Q1 2020 Earnings Call
Hi, I would like to welcome everyone to the kind of myself resources first quarter 2020 results conference call.
All lines have been placed on mute to prevent any background noise.
Steve actually Mike there will be a question answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
Thank you well I must tell you may begin your conference.
Thank you join us and good morning, I'm always tell head of Investor Relations and communications welcome to our first quarter 2020 financial results Conference call.
Wednesday, we released our first quarter 20 to whats your results press release Mdna financial statements. These items are available in our websites and see dock within the color Oles question or CEO look colt and our CFO and Joanne WRC. Oh. This is calling presentation includes certain forward looking statements to make formation, we refer you to the Ford.
Looking statements section of the annual information form dated March 18th Twentytwenty supplemented by year end DNA for three months. It at March 31st What's your 20.
Now I'd like to turn the call over for Chief Executive Officer, well squabbling.
Thank you really.
Wanting to have to one thank you for joining us this morning, well I'll first quarter 2020 financial Onyx cool.
It was only a relatively short while ago that we hosted out soon.
He yearend conference call and yet the impact all Corona bars.
It becomes a greater and pulled up the most of US might've expected at the time.
On the personal note that you and your families that helps the unsafe and you're right. It's adopt the new reality stocks have also been present.
Turning to yesterday's first quarter update.
Announcement of the up 80 pounds zero mine design.
I'd like to begin by providing with an overview.
Then turn the call over to our Chief operating officer doing Dudley.
Take you through the updated paddled zero mine design.
Finally to coal to now Chief financial Officer to summarize our first quarter 2020 financials.
Any.
Mongolia.
The cold 19 situation escalated in early March and book only ever recorded its first case October 19.
Oh, you're told her team responded quickly.
With local and federal authorities to ensure that helps and safety although workforce.
Families local communities well open it up on Goliat acted decisively halting international grapes rail flights and intensity travels.
Immediate impact of travel and border restriction slowed supplies enjoy your <unk>.
Concentrate liberty all customers in China.
Open pit operations continued uninterrupted.
As of today.
There has not recorded any cases over at 19, and there's not any employees contractors I selection.
In addition, Mongolia itself has not reported any recorded locally since then it keeps it.
The situation at the board has stabilized which means of copper concentrates into China and supplies into all your told by returning to normalized levels.
Oh, you talk about business resilient Cade meet somebody basis and continues to work with them on gold either through keys to monetize improvement the possibility of any cope with 19 cases.
From an operations an underground development specs if the team has done an exceptional job managing the impact all hope it 19 pandemic.
The open pit operations continued uninterrupted through the first quarter.
Copper and gold production remaining on track to achieve oxy doesn't tend to guidance.
The tissue.
Team is implementing initiatives to bring spoiled with the higher gold bearing or into 2020.
Which is expected to reach to coal production to be and all the guidance range.
Important to note is excellent level of productivity that's it.
Backdrop also continued its into Clos safety records that remains the Oyu tolgoi teams top priority.
Although we have expense slowdown in certain areas focus on the underground development has continued ask for expectations as we've been able to close trade offs skilled local workforce to lead the impact of the travel restrictions and focus on critical parts infrastructure.
Activities.
In the lateral development, great averaging 1822 equivalent meters in this first quarter.
Since 1670, clearly because in the fourth quarter I'll close yet.
Much setting a new record of 1909 cool features.
As I touched on earlier this first quarter was another excellent quarter from an open pits productivity perspective.
Well Toby onto conditioning through the lower grade area itself the pit.
During the impact of corporate Nike.
The team has done an excellent job keeping production in line, but our guidance.
Mill throughput is another metric to note.
Processed over 190000 tons, but hey, which is well above nameplate capacity of 100000 tonnes per day.
Now before I turn the call over to Joanne to discuss the up it Kinda zero mine design.
Take a moment to sell them so that continued support.
As you'll recall in July last year, you announced that stability risks have been identified.
I don't zero mine design.
With associated estimated increased in this churchill to sustainable cost reductions of 16 to 30 months.
In an increasing well development costs of $1.2 billion to $1.9 billion.
We set a timeline to compete <unk> mine design by the first half of 2020.
No.
After extensive geotech modeling.
So technically shrunk program.
To that independent hobbies.
Updates design changes for panels ever happened approved by the T. acute board.
With that I'd now like turn the call over to Joanne.
I used to be underground development and depend on zero mine design.
Joe I know what do you.
Thank you well Hello, everybody placed got it Okay, Hey, slide seven.
Before turning to the ice on the penalty or I'm not at all.
Let me provide you with its not shelf progress elsewhere.
Came off time toward the progression at the underground development with the completion of shop to tie about last year.
Talk too much bank a call me well.
Hi, light and placing state I think.
Currently we keep GE to retain stretching Neely Commission gripes, well within three ordinary course shape, which were like the court.
No impact on underground actual development Tonight.
Shops rainfall so very good construction progress during the course.
