Special
Committee of the Oyu Tolgoi Board. The DE assumes COVID-19 related
restrictions in 2021 that are no more stringent than those
experienced in September 2020. The
impact of the recent COVID-19 restrictions following the community
transmitted cases in Ulaanbaatar in November
2020 are monitored for potential impacts to development
capital cost and/or project schedule. Turquoise Hill understands
that business case risks identified by Rio Tinto relate to:
government approvals of the OTFS20 and supporting documents;
achievement of certain milestones identified in the amended Power
Source Framework Agreement (PSFA); and implementation of the
Memorandum of Understanding (MOU) between Turquoise Hill and Rio
Tinto relating to funding.
In response to the limitations imposed on international and
domestic travel, on-site work rotations have been extended and
fatigue management protocols have been put in place, supplementing
the existing social distancing, personal protective equipment,
hygiene and other protocols already in place.
The DE delivered verification that all surface infrastructure
required for sustainable first production is now complete. The DE
also finalised pillar locations on the Panel 0 boundaries and
optimised the drawpoint layout to minimise exposure to the lower
fault. This resulted in a non-material increase in the Hugo North
Mineral Reserves of 10Mt ore, 0.18Mt contained copper and 0.07Moz
contained gold. At peak production, Oyu Tolgoi is expected to
operate in the first quartile of the copper C1 cash
costs6 curve and, by 2030, is expected to be the
fourth largest copper mine in the world. It is expected to produce
480,000 tonnes of copper per year on average, from 2028 to 2036,
from the open pit and underground. The underground Ore Reserve has
an average copper grade of 1.52 per cent, which is more than three
times higher than the open pit Ore Reserve, and contains 0.31
grammes of gold per tonne.
Oyu Tolgoi
Underground Project Development Progress Excluding Conveyor
Declines
|
Year
|
Total Equivalent
Development
(Km)
|
Lateral
Development
(Km)
|
Mass
Excavation
('000'
m3)
|
2016
|
1.6
|
1.5
|
3.0
|
Q1'17
|
1.0
|
0.8
|
5.2
|
Q2'17
|
1.4
|
0.9
|
9.2
|
Q3'17
|
1.4
|
1.2
|
8.3
|
Q4'17
|
2.2
|
1.9
|
8.9
|
2017
|
6.1
|
4.8
|
31.6
|
Q1'18
|
2.6
|
2.1
|
11.6
|
Q2'18
|
2.4
|
2.1
|
8.6
|
Q3'18
|
3.0
|
2.1*
|
23.3*
|
Q4'18
|
2.3
|
1.6
|
16.0
|
2018
|
10.3
|
7.9
|
59.5
|
Q1'19
|
3.2
|
2.3
|
21.4
|
Q2'19
|
3.2
|
2.4
|
19.3
|
Q3'19
|
3.6
|
3.2
|
11.4
|
Q4'19
|
4.8
|
4.5
|
9.0
|
2019
|
14.9
|
12.4
|
61.1
|
Q1'20
|
5.5
|
5.3
|
3.2
|
Q2'20
|
5.5
|
5.1
|
10.6
|
Q3'20
|
4.7
|
4.1
|
14.3
|
Q4'20
|
4.2
|
3.8
|
8.5
|
2020
|
19.9
|
18.4
|
36.6
|
Total
|
52.8
|
45.0
|
191.9
|
Notes:
|
Totals may not match
due to rounding.
|
* Lateral development
and mass excavation amounts for Q3'18 have been updated to reflect
revised results.
|
|
|
|
6
|
Please refer to
Section – NON-GAAP MEASURES – on page 23 of this press release for
further information.
|
Oyu Tolgoi
Conveyor Decline Project Development Progress
|
Year
|
Total Equivalent
Development
(Km)
|
Lateral
Development
(Km)
|
Mass
Excavation
('000'
m3)
|
2016
|
0.0
|
0.0
|
0.0
|
Q1'17
|
0.1
|
0.1
|
0.0
|
Q2'17
|
0.4
|
0.4
|
0.2
|
Q3'17
|
0.9
|
0.9
|
0.5
|
Q4'17
|
0.9
|
0.8
|
0.5
|
2017
|
2.3
|
2.3
|
1.2
|
Q1'18
|
0.8
|
0.8
|
0.1
|
Q2'18
|
0.8
|
0.8
|
0.1
|
Q3'18
|
0.8
|
0.8
|
0.3
|
Q4'18
|
0.6
|
0.6
|
0.1
|
2018
|
3.0
|
3.0
|
0.6
|
Q1'19
|
0.8
|
0.8
|
0.8
|
Q2'19
|
0.9
|
0.9
|
0.8
|
Q3'19
|
0.9
|
0.7
|
4.9
|
Q4'19
|
1.1
|
0.7
|
8.3
|
2019
|
3.7
|
3.1
|
14.7
|
Q1'20
|
1.0
|
0.7
|
7.5
|
Q2'20
|
1.0
|
0.9
|
2.6
|
Q3'20
|
0.9
|
0.9
|
0.0
|
Q4'20
|
1.0
|
1.0
|
0.0
|
2020
|
4.0
|
3.6
|
10.1
|
Total
|
13.0
|
11.9
|
26.6
|
Note: Totals may not
match due to rounding.
|
Oyu Tolgoi spent $237.5 million on
underground capital during Q4'20 including $44.5 million of underground sustaining capital.
Total underground project spend from January
1, 2016 to December 31, 2020
was approximately $4.5 billion
including $0.1 billion of underground
sustaining capital. Underground project spend on a cash basis
includes expansion capital, VAT and capitalised management services
payment and excludes capitalised interest and capitalised
pre-production sales. In addition, Oyu Tolgoi had contractual
obligations7 of $0.5
billion as at December 31,
2020. Since the restart of project development in 2016
through December 31, 2020, Oyu Tolgoi
has committed over $3.5 billion to
Mongolian vendors and contractors.
In Q1'20, Oyu Tolgoi submitted a mineral resources and reserves
update for registration as required pursuant to local regulatory
requirements in Mongolia. The
expert review is in progress and OTFS20 is expected to be
considered for endorsement following registration. Oyu Tolgoi Board
approval of the DE will be considered following completion of the
regulatory process.
|
|
|
7
|
Please refer to
Section – NON-GAAP MEASURES – on page 23 of this press release for
further information.
|
Undercut Milestones
Block caves are initiated by the drilling and blasting of a
narrow slice of rock above the extraction horizon, known as the
undercut. The undercut is developed across the entire ore body with
"drawbells" excavated on the extraction level beneath the undercut.
The drawbells serve as a place for caving rock to flow into and are
designed for production equipment to load from. Due to the
friability of the ore body, the ore above the undercut caves and
flows into the drawbells. The void created in the ore removal
process allows gravity to continue forcing the ore body
downward.
The commencement of the undercut in 2021 is a key milestone and
it is critical to ensure that, once commenced, the undercut and
drawpoint construction continues unimpeded. This will require both
technical support, such as confidence in commissioning dates for
the materials handling system, as well as the achievement of
non-technical criteria. We are working with Oyu Tolgoi and other
stakeholders to ensure that critical supporting aspects for a
successful project are in place prior to commencing the
undercut.
Turquoise Hill is engaging with Rio Tinto and Erdenes to address
and agree on the undercut milestones, with the joint objective of
preserving the timeline for project completion. Any significant
delay to the undercut would have a materially adverse impact on
schedule as well as the timing and quantum of underground capital
expenditure and would materially adversely impact the timing of
expected cash flows from the Oyu Tolgoi underground project,
thereby increasing the amount of Turquoise Hill's incremental
funding requirement.
Study Updates
Several mining studies are in progress for the Oyu Tolgoi
underground project. The studies are focused on the
evaluation of different design and sequencing options for Panels 1
and 2 as part of planned PFS and FS level work. These studies are
underpinned by additional geology and geotechnical data that is
being collected from underground and surface drilling. The data
collection is complete for Panel 0 (the first cave to be mined) .
The focus of data collection and analysis has now shifted to Panel
1 and Panel 2. Data collection and analysis is being prioritised to
complete study work in line with mining progression.
Due to the size of Panel 2, a decision has been made to consider
the area as three mining zones assisting with efficiency in
assessment and design updates. A design update for the north and
central areas of Panel 2 is expected in H2'21. In addition, broader
studies for the remaining areas of Lift 1 (Panel 2 South and Panel
1) and assessments of pillar recoverability are ongoing.
