Turquoise Hill Resources Ltd. (TSX: TRQ) (NYSE: TRQ) (Turquoise
Hill or the Company) today announced its financial results for the
period ended June 30, 2022. All figures are in U.S. dollars unless
otherwise stated.
“Following the First Quarter inflection points of renewing our
partnership with the Government of Mongolia and blasting the
undercut of the Oyu Tolgoi underground mine, we have continued to
make excellent progress on the underground during the second
quarter. We fired the first drawbell of the Oyu Tolgoi underground
mine well ahead of schedule and have now fired the first three
drawbells ahead of schedule. While we continue to forecast
sustainable production in the first half of 2023, this is most
certainly trending earlier.” stated Steve Thibeault, Turquoise
Hill’s Interim Chief Executive Officer.
“The Oyu Tolgoi team achieved an All Injury Frequency Rate
(AIFR) of 0.21 per 200,000 hours worked. The number of COVID cases
at the site continued to decline enabling a return to near-normal
roster levels and rotations. With the easing of the pandemic we
have been able to reduce our on-site concentrate inventories to
target levels and force majeure has been lifted.
“We produced 30.6 thousand tonnes of copper in the second
quarter and are on track to meet our 2022 guidance for copper
production of 110,000 to 150,000 tonnes. Gold production in the
quarter totalled 47.6 thousand ounces and we have increased our
gold production guidance range for the year from 135,000 to 165,000
ounces to 150,000 to 170,000 ounces.
“The Company ended the first half with liquidity of $0.5 billion
and with access to funding under the terms of the Heads of
Agreement with Rio Tinto that will be sufficient to meet its
minimum obligations for at least 12 months from the quarter end. We
are well positioned to maintain this momentum and we look forward
to ramping up the Oyu Tolgoi underground mine.”
FINANCIAL AND OPERATIONAL HIGHLIGHTS
- Oyu Tolgoi surface operations1 and underground workforce posted
an AIFR of 0.21 per 200,000 hours worked for the six months ended
June 30, 2022.
- In Q2’22, Oyu Tolgoi produced 30.6 thousand tonnes of copper in
concentrate and 47.6 thousand ounces of gold in concentrate.
- Mill throughput of 9.69 million tonnes in Q2’22 was 1% higher
than Q1’22 and 3% higher than Q2’21 in line with expectations due
to higher mill availability.
- 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.
- On-site concentrate inventory has returned to target
levels.
- Drawbells continue to be completed ahead of schedule with the
first 2 drawbells successfully fired in Q2’22 and the third
drawbell subsequently fired on July 29. Sustainable production
continues to trend earlier than expected. It is anticipated that
between 16 – 21 drawbells are required to achieve sustainable
production, subject to the natural caving conditions
encountered.
- Turquoise Hill currently estimates its base case incremental
funding requirement to be $3.6 billion (March 31, 2022: $3.4
billion).
- As at June 30, 2022, Turquoise Hill had $0.5 billion of
available liquidity in the form of cash and cash equivalents, which
under current projections is expected to meet the Company’s
requirements, including funding of underground capital
expenditures, into November 2022, after which the Company is able
and would be required to rely on funding available under the
Funding HoA2 (see – Funding of OT LLC by Turquoise Hill) to provide
it with sufficient liquidity and resources to meet its minimum
obligations for a period of at least 12 months from the balance
sheet date of June 30, 2022.
- Revenue of $402.0 million in Q2’22 increased 21.9% from $329.8
million in Q2’21 due to an 89.3% increase in concentrate sales with
the easing of COVID-19 related restrictions at the border and use
of double trailers to ship concentrate and due to a 3.1% increase
in average gold prices. Onsite concentrate inventory levels
returned to target levels in Q2’22. Higher concentrate volumes were
partially offset by a 1.8% decrease in average copper prices and by
lower copper and gold head grades from the planned transition of
mining to the next phase of operations and processing lower grade
stockpile material.
- Income for the period was $93.3 million in Q2’22 versus $127.8
million in Q2’21 as higher revenue and tax benefits were more than
offset by the impact of higher cost of sales as the higher volumes
of concentrate shipped contained lower metal in concentrate
following the planned transition of mining from higher to lower
grade areas of the open pit. Cost of sales has also been impacted
by inflation and higher input prices. A $9.8 million tax benefit
was recorded in Q2’22 versus $19.0 million charge in Q2’21. The
recognition in Q2’22 was largely due to an increase in temporary
differences on property, plant and equipment. Income attributable
to owners of Turquoise Hill in Q2’22 was $82.6 million ($0.41 per
share) versus $102.9 million ($0.51 per share) in Q2’21.
- Cost of sales in Q2’22 was $2.82 per pound of copper sold3 and
C1 cash costs were $1.31 per pound of copper produced4. All-in
sustaining costs were $2.63 per pound of copper produced 4 .
- Total operating cash costs5 of $229.6 million in Q2’22
increased 7.6% from $213.4 million in Q2’21 largely due to
inflationary pressures on prices for critical supplies including
fuel, power, explosives and higher shipment and royalty costs from
increased volumes following the easing of COVID-19 related
restrictions at the border. This was partially offset by higher
deferred stripping due to the planned transition of mining from
Phase 4B to Phase 5A. Ore mining had been prioritised in Q2’21 due
to the impact of COVID-19 related restrictions on manning and
equipment usage.
- Expenditures on property, plant and equipment6 in Q2’22 were
$260.9 million, which included $218.2 million of capital
expenditures on the underground project7. Capital expenditures on
the underground project 7 included $85.9 million of underground
sustaining capital expenditures 7 . At June 30, 2022, total capital
expenditures on the underground project 7 since January 1, 2016 was
$5.8 billion, including $0.5 billion of underground sustaining
capital expenditures 7 .
- Net cash generated from operating activities of $229.1 million
and cash generated from operating activities before interest and
tax of $315.4 million were $10.7 million and $10.6 million higher,
respectively, than in Q2’21 due to the impact of higher shipment
volumes and prices on cash receipts, partially offset by
inflationary pressures on operating expenditures from higher prices
for critical supplies including fuel, power, explosives and higher
shipment and royalty costs.
- Oyu Tolgoi has continued to progressively increase on-site
personnel numbers with the workforce in Q2’22 approaching full
capacity.
- The 2022 cost and schedule update for the underground project
has been completed and incorporates the known, incremental COVID-19
cost impacts, associated taxes and an estimate of further COVID-19
management costs over the remaining development schedule,
confirming total development capital expenditure expectations of
$7.06 billion.
- Oyu Tolgoi continued to build on its 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.
- The special committee of independent directors (the Special
Committee) continues to consider the unsolicited non-binding
proposal from Rio Tinto International Holdings Limited (Rio Tinto)
received on March 13, 2022 to acquire the approximately 49% of the
outstanding shares of Turquoise Hill held by the Company’s minority
shareholders for cash consideration of C$34.00 per share (the
Proposal).
______________________________________
1 Surface operations denotes open-pit operations plus on surface
infrastructure benefitting both the open pit and underground
including, but not limited to, the concentrator, tailings storage
facility and central heating plant. Of the 19,266 thousand tonnes
of material processed by the mill in H1’22, approximately 715
thousand tonnes was underground development material. 2 The Funding
HOA is an amendment dated May 18, 2022 to the amended and restated
heads of agreement entered into between the Company and Rio Tinto
on January 24, 2022. Please refer to the Section titled “Funding of
OT LLC by Turquoise Hill” on page 11 of this press release for
further information. 3 Cost of sales per pound of copper sold is a
supplementary financial measure. Please refer to the Section titled
“Non-GAAP and Other Financial Measures” on page 21 of this press
release for further information. 4 C1 cash costs per pound of
copper produced and all-in sustaining costs per pound of copper
produced are non-GAAP ratios. Please refer to the Section titled
“Non-GAAP and Other Financial Measures” on page 21 of this press
release for further information. 5 Total operating cash costs is a
non-GAAP financial measure. Please refer to the Section titled
“Non-GAAP and Other Financial Measures” on page 21 of this press
release for further information. 6 In this press release,
“expenditures on property, plant and equipment is sometimes
alternatively referred to as “capital expenditures on a cash
basis”. 7 Capital expenditures on the underground project and
underground sustaining capital expenditures are supplementary
financial measures. Please refer to the Section titled “Non-GAAP
and Other Financial Measures” on page 21 of this press release for
further information.
OPERATIONAL OUTLOOK FOR 2022
Oyu Tolgoi is expected to produce 110 to 150 thousand tonnes of
copper and 150 to 170 thousand ounces of gold in concentrates in
2022 from processing ore from the open pit, underground and
stockpiles. Gold production guidance has been revised upward from a
previous forecast range of 135 to 165 thousand ounces due to
additional mining of high-grade material at the bottom of Phase 4B
in Q1’22 and better than expected production from Phase 5A. Gold
and copper production are forecast to be lower in 2022 compared
with 2021 due to the planned transition of mining to the next phase
of operations and the processing of lower grade stockpile
material.
Total operating cash costs8 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
lower deferred stripping. The proportion of ore to waste is now
expected to be higher than originally planned in 2022 due to mine
plan changes.
Capital expenditures on surface operations9 for 2022 are now
expected to be lower than previously disclosed at approximately
$140 million to $170 million due to further schedule changes
impacting the timing of spend and lower deferred stripping as a
result of mine plan changes over the course of the year 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 that was provided in the Company's management's
discussion and analysis of the financial condition and results of
the operations (MD&A) for the first quarter of 2022. Capital
expenditures on the underground project9 are now expected to be
lower at $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 2022. Capital expenditures on the underground project9
are expected to be comprised of $650 million to $750 million of
underground development capital expenditures9 and $425 million to
$525 million of underground sustaining capital expenditures9.
Capital expenditures on surface operations9 is mainly comprised
of deferred stripping, equipment purchases, tailings storage
facility construction and maintenance componentisation. Capital
expenditures on the underground project9 is inclusive of VAT.
2022 C1 cash costs are expected to be in the range of positive
$1.95 to positive $2.35 per pound of copper produced10, which is
higher than 2021 due to lower gold production in 2022. Unit cost
guidance assumes the midpoint of the expected 2022 copper and gold
production ranges and a gold commodity price assumption of $1,868
per ounce.