And the kneeling Betty thinking like stickiness.
Good to travel restrictions arising from kind of at 19, they shop, snapping putting to care and maintenance and kill specialist personnel can reach them on thoughts.
But I'd like to nice, but the initiation ramp up is panels. The right. You proceed without these shops Commission.
Private crush one civil works around going and it came to successfully cord atomic level of Crushable.
The spot shops rainfall thing on care and maintenance and the slowing of construction work on the primary crusher.
Our team at save a new record 1939 equivalent majors lots about many match and then make whatever age at 1922 10 months of course huh.
Private continues on the combined decline we take the kilometer equivalent made its develops during the course huh.
Please turn to slide <unk>.
You'll now the cool homeschool <unk> days, but we've got at the market to expect the need panels here I'm on design in the fixed cost twentytwenty.
And we've made some important statistical design pop equal.
[noise] handled here I'm honest on season now be nice by the T.I. keyboard [laughter] caving method of mining mining palette and the design and location well, we got the night infrastructure, such as shop and primary crushing I'm change for the feasibility study.
The design changes are focused around the panels the right mining area, which is the highest grade yeah, you totally underground and the 9000 priority targets.
The outside of design provides increased resilient and execution operations Kinergy technical conditions in panels, the right now I'm still would.
The decision was supported by date, how do you take a modeling and a rigorous technical assurance crack ran in called and that's how do you expect.
And is considered consequential impact so on and we just for lighting tape recovery geotechnical Constructability operability shaped your cost and value.
The next five monetize on study will include design optimization the penalty right under review mine design options, it's kind of wanted to utilize Atlantic City the panel black.
I don't want an penalties studies will be informed by additional data collected from an underground drilling program, which is in progress.
Please turn to slide nine.
These crazy panels, the right design reminds me of in the range, it's pretty steep previously described.
And and keep height and delight to the 2016 Technical report key project now signed it sustainable production of 25, not with a range of 21 to 29 about equally shipping 11, our allowance so she'll contingency.
And an increasing capital cost of 1.5 billion with a range at some point trade of 1.8 billion.
This is subject to any additional shapes willing to like they're increasing capital costs arising from the impacts of the case non tank pandemic.
As I say daily at many of the fundamentals of the Montana nine on Chinese trend to 2016 think ability study the changes to panels. There I focused on addressing stability was highlighted by outside of geotechnical modeling.
Yep.
I've tried to design variation that 2016 designed primarily trading coal crashes structural peel it located immediately north and south of the current panels your eye boundary and relocation or handling infrastructure to date pellet.
[laughter] addresses the risk of damage to the all handling system in the original position as identified by I did take a modeling.
That's right a change to initiate a single undercut feis instead of two.
Which is the complexity of managing two separate right realized basically carrying and increase the separation mine construction and productivity and production activities.
Incorporation Peel it provides the opportunity to initiate panels, one in Chile, independent panels or blocks, allowing design optimization and to the series to be felt this greatly and I bought it requires ventilation and all handling infrastructure as well as lateral development program.
Oh, no changes because a lot of write off platform to develop and I'll try to seek I know that's one case and will now under GAAP. Harry said the day top design engineering and optimization to support continued investment during the second topic Twentytwenty again subject to any good like the impact the case, it's not.
Tang pandemic.
I'll be available for questions, but a in the meantime Oaks would you like to continue.
Thank you Phil I'm.
Before I turn the call over to our CFO to coal to let you. Just provides you with a quick updates of our multiple discussions with the government Mongolia.
So I was trying to power.
You know you told me is obliged to under the 2009 investment agreement to secure a long time domestic source of power for the Oyu Tolgoi mine.
In summary off this yell you plug is certainly a feasibility study for each have been totally pallets lungs, TPP with an estimated cost up $924 million.
At the same time and nobody some contingency and that the power source framework agreement was submitted by argued Oh, great to the government government Goliat.
This notice initiated the first phase I phase one of the contingency process, which attempt it I'm successfully to agree on a basis for the P. TPP haven't pulled by power plant to proceed.
No.
Second phase of the contingency proceeds has commenced.
Oh, and the government consider the alternatives to the teaching.
Prescribed in the Palace was framework agreement.
Well the 14th of April Didnt sub energy notified.
A couple of minutes decision to develop and fund a state owned power plant.
Well you Togo is currently in discussions with the government to allow continued consideration.
<unk> P T P P as well as the state owned telephoned.
Reaching such nickname it remains our objective.
Oh, the if such an agreement and not be reached between.
And the government by the 14 did you then they're wrong.
Oh, you toga is entitled to select and intimate want to see alternative options that are outlined in the power sources framework agreement.
In reference to the outstanding tax dispute between all your told there and the government on 20 to separate.
David Togut proceeding with the initiation of a formula International arbitration proceeding in accordance with a dispute resolution provisions of the investment agreement.
We remain agent that Oyu Tolgoi had smell paid all taxes Chaucer's recall that.