FUNDING OF OYU TOLGOI LLC BY TURQUOISE
HILL
In accordance with the Amended and Restated Shareholders'
Agreement dated June 8, 2011 (ARSHA),
Turquoise Hill has funded Oyu Tolgoi LLC's cash requirements beyond
internally generated cash flows by a combination of equity
investment and shareholder debt.
For amounts funded by debt, Oyu Tolgoi LLC must repay such
amounts, including accrued interest, before it can pay common share
dividends. As at December 31, 2020,
the aggregate outstanding balance of shareholder loans extended by
subsidiaries of the Company to Oyu Tolgoi LLC was $7.3 billion, including accrued interest of
$1.7 billion. These loans bear
interest at an effective annual rate of LIBOR plus 6.5%.
In accordance with the ARSHA, a subsidiary of the Company has
funded the common share investments in Oyu Tolgoi LLC on behalf of
state-owned Erdenes. These funded amounts earn interest at an
effective annual rate of LIBOR plus 6.5% and are repayable, by
Erdenes to a subsidiary of the Company, via a pledge over Erdenes'
share of Oyu Tolgoi LLC common share dividends. Erdenes also has
the right to reduce the outstanding balance by making cash payments
at any time. As at December 31, 2020,
the cumulative amount of such funding was $1.4 billion, representing 34% of invested common
share equity, with unrecognised interest on the amounts funded of
$0.8 billion.
As at December 31, 2020, Turquoise
Hill has $1.1 billion of available
liquidity, which under current projections is expected to be
sufficient to meet the requirements of the Company, including its
operations and underground development, into Q3'22. This
expectation has improved, mainly due to improved commodity price
estimates. Subsequent to December 31,
2020, the Company purchased copper and gold put options to
establish a synthetic copper and gold price floor in order to
provide increased certainty around the Company's liquidity horizon.
In the event of a significant downturn in the price of copper or
gold, the expected revenues to be received by the Company for
either commodity would have a floor on the portion of associated
production and help provide additional certainty with respect to
the Company's expectation of having sufficient liquidity to meet
its requirements, including its operations and underground
development, into Q3'22.
On September 9, 2020, Turquoise
Hill and Rio Tinto signed a non-binding MOU concerning the funding
of Oyu Tolgoi reflecting the parties' understanding to pursue a
re-profiling of existing project debt in line with then current
cash flow projections, including by deferring scheduled principal
repayments and extending tenors (Re-profiling). The MOU reflected
the parties' understanding with respect to the raising of certain
supplemental senior debt (SSD), the process for identifying and
considering other funding options, and the scope and timing for a
Turquoise Hill equity offering (to the extent required) to address
any remaining funding gap with respect to Oyu Tolgoi, all within
the framework of existing agreements between Turquoise Hill and Rio
Tinto. Such options include additional debt from banks or
international financial institutions, an offering of global
medium-term notes, a gold pre-sale transaction and a gold streaming
transaction.
A successful Re-profiling would reduce the currently projected
funding requirements of Oyu Tolgoi by up to US$1.4 billion and extend political risk
mitigation.
The MOU also provided that Turquoise Hill and Rio Tinto would
seek to raise certain SSD in the form of amortizing term loans to
Oyu Tolgoi in the aggregate amount of up to US$500 million from selected international
financial institutions. Under the terms of its existing project
finance facility, Oyu Tolgoi LLC is permitted to arrange up to
$1.6 billion of SSD, subject to
meeting certain requirements relating to the tenor, amount and
timing of debt service obligations of such SSD and other customary
conditions.
Turquoise Hill will continue to prioritise funding by way of
debt and/or hybrid financing over equity funding for the eventual
balance of Oyu Tolgoi's funding requirements. Pursuant to the MOU,
Rio Tinto has advised Turquoise Hill that it does not currently
support, or expect to consent to, additional debt or other
non-equity sources of funding at Turquoise Hill or Oyu Tolgoi other
than as provided for above. Rio Tinto has committed in the
MOU to consider all reasonable financing proposals presented to it
by Turquoise Hill, subject to the parties' respective rights and
obligations under the existing agreements between them.
To the extent that the funding gap to complete the Oyu Tolgoi
underground project is not eliminated by the Re-profiling, the
raising of additional SSD as contemplated by the MOU, and
additional debt and/or hybrid financing, Turquoise Hill and Rio
Tinto have acknowledged that the balance of the funding gap will
need to be satisfied by way of a Turquoise Hill equity offering. In
the MOU, the parties have recorded their shared objective of
ensuring that any required equity offering is completed not less
than 90 days prior to Turquoise Hill becoming unable to meet its
obligations as they become due.
If the Re-profiling is achieved and SSD in the amount of
US$500 million is raised but no other
debt or hybrid financing option is successfully completed,
Turquoise Hill estimates that it would need to raise additional
equity of at least US$400 million. If
the Re-profiling is not achieved and no additional debt (including
the US$500 million in SSD
contemplated by the MOU) or hybrid financing is completed,
Turquoise Hill expects that it would need to raise additional
equity of at least US$2.3 billion
(based on the same assumptions).
Each of these funding options, if implemented, would have the
effect of reducing the Company's incremental funding requirement.
However, successful implementation of such options is subject to
achieving alignment with the relevant stakeholders (including Rio
Tinto, existing lenders, any potential new lenders and the
Government of Mongolia), market
conditions and other factors. As there appears to be a difference
of views between the parties as to their respective rights and
obligations with respect to the financing process, the Company has
commenced arbitration proceedings in British Columbia seeking a declaration to
clarify the provisions of relevant agreements with Rio Tinto and a
related party relating to their role and obligations to support the
Company in seeking additional financing for the project. The
arbitration process is confidential and is expected to take between
three and five months to reach a decision. The arbitrator's
decision will be final and binding on the parties. See section
"Arbitration with Rio Tinto International Holdings Limited" of this
press release.
In the meantime, as contemplated in the MOU, the Company is
actively advancing its evaluation of financing options for the
project that could address the funding gap, in whole or in part.
Such options include additional debt from banks or international
financial institutions, an offering of global medium-term notes, a
gold pre-sale transaction and a gold streaming transaction. On
December 22, 2020, the Company
delivered its findings to Rio Tinto and Erdenes on the first phase
of its comprehensive funding review process, which involved the
identification, market testing and evaluation of funding Oyu Tolgoi
LLC with the aforementioned options.
The Company is actively engaged with Rio Tinto and Erdenes in
discussing its findings and analysis and continues to pursue the
next phase of these options.
Going forward, Turquoise Hill's liquidity outlook will continue
to be impacted, either positively or negatively, by various
factors, many of which are outside the Company's control,
including:
- changes in commodity prices and other market-based
assumptions;
- open pit operating performance as well as the successful
implementation (or otherwise) of related optimisation efforts;
- further and/or unanticipated impacts on operations and
underground development related to the COVID-19 pandemic as well as
the economic, commercial and financial consequences thereof;
- the manner in which the amended PSFA is ultimately implemented;
and
- developments in the ongoing dispute with the Mongolian Tax
Authority, with respect to which formal international arbitration
proceedings were initiated.
Turquoise Hill continues to monitor its liquidity outlook and
will provide updates as and when circumstances require. Turquoise
Hill currently estimates its base case incremental funding
requirement to be $2.3 billion
(compared to $3.0 billion estimated
in the Company's Q3'20 earnings release), taking into consideration
improved metal price assumptions for copper and gold over the peak
funding period as well as the findings of the completed DE, which
assumes:
- first sustainable production in October
2022;
- forecast development capital cost of $6.75 billion;
- easing of travel restrictions and COVID-19 related controls;
and
- reduction in schedule contingency due to a combination of
project stage and completion of engineering and analysis work
streams.
