Turquoise Hill Resources Ltd. (TSX: TRQ) (NYSE: TRQ) (“Turquoise
Hill” or the “Company”) today announced second quarter 2022
production and provided an Oyu Tolgoi mine and corporate
update.
Q2 2022 Highlights
- Copper production guidance for 2022 remains within the range of
110,000 to 150,000 tonnes while 2022 gold production guidance has
been revised from a range of 135,000 – 165,000 ounces to 150,000 –
170,000 ounces.
- Q2’22 Copper production of 30.6 thousand tonnes of copper in
concentrate, a decrease of 17% vs Q2’21 and a slight increase of 1%
vs Q1’22
- Q2’22 Gold production of 47.6 thousand ounces of gold in
concentrate, a decrease of 58% vs Q2’21 and a decrease of 20% vs
Q1’22
- Expenditures on property, plant and equipment for 2022 are now
expected to be approximately $140 million to $170 million for
open-pit operations due to further schedule changes impacting the
timing of spend and lower deferred stripping as a result of mine
plan changes resulting in a higher proportion of ore mining
compared to waste removal. This is compared to the Company’s
previous guidance of $155 million to $185 million.
- Capital expenditures on the underground project1 are now
expected to be $1.1 billion to $1.3 billion for 2022 compared to
original guidance of $1.2 billion to $1.4 billion due to slower
than expected workforce ramp-up following commencement of the
undercut in January.
- Total Operating Cash Costs2 for 2022 are now expected to be in
the range of $850 million to $925 million compared to original
guidance of $800 million to $875 million due to higher royalties
and price inflation for key raw materials, especially fuel and the
lower deferred stripping.
- Mill throughput of 9.69 million tonnes in Q2 2022 was 1% higher
than Q1 2022 and 3% higher than Q2 2021 in line with expectations
due to higher mill availability.
- We continued to build on our relationship reset in Mongolia,
with the Oyu Tolgoi Board approving a $50 million five-year funding
programme to support the long-term, sustainable development of
Khanbogd town - our neighbouring host community in the South Gobi
region.
Updated Underground Cost and Schedule
The 2022 cost and schedule update for the underground project
has been completed resulting in an increase of the total expected
development capital from $6.75 billion to $7.06 billion, in line
with preliminary guidance. The $7.06 billion incorporates the known
and forecast future incremental COVID-19 cost impacts, escalation,
associated taxes and minor impacts relating to changes to labour
laws. Shaft 3 headframe was commissioned and sinking commenced on
March 31 with the cumulative sinking level now at 1743 metres below
ground level. Shaft 4 advancement is now 2763 metres below ground
level. The rate of progress in shafts improved during the quarter
due to the optimisation program of work which commenced in Q1’22
and progress continues to be closely monitored against the 2022
schedule update. Aligned with the Company’s previous disclosure
Shafts 3 and 4 are expected to be commissioned in H1’24.
Open Pit Operations and Underground Development
During Q2’22, the combined open pit and underground operations
produced 30.6 thousand tonnes of copper in concentrate and 47.6
thousand ounces of gold in concentrate. Copper production was
aligned with the previous quarter and gold production was lower due
to lower head grades aligned with the 2022 Plan. The mill feed for
Q2’22 included approximately 453 thousand tonnes @ 0.66% Cu and
0.28g/t Au of underground development material. The remaining 9.23
million tonnes of mill feed was sourced from open pit low grade
stockpiles and Phase 5. Mill head grades will remain low through to
the end of the year as direct mill feed will continue to be
supplemented by low grade stockpiles.
During Q2’22, the underground project achieved several
significant milestones including the blasting of the first two
drawbells in Panel 0, with the first drawbell fired earlier than
anticipated on June 17. The timing of sustainable production is
trending earlier in H1’23 and the undercut blasting and
on-footprint construction work, including roadways and steel set
construction, continues to progress well. For the quarter,
underground material hoisted from Shafts 1 and 2 was above
plan.
____________________________
1 Capital expenditures on the
underground project is a supplementary financial measure. Refer to
the section “Non-GAAP Financial Measures and Other Financial
Measures” of this press release.