The the investment agreement you all shot.
The grant development plan and gold involved.
As we announced in December last year, the Polivich working finalized its reports for which a resolution was books forward for the government of nickel yet entered into discussions to improve.
Implementation on the agreement and improve the underground development.
It's also includes a variety of other measures, but not limited to exploring options off a product sharing agreement or swap will go live is 34%.
Moving sway, especially loyalty.
At this stage representatives from truck was simple and Rio Tinto are engaged with the government.
Zoltan see shoes, and we will update the market didn't when appropriate.
So with that ill now turn the call over 2.0, Gee, That's officer to take you through our financial highlights Luka over to you piece.
Thanks, pulp and Hello to everyone on the call.
If I could get you to please turn to slide 12, and I'll give you a summary of our chief financial metrics for Q1 up 2020.
There are some significant variances when comparing the metrics in the first quarter out.
2020 to the first quarter 2019.
The primary reason for this is due to the planned transition into mining lower grade phase for B and phase six Dior.
Together with stockpiles.
The reduction in head grade and recovery related to led to a 78% decrease in gold production and a 23% decrease in copper production when compared to Q1 2019.
Well this ultimately led to a 63% decrease in revenue.
From Q1 2019 to Q1 2020.
It's in turn contributed to lower cash generated from operating activities.
The 75% decrease in gold sales revenue was the main reason for the increase in C. One cash costs from 77 cents in Q1 2019 to $2.07 per pounds of copper produced in Q1 of 2020.
The period on period increased in all.
All in sustaining cost was not as significant increase in Q1 cash costs and this was primarily due to the offsetting impact of lower sustaining capital expenditure and lower royalty costs due to the lower cells revenue.
If I can ask you to please now turn to slide 13.
Turquoise Hill's liquidity balance at the end of March 2022 was 1.8 billion.
With 1.6 billion in cash and cash equivalents and 200 million remaining project finance proceeds.
In addition, we expect to generate free cash flow at our existing open pit operations.
Subject to any impact to cope with 19.
This will also be available to help fund the underground developments.
We currently expect to have enough liquidity to fund operations and underground development, including progressed progression of a power solution into Q3 of 2021.
This timing has been extended since the March Twentytwenty earnings call. As result of an estimated slowed down in underground development spend arising from the potential impact it Kogut 19.
How's restricted access of the mine Fourteens from OTI, Rio Tinto and our construction partners.
This is also led to a downward revision of both our underground development guidance range for 2020 to 1 billion to 1.1 billion.
As well the downward revision of the upper end up our open pit operations guidance range from.
120 million to 100.
I was work to complete the definitive estimates the panels wanting to mine design study and to secure a long term to domestic power solution progressive.
Turquoise Hill will continue to evaluate and cash flows liquidity and find out thing projections.
Well its funding requirements will be clarified by the ongoing work we are well progressed in discussions with Rio regarding a proposal for sourcing incremental interim funding.
In church <unk> Turquoise Hill can progress the underground developments over and above its 1.8 billion of available liquidity.
Brent estimates indicate an incremental funding requirement over and above liquidity currently available of at least 4 billion.
The current estimate has improved from the at least 4.5 billion previously disclosed due in part to the selection of the panels are a mine design, coupled with low or castlight where rates.
Oh, the slide shows the at least 4 billion estimate is dependent upon many variables all of which could impact the quantum of incremental funding required.
Of course, the company will continue to assess the pop packs of cobot 19 on its operations development activities as well as the incremental funding requirements.
Without all gotten back over tall.
Thank you very much Luke.
So to wrap it up.
First quarter up this year has all but overshadowed by cobot 19, and the impact it has had on the health and safety of really every one around the world.
And everyone is still trying to assess the full impact on the global economy as well as the financial markets.
In light of an unprecedented events such as this it is our belief that Mongolia as well as all you told <unk>.
Demonstrated an extraordinary capability to manage mitigate the impacts on its workforce.
He brought a community.
And its business performance in an outstanding fashion.
Well go he has done a tremendous job in containing minimizing the impact on its people.
And your told her as a business, it's been able to safeguard well being of its people.
And to operate and deliver under the most difficult circumstances.
This achievement.
Of course, we know that the challenge is falling from over.
Speaks to the resilience and ingenuity ultimate goal in people, who have caused to make up more than 94% of well you talked goes workforce.
I think you record remains strong.
Open pit operations have continued thus far uninterrupted.
The underground mine development and construction have progressed, albeit they are experiencing challenge is primarily as a result is not being able to get specialist and supervisory foreign nationals sites.
But we are exploring creative ways to mitigate these impacts, especially Kim.
Importantly, we have improved the mine design for panels zero, but we are now taking full would the execution level of planning.
Culminating ultimately in the D. the definitive estimate later this year.
So since July of last year.
We have done but he said we would do.
We've laid out a process map.
But with the markets.
And we have delivered on those key milestones.
And that's what we intend to continue to do.