Additionally, Turquoise Hill currently estimates its base case
incremental funding will continue to be influenced by various
factors, many of which are outside the Company's control,
including:
- the timing of commencement of the undercut (please see the
"Undercut milestones" section of this press release);
- the amount of development capital required to bring the
underground mine into production, if it were to deviate from the
disclosed base case of US$ 6.75
billion;
- the timing of sustainable first production and ramp-up profile
and their impact on cash flows, which is also contingent on
commencement of the undercut expected in June as announced in the
DE;
- the manner in which the amended PSFA is ultimately implemented
(the base case assumes the construction of a state-owned power
plant (SOPP) will be financed by the Government of
Mongolia, as contemplated by the
amended PSFA; if one of the alternatives to SOPP available under
the amended PSFA, such as an Oyu Tolgoi-based, coal-fired power
plant, is ultimately implemented, this could significantly increase
the base case incremental funding requirement);
- changes to the amount of cash flow expected to be generated
from open-pit operations, net of underground and open-pit
sustaining capital requirements;
- further and/or unanticipated impacts on operations and
underground development related to the COVID-19 pandemic as well as
the economic, commercial and financial consequences thereof;
- changes in expected commodity prices and other market-based
assumptions (upside and downside pricing sensitivities would have,
respectively, a favourable or unfavourable impact on the base case
incremental funding requirement); and
- the final outcomes of the DE and potential optimisations to
Panels 1 and 2.
More generally, any changes in the above factors will impact the
incremental funding requirement and, as a result, the actual
quantum of incremental funding required may be greater or less than
the $2.3 billion base case estimate
and such variance may be significant.
GOVERNMENT RELATIONS
Turquoise Hill's ownership of the Oyu Tolgoi mine is held
through a 66% interest in Oyu Tolgoi LLC. The remaining 34%
interest in Oyu Tolgoi LLC is held by Erdenes Oyu Tolgoi LLC.
Turquoise Hill is obliged to fund Erdenes' share of the capital
costs under the ARSHA.
Underground construction recommenced in May 2016 when Oyu Tolgoi LLC received the final
requirement for the restart of underground development: formal
notice to proceed approval by the boards of Turquoise Hill, Rio
Tinto (as project manager) and Oyu Tolgoi LLC. Approval followed
the signing of the Oyu Tolgoi Underground Mine Development and
Financing Plan (UDP) in May 2015 and
the signing of a $4.4 billion project
finance facility in December 2015.
Development had been suspended in August
2013 pending resolution of matters with the Government of
Mongolia.
Turquoise Hill's investment in the Oyu Tolgoi mine is governed
by a 2009 Investment Agreement (Investment Agreement). The
Investment Agreement framework was authorised by the Mongolian
Parliament and was concluded after 16 months of negotiations. It
was reviewed by numerous constituencies within the
Government. Turquoise Hill has been operating in good faith
under the terms of the Investment Agreement since 2009, and we
believe not only that it is a valid and binding agreement, but that
it has proven to be beneficial for all parties.
Adherence to the principles of the Investment Agreement, the
ARSHA and the UDP 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.
As previously announced by Turquoise Hill on January 11, 2021, the Government of Mongolia has advised Rio Tinto that it is
dissatisfied with the results of the DE, which was completed and
delivered by Rio Tinto and publicly announced by the Company on
December 18, 2020, and is concerned
that the significant increase in the development costs of the Oyu
Tolgoi project has eroded the economic benefits it anticipated to
receive therefrom. The Government of Mongolia has indicated that if the Oyu Tolgoi
project is not economically beneficial to the country, it would be
necessary to review and evaluate whether it can proceed. The
Government of Mongolia has
stressed the importance of achieving a comprehensive solution that
addresses both financial issues between the shareholders of Oyu
Tolgoi as well as economic and social issues of importance to
Mongolia, such as water usage, tax
payments, and social issues related to employees, in order to
implement the Oyu Tolgoi project successfully. In particular, the
Government of Mongolia has
expressed its intention to initiate discussions with respect to the
termination and replacement of the UDP.
While acknowledging Oyu Tolgoi's significant contributions to
Mongolia, Turquoise Hill continues
to engage with the Government of Mongolia and remains open to improving the UDP
to deliver even greater benefits from Oyu Tolgoi to all
stakeholders.
Oyu Tolgoi Mine Power Supply
Oyu Tolgoi LLC currently sources power for the Oyu Tolgoi mine
from China's Inner Mongolian
Western Grid, via overhead power line, pursuant to back-to-back
power purchase arrangements with Mongolia's National Power Transmission Grid
JSC (NPTG), the relevant Mongolian power authority, and Inner
Mongolia Power International Cooperation Co., Ltd (IMPIC), the
Chinese power generation company.
Oyu Tolgoi LLC is obliged under the Investment Agreement to
secure a long-term domestic source of power for the Oyu Tolgoi
mine. The PSFA entered into between Oyu Tolgoi LLC and the
Government of Mongolia on
December 31, 2018 provides a binding
framework and pathway for long-term power supply to the Oyu Tolgoi
mine. The PSFA originally contemplated the construction of a
coal-fired power plant at Tavan Tolgoi (TTPP), which would be
majority-owned by Oyu Tolgoi LLC and situated close to the Tavan
Tolgoi coal mining district located approximately 150 kilometres
from the Oyu Tolgoi mine. In April
2020, the Government of Mongolia advised that it was unwilling to
support Oyu Tolgoi LLC's proposal to develop TTPP and announced its
intention to fund and construct SOPP at Tavan Tolgoi.
In June 2020, Oyu Tolgoi LLC and
the Government of Mongolia amended
the PSFA (PSFA Amendment) to reflect their agreement to jointly
prioritise and progress SOPP, in accordance with and subject to
agreed milestones, as the domestic source of power for the Oyu
Tolgoi mine. The milestones include: signing a Power Purchase
Agreement for the supply of power to the Oyu Tolgoi mine by
March 31, 2021, commencing
construction of SOPP by no later than July
1, 2021, commissioning SOPP within four years thereafter,
and reaching agreement with IMPIC on an extension to the existing
power import arrangements by March 1,
2021 in order to ensure there is no disruption to the power
supply required to safeguard the Oyu Tolgoi mine's ongoing
operations and development.
The PSFA Amendment provides that if certain agreed milestones
are not met in a timely manner (subject to extension for Delay
Events as defined) then Oyu Tolgoi LLC will be entitled to select
from, and implement, the alternative power solutions specified in
the PSFA (as amended), including a coal-fired power plant at Oyu
Tolgoi, the Mongolian grid or a primary renewables solution, and
the Government of Mongolia would
be obliged to support such decision.
The first PSFA Amendment milestone, execution of the extension
of the IMPIC supply arrangements, was not met by the original date
of March 1, 2021 and the Government
of Mongolia formally notified Oyu
Tolgoi LLC and Rio Tinto on February 25,
2021 that the Tavan Tolgoi thermal power station project
will be implemented, connected to the Central Energy System and
operated under a unified load dispatch control. The letter also
stated that agreement on the long term power supply to Oyu Tolgoi
LLC is related to the extension of the power import arrangements
with IMPIC and extending the power import agreement with IMPIC in a
way that satisfies both the Government of Mongolia's and Oyu Tolgoi LLC's requirements
is ongoing. In recognizing the linkage of the extension of the
IMPIC supply arrangements with the progress on resolving the issue
of domestic power supply, the Government of Mongolia suggested that all milestone dates
under the PSFA Amendment agreement be extended.
Oyu Tolgoi LLC is engaging with the Government of Mongolia to agree to a standstill period
following the lapse of the March 1,
2021 milestone. During the standstill period, Oyu Tolgoi LLC
would not exercise its rights to select and proceed with an
alternative power solution but would not be waiving its right to do
so in the future.
Oyu Tolgoi LLC continues to collaborate with the Government of
Mongolia to ensure a secure,
stable and reliable long-term power solution is implemented.
Oyu Tolgoi Tax Assessment
On January 16, 2018, Turquoise
Hill announced that Oyu Tolgoi LLC had received and was evaluating
a tax assessment for approximately $155
million (which was converted from Mongolian Tugrik to U.S.
dollars at the exchange rate on that date) from the Mongolian
Tax Authority (MTA) relating to an audit on taxes imposed and paid
by Oyu Tolgoi LLC between 2013 and 2015 (the 2013 to 2015 Tax
Assessment). In January 2018, Oyu
Tolgoi LLC paid an amount of approximately $4.8 million to settle unpaid taxes, fines and
penalties for accepted items.
On February 20, 2020, the Company
announced that Oyu Tolgoi LLC would 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.
