Q2 2020 Turquoise Hill Resources Ltd Earnings Call
Good morning, My name's colon and I'll be your comments operator today at this time I would like to welcome everyone to the Turquoise Hill resources second quarter 2020 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question answer session, if you'd like to ask.
Question. During this time simply press Star then the number one on your telephone keypad. Thank you want Mcdowell you may begin your conference.
Thank you Colin good morning, Onboarding <unk> head of Investor Relations and communications welcome to our second quarter Twentytwenty financial results Conference call.
Tuesday, we released our second quarter 2020 results press release Mdna. Its financial statements. These items are available in a website and see dark with me on the call or old welding CEO, Luke Coltrane, our CFO and your went that meet our she Oh this cool and presentation includes certain forward looking statements.
Formation, we refer you to the forward looking statements section of <unk> DNA to the three and six months ended June Thirtyth Twentytwenty now, we'd like to turn the call <unk> Chief Executive Officer.
Yes.
Thank you.
Good morning, everyone. Thanks for joining us for all second quarter 2028 in school.
It's also helped this year all of our lives subsidy change domestically ASCII witnessed I shouldn't impact the coldest 19 Pandemics has had an all help livelihoods.
And as much as we remain hopeful that a vaccine will be developed quickly.
Until such time, but there's something you'd have to get used to a different environment.
Changed.
Of course change always brings new opportunities too.
In the meantime, so well have to adapt and we hope we hope that you and your families are healthy and chase.
As usual quarterly calls you'll be hearing not just for me, but also from our Chief operating officer, John Duffey as well that's from the Colton Oh, it's useful.
Turning to guess today's second quarter update ultimate operations and underground development perspective.
The team has delivered exceptional quarter notwithstanding.
I see you off the challenges presented by the coldest 19 pandemic.
The open pit operations continued uninterrupted through the second quarter.
I think 36 to 9000 tons of copper.
31.2 thousand ounces gold.
Excellent.
Typically has called against a backdrop.
<unk> best plus safety record.
You know that safety remains on your Tolgoi top priority.
You're also seeing the linkage between maintaining high levels of safety on the one hand and delivering operational excellence.
Hi level of employee engagement mature systems and processes.
It's a cultural safety Archie ingredients to deliver operational excellence and that is what you're seeing up all your toward that.
Hi, Good result of ongoing optimization what.
Pitch, we increased 40, a gold production guidance to a range of 155200 80000 ounces.
I mean initiatives to bring forward, a hot higher gold bearing or into 2020.
This increase as a favorably impacting our cost structure.
Consequently decreased a full year cheap on cash cost guidance to $1.62 to publish coupled with <unk>.
Full year copper production guidance remains unchanged.
Although we experienced slowdowns in certain areas focus will be underground development continued as we have been able to close trade you know how are you still local workforce.
So the new reality to operating the cold it might even bother me.
During the quarter.
In use Mocd type technology successfully.
Routine maintenance of chalk too.
Hey, loads Hopper Todd planned levels since.
In addition to the production underground achievements.
It's a complete uptick handled zero mine design.
We successfully amended the policy framework agreement.
It's a state owned instincts on the palpable.
Finally as at June Thirtyth.
Finished the quarter with one of the <unk> billion dollars of liquidity.
Which on the current projections is expected to be sufficient.
Meet the requirements of the company, including its operations underground development.
Early 2022.
It's the escalation of corporate 19 back in January or you're told the team is working closely with local and federal subsidies to ensure the health and safety of a workforce that families and the local communities.
Government doesn't go yes, taking very decisive steps on the old and the crisis to help contain the spread of the bars and indeed the situation in Mongolia continues to remain stable.
Oh sales increased second quarter easing of trucking restrictions within China and improve border access.
Yeah underground development has continued to progress although it has been impacted by coal.
And the associated troubled restrictions as far as other restrictions that happens imposed in order to contain the spread of bars.
Yeah, we told that business resilience team continues to work with them on Gorgon authorities to monitor.
Prevent the possibility of any corporate might use cases occurring.
As I touched on earlier second quarter was another excellent quarter from an open pit productivity perspective.