The caveat in all of this of course is the precise impact of cobot 19 on our key activities, which today remains unquantified.
We have more work to do.
Both on power so that was financing.
Luke just updated you on the latest minimum funding requirements as well actually worked into discussions we continue to half with sometimes providers.
The discussions are progressing.
We are absolutely focused on goes.
Also recall, though that we have available liquidity that sees us into the third quarter off next year.
The wants funding is absolutely important and a priority for us to lay out a funding plan there was no immediate cash shortfalls.
And on how we are working with the government of my goal you had to progress sourcing power from within Mongolia.
The a variety of options available and each one of them has its own advantages and challenges.
The P.S. if any of the power source framework agreement isn't a contractual framework within which these discussions on taking place.
Government. It's most recently put forward it's prefer concept.
We are now in discussions to find a way to embed this concept into that P.F., It's a framework, which we hope to be able to do soon.
Well the priorities for me yeah.
Let's see all your Togo progressing on many fronts and delivering against the milestones we set out.
The quality of the ore body.
And the quality of all your toga as a business remains squarely Clos and it is well on its way to each one of the worlds tier one copper mines.
He's been able to demonstrate important progress in the key area of mine design.
And you're able to see what are your Togo is largely Mongolian workforce is able to do in the face of adversity as evidenced by cobot 19.
So there's a lot to them.
But we're certainly well on our way.
So that concludes our prepared remarks and with that on trade I could I. Please turn to call back to you for any questions. Please.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear my see Tom Tom Technology, you request.
She was the kind of pulling process. Please press star followed by chance.
If you are using speakerphone, please let the handset before passing any key.
Your first question comes from Orest Wowkodaw I'm Scotia Bank. Please go ahead.
Hi, good morning, I'd be curious now that you've completed the mine design for pedals zero can you give us some color on what the ramp up schedule will look like once you achieve that initial for sustainable production, which I take it based on the 25 month delay is more like a.
First quarter of 2023, I'm curious, specifically whether to ramp up profile for the copper and gold has changed materially at all from what we saw in the 2016 Tech report.
[noise] or things for the question if I may I might have to add a little bit off it's still a data on the call. This morning, because we're all.
Working from different places.
Your line is Ah I hope you couldn't hear the question are you do you want to address or his questions.
Yes, absolutely. Thank you and I think you I see it question [noise].
Hi, so at this stage.
The decision that thing to create a really insight.
On the panel area and there is some ongoing optimization way it same can play said.
To understand that the full impact at the changes. We also are continuing to work on this honor fund that said, how one I'd say, which also required.
To be a part of that the ramp up as you would knife and that 26 thing Technical report [noise].
As part of that design review.
I will be well be fair, the revealing a any impact on ramp up.
So what is still in progress.
And ER and has yet to place it how was the east West Nice thing that within coal price you know hill is to the north and South tower the right.
There is some flexibility to stop panel wanting to independently on AD.
And and that will be dictated by a infrastructure volatility like ventilation and all handling.
Progress.
And I said that way I will be will be going on series like 2020.
Sorry, but I'm not I'm not sure I understand if are you saying that.
It's too early to know if there's a material change or maybe I can ask do you anticipate there will be a material change.
<unk> profile.
Yes, hi, it's too early to side that the design gives us flexibility on the stocking or on the initiation of kind of wanting to take their design decisions. The panel zero and size. There is a you know they send an opportunity because a lot and with that it that way I keys.
The ongoing and just hasn't crystallize, yes. It is a good question, but we just don't Baghdad.
And then if I if I could could you just give us an idea of how much contingent fee is embedded in the new development plan and capital overwrought number with respect to say number of months or dollars for that budget.
Yeah, Hi, another another erotic questioners I am very simply isn't included in the range provided and he asks unless I am I.
The thing.
I calculated Oh, he said Jill and that the degree of progress that a thing night I mean these types. We know we haven't specified the contingency, but the east keep there is contingency included as you would expect and as you had saying in the pop out with the with at least communicated.
Okay, but you can't quantify.
Not right it's minus.
Thank you cannot just the opposite cannot just add to the two to supplement Joanna Commons, yes, we're not we're not in a position to.
Topic, you provides a what the contingency is I think what I, just wonder highlights or as.
We are keen and we were keen to.
Update the markets on the progress we made on mine design, which is what we've done we will also keen to provide the market with an update on ranges ride for ships and for for capital costs and that's what we've done they all ranges because of course, that's where we are at the moment from a level off.
Precision if you like so that's why that ranges as opposed to precise numbers.
But we wanted to do that at this point in time, because we felt it was appropriate for that.
That's why you also we have a contingency in the numbers at this stage.
The final number if you like or the definitive numbers both on cost to ensure that you'll you will then be see when we get to the definitive estimate which is later this year.
Okay. Thanks.
Thank you. The next question comes from Hayden Bairstow from Macquarie. Please go ahead.
Hello.
Evening for her last sort of the we'll just a couple of quick questions. Firstly on.