2 Total operating cash costs is a
non-GAAP financial measure and is not a standardized financial
measure. It is not intended to replace measures prepared in
accordance with IFRS and might not be comparable to similar
financial measures disclosed by other issuers. Refer to the section
“Non-GAAP Financial Measures and Other Financial Measures” of this
press release
3 As at June 23, 2022.
COVID-19
Safety continues to be the Company’s top priority and COVID-19
controls remain in place at site to protect our people. During
Q2’22, COVID-19 cases identified at Oyu Tolgoi have continued at
low levels and the testing regime has been eased. Following the
recent relaxation of COVID-19 government-initiated restrictions in
Mongolia, Oyu Tolgoi (“OT LLC”) has progressively restarted work on
project facilities with workforce numbers approaching full capacity
and onsite concentrate inventory levels have returned to target
levels.
The Force Majeure declared by OT LLC to project lenders in March
2020 and the Force Majeure declared by OT LLC to customers in March
2021 have been lifted.
Oyu Tolgoi Production Data
All data represents full
production and sales on a 100% basis
2Q
3Q
4Q
1Q
2Q
1H
1H
Full Year
2021
2021
2021
2022
2022
2022
2021
2021
Open pit material mined (‘000 tonnes)
15,829
22,588
23,979
24,386
25,550
49,936
38,417
84,983
Ore treated (‘000 tonnes)
9,401
9,336
10,573
9,581
9,685
19,266
19,214
39,124
Average mill head grades:
Copper (%)
0.47
0.53
0.46
0.40
0.40
0.40
0.51
0.50
Gold (g/t)
0.50
0.63
0.38
0.32
0.26
0.29
0.59
0.54
Silver (g/t)
1.19
1.29
1.27
1.25
1.15
1.20
1.24
1.26
Concentrates produced (‘000 tonnes)
173.2
191.9
182.7
144.3
146.0
290.3
375.1
749.6
Average concentrate grade (% Cu)
21.2
21.9
21.3
21.0
20.9
21.0
21.9
21.7
Production of metals in concentrates:
Copper
(‘000 tonnes)
36.7
41.9
38.9
30.3
30.6
60.8
82.2
163.0
Gold (‘000 ounces)
113
131
79
59
48
107
259
468
Silver (‘000 ounces)
235
249
238
211
201
412
490
977
Concentrate sold (‘000 tonnes)
92.6
224.4
165.9
148.3
175.3
323.6
278.9
669.2
Sales of metals in concentrates:
Copper (‘000
tonnes)
19.6
46.4
34.4
29.9
35.3
65.2
58.6
139.4
Gold (‘000 ounces)
73
149
102
57
68
125
183
435
Silver (‘000 ounces)
106
278
192
179
224
403
313
783
Metal recovery* (%)
Copper
79.7
83.9
80.1
78.1
81.4
79.8
83.4
82.8
Gold
69.3
68.7
59.3
59.0
59.1
59.3
71.0
68.4
Silver
62.5
64.1
55.1
54.3
57.8
56.0
64.0
61.6
*Metal recovery is a function of head
grade and reflects grades delivered in the quarter.
Non-GAAP Financial Measures and Other Financial
Measures
This press release contains certain non-GAAP (Generally Accepted
Accounting Principles) financial measures such as total operating
cash costs and supplementary financial measures such as capital
expenditures on the underground project. Non-GAAP financial
measures have non-standardized meaning under International
Financial Reporting Standards (“IFRS”). As such, these financial
measures may not be comparable to similar measures used by other
issuers. These financial 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. Management believes
that, in addition to conventional measures prepared in accordance
with IFRS, these non-GAAP financial measures and supplementary
financial measures provide additional insight into the Company’s
operating performance and financial position and certain investors
may use this information to evaluate the Company’s performance from
period to period. However, these non-GAAP financial measures and
supplementary financial measures have limitations and should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. Additional details
and information for this non-GAAP financial measure and these
financial measures can be found in the section titled “Non-GAAP and
Other Financial Measures” between pages 28 and 31 of Company’s
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the three months ended March 31, 2022
(the “MD&A”) filed with the securities regulatory authorities
in Canada, which section and pages are incorporated by reference
into this press release. The MD&A is available under the
Company’s profile on SEDAR at www.sedar.com.
Technical Information included in this Press Release
Disclosure of information of a scientific or technical nature in
this press release in respect of the Oyu Tolgoi mine was approved
by Jo-Anne Dudley (FAusIMM(CP)), Chief Operating Officer of the
Company. Ms. Dudley is a “qualified person” as that term is defined
in National Instrument 43-101—Standards of Disclosure for Mineral
Projects.