Estimates of future production, expenditures on property, plant
and equipment, total operating cash costs and C1 cash costs per
pound of copper produced presented in this press release are based
on mine plans that reflect the expected method by which the Company
will mine reserves at Oyu Tolgoi. Actual gold and copper production
and associated costs may vary from these estimates due to a number
of operational and non-operational risk factors (see the section
“Forward-Looking Statements and Forward-Looking Information” of the
Company’s Q2 2022 MD&A for a description of certain risk
factors that could cause actual results to differ materially from
these estimates).
______________________________________
8 Total operating cash costs is a non-GAAP measure that is
forward-looking information. Please refer to the Section titled
“Non-GAAP and Other Financial Measures” on page 21 of this press
release for further information. 9 Underground development capital
expenditures, underground sustaining capital expenditures, and
capital expenditures on surface operations are all supplementary
financial measures. Please refer to the Section titled “Non-GAAP
and Other Financial Measures” on page 21 of this press release for
further information. 10 C1 cash costs per pound of copper produced
is a non-GAAP ratio. Please refer to the Section titled “Non-GAAP
and Other Financial Measures” on page 21 of this press release for
further information.
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
(OT LLC); the remaining 34% interest is held by Erdenes Oyu Tolgoi
LLC (Erdenes or EOT), 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 with production ramp up expected to commence
in H1’23.
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.
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 2022 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.
As at June 30, 2022, Oyu Tolgoi had a total workforce (employees
and contractors), including for underground project construction,
of approximately 18,100 workers, of which over 97% were
Mongolian.
SELECTED FINANCIAL METRICS (1)
Three months ended Six months ended ($ in millions,
unless otherwise noted)
2Q
2Q
Change
2Q
2Q
Change
2022
2021
%
2022
2021
%
Restated (6)
Restated (6)
Revenue
402.0
329.8
21.9%
804.7
856.3
(6.0%)
Income for the period
93.3
127.8
(27.0%)
487.6
460.0
6.0%
Income attributable to owners of Turquoise Hill Resources Ltd
82.6
102.9
(19.7%)
357.9
339.6
5.4%
Basic and diluted earnings per share attributable to owners of
Turquoise Hill Resources Ltd
0.41
0.51
(19.6%)
1.78
1.69
5.3%
Revenue by metals in concentrates Copper
266.4
197.0
35.2%
556.9
530.7
4.9%
Gold
130.5
129.7
0.6%
238.6
317.9
(24.9%)
Silver
5.1
3.1
64.5%
9.3
7.7
20.8%
Cost of sales
219.4
85.5
156.6%
394.4
241.2
63.5%
Production and delivery costs
174.8
64.3
171.9%
310.4
167.7
85.1%
Depreciation and depletion
44.6
21.2
110.4%
84.1
73.4
14.6%
Capital expenditures on cash basis (2)
260.9
227.4
14.7%
490.8
477.6
2.8%
Underground development capital expenditures
132.3
158.6
(16.6%)
251.4
339.7
(26.0%)
Underground sustaining capital expenditures
85.9
49.9
72.1%
170.6
110.8
54.0%
Capital expenditures on surface operations
42.7
18.9
125.9%
68.8
27.2
152.9%
Royalty expenses
28.4
22.5
26.2%
53.4
45.2
18.1%
Total operating cash costs (3)
229.6
213.4
7.6%
458.5
414.7
10.6%
Unit costs ($) Cost of sales (per pound of copper sold) (4)
2.82
1.98
42.4%
2.74
1.87
46.5%
C1 (per pound of copper produced) (5)
1.31
0.85
54.1%
1.49
0.43
246.5%
All-in sustaining (per pound of copper produced) (5)
2.63
1.55
69.7%
2.67
0.96
178.1%
Mining costs (per tonne of material mined) (5)
2.42
2.71
(10.7%)
2.34
2.27
3.1%
Milling costs (per tonne of ore treated) (5)
6.58
7.09
(7.2%)
6.84
6.66
2.7%
G&A costs (per tonne of ore treated) (4)
2.75
4.98
(44.8%)
3.23
4.21
(23.3%)
Net cash generated from operating activities
229.1
218.4
4.9%
351.4
85.2
312.4%
Cash generated from operating activities before interest and tax
315.4
304.8
3.5%
438.0
553.0
(20.8%)
Interest paid
84.8
84.5
0.4%
85.6
111.0
(22.9%)
Total assets
14,791
13,903
6.4%
14,791
13,903
6.4%
Total non-current financial liabilities
3,766
4,407
(14.5%)
3,766
4,407
(14.5%)
(1)
All financial information in this press
release should be reviewed in conjunction with the Company‘s
consolidated financial statements for the reporting periods
indicated.
(2)
Capital expenditures on a cash basis is
split between underground development capital expenditures and
underground sustaining capital expenditures and capital
expenditures on surface operations, all supplementary financial
measures. Please refer to the Section titled – “Non-GAAP and Other
Financial Measures” on page 21 of this press release for further
information.
(3)
Total operating cash costs is a non-GAAP
financial measure. Please refer to the Section titled – “Non-GAAP
and Other Financial Measures” on page 21 of this press release for
further information.
(4)
Cost of sales per pound of copper sold and
General & Administrative (G&A) costs per tonne of ore
treated are supplementary financial measures. Please refer to the
Section titled – “Non-GAAP and Other Financial Measures” on page 21
of this press release for further information.
(5)
C1 cash costs per pound of copper
produced, all-in sustaining costs per pound of copper produced,
mining costs per tonne of material mined, and milling costs per
tonne of ore treated are non-GAAP ratios which are not standardised
financial measures and are not intended to replace measures
prepared in accordance with IFRS. Please refer to the Section
titled – “Non-GAAP and Other Financial Measures” on page 21 of this
press release for further information.
(6)
Prior year comparatives have been restated
for adoption of the IAS16 amendment to Property, Plant and
Equipment: Proceeds before intended use. Please refer to the
Section titled “Recent Accounting Pronouncements” on page 24 of the
Company’s Q2 2022 MD&A for further information.
Q2’22 versus Q2’21
- Revenue of $402.0 million in Q2’22 increased 21.9% from $329.8
million in Q2’21 due to an 89.3% increase in concentrate sales with
the easing of COVID-19 related restrictions at the border and use
of double trailers to ship concentrate and due to a 3.1% increase
in average gold prices. Onsite concentrate inventory levels
returned to target levels in Q2’22. Higher concentrate volumes were
partially offset by a 1.8% decrease in average copper prices and by
lower copper and gold head grades from the planned transition of
mining to the next phase of operations and processing lower grade
stockpile material.
- Income for the period was $93.3 million in Q2’22 versus $127.8
million in Q2’21 as higher revenue and tax benefits were more than
offset by the impact of higher cost of sales as the higher volumes
of concentrate shipped contained lower metal in concentrate
following the planned transition of mining from higher to lower
grade areas of the open pit. Cost of sales has also been impacted
by inflation and higher input prices. A $9.8 million tax benefit
was recorded in Q2’22 versus a $19.0 million charge in Q2’21. The
recognition in Q2’22 was largely due to an increase in temporary
differences on property, plant and equipment. Income attributable
to owners of Turquoise Hill in Q2’22 was $82.6 million ($0.41 per
share) versus $102.9 million ($0.51 per share) in Q2’21.
- Cost of sales of $219.4 million in Q2’22 increased from $85.5
million in Q2’21 due to an 89.3% increase in concentrate volumes
with the easing of COVID-19 related restrictions at the border and
inflationary pressures on input prices and other costs. Onsite
concentrate inventory levels have returned to target levels in
Q2’22.
- Expenditures on property, plant and equipment were $260.9
million in Q2’22 versus $227.4 million in Q2’21, comprised of
$218.2 million (Q2’21: $208.5 million) in capital expenditures on
the underground project11, including $85.9 million (Q2’21: $49.9
million) in underground sustaining capital expenditures11 as well
as $42.7 million (Q2’21: $18.9 million) in capital expenditures on
surface operations11 .
- Total operating cash costs12 of $229.6 million in Q2’22
increased 7.6% from $213.4 million in Q2’21, largely due to
inflationary pressures on prices for critical supplies, including
fuel, power, explosives and higher shipment and royalty costs from
increased volumes following the easing of COVID-19 related
restrictions at the border. This was partially offset by higher
deferred stripping due to the planned transition of mining from
Phase 4B to Phase 5A. Ore mining had been prioritised in Q2’21 due
to the impact of COVID-19 related restrictions on manning and
equipment usage.
- Cost of sales of $2.82 per pound of copper sold13 in Q2’22
increased 42.4% from $1.98 per pound of copper sold in Q2’21,
reflecting higher operating cash costs and an increase in unit
fixed costs from lower metal production and copper head
grades.
- Oyu Tolgoi’s C1 cash costs of $1.31 per pound of copper
produced14 in Q2’22 increased from $0.85 per pound of copper
produced in Q2’21 due to higher operating cash costs and lower
copper produced due to the planned transition of mining to the next
phase of operations.
- All-in sustaining costs of $2.63 per pound of copper produced14
in Q2’22 increased from $1.55 per pound of copper produced in
Q2’21. All-in sustaining costs were impacted by the same factors as
C1 cash costs as well as a $23.8 million increase in capital
expenditures on surface operations due to higher maintenance
componentisation, higher deferred stripping from the planned change
in mine sequence and commencement of the Gashuun Sukhait (GSK)
road.
- Mining costs of $2.42 per tonne of material mined14 in Q2’22
decreased 10.7% from $2.71 per tonne of material mined in Q2’21.
The decrease was mainly driven by higher material mined in Q2’22
with higher haul truck usage in the open pit as the lifting of
COVID-19 restrictions increased manning levels.
- Milling costs of $6.58 per tonne of ore treated14 in Q2’22
decreased 7.2% from $7.09 per tonne of ore treated in Q2’21 due to
the higher mill throughput and lower costs. The decrease in costs
was mainly due to an improvement in the quality of grinding media
lowering the amount of reagents used in processing concentrate and
a higher proportion of softer ore in the mill feed.