The names to the mill unplanned do we need to sort of otherwise throw out the old numbers in terms of.
65, Kaiser development Cray getting sort of see under why given you now see suitable ailing area as opposed to one and all these numbers will come out of the definitive estimate so good.
It is my points. It looking it you quarterly development rights to say any closer to the finishing up the predevelopment work. That's the first one and then.
They cannot just some online and the commentary about.
Yeah. The completion of the panel one and two with white be done until 21. So does it seem to divest of it why between LIBOR. One has lots of on Capex and all that sort of stuff because you want actually it finished.
All of the the title one entitled to because on one because it let's say what if he could then.
Yes.
Thank you very good questions Hayden again, I think they're aligned on this call. This morning, I'm afraid you may probably get that the bulk of the questions. But are you could you give the question from Hey, John do you want to do you want to start answering I can supplement it'd be end if needed.
Sure.
Thank you okay. Thank you Heidi.
So instead of just the way we should think about things I mean, we have provided no tight all they ask the final production dice and that is a key value drivers opt for them on and a as well and that's why I just hung on that died.
It's not necessarily naming folks to think about the developed it made it for example, because there are multiple credit costs on the project a and some of them it without made isn't something or other aspects of the shadow like infrastructure on ventilation and that and material handling trade sample and all that they paces.
Ill give us a the dice it which we can start ramping up with cheese, that's sustainable production.
You bet <unk> focus on the died in front of.
The start of brand pop Hi, Mike said [noise].
Intensive, but Ah DEFINITY, it's nice.
I see I came to sit to candidate that that is to provide I and guy.
Very accurate the ice on the development capital, it's nice, which are which is really about infrastructure compliance that anything constructed and sorry that that particular portion at the estimate will be well be caught it I.
Good quality subject of course to current changes that's a way finding as a result at times. It Nonpaying <unk> you know we had some aspects of the construction anything anything impacted us I thought I Ah does that does that answer your question Ivan.
Yeah, I guess, just try you're trying to get that understanding it depends your guess what she would be I can't provide updates for everything they tell you why there's lots of on it it's more a focus on that front end capex, but just on the the underground developments the amount of saying when you were talking about but yeah. The previous them as it were either studies about we need to 64.
Kaiser lateral development to get going there's probably more than that now so there's no point, even thinking about those numbers is as relevant will still doesn't it if you do this.
<unk>.
It will be it will be yes, it will be enough type of audit and all the time and it has been Skype change.
Yeah, I did I get that caused that period somebody's. It could go by thinking that they I mean, just sorry back to the definitive that question. You know there if were going on a and trailing crusading oh on the footprint to try and I understand.
Any residual uncertainties that we'll get to significantly improve picture right for the reminder, twentytwenty, how things are going to.
You know where caffeine times is that losses mine HM.
That's out there.
I know how can still one final one just still give joanna risk system and the this funding shortfall of 4 billion in almost half of that for memory was said that the different private should you eliminate the force majeure Dick horizon on what it does that China that replay haven't changed we're just changed along so and.
If we strip that out obviously the funding she'll pools, why low or just how station development is pretty interesting I mean does that potentially would lose a power station. It's also a large proportion of it from.
Part of this potential.
Yeah. Thanks, [laughter], Thanks, and I'll, let you comment in a second maybe on the on the fourth mature on the long stop there just on how other stuff that second half of your question. What you are right to point out Hayden is as we're still looking at berries auctions and if you would you take the government's preferred option.
Which is.
But they called the state owned and funded option.
If we ended up with that option then belt was absolutely executable and met Otcs requirements. Then of course that would have a material impact on the funding requirement because it would only have a sudden removed.
A big chunk of the funding.
From old he gets the government decided that it was willing to fund the power plant right and so you're absolutely right to point out that if that is where we ended up in of course, that's not so at the moment, but if that's where we get and <unk>.
Then that would have a big material impact on on the minimum funding requirement, maybe look without you want to comment briefly on on the first part of papers questions around sports Mizuno and implications on long stopped it and.
The size of the most of the debt. So it's really as part of good funding gap.
Yeah No no problem. The question is a good one and the answer is simple.
Impact is really on the long start date Hayden. So at this stage, we're not really expecting that you know the sort of near term interest and principal repayments are going to change at all as a result of this.
So that's not the quick answer how happy to go into more detail if you want but.
That's a quick answer.
Okay, Great and I'll tell you know enough color thanks for that through Kansas.
Thank you. My next question comes from Oscar Cabrera Jackie. Please go ahead.
I see your line.
Yes.
Go ahead please.
I've got a few on you please UN mute your phone.
Apologies.
Let me start over I would just saying you know.
You and your family's her well and it sounds certain times.
So.
Couple of things for me. The first is can use it's called the critical path items and the one go crown in order to meet your 25 month delay it sounds like shaft reinforcing not part of this critical path.
And.
And if there isn't if they're not then how long can you wait to see this before it starts affecting future underground development and production.