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”, “believe”, “could”, “estimate”, “expect”,
“intend”, “likely”, “may”, “plan”, “seek”, “should”, “will” and
similar expressions suggesting future outcomes or statements
regarding an outlook. These include, but are not limited to,
statements and information regarding: the nature of the Company’s
ongoing relationship and interaction with the Government of
Mongolia with respect to the continued operation and development of
Oyu Tolgoi as and when the key agreements entered into with the
Government of Mongolia announced on January 24, 2022 (the “GoM
Agreements”) are implemented along with the implementation of
Resolution 103, the resolution passed by the Parliament of Mongolia
in December 2021 to resolve the outstanding issues among the
Company, Rio Tinto and the Government of Mongolia in relation to
the implementation of Resolution 92, the resolution passed by the
Parliament of Mongolia in November 2019 mandating the Government of
Mongolia to take necessary measures to ensure the benefits to
Mongolia of Oyu Tolgoi; the continuation of undercutting in
accordance with the mine plan and design; the actual timing of
first sustainable production as well as the lifting of restrictions
by the Government of Mongolia on the ability of OT LLC to incur any
additional indebtedness; the implementation and successful
execution of the updated funding plan that is the subject of the
second amended and restated heads of agreement entered into with
Rio Tinto International Holdings Limited (“RTIHL”) on May 18, 2022
(the “Second Amended HoA”), as such agreement may be further
amended or restated, and the amount of any additional future
funding gap to complete the Oyu Tolgoi project and the availability
and amount of potential sources of additional funding required
therefor, all as contemplated by the Second Amended HoA, as well as
potential delays in the ability of the Company and OT LLC to
proceed with the funding elements contemplated by the Second
Amended HoA; liquidity, funding sources and funding requirements in
general, in particular until sustainable first production is
achieved, including the Company’s ability to reach agreement with
project finance lenders on the re-profiling of existing debt
payments in line with current cash flow projections, as well as the
Company (or a wholly-owned subsidiary) and OT LLC entering into a
pre-paid copper concentrate sale arrangement; the availability and
amount of potential sources of additional funding, including the
short-term secured advance to be provided by RTIHL to the Company
under the Second Amended HoA; 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
ability to conduct one or more equity offerings as contemplated by
the Second Amended HoA in light of future and then prevailing
market conditions; the expectations set out in the 2020 Oyu Tolgoi
Technical Report (the “2020 OTTR”); the timing and amount of future
production and potential production delays; statements in respect
of the impacts of any delays on achieving first sustainable
production and 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;
the merits of the defence and counterclaim filed by the Government
of Mongolia in the international tax arbitration brought by OT LLC
and the likelihood of the parties being able to amicably resolve
the ongoing tax issues; the timing of studies, announcements and
analyses; the status of underground development, including any
slowdown of work; the causes of the increase in costs and schedule
extension of the 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;
the timing and progress of the sinking of Shafts 3 and 4 and any
delays in that regard in addition to previously announced delays;
expectations regarding the possible recovery of ore in the two
structural pillars, to the north and south of Panel 0; the possible
progression of a state-owned power plant (“SOPP”) and related
amendments to the Power Source Framework Agreement (“PSFA”), as
amended, as well as power purchase agreements and extensions
thereto; the finalization of an agreement with Inner Mongolia Power
International Cooperation Co., Ltd (“IMPIC”) on extension of the
current power import arrangements; the timing of construction and
commissioning of the potential SOPP; sources of interim power; the
continuing impact of COVID-19, including any restrictions imposed
by health or governmental authorities relating thereto on the
Company’s business, operations and financial condition, as well as
delays and the development cost impacts of delays caused by the
COVID-19 pandemic; the Company’s ability to operate sustainably,
its community relations and its social licence to operate in
Mongolia; capital and operating cost estimates, including
inflationary pressures thereon resulting in cost escalation; mill
and concentrator throughput; anticipated business activities,
planned expenditures, corporate strategies; supply disruptions of
oil and gas to the Oyu Tolgoi project caused by the ongoing
Russia-Ukraine conflict, 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
nature of the Company’s ongoing relationship and interaction with
the Government of Mongolia with respect to the continued operation
and development of Oyu Tolgoi as and when the GoM Agreements are
implemented along with the implementation of Resolution 103; the
continuation of undercutting in accordance with the mine plan and
design; the actual timing of first sustainable production as well
as the lifting of restrictions by the Government of Mongolia on the
ability of OT LLC to incur any additional indebtedness; 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, subject to ongoing
discussions relating to a standstill period; finalization of an
agreement with IMPIC on an extension of the current power import
arrangements; the eventual pre-payment arrangement between the
Company (or a wholly-owned subsidiary) and OT LLC; the
implementation and successful execution of the updated funding plan
that is the subject of the Second Amended HoA, as such agreement
may be further amended and restated; the Company’s ability to
operate sustainably, its community relations and its social licence
to operate in Mongolia; and the amount of any additional future
funding gap to complete the Oyu Tolgoi project and the availability
and amount of potential sources of additional funding required
therefor.