- G&A costs of $2.75 per tonne of ore treated15 in Q2’22
decreased 44.8% from $4.98 per tonne of ore treated in Q2’21. The
decrease is mainly due to reduced COVID-19 related costs with the
lifting of restrictions and changes to the testing and quarantine
regimes.
- Net cash generated from operating activities of $229.1 million
and cash generated from operating activities before interest and
tax of $315.4 million were $10.7 million and $10.6 million higher,
respectively, than in Q2’21 due to the impact of higher shipment
volumes and prices on cash receipts, partially offset by
inflationary pressures on operating expenditures from higher prices
for critical supplies including fuel, power, explosives and higher
shipment and royalty costs.
______________________________________
11 Capital expenditures on the underground project, underground
sustaining capital expenditures and capital expenditures on surface
operations are supplementary financial measures. Please refer to
the Section titled “Non-GAAP and Other Financial Measures” on page
21 of this press release for further information. 12 Total
operating cash costs is a non-GAAP financial measure. Please refer
to the Section titled “Non-GAAP and Other Financial Measures” on
page 21 of this press release for further information. 13 Cost of
sales per pound of copper sold is a supplementary financial
measure. Please refer to the Section titled “Non-GAAP and Other
Financial Measures” on page 21 of this press release for further
information. 14 C1 cash costs per pound of copper produced, all-in
sustaining costs per pound of copper produced, mining costs per
tonne of material mined and milling costs per tonne of ore treated
are non-GAAP ratios. Please refer to the Section titled “Non-GAAP
and Other Financial Measures” on page 21 of this press release for
further information. 15 G&A costs per tonne of ore treated is a
supplementary financial measure. Please refer to the Section titled
“Non-GAAP and Other Financial Measures” on page 21 of this press
release for further information.
OYU TOLGOI
Operations, People, Safety Performance and COVID-19
Update
The safety and wellbeing of our workers continues to be our
major focus. The Oyu Tolgoi surface operations and underground
workforce posted an AIFR of 0.21 per 200,000 hours worked year to
date.
During Q2’22, COVID-19 cases identified at Oyu Tolgoi have
continued at low levels and the testing regime has been eased.
Pre-site mobilisation testing has ceased, and mask wearing has been
reduced to high-risk settings only. Oyu Tolgoi has continued to
progressively increase on-site personnel numbers with the workforce
in Q2’22 approaching full capacity. On-site concentrate inventory
has returned to target levels. Ongoing monitoring of COVID-19 cases
continues, and controls will continue to be reviewed, as
necessary.
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 both been lifted.
During Q2’22, Oyu Tolgoi, in partnership with Mandal Insurances,
rolled out a Hepatitis B screening and vaccination programme to
employees at site and in the Ulaanbaatar offices.
Selected Operational Metrics
Oyu Tolgoi Production Data All data represents full
production and sales on a 100% basis
2Q
2Q
Change
1H
1H
Change
2022
2021
2022
2021
Open pit material mined (‘000 tonnes)
25,550
15,829
61.4%
49,936
38,417
30.0%
Ore treated (‘000 tonnes)
9,685
9,401
3.0%
19,266
19,214
0.3%
Average mill head grades: Copper (%)
0.40
0.47
(14.9%)
0.40
0.51
(21.6%)
Gold (g/t)
0.26
0.50
(48.0%)
0.29
0.59
(50.8%)
Silver (g/t)
1.15
1.19
(3.4%)
1.20
1.24
(3.2%)
Concentrates produced (‘000 tonnes)
146.0
173.2
(15.7%)
290.3
375.1
(22.6%)
Average concentrate grade (% Cu)
20.9
21.2
(1.4%)
21.0
21.9
(4.1%)
Production of metals in concentrates: Copper (‘000 tonnes)
30.6
36.7
(16.6%)
60.8
82.2
(26.0%)
Gold (‘000 ounces)
48
113
(57.5%)
107
259
(58.7%)
Silver (‘000 ounces)
201
235
(14.5%)
412
490
(15.9%)
Concentrate sold (‘000 tonnes)
175.3
92.6
89.3%
323.6
278.9
16.0%
Sales of metals in concentrates: Copper (‘000 tonnes)
35.3
19.6
80.1%
65.2
58.6
11.3%
Gold (‘000 ounces)
68
73
(6.8%)
125
183
(31.7%)
Silver (‘000 ounces)
224
106
111.3%
403
313
28.8%
Metal recovery* (%) Copper
81.4
79.7
2.1%
79.8
83.4
(4.3%)
Gold
59.1
69.3
(14.7%)
59.3
71.0
(16.5%)
Silver
57.8
62.5
(7.5%)
56.0
64.0
(12.5%)
*Metal recovery is a function of head
grade and reflects grades delivered in the quarter.
Surface Operations and Hugo North Underground
During Q2’22, the combined surface and underground operations
produced 30.6 thousand tonnes of copper in concentrate and 47.6
thousand ounces of gold in concentrate. Copper production was
broadly in line with Q1’22 and with 2022 guidance. Mill feed for
Q2’22 included approximately 453 thousand tonnes with 0.66% copper
and 0.28 g/t head grade of underground ore. 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
the remainder of 2022 as direct mill feed will continue to be
supplemented by low grade stockpiles.
As previously disclosed, the open-pit optimisation work to
improve near term value continues and is expected to be
incorporated into an updated mine plan in Q3’22.
During Q2’22, the underground project achieved a significant
milestone with the blasting of the first two drawbells in Panel 0
ahead of schedule. Drawbells continue to be completed ahead of
schedule and broadly aligned with the 2020 Oyu Tolgoi Technical
Report (2020 OTTR) with the third drawbell subsequently fired on
July 29. Sustainable production continues to trend earlier than
expected. It is anticipated that between 16 – 21 drawbells are
required to achieve sustainable production, subject to the natural
caving conditions encountered.
Underground production activities, including undercut blasting
and on-footprint construction work such as roadways and steel set
construction, continue to progress well. During Q2’22, a total of
26,098 metres of undercut drilling, 2,071 metres of drawbell
drilling and 8,061 square metres of undercut blasting were
completed. In addition, underground material hoisted from Shafts 1
and 2 was above expectations.
Shaft sinking rates for Shaft 3 and Shaft 4 improved during
Q2’22 due to the continuation of an optimisation programme
commenced in Q1’22. As of July 3, 2022, the Shaft 3 sinking level
was at 183 metres below ground level and Shaft 4 was at 288 metres
below ground level.
The table below provides the Company’s estimated key milestone
dates compared to the 2020 OTTR.
Milestone
2020 OTTR
Q1 2022 MD&A
Actual or Currently
Projected Dates(3)
Start Undercut blasting
July 2021
January 2022 (Actual)
January 2022 (Actual)
MHS 1 (including Crusher 1)
commissioning
Q4’21
February 2022 (Actual)
February 2022 (Actual)
First drawbell blasted (1)
May 2022
Q3’22
June 2022 (Actual)
Sustainable Production
(sustainable cave propagation)
February 2023
(~30 drawbells active(2))
H1’23
(~21 drawbells active(2))
H1’23
(~21 drawbells active(2))
Shaft 3 commissioned
H1’22
H1’24(3)
H1’24(3)
Shaft 4 commissioned
H1’22
H1’24(3)
H1’24(3)
First drawbell Panel 2
Q4’24
H1’26
H1’26(4)
First drawbell Panel 1
H2’26
H1’27
H1’27(4)
(1)
Despite an approximate 6-month
delay to Undercut commencement, first drawbell timing remained
broadly in line with the 2020TR.
(2)
Design refinements identified
that a minor modification to undercut sequence following additional
geotechnical assessment of cave initiation conditions, changed the
estimated number of drawbells to reach critical hydraulic radius,
which is the point at which sustainable production is anticipated
to commence. Critical hydraulic radius is an estimated factor,
based on the best available data but some variability in the exact
number of drawbells needed to reach critical hydraulic radius could
occur, with the potential for the requirement to be between 16 and
21 drawbells.
(3)
Shaft 3 and 4 progress continues
to be closely monitored against the 2022 schedule update.
(4)
The impact of the additional
shaft delays on the commencement of Panel 1 and Panel 2 is under
assessment and expected to be known during Q3’22.
At the end of June 2022, cumulative underground capital
development is 70,939 equivalent metres (eqm) and cumulative
Conveyor to Surface advancement is 16,088 eqm.
During Q2’22, the underground project completed the 2022 cost
and schedule reforecast (2022 Reforecast). The 2022 Reforecast
reconfirmed total development capital expenditures of $7.06 billion
for the underground project, incorporating known and future
incremental COVID-19 costs of $227 million, escalation of $72
million, associated taxes and minor impacts of changes in labour
laws. The COVID-19 impacts incorporated are based on a regime of
reduced controls from July 1, 2022. As at June 30, 2022,
underground development capital commitments stood at approximately
$5.8 billion with $5.3 billion of underground development capital
incurred, leaving underground development capital committed of
approximately $1.3 billion and $1.8 billion of underground
development capital incurred remaining16. The 2022 Reforecast
identified an approximate 15-month delay versus the Definitive
Estimate17 milestones in the commissioning of Shaft 3 and Shaft 4,
which are now expected in H1’24. The impact of the additional shaft
delays on the commencement of Panel 1 and Panel 2 is under
assessment and expected to be known during Q3’2218.
OT LLC spent $218.2 million on capital expenditures on the
underground project19 during Q2’22, including $85.9 million of
underground sustaining capital expenditures19. Total capital
expenditures on the underground project19 from January 1, 2016 to
June 30, 2022 was approximately $5.8 billion, including $0.5
billion of underground sustaining capital expenditures19. Capital
expenditures on the underground project19 includes VAT and
capitalised management services payments but excludes capitalised
interest. In addition, OT LLC had contractual obligations20 of $0.5
billion as at June 30, 2022. From the restart of project
development in 2016 through June 30, 2022, the Oyu Tolgoi
underground project has committed over $4.3 billion to Mongolian
vendors and contractors.