Like corporate 19, the mill continues to operate at above nameplate capacity levels <unk>.
Setting up 6000 tonnes, a four day over the quarter.
As a result of transitioning into high grade materials part of on mine optimization efforts, we experienced improved recovery rates increase school production lower see one cash costs. We expect this to continue for the rest of 2020 and as a result increased who vehicle guidance gold production guidance.
And also lower full year see one clinical studies.
Thanks to summarize pad.
What do you need by that well.
Yes, all of our employees and contractors right to work in a safe environment.
Back to be able to go home safe to their families.
Okay.
The first six months of 2020.
All injury frequency rate increased slightly to 2.22.
This marks a slight increase compared to last year's performance.
It's still very critical performance.
Probably teams.
Focused learning from it we incident.
She could you give you a device its operating safety policy see just.
Sure, we maintained office and plus safety record.
Ladies.
On truck delivery commitments over the past five years met or exceeded.
<unk> gold production guidance to the market.
<unk> increased 2020 gold production guidance has not impacted 2021.
And we look forward to benefiting from meaningfully higher gold production targets higher gold grade Oh I was a result online normalization book.
Now turning to coal, but to join Buddy tick through the underground development and the new panels or remind design to us.
Thank you will Hello, everybody. Please god saw at Dawn.
Before turning to the technical report.
Let me provide you with a snapshot of progress elsewhere.
During the quota.
<unk> costs shortening of the newly commissioned shelf to rights was completed using remote presence technology Weve highlights Retrench Clinton.
Due to restrictions arising from private non tank.
Austrian for mining care and maintenance, we continued to work towards the solution to enable specialist shaft sinking personnel to returns.
Works on some underground materials handling infrastructure has flight due to restrictions on the number of 'cause helps.
To manage Kivus non Tang related risks, we have had without saying primary crusher route one retrench 20 crashes following a paradigm shift timely.
The project continues to review the impacts of private non tank on the underground development, but the problem if what currently underway.
On the ground lateral development had a number of record quarter with average monthly advancement of 1000 might have been 31 equivalent matches compared to 1822 in quarter one.
Good progress also continues on the combined Jay Cohen with just on don't want equivalent kilometers lateral development in the quota.
The restrictions imposed on title personal numbers. So I my requires <unk> climate of lateral development curries on the other critical pop activities in Q3 2020 in order to minimize any potential covered non tank.
Please turn to slide 10.
Are you talking has completed and submitted I think the ability study Archie says 20 to the government them a goal yeah, we see our Q anticipating release of an outside of taking coupons in the third quarter.
The technical report will incorporate impacts of the refined panels. Your mine design on shed Joel sustainable production and capital cost estimates as Wilson outside of minerals is a mineral resource statement.
The key highlights Aha.
Assignable first production is now targeted ads February 2023.
Ryan <unk> type of 20 to 22.
During 2023.
Total development capital cost of 6.8 billion, but the Rankin 6.6 billion to 7.1 billion.
As a result of the inclusion of structural pillars to protect all handling infrastructure reclassification mineral reserves to mineral resources.
And that project manager advisors, we kind of anticipate did a proportionate they culturally recoverable within two additional studies currently underway.
Lateral development and construction of the underground material handling system continues to progress favorably towards the sustainable production for panels <unk>. Despite the challenges covered non thing.
It's important to stress at the ongoing impacts of kind of did not contain unknown <unk> nine and Tonight I Wonder if you bought the project fearful that will not be included in the technical report.
The next five this on studies ongoing a includes a review of design options of panel wanting to reflect panels. Your learnings. In addition to program of work to assess the impacts of car did not change.
I'll be available for questions, but in the meantime would you want to continue.
Yeah, Thanks, very much Dillon.
Before I turn you over to lose a let me provide you with just a quick update on our discussions with the government all smuggled again.
If you turn to slide 11, as you know you told Guy has an obligation to secure a long time domestic sources powerful the or you told me mine.
On the 28 of June.
We'll go into government only have reached an agreement to join you prioritize and progress a state Oh instinct funded power plant a top until going.
