Q4 2020 Turquoise Hill Resources Ltd Earnings Call
Okay.
[music] true.
Good morning, ladies and gentlemen, and welcome to the Turquoise Hill resources fourth quarter 2020 of itself at the time all lines are in a listen only mode.
Following the presentation, we will conduct a question and answer session.
The time joined this call you need assistance, Please press star zero for the operator.
Call is being recorded on Wednesday March nine 2020.
Now, let's turn the conference over to Roy Mcdowall head of Investor Relations from Communications. Please go ahead.
Thank you Joanna good morning, I'm Roy Mcdowall head of Investor Relations and communications welcome to our fourth quarter and year end 2020 financial results Conference call on Monday, We released our fourth quarter and year end 2020 results press release, MD&A and financial statements. These items are available on the website and SEDAR with me today on the call the Steeve thibeault.
I was the interim CEO, Luke Colton, our CFO and Jo Anne Dudley our C of O. This call and presentation includes certain forward looking statements and information we have for each of the forward looking statements section of the annual information form dated March eight 2021 supplemented by our MD&A for the 12 months ended December 31 March of 'twenty.
Before I hand over the call I would like to formally introduce Peter BOLE, who was appointed interim CEO of Turquoise Hill last Thursday.
Any of you on the call know Steve from his tenure as the CFO at Turquoise Hill from 2014% of 2017 in.
In addition to being tier accused CFO.
He was also on the or your total board and has been to the site in Mongolia multiple times and was instrumental in securing the $4 4 billion project finance facility in 2015.
You can find our presentation on our website in the financial Technical report section.
And now I'd like to turn the call over to Steve.
Thank you Ryan and good morning, everyone before going any further I would like to take a moment to thank all of Coleman, which serve as a CEO of circle itself on the nearly three years, we thank all for the service and wish him well.
As you know I returned to Turquoise Hill, just five days ago, and although it will take me a few weeks to fully up get up to speed. My survey with tier of Q has enabled me to into ground running and the most myself and the key strategic objectives first securing funding to complete the underground development.
The second to walk for the government of the mogul, Yeah, and Rio Tinto the finalized a long term power supply for you to go in and third to update all replaced the existing GDP and the matter that is mutually beneficial to all parties.
I'm sure as you were aware of all of these discussions are in advanced stages and enjoying a strong team debt. That's continued to move these issues forward while price rise in the interest of Turquoise Hill shareholders.
I will now walk through the year and update as efficiently as possible and then we will open the call for Q&A.
Please note on slide two and three the contained our cautionary statements and I would encourage you to read to read them.
On slide four.
You will see 'twenty 'twenty was a very busy year that saw the key milestone of the new mine design for panel zero and the updated Oyu Tolgoi Technical report and finally, the definitive estimate that Rick on Sun, the compelling value proposition that Oyu Tolgoi provides investors.
Yes.
On slide five you will see Oyu Tolgoi 'twenty 'twenty operating performance, which once again has smith or other per for the original production guidance, we set at the beginning of the year of.
Of note you saw Q4 was a very strong quarter for gold production and now looking at our 'twenty 'twenty. One goal of forecast of 500 to 550000 ounces. You can appreciate all of this will contribute to our 'twenty 'twenty. One estimated she won copper cash costs of <unk>.
The 50 to 80 cents per pound of copper produce.
'twenty 'twenty, one is set to be of great year for Oyu Tolgoi.
Slide six I like all the other guys safety records and the continue above nameplate capacity performance of the mill.
The all injury frequency rate asphalt into a new record of 0.15, and although we encoder more order or with our of grade gold in 2020 on average we continue to operate the mill at above nameplate capacity.
Okay.
On slide seven slide seven is extremely important as the most treat all you to go of commitment to operate in the ESG compliant manner.
Operating in the Gobi Desert provides the additional challenge of the water.
Scarcity.
And you will see from the slide that our operation use only approximately one third of the global average of cubic meters of water per ton of ore process.
And 'twenty 'twenty all day to go he was awarded the copper of Mark.
In 2019 the cup of remark is the first and only program for responsible production in the copper industry.