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
international arbitration proceedings, including the likelihood of
the parties being able to amicably resolve the ongoing tax issues;
regulatory restrictions (including environmental regulatory
restrictions and liability); OT 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; the Company’s
ability to operate sustainably, its community relations, and its
social licence to operate in Mongolia; 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; inflationary pressures on prices for
critical supplies for Oyu Tolgoi including fuel, power, explosives
and grinding media resulting in cost escalation; defective title to
mineral claims or property; human rights requirements;
international conflicts such as the ongoing Russia-Ukraine
conflict; and new tax measures, such as a minimum corporate tax
rate, that might be implemented as a result of evolving global
initiatives. 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 the Oyu Tolgoi project,
the Company has based its assumptions and analyses on certain
factors which are inherently uncertain. Uncertainties and
assumptions include, among others: the nature of the Company’s
ongoing relationship and interaction with the Government of
Mongolia with respect to the continued operation and development of
Oyu Tolgoi as and when the GoM Agreements are implemented along
with the implementation of Resolution 103; the continuation of
undercutting in accordance with the mine plan and design; the
approval or non-approval by the OT LLC board of directors of any
future necessary additional investment, and the likely consequences
on the timing and overall economic value of the Oyu Tolgoi project,
including slowdown on the underground development and significant
delays to first sustainable production; 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
implementation and successful execution of the updated funding plan
that is the subject of the Second Amended HoA, as such agreement
may be further amended or restated, and the amount of any
additional future funding gap to complete the Oyu Tolgoi project
and the availability and amount of potential sources of additional
funding required therefor the eventual pre-payment arrangement
between the Company (or a wholly-owned subsidiary) and OT LLC; the
potential impact of COVID-19, including any restrictions imposed by
health and governmental authorities relating thereto, as well as
the development cost impacts of delays caused by the COVID-19
pandemic; the Company’s ability to operate sustainably, its
community relations and its social licence to operate in Mongolia;
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, including delays caused by COVID-19 restrictions and
impacts and related factors, in the development of the underground
mine (which could significantly exceed the costs projected in the
2020 OTTR); projected copper, gold and silver prices and their
market demand; production estimates and the anticipated yearly
production of copper, gold and silver at Oyu Tolgoi; inflationary
pressures in prices for critical supplies for Oyu Tolgoi, including
fuel, power, explosives and grinding media resulting in cost
escalation; and the potential impact of the ongoing Russia-Ukraine
conflict, including supply disruptions of oil and gas to the Oyu
Tolgoi project caused thereby.
The cost, timing and complexities of mine construction and
development are increased by the remote location of a property such
as Oyu Tolgoi. It is common in mining operations and in the
development or expansion of existing facilities to experience
unexpected problems and delays during development, construction and
mine start-up. Additionally, although Oyu Tolgoi has achieved
commercial production, there is no assurance that future
development activities will result in profitable mining
operations.
Readers are cautioned not to place undue reliance on
forward-looking information or statements. By their nature,
forward-looking statements involve numerous assumptions, inherent
risks and uncertainties, both general and specific, which
contribute to the possibility that the predicted outcomes will not
occur. Events or circumstances could cause the Company’s actual
results to differ materially from those estimated or projected and
expressed in, or implied by, these forward-looking statements.
Important factors that could cause actual results to differ from
these forward-looking statements are included in the “Risk Factors”
section in the Company’s annual information form for the year ended
December 31, 2021 (the “AIF”), as supplemented by the “Risks and
Uncertainties” section of the Company’s Interim Management’s
Discussion and Analysis for the second quarter ended March 31, 2022
(the “Q1’22 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 Q1’22 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220714005791/en/
Vice President Investors Relations and Communications Roy
McDowall roy.mcdowall@turquoisehill.com Follow us on
Twitter@TurquoiseHillRe
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