To that and how sectors framework agreement signed in December 2018, as amended accordingly.
And it contains a number of key milestones including.
The reaching an agreement with the current told provider you know Golden Power Corporation to extend existing power imported agreement by supposed to March next year.
The signing of a TPH power purchase agreement for the supply of power to the or you told on mine.
So you're supposed to launch next year.
And finally, the commencement of construction or no later than under supposed to July next year.
Commissioning within four years thereafter.
Some of these milestones cannot be met then well your tolga is entitled to select from and implement.
The alternative power solutions specified in the policy like the framework agreement, including.
We'll go related coal fired power plant or a point renewables basins.
Turning to the next page.
Oh provides you just a very brief update on some of the other aspects of our dialogue with the government Mongolia.
Boxes remains on shuffled sometime between you might recall, we've been pulled the markets on prior calls something between the February.
Oh got hub ceded with the initiation of a formal international arbitration.
With the dispute resolution provisions of the investment agreement.
Continues to be the case.
We remain of course, if the opinion that all your told that has paid all taxes and charges for pod.
And with regards to progressing the 2019 parliamentary resolution in relation to the parliamentary working report.
We have had engagement in the second quarter this year with the working.
Put together by the government.
The focus and the progress of these discussions since it launched be around power and we've just provided you with an update on that.
Following last months parliamentary elections.
Now looking forward to Reengage, new government in order to slow the progress issues that have been identified.
Absolutely.
Let's now turn the call, but to me I'll see opposed to take you through all financial highlights <unk>.
Thanks all.
Hello, everyone.
You can please turn with me this like 13.
I'll give you a summary of our key financial metrics for Q2 once you 20.
Starting off with revenue, which decreased 27% from Q2 2019.
And that's principally due to the 51% decrease in Cote gold production together with the seven per cent decrease in copper production.
No, resulting mainly from the transition of baseball right, So lower grade paid for b or in the southwest area pets.
In addition, the average person copper fell by 12%.
Although that was.
Offset by the impact of at 31% increase and the average price gold.
These significant price fluctuations, primarily due to the impact to cope with nine keen on global commodity markets.
The reduction in revenue contributed to lower cash generated from operating activities.
Was also impacted by key fasting working capital movements.
Q2, twentytwenty when compared to Q2 20 Nike.
Working capital in Q2, 2020 was negatively impacted by increasing trade receivables driven by the impact of rising copper prices on there.
Period.
Great payables decreased three Q2 2020 compared to an increase for Q2 2019, that's primarily as result of lower capital expenditure in Q2, when paired in Q2 2021 compared to Q2 2019.
The significant degrees decrease in gold protection in Q2, Twentytwenty versus Q2 2019.
It was also the primary reason for the increase in C. One cash costs.
The decrease resulted in lower gold credits.
The period on period increase and all in sustaining costs will not a significant increase in see when cash costs.
And that's mainly due to the offsetting impact of lower open pit sustaining capital a lower royalty costs due to the lower sales Robyn.
I can ask you to now turn to slide 14.
You'll see that turquoise Hill has 1.5 billion I'm available liquidity.
Which under current production is expected to be sufficient to meet the requirements of the company.
Including our operations.
Elements into early 2022.
Yeah expectation has improved due mainly to lower estimate library on project finance interest payments.
Continued focus on operating cost savings another optimization efforts as well as updated assumptions regarding your Pexip Kogut 19.
I was the result of this improvement in liquidity, we decided to further it decided to defer further discussions with Rio tinto regarding possible and true arrangements.
Looking to the longer term turquoise Hill's liquidity outlook will continue to be impacted either positively or negatively by various factors. Many of these are outside the company's control.
It's on the latest casebook reductions our base case incremental funding requirement as expected to be 3.6 billion and our minimum estimate is expected to be at least 3 billion.
These estimates incorporate principal payments of 1.9 billion.
Interest in some more charges of 1.1 billion.
Do not assume any re profiling of existing principal repayments or any additional external financing.
Well continue to progress or engagement with several key stakeholders, including real to address the longer term funding requirements of all you told boy.
Together with her financial and other advisors.
Centered evaluated and prioritized arranged financing options.