Hugo North Design Refinements
Design optimisation work for Lift 1 continues with the aim of
minimising risk and maximising productivity. During Q2’22, updated
designs for Panel 2 north were completed and these are expected to
be incorporated into an updated mine plan in Q3’22.
To support ongoing mining studies, additional data continues to
be collected from the surface and underground drilling programmes.
During Q2’22, drilling was focussed on the northern part of Panel
1, the southern part of Panel 2 and Lift 2. For H1’22,
approximately 2,000 metres has been drilled into Panel 1, 1,500
metres into Panel 2 and 3,600 metres into Lift 2, which is in line
with the 5-year drill plan. For the remainder of 2022, the drilling
programme is designed to target Lift 2 and future mining areas in
the Lift 1 horizon, which are currently excluded from the Mineral
Reserve.
FUNDING OF OT LLC BY TURQUOISE HILL
In accordance with the Amended and Restated Shareholders’
Agreement dated June 8, 2011 (ARSHA), Turquoise Hill has funded OT
LLC’s cash requirements beyond internally generated cash flows by a
combination of equity investment and shareholder debt.
For amounts funded by debt, OT LLC must repay such amounts,
including accrued interest, before it can pay common share
dividends. As at June 30, 2022, the aggregate outstanding balance
of shareholder loans extended by subsidiaries of the Company to OT
LLC was $8.6 billion, including accrued interest of $2.5 billion.
These loans bear interest at an effective annual rate of LIBOR plus
6.5%.
______________________________________
16 Underground development capital incurred and underground
development capital committed are supplementary financial measures.
Please refer to the Section titled “Non-GAAP and Other Financial
Measures” on page 21 of this press release for further information.
17 The confirmatory analysis of the underground project costs and
schedule contained in the 2020 statutory study required pursuant
to, and prepared by OT LLC in accordance with, Mongolian laws and
filed with the Mongolian Minerals Council in 2021. 18 The 2022
Reforecast assumes that there are no new COVID-19 related impacts
beyond the end of Q2’22. 19 Capital expenditures on the underground
project and underground sustaining capital expenditures are
supplementary financial measures. Please refer to the Section
titled “Non-GAAP and Other Financial Measures” on page 21 of this
press release for further information. 20 Contractual obligations
is a non-GAAP financial measure. Please refer to the Section titled
“Non-GAAP and Other Financial Measures” on page 21 of this press
release for further information.
In accordance with the ARSHA, a subsidiary of the Company had
previously funded the common share investments in OT LLC on behalf
of state-owned Erdenes. These funded amounts, also referred to as
carry account loans, earned interest at an effective annual rate of
LIBOR plus 6.5% and were expected to be repayable by Erdenes to a
subsidiary of the Company via a pledge over Erdenes’ share of OT
LLC common share dividends. Erdenes also had the right to reduce
the outstanding balance by making cash payments at any time. As
announced on January 24, 2022, the Company waived in full the
cumulative $2.4 billion in non-recourse carry account loans to
Erdenes. The loans comprised $1.4 billion of equity invested in OT
LLC by the Company on behalf of Erdenes plus $1.0 billion of
unrecognised interest as at January 25, 2022, the date that the
waiver was formally granted to and acknowledged by Erdenes.
On December 30, 2021, the Parliament of Mongolia passed
Resolution 103 to resolve the outstanding issues among the Company,
Rio Tinto and the Government of Mongolia in relation to the
implementation of Resolution 92 (see the section “Government
Relations - Negotiations with Government of Mongolia” of this press
release). Resolution 103 placed financing debt restrictions that
limit the Company’s ability to fund OT LLC with shareholder debt or
to carry common share investments in OT LLC on behalf of Erdenes
until sustainable production is achieved.
As at June 30, 2022, Turquoise Hill had $0.5 billion of
available liquidity in the form of cash and cash equivalents,
which, under current projections and together with the various
sources of funding available to the Company under an Amended and
Restated Heads of Agreement dated May 18, 2022 between the Company
and Rio Tinto (the Funding HoA), are expected to provide the
Company with sufficient liquidity and resources to meet its minimum
obligations for a period of at least 12 months from the balance
sheet date of June 30, 2022.
The Funding HoA amends, restates and supersedes the Amended and
Restated Heads of Agreement signed between the Company and Rio
Tinto dated January 24, 2022, which itself replaced the prior Heads
of Agreement entered into on April 9, 2021. The prior Heads of
Agreement replaced the non-binding Memorandum of Understanding that
Rio Tinto and Turquoise Hill entered into on September 9, 2020.
The key elements of the Funding HoA include:
- A commitment by the Company to conduct one or more equity
offerings for aggregate proceeds of at least US$650 million (the
Initial Equity Offering) by December 31, 2022;
- A commitment by Rio Tinto to provide additional short-term
bridge financing directly to the Company by way of one or more
secured advances of up to US$400 million (Early Advance) expected
to be made available to the Company subject to satisfaction or
waiver of certain conditions precedent, and which is to be repaid
out of the proceeds of the Initial Equity Offering;
- Given that Rio Tinto had not publicly withdrawn the Proposal
prior to June 30, 2022, the condition that the Company have
completed the Initial Equity Offering prior to drawing the
short-term secured advance of up to US$300 million (RT Advance)
provided for was automatically removed in the Funding HoA.
Previously, Rio Tinto had committed to provide the RT Advance
directly to the Company to be available during the debt funding
restriction period identified in Resolution 103 and to be
indirectly repaid out of the proceeds of the $750 million
Co-Lending Facility;
- Pursuing the rescheduling of principal repayments of existing
debt (Re-profiling) to potentially reduce the base case incremental
funding requirement by up to $1.7 billion;
- Seeking to raise up to $500 million of additional senior
supplemental debt (SSD); and
- A commitment by Rio Tinto to provide a co-lending facility
(Co-Lending Facility), incremental to the Re-profiling and the SSD,
of up to $750 million to be made available once sustainable
production has been achieved.
Further, the Funding HoA provides that, if necessary, Turquoise
Hill would be required to raise up to a total of $1.5 billion (less
the amount raised in the Initial Equity Offering) via equity in a
form of its choosing.
The requirement of Rio Tinto to advance funds under the
Co-Lending Facility is subject to a number of conditions precedent
set out in the Funding HoA, including, among others: that certain
undertakings provided by the Company in favour of the Oyu Tolgoi
project finance lenders be amended to cover the Co-Lending
Facility; that terms of the Oyu Tolgoi project finance agreements
with respect to a “Sponsor Senior Loan” not be amended in any
material respect; the absence of new material claims and
proceedings against Turquoise Hill or Rio Tinto that could
adversely impact the funding elements of the Funding HoA; the
absence of a material adverse change and of a “Suspensive Event” as
defined under the Oyu Tolgoi project finance agreements, and
operations at Oyu Tolgoi not having been suspended for certain
defined periods of time; and all relevant third party approvals and
consents having been obtained. The requirement of Rio Tinto to
advance funds under the RT Advance is also subject to a number of
conditions precedent set out in the Funding HoA substantially
similar to those applicable to the Co-Lending Facility. The
foregoing list of conditions does not purport to be exhaustive, and
investors should refer to a copy of the Funding HoA as filed on the
SEDAR and EDGAR profiles of the Company.
In light of the financing debt restrictions in Resolution 103,
until sustainable production is achieved, OT LLC's estimated
funding requirements are expected to be addressed by cash on hand
at OT LLC, the Re-profiling and an OT Board approved pre-paid
copper concentrate sale arrangement between Turquoise Hill and OT
LLC.
At June 30, 2022, the Company estimates its base case
incremental funding requirement to be $3.6 billion, an increase of
$0.2 billion from its March 31, 2022 estimate of $3.4 billion.
Significant contributors to this increase include updated commodity
pricing and other market-based assumptions, including LIBOR and
inflation. Given this increase, and assuming successful completion
of the other elements of the Funding HoA, the Company currently
estimates it could need to raise incremental equity proceeds of
approximately $0.4 billion, which would be in addition to the
Initial Equity Offering of $650 million required by December 31,
2022 , to fully address its estimated incremental funding
requirement within the timing framework of the Funding HoA, which
sets a target date for the Re-profiling of no later than December
31, 2022 and an outside date for the SSD and Co-Lending Facility to
the earlier of the three months following the lifting of the debt
restrictions under Resolution 103 and December 31, 2023. Any
changes in key assumptions may impact the incremental funding
requirement and, as a result, the actual quantum of incremental
equity required may be greater or less than this $0.4 billion
estimate. The issuance of any additional equity beyond the Initial
Equity Offering, as well as the estimated timing of its issuance
would take into account the expected timing and completion of all
other funding elements of the Funding HoA, which are expected to
provide the Company with sufficient liquidity and resources to meet
its minimum obligations for at least twelve months from the balance
sheet date of June 30, 2022. In the event there is a residual
funding requirement after implementing the elements of the Funding
HoA, the Company would consider all funding options available to it
at that time.
Successful implementation of the Funding HoA is subject to
achieving alignment with relevant stakeholders in addition to Rio
Tinto (including existing lenders, any potential new lenders and
the Government of Mongolia), market conditions and other factors.
Non-fulfilment of any of the conditions precedent identified in the
Funding HoA would also adversely affect the ability of the Company
and OT LLC to obtain additional funding or re-profile existing debt
as contemplated within the timeframe set out in the Funding HoA.
The Company is in discussions with Rio Tinto and other relevant
stakeholders regarding implementation of the Funding HoA as well as
its residual funding requirements.
The Funding HoA and the timing of the execution of its various
components could also be affected by Rio Tinto’s Proposal to
acquire the approximately 49% of the outstanding shares of
Turquoise Hill held by the Company's minority shareholders for cash
consideration of C$34.00 per share. Rio Tinto has stated that its
Proposal is conditional on, among other things, Turquoise Hill not
raising additional equity capital, including through a rights
offering, bought deal or other share placement, pending completion
of the proposed transaction.
Given the uncertainties outlined above, the Company is currently
assessing alternatives in the event that the timeline as outlined
in the Funding HoA is not achieved or in the event the Rio Tinto
Proposal is not ultimately consummated or the parties do not sign a
definitive transaction agreement.