The copper Mark took the United Nations sustainable development goals as the framework for responsible production and created a set of thirty-two environmental social and governance issue area associated with sourcing minerals and metal.
By meeting the criteria all you to go has again proven its continued commitment to environmental standard.
With that I will now end the call over to Joe on Dudley, our Chief operating officer.
Thank you very much say.
On slide <unk> you.
You can see the E. I can pitch on the left hand side and the Hugo North lift one of underground development on the right hand side.
Combined these two of body has the most Tonight is 31, yeah lots of mine out of the base.
This is at the 'twenty 'twenty reserves up day.
Annual information form.
The definitive estimate from places in the December 'twenty, 'twenty and clean for online two locations on the panels there of boundary.
And an optimized store point laugh.
To minimize exposure to the allowance Hulk.
Yeah.
This resulted in a non material increase.
And the Hugo North mineral reserves of 10 million tonnes of ore.
There are kind of one 8 million tonnes contained copper.
And point of <unk> 7 million assay.
Line belt.
The underground doors, the average copper grade of 1.52%, which is more than three times higher in the ICU.
Or is the income time point, Trey one grams gold per tonne.
Like are you Crazy uncalled for many of us as.
Neither the trade claim trade millions of tons of can kind of copper and $7 2 million ounces per ton gold.
And you said that price incorporates a decrease of 41 million tons of for 2019, which included the <unk>.
<unk> from mining change, Jason the NATO process assumption and times of Jay to me slipped is on criteria.
The largest positive change for the 2020 can take many of our or is the <unk>.
Equation of the eco design criteria.
Although the positive it was non mark to just despite depletion for money.
If we turn to slide nine.
The materials handling system, one progress continues.
The civil work complete on primary crusher, one and steel and cable installation continuing.
The first sustainable production panels. The right type of 2022 is on track the continues to be monitored.
Either all of the underground lateral development has now reached the 3000 equivalent Nathan.
The development of the Quad the call first draw Bell substantially complete.
Oh surface infrastructure required for sustainable production of all side now complete.
With the system.
The representatives on site installation and commissioning of sinking related equipment continued and shaft right.
In Q4, 2020 activities Chockfull of focused on completing all construction and commissioning activities for life testing and verification in preparation for the shops.
Which commenced in early February 2021.
However, the Tigers the thing monitored, particularly for panel one and panel two ramp up with shock drain for support and we'll communicate any implications of the appropriate time.
The commencement of the on the carve in 'twenty from one is it came off time and it is critical to ensure that once.
Beyond the cat and draw upon construction continues unimpeded.
This will require the technical support such as confidence in commissioning dates for the materials handling system as.
Well as the achievement of non technical criteria for what.
Working with Oyu Tolgoi and other stakeholders to ensure the critical supporting FX for successful project are in play.
Prior to commencing beyond the cash.
The Vermont studies are in progress and are focused on the evaluation of different zone in sequencing options. The panel one and two of these studies the underpinned by additional geology and geotechnical data is being collected from underground and surface drilling.
The design update for a subset of panel two is expected in half two 2021.
With that I'll now hand, the call Ivy Hill, Luke Colton of Chief Financial Officer.
Thanks, Joanne and good morning, everyone.
If I could ask you to please turn to slide 10, and I'll provide a summary of our key financial metrics for Q4 and full year of 2020.
Revenue for Q4, 2020 increased 83 per cent from Q4 2019.
And that's driven by increases in both copper and gold production and price.
For full year 2020 revenue decreased 7.5% versus 2019, reflecting overall lower gold production, partially offset by 27% higher average gold prices and marginal increases in both copper production and ever average copper prices.
And 3% respectively.
The lower gold production with costs for mining lower grade growth areas of the open pit through the majority of 2020.
2020 cash generated from operating activities before interest and tax with the 9% higher than in 2019.
That's due to favorable working capital movements, partially offset by the decrease in revenue.
Lower gold credits in 2020 was the main reason for the increases for the increase in the unit cost basis for C. One cash costs.
The unit cost basis for all in sustaining cost was also impacted by the lower gold credits. However, this was more than offset by lower open pit sustaining capital expenditure.