Including a possible reprofiling jeez existing data as well as the possibility of raising additional financing bio T.
Each of these options have implemented would have the effective reducing the incremental funding requirements.
However, successful implementation of these options it is subject to achieving alignment in agreement with the relevant stakeholders, including with Rio Tinto existing lenders any potential new lenders and the government of Mongolia.
And also as well as market conditions and other factors.
As we disclosed in our I'm DNA for the quarter. There are many factors that could impact the quantum of incremental funding requirements. These include but are not limited to the actual amounts of development capital required the timing of sustainable first production associated ramp up profile, a matter and what's the event.
Yes, I pay and implemented the impact of told at 19 as was the outcomes of the definitive estimate on the studies for panels woman too.
And with that I.
On the call back to you all.
Thanks, very much Luke if you Oh able to turn to the last page page 16. Please.
The ability of all your toll gates, you continue operating uninterrupted true the cold 19 pandemic, whilst many other mines around the world.
Why the shutdown will tell tale operations.
He is a testament to both the or you're talking about team. That's one of the Mongolian people.
Well, that's maintaining best in class safety and productivity levels.
Who are using remote technology to work, especially overseas to resolve technical issues and the underground development.
A workforce Oh, you're totally continues to excel quarter after quarter.
Although Mongolia was early to respond to the pandemic. That's one of the lowest number of cases in the world.
We remain diligent and continue to work with both local and federal authorities to prioritize to health and safety lumpy or you're told my team and the wider community.
Key milestones achieved during the quarter included the announcement of the updated mine design for panels zero.
Agreement to prioritize and progress a state owned and state funded power plant.
An increase in our 2020 gold production guidance and extended liquidity into 2022.
It's been just over a year now since we announced supervised underground cost and should the range and since then we've delivered on the key milestones that we set out that's fall off shelters.
And now as opposed to completing the new technical report for 2020, that'd be expected publish the third quarter.
This report will provide shareholders with additional data points information.
Which will highlight once again the quality of the only talk or what do you.
You proposition for investors.
In addition.
Updated data with great assist no ongoing efforts to advance our long term funding strategy.
Well go corporate 19 will continue to challenge or underground development.
We maintain our focus and commitment to deliver on the key value drivers, but it instrumental in unlocking the value embedded in this world class I said well you totally.
This concludes our prepared remarks, let me now turn the call back to the operator polling for questions.
What would you please.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone, you'll hear a three told proper acknowledging your request and your questions will be pulled in the order their received should you wish to decline for the pulling process. Please press star followed by too.
If you are using the speaker phone. Please look the handset before pressing any keys one moment for your first question.
Okay. So your first question comes from Hayden Barstow above Mcguire.
Please go ahead.
Morning, guys will save me up here I'm, just a couple from me Oh, there's some them.
On the underground I'm in reaction to talks about a little bit at the their results will not have made just on the piece you can start getting people in that keep the Mongolia, but it's not the fault current painless something's going to understand is that sort of starting to happen now see it your Rodney Mcmullen <unk> life, we're getting some decent people back on so at this club shop trends.
And it sort of so and also just on the titles IRI rages autumn and just try to understand I'm just.
Skype, where the ore reserves when how long would it be before you get that kinda give us color that is it is it sort of 10 15 years why this will understand how far why would be to get the rest of that sort of pop to the hog dried out real well the oh the mall in thanks.
Oh. Thanks, Thanks for the question Hayden, maybe what we'll do it maybe too and you can take the second question. Let me address the first question Hayden in relation to getting people to come true.
You're right you referred to earlier, so that there has been a a charter flights from Australia interim and Goliat last week.
Oh, well be managed to get people in from from post directly into up on Golia.
So that's that's good news and that's important because what allows us to do effectively Hayden make sure that people can in country for a long long time to replace the wall still and gets get some people out back home to their families and a imply a slight other expatriates in to two rig.
Placed them and effectively maintain the current levels all of coverage that we haven't country.
The the corn team timelines that you're referring to here you're right there very long.
So first of all we're pleased to note that.
The Mongolian authorities have enabled us to actually get pool.