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:
- Successful implementation of the Funding HoA;
- Changes in commodity prices and other market-based assumptions
(including LIBOR and inflation);
- Surface operations performance as well as the successful
implementation (or otherwise) of ongoing optimisation efforts;
- Any further changes to underground mine cost and schedule in
addition to those identified in the 2022 Reforecast;
- 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;
- Further and/or unanticipated impacts on operations and
underground development related to global supply chain issues;
- Rio Tinto’s Proposal to acquire the outstanding shares of the
Company it does not already own; and
- The outcomes of Turquoise Hill’s and Rio Tinto’s ongoing
engagement with various Mongolian governmental bodies as the
Mongolian Government implements Resolution 103, as discussed in the
“Renewed Partnership with Government of Mongolia” section of this
press release below.
Turquoise Hill continues to monitor its liquidity outlook and
will provide updates as and when circumstances require.
As noted above, Turquoise Hill currently estimates its base case
incremental funding requirement to be $3.6 billion (March 31, 2022:
$3.4 billion), taking into consideration:
- Metal price assumptions for copper and gold over the
incremental funding period, as delineated in the table below;
- The 2022 Reforecast;
- The current forecast of sustainable production for Panel
0;
- The current forecast of delays to Shafts 3 and 4 (for further
information, see the “Surface Operations and Hugo North
Underground” section of this press release above); and
- Any updates or changes to the mine plan of either the open pit
or underground mines (for further information, see the “Surface
Operations and Hugo North Underground” section of this press
release above).
The specific metal price assumptions used in determining the
base case incremental funding gap are as follows:
Year
Copper ($ / pound)
Gold ($ / troy ounce)
2022
3.64
1,857
2023
4.06
1,789
2024
3.96
1,768
Within the base case funding requirement are $1.8 billion of
scheduled principal repayments, which the Company is attempting to
re-profile.
Turquoise Hill currently estimates its base case incremental
funding will continue to be influenced, either positively or
negatively, by various factors over the incremental funding period,
many of which are outside the Company’s control, including:
- Any potential further revisions to the amount of underground
development capital required or revisions to schedule;
- The timing of sustainable production and ramp-up profile and
their impact on cash flows including any further COVID-19-related
delays (for further information, see the “Surface Operations and
Hugo North Underground” section of this press release above);
- The outcomes of Turquoise Hill’s and Rio Tinto’s ongoing
engagement with various Mongolian governmental bodies to resolve
remaining outstanding items relating to the Government of
Mongolia’s implementation of Resolution 103 as discussed in the
“Renewed Partnership with Government of Mongolia” section of this
press release below;
- 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;
and
- Changes in expected commodity prices, LIBOR, inflation 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).
More generally, any changes in the above factors may impact the
incremental funding requirement and, as a result, the actual
quantum of incremental funding required may be greater or less than
the $3.6 billion base case estimate, and such variance may be
significant. See the sections “Risks and Uncertainties” and
“Forward-Looking Statements and Forward-Looking Information” in the
Company's Q2 2022 MD&A.
PRIVATISATION PROPOSAL RECEIVED FROM RIO TINTO
On March 13, 2022, the Company’s board of directors (the Board)
received a non-binding proposal from Rio Tinto, the Company's
majority shareholder, to acquire the approximately 49% of the
outstanding common shares of Turquoise Hill held by the Company's
minority shareholders (approximately 99 million common shares) for
cash consideration of C$34.00 per share. Rio Tinto has stated that
the Proposal is conditional on, among other things, Turquoise Hill
not raising additional equity capital, including through a rights
offering, bought deal or other share placement, pending completion
of the proposed transaction. The Proposal does not amend the terms
of the amended and restated Heads of Agreement entered into by
Turquoise Hill and Rio Tinto on January 24, 2022 which establishes
a binding funding plan for the completion of the Oyu Tolgoi
underground mine.
In response to the Proposal, the Board formed a Special
Committee of independent directors comprised of Maryse
Saint-Laurent (Chair), George Burns, Peter Gillin, Russel Robertson
and Caroline Donally. The Special Committee has retained BMO
Nesbitt Burns Inc. as its financial advisor and Blake, Cassels
& Graydon LLP as its legal counsel. In addition, the Special
Committee has retained TD Securities as an independent valuator to
prepare a formal valuation of the common shares of the Company in
accordance with Multilateral Instrument 61-101– Protection of
Minority Shareholders in Special Transactions.
In addition to responsibility for reviewing and considering the
Proposal, the Special Committee's mandate includes responsibility
for considering the Company's liquidity needs and financing options
pending the Company's consideration of the Proposal.
In light of Rio Tinto’s condition in its Proposal that its offer
is subject to Turquoise Hill not raising additional equity capital,
Rio Tinto invited Turquoise Hill to propose terms for an interim
funding facility that would satisfy Turquoise Hill’s funding
requirements pending the Company’s consideration of the Proposal.
Following careful consideration by the Special Committee of the
financing options available to the Company, including a potential
equity offering, on the recommendation of the Special Committee the
Company entered into the Funding HoA on May 18, 2022. See the
section of this press release titled “Funding of OT LLC by
Turquoise Hill”.
In furtherance of its mandate, the Special Committee will
continue to consider the Company’s liquidity needs and financing
options, including potential equity offerings. The Funding HoA does
not prohibit the Company from raising additional capital by way of
an equity offering, including pending the Company’s consideration
of the Proposal. However, Rio Tinto has advised the Special
Committee that, should the Company proceed with an equity offering,
Rio Tinto intends to withdraw the Proposal. Rio Tinto has also
advised that if Turquoise Hill proceeds with an equity offering,
Rio Tinto intends to exercise its pre-emptive rights to maintain
its pro rata interest.
The Proposal is non-binding on Turquoise Hill. There can be no
assurance that a transaction will result from the Proposal, and if
a transaction does result, whether such transaction will be
completed or on what terms. Turquoise Hill does not intend to
comment on or disclose further developments regarding the Special
Committee's evaluation of the Proposal unless and until it deems
further disclosure is appropriate or required.
GOVERNMENT RELATIONS
Turquoise Hill’s ownership of the Oyu Tolgoi mine is held
through a 66% interest in OT LLC. The remaining 34% interest in OT
LLC is held by Erdenes. Turquoise Hill was obliged to fund Erdenes’
share of Oyu Tolgoi’s funding requirements until September 2016,
and Erdenes’ share of the capital costs and operating costs of the
underground mine until September 2021 under the ARSHA and the Oyu
Tolgoi Underground Mine Development and Financing Plan (UDP)
entered into on May 18, 2015 between, among others, the Company,
the Government of Mongolia, Erdenes and OT LLC.
Underground construction recommenced in May 2016 when OT LLC
received the final requirement for the restart of underground
development: formal notice to proceed approval by the Board, Rio
Tinto (as project manager) and OT LLC. Approval followed the
signing of the 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 the 2009 Investment Agreement among Turquoise Hill, the
Government of Mongolia, OT LLC and an affiliate of Rio Tinto
(Investment Agreement or IA). 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.
Renewed Partnership with Government of Mongolia
On January 24, 2022, the Company announced that it had
successfully reached a mutual understanding for a renewed
partnership with the Government of Mongolia and that the OT LLC
Board had unanimously approved the commencement of the undercut,
namely the commencement of blasting on January 25, 2022 that
started the Oyu Tolgoi underground mine production and the full
Definitive Estimate underground development budget.
The decision to approve the undercut represented a reset of the
relationship with the Government of Mongolia with a view to
delivering economic benefits to all stakeholders including the
people of Mongolia and followed resolution of many of the
conditions required in Resolution 103 including:
- Turquoise Hill agreeing to waive in full the US$2.4 billion
carry account loan of Erdenes. See the section “Funding of OT LLC
by Turquoise Hill” in this press release;
- Improved cooperation with Erdenes in monitoring the Oyu Tolgoi
underground development and enhancing environment, social and
governance (ESG) matters;
- The approval of the Electricity Supply Agreement entered into
by OT LLC (the ESA); and
- The establishment of a funding structure at OT LLC that does
not incur additional loan financing prior to sustainable production
for Panel 0 (expected in the first half of 2023).
The Company continues to work with the Government of Mongolia
and Rio Tinto to finalise the remaining outstanding measures of
Resolution 103, namely the formal termination of the UDP and
resolution of the outstanding OT LLC tax arbitration.
Oyu Tolgoi Mine Power Supply
OT 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 (NPTG), the relevant
Mongolian power authority, and Inner Mongolia Power International
Cooperation Co., Ltd (IMPIC), the subsidiary of Inner Mongolia’s
power grid company expiring in July 2023.
OT LLC is obliged under the Investment Agreement to secure a
long-term domestic source of power for the Oyu Tolgoi mine. The
Power Source Framework Agreement (PSFA) entered into between OT LLC
and the Government of Mongolia in December 2018 (and as amended in
June 2020) provides a binding framework and pathway for long-term
power supply to the Oyu Tolgoi mine.
OT LLC entered into the ESA on January 26, 2022, with, amongst
others, Southern Region Electricity Distribution Network to provide
OT LLC with power from the Mongolian grid. Power will be delivered
under the ESA once certain technical conditions are satisfied, and
the Mongolian grid becomes capable of providing electricity to meet
OT LLC’s total power requirements on a long-term basis. The ESA has
a term of 20 years from the date on which supply commences and
provides a pathway to meeting OT LLC’s long-term power requirements
from domestic power sources.
While the Mongolian grid undergoes an upgrade to be in a
position to provide stable and reliable power to the Oyu Tolgoi
mine, OT LLC will continue to import its power from Inner Mongolia,
China. An agreement in-principle has been reached between NPTG and
IMPIC for a three-year fixed term extension to 2026, followed by
two, two-year extensions to up to 2030, if required, with NPTG
having an early termination right after July 2028 by giving at
least six months prior notice on or after January 4, 2028. The ESA
has a term of 20 years from the date on which the current power
import agreements terminate and domestic supply commences which
provides a pathway to meeting OT LLC’s long-term power requirement
from domestic sources.
The outstanding commercial terms are in the process of being
finalised by a dedicated working group established by Ministry of
Energy which includes representatives from OT LLC, NPTG and
Ministry of Energy.
