Q2 2020 Turquoise Hill Resources Ltd Earnings Call
Order to contain the spread of virus.
The only Togo business resilience team continues to work with from ongoing authorities to monitor and prevent the possibility of any corporate 19 cases occurring.
As I touched on earlier, the second quarter was another excellent quarter from an open pit productivity perspective.
Despite cobot 19, the mill continues to operate at above nameplate capacity levels.
Processing 106000 tonnes of ore per day over the quarter.
As a result of transitioning into higher grade material as part of our mine optimization efforts.
We experienced improved recovery rates increase gold production and lower see one cash costs.
We expect this to continue for the rest of 2020 and as a result, we've increased our whole vehicle guidance gold production guidance and also lowered our full year, Steve on cash cost guidance.
Safety is our highest priority or did you mean by that well it needs that we appear to all of our employees and contractors up the rights to work in a safe environment.
And to expect to be able to go home safe to their families at the end of the day.
The first six months of 2020 are all injury frequency rate increased slightly 2.22.
This marks a slight increase compared to last year's performance. However, it is still a very creditable performance and the or your to hover team is absolutely focused on learning from equity incidents.
We continue to review and revise its operating and safety policies and procedures.
Ensure that we maintain our best in class safety record.
But eight highlight on strong you track record in delivering on our commitments.
Over the past five years met or exceeded both our copper and gold production guidance to the market.
<unk> increased 2020 gold production guidance has not impacted our 2021 outlook and we look forward to benefiting from meaningfully higher gold production as we target higher gold grade or.
As a result of our mine optimization work.
I'd now turn the call over to Joanne body to take you through the underground development and the new panels zero mine design Joanne.
Thank you well Hello, everybody placed on slide nine.
Before turning to the technical report.
Let me provide you with a snapshot of progress elsewhere.
During the quarter ordinary course shortening of the newly commissioned shaft, Hey rights is completed using or not present technology with highlights retention plan.
Peter restrictions arising from private 19 shaft strain for a mine in care and maintenance, we continue to work towards the solution to enable specialist shaft sinking personnel to attend sauce.
Works on some underground materials handling infrastructure has flight data restrictions on the number of pets outsized to manage kivus non tank relied at risk.
We have high without saying primary crusher route one retention 20 fresh if following a paradigm shift timely.
The project continues to review the impacts of kind of at nine time on the underground development with the park on the flip currently underway.
Underground lateral development have not a record course huh.
Average monthly advancement of 1931 equivalent native compared to 1822 in quarter one.
Good progress also continues on the combined they call. It was just stand out want equivalent kilometers lateral development in the quota.
The restrictions imposed on title personnel numbers. So I my recall I rate climate of lateral development curries onto other critical path activities in Q3 2020 in order to minimize any potential kind of non tank impacts.
Please turn to slide 10.
[noise] Oh, you're totally has can play didn't submitted I knew you face ability study I TFS 20 to the government among calia with T. out you anticipating real life of an outsider technical report in the third quarter.
The technical report will incorporate impacts of the refines panels are a mine design on schedule sustainable production and capital cost estimates as well from outside of minerals is mineral resource statement.
The key highlights I decided to first production is now targeted as February 2023, with a range of tie that 20 to 20, Tony and sharing 2023.
Total development capital cost of 6.8 billion for the rank and 6.6 billion to 7.1 billion.
As a result for the inclusion of structural pillars to protect all handling infrastructure reclassification mineral reserves to mineral resources.
And that project manager advisors, we cannot anticipate that a proportionate they supposedly recoverable with into additional studies currently underway.
Lateral development and construction of the underground material handling system continues to progress favorably towards the sustainable production from panels IRI. Despite the challenges covered non tank.
It's important to stress at the ongoing impacts of kind of in non pain and not yet to nine undermine under if you bought the project. Therefore that will not be included in the technical report.
The next five if this on studies ongoing a includes or a view of design options a panel one until they sort of like panels. Your learnings. In addition to program of work to assess the impacts of kind of at 19.
I'll be available for questions, but in the meantime, or would you like to continue.
Yeah, Thanks, very much Sterling before I turn you over to lose a let me provide you with just a quick update on our discussions with the government all Mongolia.
If you turn to slide 11, as you know you Tolga has an obligation to secure a long term domestic source of powerful the or you're told we mine on the 20 as of June when you're told brand. The government. The portfolio reached an agreement to join you prioritize and progress a state owned and state funded power plant uptime and pulled.
Good.
To that in the power sector framework agreement that was signed in December 2018 is an amended accordingly.
And it contains a number of key milestones including.
The reaching over an agreement with the current power provider you know Mongolian power Corporation to extend the existing power import agreement by the person launch next year.