It's all Scott I'll pass the question that a second did Joanne but first of all acknowledge thank you for your good wishes and hope to you when Youre the family a a safe as well and Joanne just before you answer the specific question, you're absolutely right. Let's go to point out that I think when we look at impact.
To date.
<unk> 19.
And what might happen going forward there are differences right because what we tried to point out is to date certainly be open pit operations have been really uninterrupted.
Continues to be the case in areas of underground development. It's also on the affected because we continue to delivered strong results, but where there has been impacted exactly as you pointed out on some infrastructure, whether it's Sean Sweden, Poland, one or two others and July maybe you want to take.
On that and say what are the implications of that and.
Oh, they own the critical punk no no no we will they become critical path at some stage going forward.
Thank you okay. Thank you asked the question.
Oney Krajicek, there on bulk who critical pods and at a component of that critical coffee the lateral development progress as well as materials handling and cancellations supply Ah components to create pop and at some point Oh, let's say.
Expects might become Craig on the project.
Oh, we shouldn't be cool that panels, the right I can see initiated and commence ramping up using existing ventilation capacity.
Uh Huh, so initially any delightful China, three and four I should have the minimal impact.
As I've mentioned before there is ongoing where.
On a penalty right and also Taiwan say I wake up because honor Con way thing carried asked and at this point.
But you know a complete in full understanding all to create pop a is it I wonder if you I'd say more information about that will image as the with progressive.
And Oh, you know, there's obviously, a some uncertainty about about what will happen intensive timing and and accessibility to re stopped that web site. The work is ongoing.
It's very much something that is getting to focus to pull the tank.
Okay got you like to add anything further.
I would say say in general Oscar I think.
It's important for us to strike the right balance a thing on the one and be very.
I think proud to look at what the OTI team in China, which support optimum Golden government has been able to do so far in terms of really minimizing the impact.
The same time.
All of Us know about.
Looking for what it is quite.
Oh, the degree of uncertainty remains high light and many of these things at the moment or.
Outside of our control and watch the I mentioned that in my prepared remarks, whilst we are looking at some.
Creative solutions to try to mitigate some of these impacts. So for example, where you do need specialized expertise from abroad to be in country are there ways using technology to do at the most all of you seem to be looked out but at this stage, we just haven't got certainty.
The two to give you really a go down say and say.
The impact is X many months and that's when they will be mitigated.
So that means all at the moment, we can do US guys kind of pointed out what we've done so all the work as Joanna saying that's going on to look at these things and mitigate them.
But it's really not possible for us to put a lid on a put a cap on what is the impact open you're going to be because the situation is alive and emerges on a daily basis.
No that's not a good onsolis got but that's I'm afraid to reality, where we are.
Yeah, no that that's helpful old fan I think you know I think my domestic away from me that South Korea, or they'll have an impact on the listing of a production for the 24 25 month. The like Thanks, then if you know turning to power.
You know appear they've Mongolian government assumed tend to develop and try and.
The time until the close skills.
Based on previous history does this does not appear to be a reliable solution.
So how are you thinking about this process I know they said deadline of June 14 based on your agreement with the government and there's just 10 days ahead of the parliamentarian elections. So could you just provide context around that.
Absolutely Oh, Scott, so you're you're right so that the.
The dates and if you like deadlines for lack of a better termed up you mentioned they are.
The processes that are laid out in the the power source framework agreement that disagreement that was signed in December 2018 that really tell buttons.
Implementation of.
Oh, you told Grace obligation to deliver Pamela domestically I thought was an agreement that was signed with the government in December yeah. The core lost.
And then that agreement or they're all options are laid out in terms of power ALKS instead of being considered and there are certain steps when they can be considered those that do contingency mechanisms that we refer to and there are two of them. The first one.
As it has to expire and now we under second blunt.
And.
The power options that are.
Included in occupancy that's.
In the power source framework agreement do not include.
The option that the government has now put forward as its preferred option right.
Enter discussions we're having at the moment is.
If you want to consider that which of course, we do.
The government has decided that this is its preferred auction and sit down for that's something we need and want to respect and investigate that it does indeed.
Can be executed and you have some some reservations about than we.
Huh.
How realistic it is but it's certainly something that we take seriously and we would like to work with the government to underground.
In order to be able to do that.
And to have that rounded in a proper legal framework.
We would really need to amend that agreement because at the moment. It technically does not allow for this auction. If you like so what we're really saying is.
I'd like to work with the government on this end on other options.
But to be able to do so.
I would really need to and then that agreement and to date by which the current agreements says it would need to be done happens to be June 14th.
That's how that works and comes together.
Is that.
Does that answer the question most oh.
Yeah, no. It does so hopefully the.
There's over mental Mongolia has.
So this through and you can deliver the powerful it for the project then the last thing if I may.
When your estimate for current liquidity are lasting until Oh. So this third quarter 2021.
Why don't operating cash flow assumptions are working capital assumptions that you have embedded there and oh, what metal prices.