Two country. This case chroma strongly.
With pleased with that level of Corporation.
But as you say, it's about a five weeks of corn team in Mongolia, and then upon return back to Australia. There's another two weeks. So its he's a long time lines of quarantine and therefore, you wouldn't expect these kinds of flights and changes to help and all that frequently.
Only because you're losing too much time in transition because people are being tied up in warranty.
But the good news is set up flights is taking place and.
On to tours as the CEO up all your told the you know him he and the team are looking for ways to to do this on a more regular basis at this stage were limited to do this from Australia.
At this stage, we are not able to extend to other countries. We talked in previous calls about South Africa for example, where some of our key personnel. This coming from that at the moment is not an option, but but having said that we're obviously pleased to be able to have started.
A limited service from from Australia to implement O'neil.
So I hope that answers. Your first question, Joe and are you able to address second question.
Sure. Thank you what happened.
Thank you for your question, sorry intensive from the killer recovery considerations and the timing of nice.
At the moment data.
Of would come to why to Oh at a variety of options.
Recoveries, the pillars and optimizing.
Panel one until you the mining of kind of wanted to ceiling coal price reduction from the learnings of panels. The right, but also by the inclusion of ice pillars gives us the opportunity Terry I have some into independence between the mining areas and so.
We are reviewing we are reviewing our options and out with a variety of options under consideration the timing of that material difference between options because in some options that might not be pillars that might be part of a panel at an alternate elevation and as a result, a different options have differ.
And since when it comes to the recoveries that material was something saying Oh.
Lysa devaluation of salaries options Oh, he's really looking at the practical timing, but one of the key factors is a practical timing of great value you know, it's an important consideration inside.
Opportunity to recover that high grade material. It's always possible is certainly part of the criteria that is that is being considered.
Not necessarily definitively and saw a your question, but I can say that eightys pot of consideration and different options have.
Oh I see if it's just when it comes to the timing of material.
And that includes August deepening of the shops and everything depending on where these new extraction levels up I don't want him to.
Hi, I'm really pleased to ask that question actually because you know as far as you know the options when looking at we're really not looking at really large changes really just talking about finishing nice elevations and so I just want to fives.
Including Shopko when Youre handling is oh, absolutely ray usable add usable in the current site pigeon I need to take me.
And that kind of infrastructure for the options that way considering they.
No problem or crush a one and the materials handling system shelf to its oh.
Absolutely idle to be I used.
Some of the for the Oh handling infrastructure closer to the footprint.
You know eat eat would obviously need to all time with elevation, but essentially a lot of sorry.
Mine line out areas for all handling a usable for all the options that were looking at so no. We don't need to take couldn't any shops, it's all about the or handling it infrastructure close to the footprint.
I think right and it just one for lucrative mainly due at like just on the power station I mean, if you. If you guys are the.
The litle type partner in little PPI partner and can she or the pallet under the lease accounting rules <unk> doesn't with did end up when your balance sheet, all the liability and up when your balance sheet anyway. It gets included as did whether you are build until the government those sort of understand how that'll with.
Yeah, Hayden thinks we're not giving me out as much appreciated [laughter].
It's a good question. It's also probably a bit early to answer that question you do out some familiarity it seems like the lease accounting rule. So you know what you're raising its about consideration, but it does ultimately matter.
Or the ultimate determination anyway is really based on <unk> will be based on the P.A. that gets no negotiated in the terms of that EPA.
As well.
<unk>.
Your your very right.
It's very likely to be the primary possibly I'm the only significant off takers, so that that will need to be taking into consideration, but it does ultimately depend on not just stopped but some of the other terms that that will get negotiated so.
You raised an issue we're definitely keeping in mind.
You know at the right time.
Well be able to be a bit more specific there, but it it will depend on you know it will be something that determined out the PPI itself is negotiated.
Okay, great really useful thanks for that goes on medical.
Your next question comes from Oscar Cabrera.
See IVC Oscar Please go ahead.
Well take a greater and good morning evening.
We won.
Oh.
Just wondering you know.
Let me first start with by strain that we appreciate the.