The signing or ATP, a at power purchase agreement for the supply of power to the Oyu Tolgoi mine by that so he's supposed to launch next year.
Finally, the commencement of construction Oh, no later than the first of July of next year with the commissioning within four years thereafter.
If some of these milestones cannot be met then or your tolga is entitled to select from and implemented.
The alternative power solutions specified in the power sector framework agreement, including or your Togo led coal fired power plant or a primary renewables based solution.
In terms of the next page.
Oh provides you just a very brief update on some of the other aspects of our dialogue with the government of Mongolia.
Tox dispute remains unsettled for the time be.
Might recall Weve informed the markets on prior calls some of the 20 the February or your Tolga hub to see that with the initiation of a formal international arbitration in accordance with the dispute resolution provisions of the investment agreement that continues to be the case.
We remain of course of the opinion that or you're told the has paid all taxes and charges for pod.
And with regards to progressing the 2019 parliamentary resolution in relation to the parliamentary working group report.
We have had engagement in the second quarter of this year with the working group that had been put together by the government.
The focus and the progress of these discussions since it launched the around power and we've just provided you with an update on that.
Following last months parliamentary elections, or we are now looking forward to reengaging with the new government in order to so the progress issues that have been identified in the resolution.
Let's now turn the call over to meet our CFO to take you through our financial highlights Luke.
Thanks, All Hello, everyone.
You can please turn with me this slide 13.
I'll give you a summary of our key financial metrics for Q2 of touching 20.
Starting off with revenue, which decreased 27% from two to 2019.
And that's principally due to the 51% decrease in Cote gold production together with the 7% decrease in copper production.
No. The result, mainly from the transition of baseball right, so lower grade faith or be or in the southwest area pets.
In addition, the average price of copper fell by 12%.
Although that was favorably offset by the impact of a 31% increase and the average price of gold.
These significant price fluctuations were primarily due to the impact of club at night keen on global commodity markets.
The reduction in revenue contributed to lower cash generated from operating activities.
What it was also impacted by team fasting working capital movements.
You too twentytwenty when compared to Q2 2019.
Working capital in Q2, 2020 was negatively impacted by increasing trade receivables driven by the impact of rising copper prices on their revaluation happy ended the period.
Great payables decreased three Q2 2020 compared to an increase for Q2 2019.
It's primarily as result of lower capital expenditure in Q2, when compared in Q2 2021 compared to 29 team.
The significant degrees decrease in gold protection in Q2, Twentytwenty versus Q2 2018.
It was also the primary reason for the increase in C. One cash costs.
The decrease resulted in lower gold revenue credits.
The period on period, an increase in all in sustaining costs will not as significant as they increase since the one cash costs.
I'm not mainly due to the offsetting impact of lower open pit sustaining capital and lower royalty costs due to the lower sales revenue.
But I can ask you to now turn to slide 14.
You'll see that Turquoise Hill house 1.5 billion of available liquidity.
Which under current production is expected to be sufficient to meet the requirements of the company.
Including our operations in underground development into early 2022.
The expectation has improved due mainly to lower estimated LIBOR rates on project finance interest payments.
Continued focus on operating cost savings another optimization efforts as well as updated assumptions regarding the impacts of Togut 19.
As a result of this improvement and liquidity, we decided to further it decided to defer further discussions with Rio Tinto regarding possible and term funding arrangements.
Looking into 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.
Based 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.
Well the interest in similar charges of 1.1 billion.
And do not assume any re profiling of existing principal repayments or any additional external financing.
We'll continue to progress or engagement with several key stakeholders, including Maria.
To address the longer term funding requirements of all your tolgoi.
Together with our financial or other advisors, we have already considered evaluated and prioritize the range of financing options.
Including a possible reprofiling about use existing debt 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 and the potential new lenders and the government of Mongolia.
And also as well as market conditions and other factors.
As we disclosed in our own DNA for the quarter. There are many factors that could impact the quantum of the incremental funding requirements. These include but are not limited to the actual amounts of development capital required the timing of sustainable first production and associated wrap up profile, a matter and what's the event.
Yes that they have implemented the impact of Kogut 19 as was the outcomes of the definitive estimate on the studies for panels wanting to.
And with that I I'm happy to hand, 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 told go to continue operating uninterrupted through the Cobiz 19 pandemic, whilst many other mines around the world So hot to either shut down or curtail operations.
As a testament to both the or you're told my team I suppose the Mongolian people, but that's maintaining best in class safety and productivity levels.
Well using remote technology to work, especially its overseas to resolve technical issues in the underground development.
Our workforce at Oyu Tolgoi continues to excel quarter after quarter.
Well Donlin gold it was early to respond to the pandemic and has 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 the health and safety of the or you're probably my team and the wider community.
Key milestones achieved during the quarter included the announcement of the updated mine design for panels zero.