Oyu Tolgoi Tax Assessments
On January 16, 2018, Turquoise Hill announced that OT 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 OT LLC
between 2013 and 2015 (the 2013 to 2015 Tax Assessment). In January
2018, OT 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 OT 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 and
Chapter 8 of the UDP. 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 certain matters within the 2013
to 2015 Tax Assessment 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 OT 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 OT 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 also proposed a $1.4 billion adjustment to the balance of
OT LLC’s carried forward tax losses. The adjustments are to
disallow or defer certain tax deductions claimed in the 2016 to
2018 years.
On January 11, 2021, Turquoise Hill announced that OT LLC had
completed its evaluation of the 2016 to 2018 Tax Assessment claim
and confirmed that OT LLC had given notice of its intention to
apply to the UNCITRAL tribunal to amend its statement of claim to
include certain matters raised in the 2016 to 2018 Tax Assessment.
OT LLC’s application to include these matters in the pending
arbitration for the 2013 to 2015 Tax Assessment was accepted. In
addition to those matters included within the statement of claim,
there are certain limited tax matters included in the 2013 to 2015
and 2016 to 2018 Tax Assessments, which were addressed in local
Mongolian tax courts. As there was less certainty with respect to
the resolution of these matters, the Company accrued for certain
amounts and has also adjusted its loss carry forwards.
In February 2021, OT LLC received notices of payment totalling
approximately $228 million (which were converted from Mongolian
Tugrik to U.S. dollars at the exchange rate on those dates)
relating to amounts disputed under the 2016 to 2018 Tax Assessment,
and in March 2021, OT LLC received notices of payment totalling
$126 million (which were converted from Mongolian Tugrik to U.S.
dollars at the exchange rate on those dates) relating to amounts
disputed under the 2013 to 2015 Tax Assessment. Under the Mongolian
General Tax Law, the amounts were due and paid by OT LLC within 10
business days from the dates of the notices of payment. Under the
same legislation, OT LLC would be entitled to recover the amounts,
including via offset against future tax liabilities, in the event
of a favourable decision from the relevant dispute resolution
authorities.
On May 3, 2021, the Company announced that the Government of
Mongolia filed its statement of defence together with a
counterclaim (GoM Defence and Counterclaim) in relation to the tax
arbitration proceeding. Turquoise Hill was not a party to the
arbitration, but the GoM Defence and Counterclaim requested that
the arbitral tribunal add both the Company and a member of the Rio
Tinto Group as parties to the tax arbitration. The principal thrust
of the GoM Defence and Counterclaim is to seek the rejection of OT
LLC’s tax claims in their entirety. As part of the counterclaim,
the Government of Mongolia also makes assertions surrounding
previously reported allegations of historical improper payments
made to Government of Mongolia officials and seeks unquantified
damages. Also, in the event OT LLC’s tax claims are not dismissed
in their entirety, the Government of Mongolia is seeking in the
counterclaim an alternative declaration that the Investment
Agreement is void.
Turquoise Hill denied the allegations relating to the Company in
the GoM Defence and Counterclaim and filed submissions to the
arbitral tribunal to oppose the Government of Mongolia’s request
that it be added to the tax arbitration. As announced by the
Company on January 17, 2022, the arbitral tribunal issued a ruling
deciding that Turquoise Hill not be added as a party to the
arbitration. As described above, Resolution 103 authorised certain
measures to be completed by the Government of Mongolia in order for
Resolution 92 to be considered formally implemented.
Regarding previously disclosed tax assessments of OT LLC, on
February 11, 2022, at the request of the parties to the tax
arbitration, the arbitral tribunal issued an order suspending the
tax arbitration for six months or until 21 days from when the
tribunal receives notice from OT LLC or the Government of Mongolia
to terminate the suspension. Initial discussions have been held
between the parties but there have been no material developments in
relation to the negotiations. The suspension order is due to expire
on August 11, 2022. The Company remains committed to continue to
work with the Government of Mongolia and Rio Tinto to finalise the
outstanding tax matters whether through arbitration or
negotiation.
The Company remains of the opinion that the tax positions
adopted by OT LLC in its tax filings were correct and that OT LLC
has paid all taxes and charges required under the Investment
Agreement, the ARSHA, the UDP and Mongolian law.
Anti-Corruption Authority Information requests
On March 1, 2022, OT LLC notified the Company that it received a
letter from the Mongolian Anti-Corruption Authority requesting
certain documents and information relating to an investigation
regarding the underground construction work. The Company has no
further details at this time and will update the market as
appropriate.
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 current and former 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, a first amended
complaint was filed on March 16, 2021, and a second amended
complaint was filed on September 16, 2021. The defendants moved to
dismiss the operative amended complaint on October 19, 2021, under
Rule 12(b)(6) of the Federal Rules of Civil Procedure and the
Private Securities Litigation Reform Act of 1995, for failure to
state a claim. As of December 17, 2021, the motion was fully
briefed and pending before the Court. 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. An amended complaint
was filed on July 27, 2021 which did not substantially alter the
claim. 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 Securities Act (Quebec). On January 7, 2022 the
plaintiff re-amended its claim to include allegations relating to
developments arising since the previous amended complaint was
filed. No hearing has been scheduled yet. 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.
NOTICE OF ARBITRATION
In May 2022, the Company received a notice of arbitration from
Entrée Resources Ltd. in connection with the earn-in-agreement with
Entrée.
The Company disputes the characterisations made by Entrée in its
news release dated May 26, 2022 announcing the initiation of
arbitration proceedings. Turquoise Hill has been in discussions
with Entrée in order to resolve certain commercial disagreements in
connection with the Earn-in Agreement. The Company reserves all of
its rights and will vigorously defend itself.
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 MD&A for the
year ended December 31, 2021.
CORPORATE ACTIVITIES
Exploration
Turquoise Hill, through its wholly owned subsidiaries, Asia Gold
Mongolia LLC, Heruga Exploration LLC and SGLS LLC, operates an
exploration programme in Mongolia on licences that are not part of
Oyu Tolgoi. Turquoise Hill owns three exploration licences: Bag and
Od-2 in the Umnugobi province and Khatavch in the Dornogovi
province.
During Q2’22, the exploration team completed planned 2022 field
activities at Khatavch. The work included mapping, sampling and a
ground magnetic survey. The mapping and sampling programme was
undertaken to further enhance the geological map created in 2021
and to aid in the definition of lithological contacts. The magnetic
survey included 398.4-line kilometres on 50 metres spaced
north-south lines and 41.2-line kilometres on 7 east-west tie
lines, for a total of 439.6-line kilometres. The results from the
magnetic survey are currently being interpreted and will be shared
in H2’22. As part of the field work at Khatavch, the exploration
team conducted stakeholder meetings with Mandakh soum officials,
local herders, and management personnel from the neighbouring coal
mine. At completion of the field programme, the camp site was
rehabilitated, and an environmental inspection was completed by the
Alkhanteeg Bag Leader.
During Q2’22, the exploration team conducted administrative
activities and stakeholder consultations in preparation for field
activities at Bag. During the field season, the team is planning to
complete two diamond drill holes at Bag for a total of
approximately 1,200 metres. The contract for drilling and core
cutting services has been awarded and mobilisation occurred in late
July.
The Turquoise Hill exploration team continues to monitor any
opportunities to grow their portfolio through acquiring new land.
The next land release by the Mineral Resources and Petroleum
Authority of Mongolia is not expected until Q1’23.
Board Appointment
On May 11, 2022, Turquoise Hill announced the appointment of
Caroline Donally to the Company’s Board of Directors as an
independent director.
NON-GAAP AND OTHER FINANCIAL MEASURES
The Company presents and refers to the following non-GAAP
financial measures, non-GAAP ratios and supplementary financial
measures, which are not defined in IFRS. A description and, when
required, a calculation of each measure is given below. Such
measures 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.
Non-GAAP financial measures
Non-GAAP financial measure is defined in National Instrument
52-112 – Non-GAAP and Other Financial Measures Disclosure (NI
52-112) as a financial measure disclosed that (a) depicts the
historical or expected future financial performance, financial
position or cash flow of an entity, (b) with respect to its
composition, excludes an amount that is included in, or includes an
amount that is excluded from, the composition of the most directly
comparable financial measure disclosed in the primary financial
statements of the entity, (c) is not disclosed in the financial
statements of the entity, and (d) is not a ratio, fraction,
percentage or similar representation.
Total operating cash costs
The measure of total 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.
Total operating cash costs is used internally by management to
assess the performance of the business in effectively allocating
and managing costs and is provided in order to provide investors
and other stakeholders with additional information about the
underlying cash costs of OT LLC. Total operating cash costs are
relevant to the understanding of the Company’s operating
profitability and ability to generate cash flows. The most
comparable financial measure that is disclosed in the primary
financial statements for total operating costs is “Cost of sales”.
A reconciliation of total operating cash costs for its current and
comparative period is presented under “Non-GAAP Ratios” herein
below.
Consolidated 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 consolidated working capital
excludes: non-trade receivables and payables; financing items; cash
and cash equivalents; deferred revenue and non-current inventory.
Management and investors consider movements in consolidated working
capital to understand the Company’s cash flow generated from
operating activities before interest and tax.
A reconciliation of consolidated working capital to the
financial statements and notes is provided below.
Consolidated working capital
June 30,
December 31,
(Stated in $000's of dollars)
2022
2021
Inventories (current)
293,298
290,017
Trade and other receivables
12,853
16,119
Trade and other payables: - trade payables and accrued liabilities
(336,951
)
(320,791
)
- payable to related parties
(118,061
)
(54,153
)
(148,861
)
(68,808
)
Contractual obligations
The following section of this press release discloses
contractual obligations in relation to the Company’s project
finance, 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 Q2 2022 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 Q2 2022 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 June 30, 2022
to the relevant line items from among the current assets and
liabilities in the consolidated 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)
4,240,316
528,488
440,769
129,001
24,633
389,889
Cancellable obligations (net of exit costs)
-
(477,940
)
-
(65,017
)
-
-
Accrued capital expenditure
-
(26,362
)
26,362
-
-
-
Discounting and other adjustments
(116,901
)
-
-
-
(4,955
)
(218,485
)
Financial statement amount
4,123,415
24,186
467,131
63,984
19,678
171,404
Contractual obligations is used to present contractual and other
obligations that are both cancellable or non-cancellable.