The increase transparency that you guys have found doesn't really helpful or analysis and puts question with regards to the increasing gold.
Production in 2020, not affecting 2021, but was wondering you can provide color on on what.
What this until that you know.
You have a you know better grade reconciliation card grades and therefore you know.
Even though you pool cards, great quote work it didn't affect 2021.
Oh, Thanks for the question and thanks for your comment earlier about.
Providing good transparency and clarity.
John It's not something that you were happy to take on Oh, because question on the widest gold, bringing forward into 2020, not affect 2021, what's driving that yes.
Yes, Joe. Thank you will find thank you Christian Oscar.
You know you talk about reconciliation and and I would say you know we can see needless to say to stay consistent performance for a reconciliation <unk> perspective, it so I.
And we aren't saying that as it a driving force.
At this point the.
You know the mine planning tainted some fantastic work on [laughter] optimization of sequence.
Great design and looking at.
The whole says to advance the Pete soft style than was anticipated, which is called into 2020 and that higher grade dying the money of that extends.
Oh wait 320, 21, and so really it's about the geometries your body.
And the right way mining and that is what's driving the linked to that period. So we booked into 2021.
But the current plan and we saying the consistency of that grade at each 2021.
Okay. Thank you very much.
[noise] them all.
Also happy to see that you will provide a ramp up schedule.
And your technical report.
What I was wondering though is with self reinforcing care and maintenance.
How long.
This call it yes.
How long before the.
Good good sustainable, presumably external production, sorry, but production thereafter or would be affected.
No. He can provide any color whatsoever with just wait until that could make a report itself.
I'd like to say wait until the technical quotas outlets could you just gave you that opening but maybe Oh I mean, John are you willing to provide a little bit off of color I'm. The technical report is pretty much along the corner, let's go but maybe trying to keep willing to maybe provide a bit of context around.
Oh sure all three and for the role they play and what they don't critical for maybe that would be helpful.
Yes, certainly all stinky.
Ah, Yes, sorry, [laughter] as you know the technical report will be coming out as we have nice hedge and you know we should we need to remind people that.
Typing on timing impacts.
Onto included in the technical report, it's an active and ongoing situation and.
As we've mentioned there is ongoing work sought to try to these as much of this work full it as we can spot ultimately.
Got you know, although we it making good progress towards getting ready for thinking it's not likely that we'll see major movements until there is up more free personnel movement intensive travel and we can get specialists back to Sosh and Sally.
The the team working on understanding what impacts of kind of 19, it might be and we anticipate that maybe I would say more about that towards the ended the year.
As we complete the definitive estimates.
For the long time production of the mine.
Hi shops, three and four are required to provide ventilation and sorry, you know they are critical.
Infrastructure for US we continue to make good progress towards set for sustainable production from panels you're right.
And we you know with the three shops that we have would say a construction materials handling infrastructure up but shops rainfall we will need to.
Continue to assess.
As we cancel would be impacts it came at 19 on the longer time production ran pop. We just it's just too early to be able to provide a.
A definitive answer there.
Okay, well, thanks very much for their complex you want and best of luck Hulu.
Thanks Oscar.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one.
Okay. So there are no further questions that this time. Please proceed.
Thank you operator.
He will then wrap up the cold very shortly I would say or a high level summary, I think you've seen that the second quarter has seen very.
Very strong performance and progress on many fronts, whether that is operational performance in the open pit.
Oh, whether its progress and some of the other key value drivers, whether it's a progressing the underground whether it's progressing with how oh, well, providing more visibility and time and flexibility on funding.
Of course will have to continue to live with the impacts of cold it for some time.
It's important for us and for the business that you don't get distracted by that we booked staying focused and focus on doing the things that we can control.
And of course.
Oh, he continues to be an outstanding asset and we as a management team together with the Oh, you're told her management team, we will put all or energy towards working without key stakeholders important lessons that includes you know we attended told government golia any capital providers as well as any other surprise.
A supply as a consultant in order to success like the local on the key milestones all that we've set out for you so with that but do you think you for a who joined the call. This morning.
For the questions and we'll finish the call with that thank you very much everyone Bye bye.
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