An 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've announced supervised underground cost in share to range and since then we've delivered on the key milestones that we set out thus far for our shareholders.
And now the proceeds of completing the new technical report for 2020 that we expect to publish in the third quarter.
This report will provide shareholders with additional data points information, which will highlight once again the quality of the are you talking ore body and the value proposition for investors.
In addition, the updated data with great assist in our ongoing efforts to advance our long term funding strategy.
Well go Cobot 19 will continue to challenge our underground development.
We maintain our focus and commitment.
The live on the key value drivers are instrumental in unlocking the value embedded in this world class and I said, Oh, you're totally.
So this concludes our prepared remarks, let me now turn the call back to the operator.
Any questions operator over to you piece.
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 tone proper acknowledging a request and your questions will be pulled in the order their received should you wish to decline from the pulling process. Please press star followed by too.
If you are using a speaker phone. Please flip the handset before pressing any keys one moment for your first question.
Okay. So your first question comes from Hayden Barstow above Mcguire. Please.
Please go ahead.
Morning, Gerdaus evening over here I'm, just a couple from me Oh, it's from them.
On the underground I mean, really I sort of talked about a little bit at the their results well cannot have and just on the appears you can start getting people in that keep among all the but it's like a far away current painless something's going to understand is that sort of starting to happen now see it your arnie a month or so why from getting some place in Paypal back on so at this club shop trained.
<unk> sort of stuff and also just on him the panels IRI rages autumn and just try to understand I'm, just the scope of where the ore reserves when how long would have they before you get that can it get those pillows AD is it is instead of 10 15 years or why this one is and how far are why would pay to get the rest of that sort of parts of the high grade out real well the.
ER of them on 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 Imts who country.
You're right what you referred to earlier so that there has been a a charter flight from Australia into my goal here early last week.
Oh, well be managed to get people in from from post directly into a bone golia.
So that's that's good news and that's important because what allows us to do effectively a hayden make sure that people will be in country for a long long time.
To replace the roster and gets get some people out back home to their families and a in Sly a fly other expatriates in two to replace them and effectively maintain the current levels off of coverage that we haven't country.
The the corn team timelines that you're referring to hate and you're right there very long.
So first of all we're pleased to note that you know the Mongolian authorities have enabled us to actually get pool.
Into country in this case chroma strayer.
Were pleased with that level of corporation.
But as you say, it's about a five weeks of Korean 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 kind of flights and changes to happen all that frequently.
King only because you're losing too much time in transition because people are being tied up in core R&D.
But the good news is that that flight is taking place and.
I'm under Taurus Who's 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 a we are not able to extend this to other countries. We talked in previous calls about South Africa. For example, where some of our key personnel is coming from that at the moment is not an option, but having said that we're obviously pleased to be able to have at least started.
A limited service from from Australia into interim I'm going there.
So I hope that answers. Your first question, Joe and are you able to address the second question.
I guess, you're thinking of I hadn't.
Thanks for your question, sorry intensive some <unk> the a killer recovery considerations and the timing is nice at the mine. It there's a packer before I come to lie to you I look at a variety of options for recoveries of pillar.
Yes, and optimizing our panel one into it the mining is kind of went into it killing contract research reduction funneling said panels IRI bottle site. The inclusion of ice pillars gives us the opportunity Terry I had some in the independence between the mining areas and salaries.
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 pellets MIT part of a panel at an all kind of elevation and as a result.
Got different options have different answers when it comes to the recoveries that materially something say now.
Oh Lysa devaluation in salaries options is 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 a the opportunity to recover that high grade material, it's always possible. They certainly part of the car.
Area that is there anything can sit it so I can't necessarily definitively and saw a your question, but I can say that it is part of consideration and different options have I'd add variety of eight cents when it comes to the timing of that material.
And that includes August deepening is the shops and everything depending on whether it's new extraction levels up I don't want him to it.
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 trying to really just talking about finishing nice elevations inside shaft one to five.
Including Shopkins and you're handling is Oh, you know absolutely ray usable and usable in their current site pigeon I need to take name.
As I've sat kind of infrastructure for the options that way considering they you know primary crusher, one and the materials handling system shop to its Oh, yeah, absolutely idle to be I, you used someone says to the Apple handling infrastructure closer to the footprint.
Eat eat would obviously need to offer with elevation, but essentially a lot of size nine line areas for all handling I usable for all of 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.
Okay, Great and just one for lucrative middle of you at like just on the power station I mean, if you. If you guys are the.
The nine off tight partner in low pay I thought really can share of the pellet under the lease accounting rules that doesn't have a did end up on your balance sheet or the liability enough when your balance sheet anyway and it gets included.
That whether you are well below the government those sort of understand how that'll woods.