Hi, Thanks, I'll start my Austin <unk> to take that question you you Okay to a two to address this one.
Sure I'll do my best or an off your can I didn't say.
You and your family and loved ones or are safe and well. Thank you for wishing the same for us.
Hi, My attempt to answer your question is I guess first of all too I guess refer you to our.
Our production and Capex guidance for <unk>.
For 2020.
I'm not I'll give you an idea of some of the key assumptions that were assuming and.
And the in both the Capex in the production space that that obviously, we'll can contribute to.
Our operating cash flow as well as our free cash flow.
You'll note that the ranges haven't changed but we are somewhat hopeful that we'll be able to get some additional gold.
And that will end up at the top end of the range for gold production for 2020.
I'd also refer you to the 2021 outlook I'm for copper and gold as well, which which we haven't changed and it still remains valid.
In terms of.
Working capital assumptions, I mean, we're not assuming anything sort of.
Herculean in an effort really where where were assuming kind of normal course stuff. So so we're not assuming any sort of significant build up or draw down in inventory levels.
A few level sort of appropriate for the level of capex expenditure that were.
Where ah.
We're planning to see over that period of time, and then obviously our assumptions around day, our would be consistent where I'm just sort of revenue profile over that period of time, which again you can kind of you can kind of see from the guidance that we've issued.
It's probably worth noting that on the Capex guidance for the underground we have reduced dot to a range of 1 billion to 1.1 billion and we've also reduced the top end of the sustaining capex guidance down to 100 million. It was previously at 128. So all of those things are obviously, having a.
And impact on on liquidity over that period of time in terms of pricing over that sort of keep period in the remainder of 2020 and 2021 I mean, we're not we're not really in the habit of sharing or pricing assumptions to broadly, but what I can say is that for 2020, we.
We certainly have recognized the potential impact of cobot 19, not just on.
Our.
Levels of spending, but also sort of from a global knock macro perspective, the impact is having on the copper price. So we do have a.
You know very conservative assumption for 2020, but you know.
Without giving you the number I you know within the range at current spot if that makes any sense at all and obviously, a a more conservative assumption for gold.
And or 2021, we revert back more to a broker consensus really which is what we would use for both copper and gold.
So I know that not 100% answer to your question, but hopefully it it helps to answer the question and gives you a bit of flavor.
Now that that's a that's helpful look thanks very much and.
And best wishes everyone.
Thanks.
Thank you Sir your next question comes from adults Imperato from Canaccord Genuity. Please go ahead.
Thank you and good morning, everybody.
Now I'd like to pick up on your discussion with Oscar there on the err on the power plant.
There's this [laughter] this option nothing government actually building and funding the power plant in supplying you guys. I mean, clearly that's a business critical rest not just not reliability perspective, but also them in negotiating perspective.
Should this be either way going forward what type of contingency are you thinking in terms of power supply.
The adult and just to clarify when you say contingency you just too.
Oh, a backup power suffice.
I would say don't look it's a good question Dalton <unk> if you.
I'd ask you probably for a little bit of patients you only because there's offshore.
This option was put forward by the government relatively recently a in the middle of April so less than a month ago and I wish you say like you. There's lots of questions that we would have as well to be able to run to ground with the government.
The one you're mentioning is one there was a few others as well.
So at this stage Dolton, I think where we are is to really focus on making sure that time.
Address all of these auctions.
And that for making a an amendment to the agreement to provide has to do the flexibility to do so.
As you rightly pointed out shopping at the end up today.
How it's an absolutely critical component for Oh team to be able to run the business and that is why ultimately Oh, you told that does need to be an opposition to the site watch.
The best option is.
To run the business.
But at the same time, you want to make sure. We have an option that is the best how you're talking about that also has the full support off the government.
And to do that run that to ground.
Putting an amendment in place to give us more time its flexibility to explore the ABS.
The important and once we've done that Dolton, then we need to be in a position. So on so some of the questions you on a race Oscar race, because ultimately OTI needs to make a decision and to do so certainty capacity funding.
You know permits hold out would need to be onset to.
To be able to making final decision, but today, it's only fully something we can see through a proposal.
It's premature for us to comment on Pendleton.
Yeah, Okay, that's fair.
Maybe I'll switch gears and talking about this updated guidance. If you all on a capex schedule and I apologize if I Miss this in your earlier comments right, but does this guidance factory in.
Any oh, yeah, coping 19 related delays that that's number one number two I you say you said you can't comment on the contingency kick. The can you maybe talk about how much of the contingent she has been consumed a ready given the delays today.
No don't like it on Thats very question. So just to be clear when you say guidance I think you're referring to the at the guidance on the undergone not to 2020 I'm glad that's actually yeah, yeah. The schedule in cash that young I know that guidance does not.
Clued any potential.
Negative impact from corporate 90.
Number one to be too does not.
The second point is.