On December 23, 2020, Turquoise
Hill announced that Oyu Tolgoi LLC had received and was evaluating
a tax assessment for approximately $228
million (which was converted from Mongolian Tugrik to U.S.
dollars at the exchange rate on that date) from the MTA relating to
an audit on taxes imposed and paid by Oyu Tolgoi LLC between 2016
and 2018 (the 2016 to 2018 Tax Assessment). Most of the matters
raised in respect of the 2016 to 2018 Tax Assessment are of a
similar nature to the matters that were raised in the 2013 to 2015
Tax Assessment. The MTA has also proposed a $1.5 billion adjustment to the balance of Oyu
Tolgoi LLC's carried forward tax losses. The adjustments are to
disallow or defer certain tax deductions claimed in the 2016 to
2018 years. The relevant losses are not currently scheduled to be
utilised in the near term.
On January 11, 2021, Turquoise
Hill announced that Oyu Tolgoi LLC had completed its evaluation of
the 2016 to 2018 Tax Assessment claim and confirmed that Oyu Tolgoi
LLC had given notice of its intention to apply to the UNCITRAL
tribunal to amend its Statement of Claim to include the issues
raised in the 2016 to 2018 Tax Assessment. As many of the matters
raised in the 2016 to 2018 Tax Assessment are of a similar nature
to the matters raised in the 2013 to 2015 Tax Assessment, Oyu
Tolgoi LLC believes amending its Statement of Claim is an efficient
and effective means of reaching resolution on both tax assessments.
Oyu Tolgoi LLC' s application to include these matters in the
pending arbitration for the 2013 to 2015 Tax Assessment has been
accepted.
On February 10, 2021, Oyu Tolgoi
LLC received a notice of payment for $83
million from the Capital City tax department principally
relating to a partial payment of the amounts disputed under the
2016 to 2018 Tax Assessment. On February 19, 2021, Oyu Tolgoi LLC received a
notice of payment for $147 million
from the MTA relating to the remaining portion of the amounts
disputed under the 2016 to 2018 Tax Assessment. Under article 43.3
of the Mongolian General Tax Law, the amounts were due and paid by
Oyu Tolgoi LLC within 10 business days from the date of the notices
of payment. Under the same legislation, the Company is entitled to
a refund in the event of a favourable decision from the relevant
dispute resolution authorities.
The Company remains of the opinion that Oyu Tolgoi LLC has paid
all taxes and charges required under the Investment Agreement, the
ARSHA, the UDP and Mongolian law and that no provision is required
for the disputed amounts under the 2013 to 2015 Tax Assessment or
the 2016 to 2018 Tax Assessment, including the $1.5 billion of carried forward losses.
Parliamentary Resolution 92
Upon completion of the Mongolian Parliamentary Working Group's
(PWG) review of certain contractual agreements with the Government
of Mongolia that underpin
Turquoise Hill's investment in the Oyu Tolgoi copper-gold mine, a
resolution was submitted to the Economic Standing Committee, and
subsequently passed in a plenary session of the Parliament of
Mongolia on November 21, 2019. Resolution 92 was published on
December 6, 2019 and includes
resolutions to take comprehensive measures to improve the
implementation of the Investment Agreement and the ARSHA, to
improve the UDP and to explore and resolve options to have a
product sharing arrangement or swap Mongolia's equity holding of 34 per cent for a
special royalty. Representatives from Turquoise Hill and Rio Tinto
have engaged in discussions with representatives of the relevant
newly appointed Cabinet members of the Government of Mongolia to work together and resolve the
issues raised in the Resolution.
A new PWG led by the Deputy Speaker was established in
February 2021 to monitor the
implementation of Parliament Resolution No. 92 of 2019. The PWG is
comprised of 20 members across seven sub-committees that will
monitor and provide support to the government working group in
discussions with Turquoise Hill and Rio Tinto.
Anti-Corruption Authority Information Requests
On March 13, 2018, we announced
that Oyu Tolgoi LLC received information requests from the
Mongolian Anti-Corruption Authority (ACA) for information relating
to Oyu Tolgoi LLC. The ACA has also conducted interviews with
representatives of Oyu Tolgoi LLC in connection with its
investigation. Turquoise Hill has inquired as to the status of
the investigation and Oyu Tolgoi LLC has informed the Company that
the investigation appears to relate primarily to possible abuses of
power by certain former Government officials in relation to the
Investment Agreement, and that Oyu Tolgoi LLC is complying with the
ACA's requests in accordance with relevant laws.
To date, neither Turquoise Hill nor Oyu Tolgoi LLC has received
notice from the ACA, or indeed from any regulator, that either
company or their employees are subjects of any investigation
involving the Oyu Tolgoi project.
In July 2020, Oyu Tolgoi LLC
advised the Company that the ACA investigation had been concluded
and the first instance criminal court had sentenced certain former
Government officials.
The Investment Agreement framework was authorised by the
Mongolian Parliament, concluded after 16 months of negotiations and
reviewed by numerous constituencies within the
Government. Turquoise Hill has been operating in good faith
under the terms of the Investment Agreement since 2009, and we
believe not only that it is a valid and binding agreement, but that
it has proven to be beneficial for all parties.
Adherence to the principles of the Investment Agreement, ARSHA
and UDP has allowed for the development of the Oyu Tolgoi mine in a
manner that has given rise to significant long-term benefits to
Mongolia. Benefits from the Oyu
Tolgoi open-pit operations and underground development include, but
are not limited to, employment, royalties and taxes, local
procurement, economic development and sustainability
investments.
Class Action Complaints
In October 2020, a class action
complaint was filed in the U.S. District Court, Southern District
of New York against the Company,
certain of its current and former officers as well as Rio Tinto and
certain of its officers. The complaint alleges that the defendants
made material misstatements and material omissions with respect to,
among other things, the schedule, cost and progress to completion
of the development of Oyu Tolgoi in violation of Section 10(b) of
the U.S. Securities Exchange Act of 1934, as amended (the Exchange
Act) and Rule 10b-5
thereunder. Under the schedule established by the court, an
amended complaint must be filed on or before March 16, 2021 and defendants must file motions
to dismiss the complaint on or before May
17, 2021. The Company believes that the complaint against it
is without merit.
In January 2021, a proposed class
action was initiated in the Superior Court in the District of
Montreal against the Company and
certain of its current and former officers. The claim alleges that
the Company and its current and former officers named therein as
defendants made material misstatements and material omissions with
respect to, among other things, the schedule, cost and progress to
completion of Oyu Tolgoi, in violation of, among other things,
sections 225.8, 225.9 and 225.11 of the Quebec Securities
Act. The Company believes that the complaint against it is
without merit and is preparing to defend the application for leave
and certification of the proceeding. See the risk factor titled
"The Company may be subject to public allegations, regulatory
investigations or litigation that could materially and adversely
affect the Company's business" in the "RISKS AND UNCERTAINTIES"
section of the Company's Q4 2020 MD&A.
CORPORATE ACTIVITIES
2020 Oyu Tolgoi Technical Report
On August 28, 2020, the Company
filed an updated technical report for Oyu Tolgoi prepared in
accordance with the requirements of National Instrument 43-101 –
Standards of Disclosure of Mineral Projects and CIM
definition standards for Mineral Resources and Mineral Reserves
(2014).OTTR20 was prepared with the assistance of AMC Consultants
Pty Ltd, and superseded the Oyu Tolgoi Technical Report dated
October 14, 2016.
Exploration Update
Turquoise Hill, through its wholly-owned subsidiaries, Asia Gold
Mongolia LLC, Heruga Exploration LLC and SGLS LLC, operates an
exploration program in Mongolia on
licences that are not part of Oyu Tolgoi.
In 2020, Turquoise Hill held two exploration licences (Bag and
Od-2) totalling 16,390 hectares. The Bag and Od-2 licences are
located approximately 25 kilometres north of the Oyu Tolgoi Cu-Au
deposit, approximately 17 kilometres northwest of Khanbogd soum
community centre in the South Gobi region of Mongolia.
During Q4'20, Turquoise Hill partially completed a geophysical
survey at the Bag licence. The work was initially planned to
include geophysical work on the Od-2 licence as well, however the
field season was cut short due to COVID-19 controls and ongoing
travel restrictions implemented by the Government of
Mongolia.
Preliminary results from the geophysical survey at Bag have
identified two targets; D14 and D19. The two Induced Polarisation
chargeability anomalies are interpreted to relate to
north-northwest or intersecting north-south and east-west trending
faults or geological contact structures. Additional geophysics work
is planned for 2021 to further test these anomalies.