Yeah.
Please turn to side of London.
You'll see of at Turquoise Hill had liquidity of $1 1 billion at the.
The 30 <unk> of December 2020.
Which is expected to be sufficient to meet.
Our requirements, including continued underground development into Q3 of 2022.
This has improved from our previous estimate of Q2, 2022, and that's driven largely by improved commodity price assumptions.
The base case incremental funding requirement at the 30 <unk> of December 2020 is.
Is estimated to be $2 3 billion and.
And that's down from the 3 billion reported previously.
The improvement is driven primarily by improved commodity price assumptions over the peak funding period.
The incremental funding of requirement includes the current project finance debt service and related costs as well as principal repayments and therefore is estimated before any additional supplemental senior debt re profiling of existing debt is considered.
As per the Mou signed between Turquoise Hill and Rio Tinto in September 2020, both parties support the pursuit of re profiling O T. The existing debt as well of securing an additional $500 million of supplemental senior debt.
Profiling of the existing principal repayments would decrease the company's incremental funding of requirement.
Hi up to $1 4 billion.
Our liquidity outlook and estimated incremental funding of requirement will continue to be impacted either positively or negatively by various factors many of which are outside of the company's control.
The company continues to advance financing options to minimize the incremental funding requirement.
As announced on the 20 <unk> of December 2022.
Turquoise Hill of completed the first phase of its comprehensive funding review process and we continue discussions with Rio on these options in the context of the company's funding strategy.
And the of the options if implemented would have the effect of reducing the company's incremental funding requirement.
Successful implementation of such options may be it may require us to achieve alignment in agreement with the relevant stakeholders, including Rio existing lenders potential new lenders as well as the government of Bongo yeah.
Finally in Q1, 'twenty 'twenty, one the company purchased copper and gold put options to establish a synthetic copper an angle.
And gold price for this.
It was done to provide increased certainty around the company's liquidity horizon.
Thank you very much I'll now turn the presentation back to Steve.
Thank you Luke.
I'm going to use the key milestone at line on Slide 12 provides an overview of what we are working through in 2021 to keep us on track for the first sustainable production in the October 'twenty 'twenty two.
The first milestone I will address is power.
As you know we had the first power of milestone the extension of the I M. P. C supply agreement you on March <unk> 2021, and the second milestone the signing of the power purchase agreement due March 31st.
On March 25th the government of mogul yacht, formerly noticed a little boy that the Devon Tolgoi power station project will be implemented.
And we have and have requested the milestone date on the the P. S. S agreement the extended.
All of <unk> are currently engaged with the government of Mongolia to agreed to a standstill period. Following the lapse of the March 1st milestone.
And we will continue to work with gun to ensure a secure stable and reliable long term power solution is implemented.
The second milestone we are focused on is the arbitration with Rio Tinto and resolving the forecast funding gap.
As we stated on previous calls the arbitration proceedings of comments in British Columbia, and we are bound by confidentiality agreements that prohibit us to comment on the arbitration proceedings until a binding decision is reached at.
At this time, we expect the arbitration proceedings to conclude in me.
On the funding front as Luke outlined earlier.
Our base case funding GAAP as at 31 December 2020 is $2 3 billion.
We have evaluated and presented financing option to Rio Tinto and they were doing this and are currently in discussions to finalize a funding solution that takes into consideration to forecast performance of the underground project with the objective of maximizing debt and minimizing our rights offering.
The only to go of independent review of the cost and schedule delays continued to advance and as with the arbitration. We will now be in the position to comment on the findings until after the review is completed.
As most of the view on the call are aware the key milestone of 2021 is the undercut blasting.
Reschedule for June 2021.
Once Commons the owned the cut and draw point construction continues unimpeded.
Turquoise Hill is engaged with Rio Tinto and urge the nest to address and agree on the other cut milestone with the joint objective of preserving the timeline for the project completion.
I would like to thank you all for taking the time to join our conference call and I would now like to turn the call back to the operator for any questions.
Thank you ladies.
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 the Touchtone phone you will hear with free Tom prompt acknowledging of request.