Well I'm getting a position to provide any update on contingency or how much is in that in and out for where we are talking I'm afraid that the level of detail at this stage.
We're not we're not in a position to provide to the markets.
I know its appointing beneficially contact back.
No. That's fine. So then when you do put I'd be a definitive estimate will that then update these numbers based on the delays you've seen so far or do you think you're just stick with us in Seattle unfolds.
No no absolutely so you're exactly right beltran so the definitive estimates.
Is meant to have a very high level execution level of accuracy.
Both on schedule.
As well as on costs and so well be on at the moment Dalton is really.
In the process right. If you remember on July last year.
Not at all by saying 60 to 30 months and $1.2 billion to $1.9 billion.
No we've given you a range on.
On between nine months, and a $1.3 billion to $1.8 billion.
So it's still a range, it's still a fairly broad, but its narrower and importantly, it stayed within the range, we give them it hasn't gone outside of that you shouldn't expect as we get to the definitive estimate.
Not that those ranges become very very narrow and might converge on a number.
Excess okay. That's all from you guys. Thank you.
Thank you Milton.
Thank you. The next question comes from a crack Hutchison from TD Securities. Please go ahead.
Good morning.
In terms the update Im analysts zero mine design in the incorporation of structural pillars to the north and so for the boundaries do you think that's gonna have any impact on your ultimate reserves.
And Craig I'm wanting to Joe on this feels like one for you if you're okay to take this one.
Yes, it's cool.
So.
Thank you very much things I cried [noise].
Oh, sorry, the impact on deserves it's still being assessed <unk> I said payloads and out there I recovery auctions that recoverability options thing. It says to me not next level at this honor assignment and so it will understand more about face.
As the as the next few months progressed the books progress within the next see lump.
Hi.
That's really the sockets at the mine.
I'm sorry to send them to your question what their second thought could sorry, it's getting a bit like he told me that just so I wanted to know through I guess, if there's a immateriality two to those size I guess and the tons agree that's in the structural pillars in terms of the sequence and ramp up.
Right and really nice I like it was a guy there I being let's say it took a broad support pretty well handling system, which in this case it to me off the footprint odd to me the cross is on fire truck.
And that and dies nice till Oh, the old handling system will be out to be he bought panel one intake and it provides cement doesn't see real benefits I didn't nice killer intensive recoverability really working on what options that we have the mining I said okay.
Well, what the outcome might say and it's just too little eat track to draw any conclusion, because that's where the planning processes that but it's something that time, we are looking at closely Oh, what she's thinking hard about that.
No. That's it just to say what's going on too early at the moment and when the works can do that then then we'll know and.
Moves from that accordingly crank, we just at the moment, just really simple as that.
Okay. Thanks, Thanks for taking my question.
Thank you there no further questions I'll turn it back all that for closing comments.
Thank you very much a operator look thank you everyone for joining us this morning.
[noise] I will keep it very very short in terms of my closing remarks, we have talked a lot about cobiz 19, I did not want to the labor the point anymore than we need to it but at the same time. It is the biggest event that is impacting all of our lives as well as the business at the moment.
I think we've been able to draw on the call today that are up until now the business has done an outstanding job and the government has been extremely supportive in putting us in a position wet to date, both as far as the operations all concerned as well as the underground development lateral development has not been impacted.
But at the same time, we are mindful that going forward. It is likely to have an impact but how much you don't know and so the team is working very hard to be as creative as possible to find ways to mitigate those options and again to work with and get the support of the government to be able to do so.
The second point I'm going to make is we have made an important decision when they say we that as a t. out you board.
True end to approve the mine design option for panels zero.
What does it mean, while it means a we're on track in relation to the timetable we laid out a late last year as to what other steps that allow us to work through.
Address some of these initial stability concerns that the identified.
Definitive estimate.
Is due for this later this year.
Subject to any.
Delays by cold it depending on how that plays out we have provided you. Some ranges some updated rangers today in terms of topics as well us.
Schedule, So 21 to 29 months on $1.3 billion to $1.8 billion and that funnel will narrow and converge on a number by the time, we get too good to definitive estimate.
So there's still an inherent degree of uncertainty in these ranges today because of course.
The level of accuracy, we have today, but we have now picked an option and be now can take this auction and develop it to an execution level a degree of certainty.
And finally on funding and power work is ongoing.
Have a plan we have engagement.
And on the financing aside as Lou commented, we're working towards putting an interim funding facility in place we need to give us time and flexibility to make sure. We can make school long term funding options that address that minimum funding gap that loop was talking about.
And I think on power your thought on the call with UBS.
There are discussions going on with the government or there is a and agreed framework in place that provides the legal framework and within that.
We're trying to work with the government should put amendments in place to allow us really to <unk>.
The best to gauge the options, but that's where the business, but also importantly, the option that the government would like to to shoot.
And and an amendment would allow us to do that.
So with that let me leave it there I think Q4, joining us on I'll call. This morning stay safe and thank you very much and goodbye.
Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
And then I forget game.