Consistent with the way we work, Turquoise Hill sets out to
build enduring relationships with our neighbours that demonstrate
mutual respect, active partnership, and long-term commitment. As
part of this commitment, the exploration team had organised to
deliver hay to local herders during Q4'20 (as reported previously),
but has been postponed due to the COVID-19 controls and ongoing
travel restrictions implemented by the Government of Mongolia. This work, in addition to
tree-planting, is now planned for H1'2021.
Board Appointment
On January 21, 2020, the Company
announced the appointment of George R.
Burns to the Company's Board of Directors.
On September 18, 2020, the Company
announced the resignation of director Alan
Chirgwin, effective September 17,
2020, and the appointment of Alfred
Grigg to the Company's Board of Directors, effective
September 18, 2020.
On March 4, 2021, the Company announced the
resignation of its Chief Executive
Officer, Ulf Quellmann, effective March 3, 2021 and
the appointment of Steve Thibeault
as Interim Chief Executive Officer. Mr. Quellmann also
resigned as a director of the Company.
Completion of Share Consolidation
On October 1, 2020, the Company
announced that it was proceeding with the previously-approved
consolidation (reverse stock split) of the Company's issued and
outstanding common shares at a ratio of one post-consolidation
share for every ten pre-consolidation shares and on October 23, 2020, the consolidation was
implemented, effective as of 5:00 p.m.
(Eastern Standard Time) on the same date. The consolidation
reduced the number of issued and outstanding common shares of the
Company from 2,012,314,469 shares to 201,231,446 shares.
Proportionate adjustments were made to the Company's outstanding
performance share units, restricted share units and deferred share
units. The Company's Common Shares commenced trading on both the
NYSE and the TSX on a post-consolidation basis at market open on
Monday, October 26, 2020 under their
existing ticker symbols.
Arbitration with Rio Tinto International Holdings Limited
On November 4, 2020, the Company
announced that, following approval by the Special Committee of the
Company's Board, it was commencing arbitration proceedings seeking
a declaration to clarify the provisions of certain agreements with
RTIHL and a related party relating to their role and obligations to
support the Company in seeking additional financing for the Oyu
Tolgoi project. The arbitration was commenced in British Columbia, in accordance with the
relevant agreements between the parties.
In February 2021, the Company
obtained a temporary order on its application for interim relief.
The injunction restrains Rio Tinto, until further order of the
arbitrator, from using the parties' existing contractual
arrangements to: (i) authorise re-profiling negotiations with
project lenders in a manner that would render Oyu Tolgoi LLC unable
to execute an offering of bonds in 2021; or (ii) restrict Turquoise
Hill from engaging in funding and other matters with its fellow Oyu
Tolgoi stakeholders, including its valued partner Erdenes and the
Government of Mongolia .
In February 2021, the parties
agreed that the temporary injunction would remain in effect pending
the outcome of the arbitration. The arbitration process is
confidential, and it is expected to take between 3 and 5 months to
reach a decision. The arbitrator's decision will be final and
binding on the parties.
See also section "Funding of Oyu Tolgoi LLC by Turquoise Hill"
of this press release.
NON-GAAP MEASURES
The Company presents and refers to the following non-GAAP
measures, which are not defined in IFRS. A description and
calculation of each measure is given below and may differ from
similarly named measures provided by other issuers. These measures
are presented in order to provide investors and other stakeholders
with additional understanding of performance and operations at the
Oyu Tolgoi mine and are not intended to be used in isolation from,
or as a replacement for, measures prepared in accordance with
IFRS.
Operating cash costs
The measure of operating cash costs excludes: depreciation and
depletion; exploration and evaluation; charges for asset write-down
(including write-down of materials and supplies inventory) and
includes management services payments to Rio Tinto and management
services payments to Turquoise Hill, which are eliminated in the
consolidated financial statements of the Company.
C1 cash costs
C1 cash costs is a metric representing the cash cost per unit of
extracting and processing the Company's principal metal product,
copper, to a condition in which it may be delivered to customers
net of gold and silver credits from concentrates sold. This metric
is provided in order to support peer group comparability and to
provide investors and other stakeholders with additional
information about the underlying cash costs of Oyu Tolgoi LLC and
the impact of gold and silver credits on the operations' cost
structure. C1 cash costs are relevant to understanding the
Company's operating profitability and ability to generate cash
flow. When calculating costs associated with producing a pound of
copper, the Company deducts gold and silver revenue credits as the
production cost is reduced by selling these products.
All-in sustaining costs
All-in sustaining costs (AISC) is an extended cash-based cost
metric providing further information on the aggregate cash, capital
and overhead outlay per unit and is intended to reflect the costs
of producing the Company's principal metal product, copper, in both
the short term and over the life-cycle of its operations. As a
result, sustaining capital expenditure on a cash basis is included
rather than depreciation. As the measure seeks to present a full
cost of copper production associated with sustaining current
operations, development project capital is not included. AISC
allows Turquoise Hill to assess the ability of Oyu Tolgoi LLC to
support sustaining capital expenditures for future production from
the generation of operating cash flows.
A reconciliation of total operating cash costs, C1 cash costs
and all-in sustaining costs is provided below.
|
|
|
|
|
|
(Three Months
Ended)
|
(Year
Ended)
|
C1 costs
(Stated in $000's of dollars)
|
December 31,
2020
|
December 31,
2019
|
December 31,
2020
|
December 31,
2019
|
Cost of
sales
|
173,523
|
175,007
|
669,394
|
742,985
|
Cost of sales:
$/lb of copper sold
|
2.08
|
2.46
|
2.20
|
2.25
|
Depreciation and
depletion
|
(47,684)
|
(49,800)
|
(176,024)
|
(183,919)
|
Provision against
carrying value of copper-gold concentrate
|
-
|
(40)
|
-
|
-
|
Change in
inventory
|
8,352
|
11,618
|
26,534
|
(31,093)
|
Other operating
expenses
|
57,558
|
52,415
|
202,271
|
221,493
|
Less:
|
|
|
|
|
- Inventory
(write-down) reversal
|
92
|
396
|
2,703
|
2,161
|
-
Depreciation
|
(657)
|
(2,129)
|
(5,236)
|
(8,133)
|
Management services
payment to Turquoise Hill
|
6,466
|
7,177
|
28,305
|
31,041
|
Operating cash
costs
|
197,650
|
194,644
|
747,947
|
774,535
|
Operating cash
costs: $/lb of copper produced
|
2.16
|
2.68
|
2.27
|
2.40
|
Adjustments to
operating cash costs(1)
|
(3,290)
|
8,728
|
12,442
|
44,337
|
Less: Gold and silver
revenues
|
(125,105)
|
(43,298)
|
(280,895)
|
(378,204)
|
C1 costs
($'000)
|
69,255
|
160,074
|
479,494
|
440,668
|
C1 costs: $/lb of
copper produced
|
0.76
|
2.21
|
1.45
|
1.37
|
|
|
|
|
|
All-in
sustaining costs (Stated in $000's of dollars)
|
|
|
|
|
Corporate
administration
|
9,534
|
9,500
|
30,602
|
23,443
|
Asset retirement
expense
|
4,752
|
(99)
|
4,607
|
6,064
|
Royalty
expenses
|
23,460
|
12,453
|
63,420
|
64,048
|
Ore stockpile and
stores write-down (reversal)
|
(92)
|
(396)
|
(2,703)
|
(2,161)
|
Other
expenses
|
316
|
4,921
|
4,385
|
5,984
|
Sustaining cash
capital including deferred stripping
|
25,413
|
28,969
|
59,326
|
133,342
|
All-in sustaining
costs ($'000)
|
132,638
|
215,422
|
639,131
|
671,388
|
All-in sustaining
costs: $/lb of copper produced
|
1.45
|
2.97
|
1.94
|
2.08
|
|
|
|
|
|
(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, 2020 are
calculated by reference to total mining costs of $175.9 million (2019: $190.2 million) and total material mined of 97.7
million tonnes (2019: 101.3 million tonnes). Mining costs per tonne
of material mined for the three months ended December 31, 2020 are calculated by reference to
total mining costs of $44.2 million
(Q4'19: $43.7 million) and total
material mined of 23.8 million tonnes (Q4'19: 28.1 million
tonnes).