You are using the speaker phone please lift the handset before pressing any Keith.
First question comes from Rs <unk> of Scotiabank. Please go ahead.
One of them.
Please.
Okay.
That's the bad right.
Yeah.
The liquidity gap estimation of the $2 3 billion.
That's down from $3 billion in the third.
Third quarter can you talk about how much of that $700 million decrease is strictly attributable to higher commodity pricing and then secondly, what's the assumed minimum cash balance in this assumption.
Okay.
Look 10 years old debt question. Please.
Yes of course, thank you for the question in terms of R. R.
The funding GAAP, our remaining funding GAAP, you're correct that the reduced from the $3 billion.
Down to $2 3 billion as per our our year end estimates.
You are all of Europe, I think you've probably about the you've already answered the question and asking it but the majority of the vast majority of the of that decrease is actually related to improve the.
<unk> price assumptions for both copper and the golf.
In terms of the way that $2 3 billion.
Works in terms of any event.
You know buffer amount at the end of.
That 2.3 is the full amount you.
You know until we run out of cash so so that that that that is the full amount of the requirements.
Oh I see so there is no minimum cash balance of assumed in that okay.
And then Steve.
With the change here.
Terms of off leaving and you entering is there any change in the way you are approaching the arbitration like do you do you plan to follow that through in terms of getting an arbitration decision.
The the arbitration is continuing okay.
Like I mentioned like I mentioned previously the objective is really to clarified the roles of each of that was mentioned previously and so I think that's important that we all proceeding and I.
I'm confident in that call for the I know what that will help for us both parties. The Rio Tinto. The argues you'll have a better understanding of the range and so we're proceeding.
Okay and then finally is.
Coming back to the financing again is the non dilutive streaming transactions still an option that's being considered or is that now off the table.
Luke you want to provide the detail.
Yeah, No of course, so listen it's a good question and let me just start by I guess reiterating our funding strategy.
And it has made it you know the.
That it is based obviously on the stuff from basic principles.
That is really finding the best the cost of capital balanced with the need to ensure efficiency and stability in how we fund.
I'm careful and thorough consideration by the board and the special committee of the relevant merits of the various sources of debt and equity and finding alignments.
With the relevant stakeholders and and once once the burdens of special Committee are happy.
We have made significant progress on stabilizing and enhancing our financial situation this quarter and as I've already talked about that's driven by an extension of our liquidity and our hedging program.
And management, we are obviously working under the supervision of the special Committee and we remain committed to ensuring but you know the relevant negotiations continue with the view to arriving at of funding plan that is in the best interest of the company and in terms of the options that have been looked at there there really isn't any change from what we've communicated.
The Kate it in prior quarters. So so we continue you know we we we've looked at obviously the the options that are summarized in the Mou, which include re profiling additional supplemental senior debt.
Our global medium term note program and of course, we've we've we've done a lot of work around the streaming as well as you indicated.
Yes.
Thank you very much.
Thanks, Chris.
Thank you. The next question comes from of Dalton Barreto at Canaccord. Please go ahead.
Alright. Thank you good morning, guys.
Couple of more questions on the funding side of things. So first question.
The $2 3 billion funding GAAP, that's based on the $6 75 billion of charge I can see are you going to seek incremental liquidity to cover of protection over on up to your 15% sensitivity.
Okay. Good question.
I mean, guys you're willing to send after five days of another round of all of the question the round funding and that detail. So Luca will answer all of those one.
And the Liberals, whom proceed.
Okay.
Yeah. Thanks, Thanks, Steve I'm happy to try and answer that question I'm not I'm not 100% sure what 15 per cent is being referred to them, but obviously the focus of of management and the special Committee is to secure funding that is sufficient.
To meet the company's reasonable requirements and to make sure that we continue we can continue to do that.
Into the future and and for that that that's the reason why we we we've investigated the various options that debt we have investigated.
You know.
And in terms of that $2 $3 billion number and some of this has been stated previously if you know if we're successful in achieving our re profiling of objectives that will that will of course reduce that funding gap from the $2 3 billion by $1 4 billion, So what where do you sit down debt.