Non-GAAP ratios
A non-GAAP ratio is defined by NI 52-112 as a financial measure
disclosed that (a) is in the form of a ratio, fraction, percentage
or similar representation, (b) has a non-GAAP financial measure as
one or more of its components, and (c) is not disclosed in the
financial statements. The non-GAAP financial measures used to
calculate the non-GAAP ratios below are C1 cash costs, all-in
sustaining costs, mining costs and milling costs.
C1 cash costs per pound of copper
produced
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 OT 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. The most
comparable financial measure that is disclosed in the primary
financial statements for total operating costs is “Cost of
sales”.
All-in sustaining costs per pound of
copper produced
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 expenditures 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 OT 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 AISC is provided below.
(Three Months Ended)
(Six Months Ended)
C1 costs (Stated in $000's of
dollars)
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
(Restated)(1)
(Restated)(1)
Cost of sales
219,416
85,511
394,427
241,155
Cost of sales: $/lb of copper sold
2.82
1.98
2.74
1.87
Depreciation and depletion
(44,582)
(21,223)
(84,067)
(73,417)
Change in inventory
(10,384)
72,576
11,548
102,873
Other operating expenses
58,407
73,276
123,413
129,764
Less:
- Inventory (write-down) reversal
115
(1,522)
(189)
3,604
- Depreciation
(498)
(593)
(1,042)
(1,195)
Management services payment to Turquoise Hill
7,159
5,400
14,412
11,878
Total operating cash costs
229,633
213,425
458,501
414,662
Total operating cash costs: $/lb of copper produced
3.40
2.63
3.41
2.29
Adjustments to total operating cash costs(2)
(5,485)
(11,302)
(11,179)
(11,510)
Less: Gold and silver revenues
(135,628)
(132,789)
(247,834)
(325,668)
C1 costs ($'000)
88,520
69,334
199,488
77,484
C1 costs: $/lb of copper produced
1.31
0.85
1.49
0.43
All-in sustaining costs (Stated in $000's
of dollars)
Corporate administration
13,376
8,525
28,996
21,568
Asset retirement expense
3,423
1,388
5,855
2,983
Royalty expenses
28,415
22,462
53,352
45,202
Ore stockpile and stores write-down (reversal)
(115)
1,522
189
(3,604)
Other expenses
1,025
552
2,199
806
Sustaining cash capital including deferred stripping
42,738
21,804
68,833
30,100
All-in sustaining costs ($'000)
177,382
125,587
358,912
174,539
All-in sustaining costs: $/lb of copper produced
2.63
1.55
2.67
0.96
(1)
Prior year comparatives have been restated
for adoption of the IAS16 amendment to Property, Plant and
Equipment: Proceeds before intended Use. Please refer to the
Section titled “Recent Accounting Pronouncements” on page 24 of the
Company’s Q2 2022 MD&A for further information.
(2)
Adjustments to total 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 cash cost.
Cost of sales is the most comparable measure for mining and
milling costs. Mining and milling costs represent total operating
cash costs of Oyu Tolgoi’s open-pit mining and concentrator
operations.
Mining, milling and G&A costs per tonne ratios are used
internally by management and investors to assess the performance of
the business by providing information on cost efficiency across the
important components of Oyu Tolgoi’s operations - its open-pit
mine, concentrator and support functions.
Mining costs per tonne of material
mined
Mining costs per tonne of material mined for the three and six
months ended June 30, 2022 are calculated by reference to total
mining costs, respectively, of $61.9 million and $116.8 million
(Q2’21: $42.9 million and $87.3 million) and total material mined
of 25.6 million and 49.9 million tonnes (Q2’21: 15.8 million and
38.4 million tonnes).
Milling costs per tonne of ore
treated
Milling costs per tonne of ore treated for the three and six
months ended June 30, 2022 are calculated by reference to total
milling costs, respectively, of $63.7 million and $131.7 million
(Q2’21: $66.7 million and 128.0 million) and total ore treated of
9.7 million and 19.3 million tonnes (Q2’21: 9.4 million and 19.2
million tonnes).
Supplementary financial measures
Supplementary financial measures are defined under NI 52-112 as
financial measures (a) which are neither non-GAAP financial
measures nor non-GAAP ratios, (b) that are not presented in the
financial statements and (c) that are, or are intended to be,
disclosed periodically to depict the historical or expected future
financial performance, financial position or cash flow. The below
are supplementary financial measures that the Company uses to
depict its financial performance, financial position or cash
flows.
Cost of sales per pound of copper
sold
Cost of sales is reported in the consolidated income statement.
Cost of sales per pound of copper sold supports management’s
objective of efficient cost allocation and is used by management
and investors to understand operating profitability.
Capital expenditures
These measures are derived from and comprise sustaining and
development expenditures on property, plant and equipment in the
cash flow statement.
i.
Capital
expenditures on surface operations
Capital expenditures on surface operations comprise investment
in the above ground assets and infrastructure that now support both
operation of the open pit and processing of underground material.
This includes the expenditures related to the open pit, including
deferred stripping, the concentrator and tailings storage.
ii.
Capital
expenditures on the underground project
Capital expenditures on the underground project comprise
underground sustaining capital expenditures and underground
development capital expenditures.
a.
Underground
sustaining capital expenditures
Underground sustaining capital expenditures represent cash spent
on assets lasting for more than one year that support lateral
development of the underground system, including drawpoint
construction. This measure is used to support management's
objective of effective and efficient capital allocation as the
Company needs to invest in sustaining capital assets in order to
optimise productive capacity, including during the period from
undercut commencement in January 2022 through to sustainable
production, currently anticipated in H1’2023, and into the
future.
b.
Underground
development capital expenditures
Underground development capital expenditures reflect spending
required to complete the underground project, including on the
underground materials handling and ventilation infrastructure. It
includes construction of the shafts, primary crushers, material
handling systems and the surface to conveyor system. This measure
is used to support management's objective of delivering growth
through completion of development on the underground project.
iii.
Underground
development capital incurred
Underground development capital incurred reflects the value of
work completed, usually equal to amounts invoiced or accrued, where
goods or services have been delivered but the invoice has not been
received or processed. Amounts incurred, on being invoiced and paid
will become underground development capital expenditures.
iv.
Underground
development capital committed
Underground development capital committed reflects the value of
the work awarded to a vendor or contractor, including the work of
the owners teams required to support awarded contracts. Amounts
committed, once the scope of the contract packages have been
delivered will become underground development capital incurred.
Underground development capital incurred and underground
development capital committed provide information on the delivery
of the project to date both in terms of commitments made with
vendors and scope delivered. These measures are useful since they
illustrate how much of the project remains to be delivered, which
is increasingly important to management as we approach completion
of the project.
These measures are used to support management's objective of
effective and efficient capital allocation as the Company needs to
invest in sustaining existing assets across our operations in order
to maintain and improve productive capacity, and to deliver growth
through completion of development on the underground project.
G&A costs per tonne of ore
treated
G&A costs per tonne of ore treated for the three and six
months ended June 30, 2022 are calculated by reference to total
general & administrative costs. General & administrative
costs are equivalent to Oyu Tolgoi administrative expenses and
totalled, respectively, $26.6 million and $62.2 million (Q2’21:
$46.8 million and $80.9 million). Total ore treated for those
periods were 9.7 million and 19.3 million tonnes (Q2’21: 9.4
million and 19.2 million tonnes). G&A is used to promote cost
effectiveness through measurement of the overhead required to
support the business.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE
CONTROLS AND PROCEDURES
There were no changes in the Company’s internal control over
financial reporting (as such term is defined in Rule 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the three
months ended June 30, 2022 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed by
the Company under applicable securities legislation is gathered and
reported to senior management, including the Company’s CEO and CFO,
on a timely basis so that appropriate decisions can be made
regarding public disclosures. There were no changes in the
Company’s disclosure controls and procedures during the three
months ended June 30, 2022.
QUALIFIED PERSON
Disclosure of information of a scientific or technical nature in
the Company’s Q2 2022 MD&A in respect of the Oyu Tolgoi mine
was approved by Jo-Anne Dudley (FAusIMM(CP)), Chief Operating
Officer of the Company. Jo-Anne Dudley is a “qualified person”
within the meaning of National Instrument 43-101 – Standards of
Disclosure for Mineral Projects (NI 43-101).
SELECTED QUARTERLY DATA
The Company’s interim financial statements are reported under
IFRS applicable to interim financial statements, including IAS 34
Interim Financial Reporting.
($ in millions, except per share information) Quarter Ended
Jun-30
Mar-31
Dec-31
Sep-30
2022
2022
2021
2021
Restated (b)
Restated (b)
Revenue
402.0
402.7
522.3
662.1
Income for the period
93.3
394.3
221.6
54.4
Income attributable to owners of Turquoise Hill Resources Ltd
82.6
275.2
165.8
55.7
Basic and diluted earnings per share attributable to owners of
Turquoise Hill Resources Ltd (a)
0.41
1.37
0.82
0.28
Quarter Ended
Jun-30 Mar-31 Dec-31 Sep-30
2021
2021
2020
2020
Restated (b) Restated (b) Revenue
329.8
526.5
405.1
283.0
Income for the period
127.8
332.1
241.6
177.8
Income attributable to owners of Turquoise Hill Resources
Ltd
102.9
236.7
159.9
139.2
Basic and diluted earnings per share attributable to owners
of Turquoise Hill Resources Ltd (a)
0.51
1.18
0.79
0.69
(a)
Basic and diluted earnings per
share has been recalculated pursuant to the share consolidation
completed on October 23, 2020 for all periods presented.
(b)
Comparatives have been restated
for adoption of the IAS16 amendment to Property, Plant and
Equipment: Proceeds before intended Use. Please refer to the
Section titled “Recent Accounting Pronouncements” on page 24 of the
Company’s Q2 2022 MD&A for further information.