Milling costs per tonne of ore treated for the year ended
December 31, 2020 are calculated by
reference to total milling costs of $255.4
million (2019: $264.3 million)
and total ore treated of 40.2 million tonnes (2019: 40.8 million
tonnes). Milling costs per tonne of ore treated for the three
months ended December 31, 2020 are
calculated by reference to total milling costs of $69.9 million (Q4'19: $55.5 million) and total ore treated of 9.6
million tonnes (Q4'19: 11.1 million tonnes).
Working capital
Consolidated working capital comprises those components of
current assets and liabilities which support and result from the
Company's ongoing running of its current operations. It is provided
in order to give a quantifiable indication of the Company's
short-term cash generation ability and business efficiency. As a
measure linked to current operations and the sustainability of the
business, the Company's definition of working capital excludes:
non-trade receivables and payables; financing items; cash and cash
equivalents; deferred revenue and non-current inventory.
A reconciliation of consolidated working capital to the
financial statements and notes is provided below.
Working
capital
|
|
|
|
December
31,
|
|
December
31,
|
(Stated in $000's of
dollars)
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Inventories
(current)
|
|
|
|
|
$
|
197,962
|
|
$
|
175,719
|
Trade and other
receivables
|
|
|
|
|
60,012
|
|
27,047
|
Trade and other
payables:
|
|
|
|
|
|
|
|
|
- trade payables and
accrued liabilities
|
|
|
|
|
(315,570)
|
|
(389,476)
|
|
- payable to related
parties
|
|
(65,552)
|
|
(65,903)
|
Consolidated working
capital
|
|
$
|
(123,148)
|
|
$
|
(252,613)
|
|
|
|
|
|
|
|
|
|
Contractual obligations
The following section of this press release discloses
contractual obligations in relation to the Company's
lease, purchase, power and asset retirement obligations.
Amounts relating to these obligations are calculated on the
assumptions of the Company carrying out its future business
activities and operations as planned at the period end. As such,
contractual obligations presented in this press release and in
the Company's Q4 2020 MD&A will differ from amounts presented
in the financial statements, which are prepared on the basis of
minimum uncancellable commitments to pay in the event of contract
termination. The presentation of contractual obligations here and
in the Company's Q4 2020 MD&A is provided in order to give an
indication of future expenditure, for the disclosed categories,
arising from the Company's continuing operations and development
projects.
A reconciliation of contractual obligations as at December 31, 2020 to the financial statements and
notes is provided below.
|
|
|
|
|
|
|
(Stated in $000's of
dollars)
|
Project Finance
Facility
|
Purchase
obligations
|
Other
Obligations
|
Power
commitments
|
Lease
liabilities
|
Decommissioning
obligations
|
|
|
|
|
|
|
|
Commitments
(MD&A)
|
$
|
4,325,629
|
$
|
514,902
|
$
|
315,115
|
$
|
297,436
|
$
|
20,956
|
$
|
227,772
|
Cancellable
obligations
|
|
(411,706)
|
|
(178,207)
|
-
|
-
|
(net of exit
costs)
|
|
|
|
|
|
|
Accrued capital
expenditure
|
|
(74,944)
|
74,944
|
-
|
-
|
-
|
Discounting and other
adjustments
|
(140,718)
|
-
|
|
-
|
(4,088)
|
(93,808)
|
Financial
statement amount
|
$
|
4,184,911
|
$
|
28,252
|
$
|
390,059
|
$
|
119,229
|
$
|
16,868
|
$
|
133,964
|
QUALIFIED PERSON
Disclosure of information of a scientific or technical nature in
this press release and in the Company's Q4 2020 MD&A in
respect of the Oyu Tolgoi mine was approved by Jo-Anne Dudley (FAusIMM(CP)), Chief Operating
Officer of the Company. Jo-Anne
Dudley is a "qualified person" as that term is defined in NI
43-101.
SELECTED QUARTERLY DATA
The Company's interim financial statements are reported under
IFRS applicable to interim financial statements, including
International Accounting Standard (IAS) 34 Interim Financial
Reporting.
($ in millions,
except per share information)
|
|
Quarter
Ended
|
|
|
Dec-31
|
Sep-30
|
Jun-30
|
Mar-31
|
|
|
2020
|
2020
|
2020
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
405.1
|
$
|
264.4
|
$
|
278.0
|
$
|
130.7
|
|
|
|
|
|
|
Income for the
period
|
|
$
|
241.6
|
$
|
161.7
|
$
|
72.3
|
$
|
19.0
|
|
|
|
|
|
|
Income attributable
to owners of Turquoise Hill
|
|
$
|
159.9
|
$
|
128.6
|
$
|
72.6
|
$
|
45.2
|
|
|
|
|
|
|
Basic and diluted
income per share attributable to owners of Turquoise
Hill
|
|
$
|
0.79
|
$
|
0.64
|
$
|
0.36
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
0.56
|
$
|
0.36
|
$
|
(2.22)
|
$
|
0.55
|
|
|
|
|
|
|
TURQUOISE HILL
RESOURCES LTD.
|
|
|
|
|
|
Consolidated
Statements of Income (Loss)
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
|
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
4
|
|
$
|
1,078,192
|
|
$
|
1,166,014
|
Cost of
sales
|
5
|
|
(669,394)
|
|
(742,985)
|
Gross
margin
|
|
|
408,798
|
|
423,029
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
6
|
|
(202,271)
|
|
(221,493)
|
Corporate
administration expenses
|
|
|
(30,602)
|
|
(23,443)
|
Other
income
|
|
|
482
|
|
2,714
|
Impairment
charges
|
13
|
|
-
|
|
(596,906)
|
Income (loss)
before finance items and taxes
|
|
|
176,407
|
|
(416,099)
|
|
|
|
|
|
|
|
|
|
Finance
items
|
|
|
|
`
|
|
Finance
income
|
7
|
|
17,349
|
|
106,335
|
Finance
costs
|
7
|
|
(5,510)
|
|
(10,021)
|
|
|
|
|
|
|
11,839
|
|
96,314
|
Income (loss) from
operations before taxes
|
|
|
$
|
188,246
|
|
$
|
(319,785)
|
|
|
|
|
|
|
|
|
|
Income and other
taxes
|
16
|
|
306,396
|
|
(157,133)
|
Income (loss) for
the year
|
|
|
$
|
494,642
|
|
$
|
(476,918)
|
|
|
|
|
|
|
|
|
|
|
Attributable to
owners of Turquoise Hill Resources Ltd
|
|
|
406,288
|
|
(150,457)
|
|
Attributable to owner
of non-controlling interest
|
|
|
88,354
|
|
(326,461)
|
Income (loss) for
the year
|
|
|
$
|
494,642
|
|
$
|
(476,918)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings (loss) per share attributable
|
|
|
|
|
|
|
to Turquoise Hill
Resources Ltd
|
21
|
|
$
|
2.02
|
|
$
|
(0.75)
|
|
|
|
|
|
|
|
|
|
Basic weighted
average number of shares outstanding (000's)
|
18
|
|
201,231
|
|
201,231
|
|
|
|
|
|
|
|
|
|
The notes to the
Company's financial statements, which are available on the
Company's website, are part of its consolidated financial
statements.
|
TURQUOISE HILL
RESOURCES LTD
|
|
|
|
|
Consolidated
Statements of Comprehensive Income (Loss)
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Income (loss) for
the year
|
|
$
|
494,642
|
|
$
|
(476,918)
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
Items that will not
be reclassified to income:
|
|
|
|
|
|
Changes in the fair
value of marketable securities at FVOCI
|
|
2,231
|
|
(1,657)
|
Other
comprehensive income (loss) for the year (a)
|
|
$
|
2,231
|
|
$
|
(1,657)
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss) for the year
|
|
$
|
496,873
|
|
$
|
(478,575)
|
|
|
|
|
|
|
|
|
|
Attributable to
owners of Turquoise Hill
|
|
408,519
|
|
(152,114)
|
|
Attributable to owner
of non-controlling interest
|
|
88,354
|
|
(326,461)
|
Total
comprehensive income (loss) for the year
|
|
$
|
496,873
|
|
$
|
(478,575)
|
|
|
|
|
|
|
|
|
(a) No tax charges
and credits arose on items recognized as other comprehensive income
(loss) in 2020 (2019 nil)
|
The notes to the
Company's financial statements, which are available on the
Company's website, are part of its consolidated financial
statements.