$900 million.
We also are in the Mou that was signed in September there was there was alignment that we should be seeking supplemental senior debt of 500 million. If we're able to do that that reduces the funding gap from you know the 900 million down to $400 million and from there you know we have.
We've looked at various different options and I've kind of summarized what those options are already and you know those options. If implemented would would would put us in a position where we could we could fill that that remaining funding GAAP of 400 million or or potentially for the more than that for $100 million.
And of course, you know as the final Backstopped.
We can't we can't completely discount the possibility of an equity offering but from from our perspective, you know the the objective continues to be to maximize the sort of low cost debt financing and minimize you know the quantum of of any equity offering as much as possible.
Okay, great. So just to clarify though of that 15% comes from the sensitivity of that Rio put out around the definitive estimate.
So maybe another question on the tax payments that you've made in February.
I think it was just over $200 million is that.
Coming out of your current liquidity.
Yeah. So the tax the tax payments have already been made so the liquidity for cats that that I think I.
I just discussed of into Q3 2022.
Incorporates the payments of those two tax invoices, which which the two together were about $230 million U S.
Alright.
But you disclose your liquidity position as of December 31st of these payments remains of February, but youre, saying the Q3 number in pursuit of these payments for me.
No I'm, saying that on the 30 <unk> of December we had liquidity of $1 1 billion I mean, obviously there there's been activity since then but what I'm, saying is in terms of the number that we just put out for a year and in terms of our liquidity forecast, which is that we have liquidity into the into Q3 of <unk>.
'twenty 'twenty two that forecast incorporates the payments of those few tax invoices.
Right. Okay, and then just maybe switching to the undercut and again this is a bit of of funding question here, but the.
The targeted date isn't Zhou of the Mongolian election as of June on the channel.
On the off chance that you guys don't wrap everything up.
Two of level that is sufficient to initiate the undercut.
But what are your costs associated with every months delay, let's say it gets delayed by three months, what's that going of coffee.
Mhm.
Look the ones you want to do you ever Devin internal debt one of.
Now I'll turn the and I'll be honest yeah. Okay go ahead.
So I don't listen I don't think that the information. Unfortunately, I don't think that's information that's in the public domain.
What I probably can refer you to is some sensitivity that we've done and prior period financial statements.
Debt that indicated the impact of you know delay to to the first sustainable production.
Would have a you know we did a sort of sensitivity around that and I believe the sensitivity was you know for every one month of delay that had a an impact on on value or an NPV of about $100 million U S.
So hopefully that helps to answer your question a bit.
No that's great.
The context and maybe just.
Just on the sorry, sorry to interrupt.
I would say that we are all aware okay at the company at O T. In the edge of this that this is this this is a key milestone and I can tell you we have a board meeting coming in pretty soon at the beauty level and definitely this is a this is a hot topic to make sure that we're all aligned to make that decision.
And there are different things that are being done at the moment to align our solve for that for us to move ahead with the June.
Okay of.
And then maybe just one last one from me are you in a position of Telus.
<unk> purchased in terms of the put just notional amount of strike price is that sort of thing.
Look I want to.
We Gotta go ahead.
Yeah. So again, that's unfortunately, not information that we've put in in the public domain, but obviously the the intent of the sort of plain vanilla put options that we've we've put in place for a for a period of about 12 months.
The intention of that is obviously to preserve our liquidity position on the downside so effectively protect.
Protect us from sort of downside pricing maintain that liquidity position for as long as possible. So that we can obviously have the time that we need to you know continue. These other important work streams that are underway and and what what obviously the hedging program doesn't do is.
It is cap the upside so you know if prices.
If the prices continue to improve for copper or you know of gold bounces back. Then then you know where we're not we're not that doesn't put what what we've done doesn't put us in the negative position in terms of being able to capture that upside.
Got it thank you guys.
Okay. Thanks.
Thank you. The next question comes from Craig Hutchison at TD Securities. Please go ahead.
Hi, Good morning, Steve Good to hear your voice again.
Good morning, Greg.
Just if you guys touched on the financing.