Consolidated Statements of Income (Stated in thousands of
U.S. dollars, except share and per share amounts)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
Note
2022
2021
2022
2021
Restated -
Note 2 (c)(i)
Restated -
Note 2 (c)(i)
Revenue
4
$
402,037
$
329,800
$
804,688
$
856,346
Cost of sales
5
(219,416
)
(85,511
)
(394,427
)
(241,155
)
Gross margin
182,621
244,289
410,261
615,191
Operating expenses
6
(58,407
)
(73,276
)
(123,413
)
(129,764
)
Corporate administration expenses
(13,376
)
(8,525
)
(28,996
)
(21,568
)
Other expenses
19
(24,445
)
(14,610
)
(22,769
)
(27,787
)
Income before finance items and taxes
86,393
147,878
235,083
436,072
Finance items
Finance income
7
1,165
607
1,887
1,897
Finance costs
7
(4,017
)
(1,596
)
(6,748
)
(3,231
)
(2,852
)
(989
)
(4,861
)
(1,334
)
Income from operations before taxes
83,541
146,889
230,222
434,738
Income and other taxes
13
9,801
(19,047
)
257,420
25,253
Income for the period
$
93,342
$
127,842
$
487,642
$
459,991
Attributable to owners of Turquoise Hill Resources Ltd.
$
82,646
$
102,859
$
357,864
$
339,574
Attributable to owner of non-controlling interest
10,696
24,983
129,778
120,417
Income for the period
$
93,342
$
127,842
$
487,642
$
459,991
Basic and diluted earnings per share attributable
to owners of Turquoise Hill Resources Ltd.
$
0.41
$
0.51
$
1.78
$
1.69
Basic weighted average number of shares outstanding (000's)
201,231
201,231
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.
Consolidated Statements of Comprehensive Income (Stated
in thousands of U.S. dollars) (Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Restated -
Note 2 (c)(i)
Restated -
Note 2 (c)(i)
Income for the period
$
93,342
127,842
$
487,642
459,991
Other comprehensive income: Items that will not be
reclassified to income: Changes in the fair value of marketable
securities at FVOCI
(3,595
)
2,631
162
4,887
Other comprehensive income for the period (a)
$
(3,595
)
$
2,631
$
162
$
4,887
Total comprehensive income for the period
$
89,747
$
130,473
$
487,804
$
464,878
Attributable to owners of Turquoise Hill
79,051
105,490
358,026
344,461
Attributable to owner of non-controlling interest
10,696
24,983
129,778
120,417
Total comprehensive income for the period
$
89,747
$
130,473
$
487,804
$
464,878
(a)
No tax charges and credits arose
on items recognized as other comprehensive income or loss in 2022
(2021: nil).
The notes to the Company’s financial statements, which are
available on the Company’s website, are part of its consolidated
financial statements.
Consolidated Statements of Cash Flows (Stated in
thousands of U.S. dollars) (Unaudited) Three Months
Ended Six Months Ended June 30, June 30,
Note
2022
2021
2022
2021
Restated -
Note 2 (c)(i)
Restated -
Note 2 (c)(i)
Cash generated from operating activities before interest and
tax
16
$
315,376
$
304,767
$
438,010
$
553,003
Interest received
920
678
1,469
1,853
Interest paid
(84,771
)
(84,511
)
(85,580
)
(111,022
)
Income and other taxes paid
18
(2,461
)
(2,525
)
(2,477
)
(358,648
)
Net cash generated from operating activities
$
229,064
$
218,409
$
351,422
$
85,186
Cash flows from investing activities Expenditures on
property, plant and equipment
$
(260,941
)
$
(227,356
)
$
(490,807
)
$
(477,643
)
Purchase of commodity put options
-
-
-
(29,907
)
Proceeds from pre-production revenues
-
-
-
-
Other investing cash flows
(1
)
62
(1
)
62
Cash used in investing activities
$
(260,942
)
$
(227,294
)
$
(490,808
)
$
(507,488
)
Cash flows from financing activities Repayment of
project finance facility
$
(41,826
)
$
(21,744
)
$
(41,826
)
$
(21,744
)
Proceeds from bank overdraft facility
-
-
-
8,500
Repayment of bank overdraft facility
-
(8,500
)
-
(8,500
)
Payment of lease liability
(2,740
)
(166
)
(5,152
)
(295
)
Cash used in financing activities
$
(44,566
)
$
(30,410
)
$
(46,978
)
$
(22,039
)
Effects of exchange rates on cash and cash equivalents
(116
)
(165
)
470
(207
)
Net decrease in cash and cash equivalents
$
(76,560
)
$
(39,460
)
$
(185,894
)
$
(444,548
)
Cash and cash equivalents - beginning of period
$
584,962
$
718,533
$
694,296
$
1,123,621
Cash and cash equivalents - end of period
$
508,402
$
679,073
$
508,402
$
679,073
The notes to the Company’s financial statements, which are
available on the Company’s website, are part of its consolidated
financial statements.
Consolidated Balance Sheets (Stated in thousands of U.S.
dollars) (Unaudited) June 30, December 31,
Note
2022
2021
Restated -
Note 2 (c)(i)
Current assets
Cash and cash equivalents
8
$
508,402
$
694,296
Inventories
9
293,298
290,017
Trade and other receivables
12,853
16,119
Prepaid expenses and other assets
86,524
120,715
901,077
1,121,147
Non-current assets
Property, plant and equipment
10
12,630,001
12,049,958
Inventories
9
47,517
60,711
Prepaid expenses and other assets
18
315,192
348,671
Deferred income tax assets
13
879,557
602,862
Other financial assets
17,341
16,818
13,889,608
13,079,020
Total assets
$
14,790,685
$
14,200,167
Current liabilities
Borrowings and other financial liabilities
11
$
713,424
$
397,421
Trade and other payables
12
467,131
384,488
Deferred revenue
172,231
149,368
1,352,786
931,277
Non-current liabilities Borrowings and other financial
liabilities
11
3,429,669
3,785,358
Deferred income tax liabilities
13
164,585
145,434
Decommissioning obligations
14
171,404
153,662
3,765,658
4,084,454
Total liabilities
$
5,118,444
$
5,015,731
Equity Share capital
$
11,432,122
$
11,432,122
Contributed surplus
1,555,774
1,555,774
Accumulated other comprehensive income
4,525
4,363
Deficit
(3,881,793
)
(2,840,896
)
Equity attributable to owners of Turquoise Hill
9,110,628
10,151,363
Attributable to non-controlling interest
15
561,613
(966,927
)
Total equity
$
9,672,241
$
9,184,436
Total liabilities and equity
$
14,790,685
$
14,200,167
The notes to the Company’s financial statements, which are
available on the Company’s website, are part of its consolidated
financial statements.
Consolidated Statements of Equity (Stated in thousands of
U.S. dollars) (Unaudited) Six Months Ended
June 30, 2022 Attributable to owners of Turquoise Hill
Accumulated other Non-controlling Contributed comprehensive
Interest Share capital surplus income Deficit Total (Note 15) Total
equity
Opening balance
$
11,432,122
$
1,555,774
$
4,363
$
(2,840,895
)
$
10,151,364
$
(966,927
)
$
9,184,437
Income for the period
-
-
-
357,864
357,864
129,778
487,642
Other comprehensive income for the period
-
-
162
-
162
-
162
Waiver of non-recourse loans (Note 15)
-
-
-
(1,398,762
)
(1,398,762
)
1,398,762
-
Closing balance
$
11,432,122
$
1,555,774
$
4,525
$
(3,881,793
)
$
9,110,628
$
561,613
$
9,672,241
Six Months Ended June 30, 2021 Attributable to
owners of Turquoise Hill Accumulated other Non-controlling
Contributed comprehensive Interest Share capital surplus income
Deficit Total (Note 15) Total equity
Opening balance
$
11,432,122
$
1,558,834
$
1,418
$
(3,415,601
)
$
9,576,773
$
(1,148,820
)
$
8,427,953
Impacts of change in accounting policy Note 2(c)(i)
-
-
-
13,630
13,630
7,022
20,652
Opening balance (Restated)
$
11,432,122
$
1,558,834
$
1,418
$
(3,401,971
)
$
9,590,403
$
(1,141,798
)
$
8,448,605
Income for the period (Restated Note 2(c)(i))
-
-
-
339,574
339,574
120,417
459,991
Other comprehensive income for the period
-
-
4,887
-
4,887
-
4,887
Employee share plans
-
(53
)
-
-
(53
)
-
(53
)
Closing balance (Restated)
$
11,432,122
$
1,558,781
$
6,305
$
(3,062,397
)
$
9,934,811
$
(1,021,381
)
$
8,913,430
The notes to the Company’s financial statements, which are
available on the Company’s website, are part of its consolidated
financial statements.
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 harbour” 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 terms and conditions of the Proposal
and its review and evaluation by the Special Committee; the
implementation and successful execution of the updated funding plan
that is the subject of the Funding 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 Funding HoA, as well
as potential delays in the ability of the Company and OT LLC to
proceed with the funding elements contemplated by the Funding 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 Rio Tinto to the Company under
the Funding 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 Funding HoA in
light of future and then prevailing market conditions; the
expectations set out in 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 PSFA, as amended, as well as power purchase
agreements and extensions thereto; the finalisation of an agreement
with 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; the content of the Definitive Estimate; 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
possibility that the Company and Rio Tinto are unable to come to an
agreement on the terms and conditions of a going-private
transaction or that the terms and conditions of a definitive
agreement between the Company and Rio Tinto in respect of a going
private transaction will differ from those that are currently
contemplated by the Proposal; 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; finalisation 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 Funding 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; the accuracy of the Definitive Estimate; 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 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 Funding 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 on 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, dated as March 2, 2022 (the AIF), as
supplemented by the “Risks and Uncertainties” section in the
Company’s Q2 2022 MD&A.
Readers are further cautioned that the list of factors
enumerated in the “Risk Factors” section in the AIF and the “Risks
and Uncertainties” section of the Company’s Q2 2022 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/20220804005022/en/
Vice President Investors Relations and Communications Roy
McDowall roy.mcdowall@turquoisehill.com
Follow us on Twitter @TurquoiseHillRe
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