|
TURQUOISE HILL
RESOURCES LTD
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
|
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Cash generated
from operating activities before interest and tax
|
20
|
|
$
|
371,169
|
|
$
|
341,730
|
|
|
|
|
|
|
|
|
|
Interest
received
|
|
|
20,407
|
|
84,080
|
Interest
paid
|
|
|
(316,778)
|
|
(427,464)
|
Income and other
taxes paid
|
|
|
(33,855)
|
|
(9,998)
|
Net cash generated
from (used in) operating activities
|
|
|
$
|
40,943
|
|
$
|
(11,652)
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
|
|
Receivable from
related party: amounts withdrawn
|
22
|
|
511,284
|
|
1,375,000
|
Expenditures on
property, plant and equipment
|
|
|
(1,080,516)
|
|
(1,308,073)
|
Pre-production sales
proceeds
|
|
|
26,091
|
|
-
|
Purchase of other
financial assets
|
|
|
(399)
|
|
-
|
Other investing cash
flows
|
|
|
1,106
|
|
-
|
Cash generated
from (used in) investing activities
|
|
|
$
|
(542,434
)
|
|
$
|
66,927
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
|
|
Net proceeds of
project finance facility
|
15
|
|
-
|
|
1,511
|
Repayment of project
finance facility
|
|
|
(23,289)
|
|
-
|
Payment of project
finance fees
|
|
|
-
|
|
(107)
|
Payment of lease
liability
|
|
|
(4,344)
|
|
(7,892)
|
Cash generated
used in financing activities
|
|
|
$
|
(27,633)
|
|
$
|
(6,488)
|
|
|
|
|
|
|
|
|
|
Effects of exchange
rates on cash and cash equivalents
|
|
|
760
|
|
131
|
Net increase
(decrease) in cash and cash equivalents
|
|
|
$
|
(528,364)
|
|
$
|
48,918
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents - beginning of year
|
|
|
$
|
1,651,985
|
|
$
|
1,603,067
|
Cash and cash
equivalents - end of year
|
|
|
1,123,621
|
|
1,651,985
|
Cash and cash
equivalents as presented in the consolidated balance
sheets
|
|
|
$
|
1,123,621
|
|
$
|
1,651,985
|
|
|
|
|
|
|
|
|
|
The notes to the
Company's financial statements, which are available on the
Company's website, are part of its consolidated financial
statements.
|
TURQUOISE HILL
RESOURCES LTD
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
|
|
|
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents
|
8
|
|
$
|
1,123,621
|
|
$
|
1,651,985
|
Inventories
|
9
|
|
197,962
|
|
175,719
|
Trade and other
receivables
|
10
|
|
60,012
|
|
27,047
|
Prepaid expenses and
other assets
|
11
|
|
127,274
|
|
99,671
|
Receivable from
related party
|
12
|
|
-
|
|
511,284
|
|
|
|
|
|
|
1,508,869
|
|
2,465,706
|
Non-current
assets
|
|
|
|
|
|
Property, plant and
equipment
|
13
|
|
10,927,512
|
|
9,782,647
|
Inventories
|
9
|
|
37,557
|
|
28,985
|
Deferred income tax
assets
|
16
|
|
880,705
|
|
534,078
|
Other financial
assets
|
12
|
|
14,118
|
|
10,978
|
|
|
|
|
|
|
11,859,892
|
|
10,356,688
|
Total
assets
|
|
|
$
|
13,368,761
|
|
$
|
12,822,394
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
15
|
|
$
|
28,288
|
|
$
|
26,547
|
Trade and other
payables
|
14
|
|
390,059
|
|
466,206
|
Deferred
revenue
|
|
|
103,289
|
|
27,896
|
|
|
|
|
|
|
521,636
|
|
520,649
|
Non-current
liabilities
|
|
|
|
|
|
Borrowings and other
financial liabilities
|
15
|
|
4,173,491
|
|
4,187,270
|
Deferred income tax
liabilities
|
16
|
|
111,717
|
|
79,180
|
Decommissioning
obligations
|
17
|
|
133,964
|
|
104,238
|
|
|
|
|
|
|
4,419,172
|
|
4,370,688
|
Total
liabilities
|
|
|
$
|
4,940,808
|
|
$
|
4,891,337
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Share
capital
|
18
|
|
$
|
11,432,122
|
|
$
|
11,432,122
|
Contributed
surplus
|
|
|
1,558,834
|
|
1,558,811
|
Accumulated other
comprehensive income (loss)
|
|
|
1,418
|
|
(813)
|
Deficit
|
|
|
|
(3,415,601)
|
|
(3,821,889)
|
Equity
attributable to owners of Turquoise Hill
|
|
|
9,576,773
|
|
9,168,231
|
Attributable to
non-controlling interest
|
19
|
|
(1,148,820)
|
|
(1,237,174)
|
Total
equity
|
|
|
$
|
8,427,953
|
|
$
|
7,931,057
|
|
|
|
|
|
|
|
|
|
Total liabilities
and equity
|
|
|
$
|
13,368,761
|
|
$
|
12,822,394
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies (Note 23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes to the
Company's financial statements, which are available on the
Company's website, are part of its consolidated financial
statements.
|
TURQUOISE HILL
RESOURCES LTD
|
|
|
|
|
|
|
Consolidated
Statements of Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2020
|
|
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
|
|
$
|
1,558,811
|
|
$
|
(813)
|
|
$
|
(3,821,889)
|
|
$
|
9,168,231
|
|
|
$
|
(1,237,174)
|
|
$
|
7,931,057
|
Income for the
year
|
|
-
|
|
-
|
|
-
|
|
406,288
|
|
406,288
|
|
|
88,354
|
|
494,642
|
Other comprehensive
income for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year
|
|
-
|
|
-
|
|
2,231
|
|
-
|
|
2,231
|
|
|
-
|
|
2,231
|
Employee share
plans
|
|
-
|
|
23
|
|
-
|
|
-
|
|
23
|
|
|
-
|
|
23
|
Closing
balance
|
|
$
|
11,432,122
|
|
$
|
1,558,834
|
|
$
|
1,418
|
|
$
|
(3,415,601)
|
|
$
|
9,576,773
|
|
|
$
|
(1,148,820)
|
|
$
|
8,427,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
-
|
|
-
|
|
-
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes to the
Company's financial statements, which are available on the
Company's website, are part of its consolidated financial
statements.
|
Turquoise Hill 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, 2020. 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. Turquoise Hill shareholders
may request a printed copy of any of these documents, free of
charge, from the investor contact noted below.
Follow us on Twitter @TurquoiseHillRe
About Turquoise Hill Resources
Turquoise Hill is an international mining company focused
on the operation and continued development of the Oyu Tolgoi
copper-gold mine in Mongolia,
which is the Company's principal and only material mineral resource
property. Turquoise Hill's ownership of the Oyu Tolgoi mine is held
through a 66% interest in Oyu Tolgoi LLC (Oyu Tolgoi); Erdenes Oyu
Tolgoi LLC (Erdenes), a Mongolian state-owned entity, holds the
remaining 34% interest.
Forward-looking statements and forward-looking
information
Certain statements made herein, including statements relating to
matters that are not historical facts and statements of the
Company's beliefs, intentions and expectations about developments,
results and events which will or may occur in the future,
constitute "forward-looking information" within the meaning of
applicable Canadian securities legislation and "forward-looking
statements" within the meaning of the "safe harbor" provisions of
the United States Private Securities Litigation Reform Act of 1995.