Quite a lot of detail. This morning, but just in terms of the sequence of events can you walk us through how you sort of see the sequence of events unfolding do you have to wait until the arbitration is complete before you can work on the debt re profiling.
In terms of locking up the supplemental debt with Rio Tinto, Q, maybe kind of give us some ballpark milestones until you kind of see that playing out.
I will take I would think debt one Greg.
I think that definitely the.
Work has been done to other tend to understand the.
And in couple of a couple of initial context. We're definitely we are working in the next couple of weeks and months I mean, that's who we're talking short term here, that's when it will really engaged pretty pretty heavily.
Heavily or more AVR and definitely the arbitration will help us to redefine that we're expecting to be completed in may. We're following that definitely the case the role of the will be clearer and will move ahead. Okay. So I would say and your timeframe you should you should count I mean between now and June C of lot of activities here.
Okay.
The depth of your profile and discussions going well.
Yes.
Like I say, Craig where there was a there was some some discussion.
And yeah, I would say that we are the estimate we have of one point for we're quite confident.
Is your expectation that the the new CEO is if it's not yourself well.
We will be independent and you know the new for member will also be independent as well.
I am not going to be able to comment on that one but I can tell you that the board as.
The started the process of.
Replacing of having a new CEO and that there is definitely looking external and internal so all of the options open but.
That's the decision for the board Craig I will not put myself in the middle of it.
That's for them to the side, but they're looking at all options.
Uh huh.
And then just.
The operational question you guys when you're part of your 2021 guidance there was some issues around geotechnical concerns in phase <unk> for B. The open pit the change the mine design in 'twenty 'twenty, one 'twenty two.
Are there any updates on how about the status is going and I think you guys were anticipating providing 2022 outlook. Once some of that work was done so.
Okay, Yeah I appreciate it.
Craig joined the will answer that question for you.
Okay. Thanks, very much thanks, Jason Thanks, Craig.
With respect to that.
Technical of banks. It was it was really not some of anything outside of a business as usual.
Situation they seem to have happened.
They are you tightened taken in the past and it's something that.
He has a number of times.
Based on sophisticated monitoring the same price themselves the sound pricing control.
The team is managing the area well.
We monitor all of its rice since the non designed to deal with the structure of its concern that led to that multi bench volume and a small piece and the areas will be behind you in the next five in terms of what we.
We saying intensive updated guide.
Beyond 2021 the.
The sequence and design.
On the Rajiv I, given the timing of profile yes.
In December.
That we needed to re with the 20 tape plan and <unk>.
Includes the usual business improvement kind of opportunities of think considered.
And that's worth keeping price debt.
We'll come back to the market as soon as the economy they can place.
Okay. Thanks, guys. Thanks for taking my questions.
Thanks, Patrick.
Thank you. The next question comes from Hayden Bairstow at Macquarie. Please go ahead.
Hey morning morning go.
The late evening for each area and I agree from Bruce the notion that's where you have some sort.
The couple of questions from me just firstly on <unk>.
Maybe just from this tax the third Texas at the Capes sort of the.
The boosting the earnings every quarter and how do we think of that going forward of itself sort of what are the right millions of dollars I mean does that cash.
The use of civil the credits this year or set of heavy sort of model that true.
Hum.
Go ahead Luca.
Yeah no. Thanks, thank taking good question.
So.
Listen deferred tax deferred tax credits as an area.
You can appreciate of of of estimation of the in judgment and it's impacted by many variables such as commodity price estimates the et cetera.
Red reserves and resource estimates development capital of immense mine planning scheduling et cetera.
Broadly speaking, what's the under underground development continues until the achievement of peak production, we would anticipate additional losses to be incurred by O T and those additional losses would be resulting in further deferred tax credits. So.
So you know up until that period of time, where you know Oh Gee has delivered the underground and are there no longer running losses, we would expect those deferred those additional deferred tax credits to continue to accrue.
Okay, and then the sign guys Hill.
Capitalizing interest of that.
The trade was decidedly production will take production.
Yes.