Yeah Hayden Ah, Thanks, you're not giving me out as much appreciated [laughter] Ah, yes, it look and 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 rules. So you know what you're raising is about.
Consideration, but it does ultimately matter.
Or the ultimate determination anyway is really based on our will be based on the P.A. that gets no big negotiated and the terms of that EPA as well.
No final decision.
Your your very right that out he is very likely to be the primary possibly I'm. The only significant offtaker, so that that will need to be taking into consideration, but it does ultimately you know depend on not just bad, but but some of the other terms that that will get negotiated so.
You raised an issue were definitely keeping it in mind and.
The right time, you know well, we'll be able to be a bit more specific there, but it will depend on you know it will be something that determined out the VPA itself is negotiated.
Okay, great really useful thanks for that go to a hiccup.
Your next question comes from Oscar Cabrera, well see IVC Oscar. Please go ahead.
Thank you operator, and good morning evening.
Every one.
Oh.
I was just wondering you know there or.
The first started with by saying that we appreciate the.
The increase transparency that you guys have found doesn't really helpful or analysis and first question is with regards to the increasing goal.
Production in 2020, not affecting 2021 I was wondering if you can provide color on on what.
What this entail is that you know.
You have a you know better grade reconciliation I'm tired grapes, and therefore you know.
Even though you pool has great well worth it didn't affect 2021.
So Scott Thanks for the question then thanks for your comment earlier about.
Providing a good transparency and clarity.
Sure Ryan it's not something that you were happy to take on Austin's question on the widest gold, bringing forward into 2020, not affect 2021, what's driving that yes.
Yes sure. Thank you often think if he Christian Oscar site.
You know you know you talk that reconciliation and and I would say you know we can see needless to say to say consistent performance for a reconciliation <unk> perspective that size.
And we aren't saying that as a a driving force I at this point the.
At the mine planning tainted some fantastic work on [laughter] optimization of sequence.
Andre design and looking at resources to advance the Pete soft stuff than was anticipated we should support calls into twentytwenty and that high grade zine the money that extends.
Oh away 320, 21, and so really it's about the geometry that youre Buddy.
And the right way mining and that is what's driving the linked to that period. So we booked into 2021.
With the current plan and my saying the consistency of that grade at each 2021.
Okay. Thank you very much.
Then or some deals so happy to see that you will provide a ramp up schedule and your technical report.
What I was wondering though there with shop reinforcing care and maintenance.
How long [laughter] this continues.
How long before you know the.
Is it good sustainable sort of number external production, sorry, but production thereafter or would be affected.
No. He can provide any color whatsoever with just wait until the chemical reported so.
I'd like to say wait until the technical quotas outlets could you just gave me that opening but maybe Oh I mean, John are you willing to provide a little bit off of of Carla I mean, the technical report is pretty much around the corner Oscar but maybe try and if you're willing to maybe provide a bit of context around.
Shaw three and four in the role they play and what they are critical for maybe that would be helpful.
Yes, certainly all stinky [noise].
Ah, Yes, sorry, [laughter] as you know you know what the technical report will be coming out as we have nice hedge and you know we should we need to come on take let.
'cause it nonpaying impacts.
Onto included in the technical report, it's an active an ongoing situation and.
As we've mentioned there is ongoing like sought to try to say a news as much of this work full it as we can but ultimately.
You know, although we it making good progress towards getting ready so thinking it's not likely that we'll see major movements until there is a more free personnel movement intensive traveling we can get specialists back to size and Sally.
The the team working on understanding what impacts of kind of 19 might they and we anticipate that we 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 shaft, three and four are required to provide ventilation and say you know they are critical.
Infrastructure for US we continue to make good progress tool, it's a set for sustainable production from panels the right.
And with you know with the three shops that we have its a construction materials handling infrastructure I bet shafts rainfall, we will need to.
I continue to assess.
As we castlewood impacts it kind of at 19 on the longer time production ramps up we had just it's just.
Too early to be able to provide a definitive answer there.
Okay. Okay. Thanks, very much where they can get Sean and a this sort of look a little.
Thanks Oscar.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one.
Okay. So there were no further questions that this time. Please proceed.
Thank you operator.
He will then wrap up the called very shortly I would say or as a high level summary.
I think you've seen that the second gotten seem very.
Very strong performance and progress on many fronts, whether that is operational performance in the open pits over that progress and some of the other key value drivers, whether it's a progressing the underground whether it's progressing with how oh, providing more visibility and time flexibility.
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 go to stay 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 our energy towards working without he stakeholders and partners and that includes you know Rio Tinto government Golia any capital providers as well as any other surprise.
A supply as a consultant in order to successfully the liberal on the key milestones Oh that we've set out for you. So with that let me think Q4.
Joining 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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