Forward-looking statements and information relate to future events
or future performance, reflect current expectations or beliefs
regarding future events and are typically identified by words such
as "anticipate", "could", "should", "expect", "seek", "may",
"intend", "likely", "plan", "estimate", "will", "believe" and
similar expressions suggesting future outcomes or statements
regarding an outlook. These include, but are not limited to,
statements and information regarding: discussions with, and the
nature of the Company's relationship and interaction with, the
Government of Mongolia on the
continued operation and development of Oyu Tolgoi, including with
respect to the DE and the potential termination, amendment or
replacement of the Oyu Tolgoi Mine Development and Financing Plan;
the willingness and ability of the parties to the UDP to amend or
replace the UDP; the potential benefits, impact, timing and outcome
of the arbitration proceedings (including any related interim
relief) initiated with respect to certain agreements with RTIH; the
expectations set out in the OTTR20; the timing and amount of future
production and potential production delays; statements in respect
of the impacts of any delays on the Company's cash flows; expected
copper and gold grades; the merits of the class action complaints
filed against the Company in October
2020 and January 2021,
respectively; liquidity, funding sources, funding requirements
and planning and the status and nature of the Company's
ongoing discussions with Rio Tinto and its subsidiaries with
respect to future funding plans and requirements (including as
contemplated by the MOU); the amount of any funding gap to complete
the Oyu Tolgoi project; the amount and potential sources of
additional funding; the Company's ability to re-profile its
existing project debt in line with current cash flow projections;
the amount by which a successful re-profiling of the Company's
existing debt would reduce the Company's currently projected
funding requirements; the Company's and Rio Tinto's understanding
regarding the raising of supplemental senior debt and the Company's
ability to raise supplemental senior debt; the Company's and Rio
Tinto's understanding regarding the process for identifying and
considering other funding options; the Company's and Rio Tinto's
understanding regarding the scope and timing for an equity offering
by the Company to address any remaining funding gap; the Company's
intention to prioritise funding by way of debt and/or hybrid
financing over equity funding; the Company's expectation of the
anticipated funding gap; the timing of studies, announcements and
analyses; status of underground development; the mine design for
Panel 0 of Hugo North Lift 1 and the related cost and production
schedule implications; the re-design studies for Panels 1 and 2 of
Hugo North Lift 1 and the possible outcomes, content and timing
thereof; expectations regarding the possible recovery of ore in the
two structural pillars, to the north and south of Panel 0; the
possible progression of SOPP and related amendments to the PSFA as
well as power purchase agreements; the timing of construction and
commissioning of the potential SOPP; sources of interim power; the
potential impact of COVID-19, including any restrictions imposed by
health or governmental authorities relating thereto on the
Company's business, operations and financial condition; capital and
operating cost estimates; mill and concentrator throughput; the
outcome of formal international arbitration proceedings;
anticipated business activities, planned expenditures, corporate
strategies, and other statements that are not historical facts.
Forward-looking statements and information are made based upon
certain assumptions and other important factors that, if untrue,
could cause the actual results, performance or achievements of the
Company to be materially different from future results, performance
or achievements expressed or implied by such statements or
information. There can be no assurance that such statements or
information will prove to be accurate. Such statements and
information are based on numerous assumptions regarding present and
future business strategies, local and global economic conditions,
and the environment in which the Company will operate in the
future, including the price of copper, gold and silver;
projected gold, copper and silver grades; anticipated capital and
operating costs; anticipated future production and cash flows; the
anticipated location of certain infrastructure in Hugo North Lift 1
and sequence of mining within and across panel boundaries; the
availability and timing of required governmental and other
approvals for the construction of the SOPP; the ability of the
Government of Mongolia to finance
and procure the SOPP within the timeframes anticipated in the PSFA,
as amended; the willingness of third parties to extend existing
power arrangements; the status and nature 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
(including the outcome of any such interactions or discussions);
the willingness and ability of the parties to the UDP to amend or
replace the UDP; the nature and quantum of the current and
projected economic benefits to Mongolia resulting from the continued
operation of Oyu Tolgoi; the status and nature of the Company's
ongoing discussions with Rio Tinto and its subsidiaries with
respect to future funding plans and requirements (including as
contemplated by the MoU) as well as the potential benefits, impact,
timing and outcome of the arbitration proceedings (including
any related interim relief) initiated with respect to certain
agreements with RTIH.
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; public health crises such as COVID-19; matters
relating to proposed exploration or expansion; mining operational
and development risks, including geotechnical risks and ground
conditions; litigation risks, including the outcome of the class
action complaints filed against the Company; the outcome of the
arbitration proceedings, including of any related interim relief;
regulatory restrictions (including environmental regulatory
restrictions and liability); Oyu Tolgoi LLC or the Government of
Mongolia's ability to deliver a
domestic power source for the Oyu Tolgoi project within the
required contractual time frame; communications with local
stakeholders and community relations; activities, actions or
assessments, including tax assessments, by governmental
authorities; events or circumstances (including public health
crises strikes, blockades or similar events outside of the
Company's control) that may affect the Company's ability to deliver
its products in a timely manner; currency fluctuations; the
speculative nature of mineral exploration; the global economic
climate; global climate change; 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; defective title to mineral claims or
property and human rights requirements. Although the Company has
attempted to identify important factors that could cause actual
actions, events or results to differ materially from those
described in forward-looking statements and information, there may
be other factors that cause actions, events or results not to be as
anticipated, estimated or intended. All such forward-looking
statements and information are based on certain assumptions and
analyses made by the Company's management in light of their
experience and perception of historical trends, current conditions
and expected future developments, as well as other factors
management believes are reasonable and appropriate in the
circumstances. These statements, however, are subject to a variety
of risks and uncertainties and other factors that could cause
actual events or results to differ materially from those projected
in the forward-looking statements or information.
With respect to specific forward-looking information concerning
the continued operation and development of Oyu Tolgoi, the Company
has based its assumptions and analyses on certain factors which are
inherently uncertain. Uncertainties and assumptions include, among
others: the timing and cost of the construction and expansion of
mining and processing facilities; the timing and availability of a
long-term domestic power source (or the availability of financing
for the Company or the Government of Mongolia to construct such a source) for Oyu
Tolgoi; the ability to secure and draw down on the supplemental
debt under the Oyu Tolgoi project financing facility and the
availability of additional financing on terms reasonably acceptable
to Oyu Tolgoi LLC, Rio Tinto and the Company to further develop Oyu
Tolgoi as well as the status and nature of the Company's ongoing
discussions with Rio Tinto and its subsidiaries with respect to
future funding plans and requirements (including as contemplated by
the MOU) as well as the potential benefits, impact, timing and
outcome of the arbitration proceedings (including any related
interim relief) initiated with respect to certain agreements with
RTIH; the status and nature 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
(including the outcome of any such interactions or discussions);
the willingness and ability of the parties to the UDP to amend or
replace the UDP; the nature and quantum of the current and
projected economic benefits to Mongolia resulting from the continued
operation of Oyu Tolgoi; the potential impact of COVID-19,
including any restrictions imposed by health and governmental
authorities relating thereto; the impact of changes in, changes in
interpretation to or changes in enforcement of, laws, regulations
and government practices in Mongolia; the availability and cost of skilled
labour and transportation; the obtaining of (and the terms and
timing of obtaining) necessary environmental and other government
approvals, consents and permits; delays, and the costs which would
result from delays, in the development of the underground mine
(which could significantly exceed the costs projected in OTTR20);
projected copper, gold and silver prices and their market demand;
and production estimates and the anticipated yearly production of
copper, gold and silver at Oyu Tolgoi.
The cost, timing and complexities of mine construction and
development are increased by the remote location of a property such
as Oyu Tolgoi. It is common in mining operations and in the
development or expansion of existing facilities to experience
unexpected problems and delays during development, construction and
mine start-up. Additionally, although Oyu Tolgoi has achieved
Commercial Production, there is no assurance that future
development activities will result in profitable mining
operations.
Readers are cautioned not to place undue reliance on
forward-looking information or statements. By their nature,
forward-looking statements involve numerous assumptions, inherent
risks and uncertainties, both general and specific, which
contribute to the possibility that the predicted outcomes will not
occur. Events or circumstances could cause the Company's actual
results to differ materially from those estimated or projected and
expressed in, or implied by, these forward-looking statements.
Important factors that could cause actual results to differ from
these forward-looking statements are included in the "Risk Factors"
section in the Company's AIF and in the "Risks and
Uncertainties" section in the Q4 2020 MD&A.
Readers are further cautioned that the list of factors
enumerated in the "Risk Factors" section of the AIF and in the
"Risks and Uncertainties" section of the Q4 2020 MD&A that may
affect future results is not exhaustive. When relying on the
Company's forward-looking statements and information to make
decisions with respect to the Company, investors and others should
carefully consider the foregoing factors and other uncertainties
and potential events. Furthermore, the forward-looking statements
and information contained herein are made as of the date of this
document and the Company does not undertake any obligation to
update or to revise any of the included forward-looking statements
or information, whether as a result of new information, future
events or otherwise, except as required by applicable law. The
forward-looking statements and information contained herein are
expressly qualified by this cautionary statement.
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SOURCE TURQUOISE HILL RESOURCES LTD