Yeah, so so under our accounting policy and it gets a little bit technical right, but under our accounting policy borrowing costs related to construction or development of of the underground are capitalized until the point of which substantially all of the activities that are necessary to make the asset ready for its intended purpose Arkansas.
So there's the degree of a degree of judgment there, obviously, but we estimate that at this point in time that would be approx of approximately equivalent to the sustainable first production.
Okay, great and just on the sustainable target I'm just interested to know.
In the commentary in the quarterly basis, the employers that everything to the ready to go underground this.
Joe and what work has to be done from here to get the first draw Bell or are you basically ready to do for us draw though.
And as a result of what is the underground until you're actually doing between now and when you get approval to pick it up.
So why do you wait till the tightened to the edge.
Sure. Thank you Steve Thanks for the question well Needless to say you're not calling for.
They're working.
Working hard the underground at the non.
And God bless.
We're continuing to see a complete construction of materials handling system, which is on track.
So the still which is still it can be done.
Theory.
Remaining development of the quad to support panels zero. So that work is still ongoing.
As noted in the documents that we have just released a lot of the.
On footprint development of the level.
The three levels of extraction on the kind of my take so look largely largely can place.
And and so that comes back developmental footprint is largely is largely complete the yeah.
Of the paces that of the Cod before first draw Bell.
And so we continue to work on the materials handling system and we.
We'll continue lateral development well at <unk>.
Just of course, the ongoing development of the mine essentially.
And obviously this obviously going on as well the support just getting beyond the panels. The rise our production right and and that includes mining has come by the bias of says this day Con you know, which.
Which is progressing well this year and then I'll cite shops range for that book continues as well.
Okay, I, just sort of follow up on the Joanne just on the shelf.
Self trained for I mean, just looking of the diagram in the presentation the.
The light delivery of those does that impact the morning, right of pedal the zero or is it board and the impact of how fast you can ramp up the panel to where a lot of them whichever one kind of a nice.
Yeah. So I mean, it's a good question and kind of zero production can ramp up without shelf strain for.
The.
And we continue as we've noted we continue to say Cai the travel restrictions.
Impact travel.
Of which things it's been challenging to get the specialists the philosophy.
The eligible at the heart, which is the case.
In Mongolia, and offshore obtain too.
Try to get paid for backend to sell us and we're making good headway on resuming.
Resuming regular slot so we can get specialists.
The special numbers of.
For that to support the sinking.
So you know.
We publish ignite the panels for the panels can be mined independently. So there's not necessarily technical named the.
The continuous mining from panels, there are to the out of the panel.
And the sustainable production for the channels there is on track.
We are continuing to kind of surprised us as you would expect.
And we'll communicate any implications, particularly at the panel wanted to ramp Hawk, which showed strength for support and the appropriate time as the information materializes.
Okay, great. Thanks for all I was just wanted to follow on.
Totally for local I guess, just from the Capex guidance for this year and I understand the quarterly sort of.
Broken out of the underground capex into sustaining the sort of understand what that actually the difference between the two is that how should we breakout for the sort of billions of dollars for the ship.
Dave do you want me to handle that one.
Yeah go ahead, yeah. So the the the St. That's the.
The sustaining capital of guidance, that's sort of separately noted in the guidance is for the open pits.
The underground the underground guidance that was issued for 2020 one.
Includes in the amount you know related to two development capital. So this goes back to the the work that needed that needs to be done to deliver.
The sustainable first production.
On the underground for panels zero and then there's also some work and that's more of a sort of a we call. It the underground sustaining capital, which a lot of it relates to the progression of panels, one and two.
Okay. So is it a material part of the billion does it sort of sitting on the brake pads in the next quarter or how do we think of the.
No the majority of the the the large majority of it sorry, Hayden I don't have the exact number off the top of my head, but the large majority of that number relates to underground development capital, which is the DNO. The the the the capital that's needed to needed to deliver panels Aero sustainable first production.
Okay terrific. Thanks for a later day.
Thanks, Ed.
The next question is a follow up from Rs <unk> with Scotiabank. Please go ahead.
Yes, hi, thanks for taking the follow up just curious again on first draw Bell expectations.
What is the current expectation there.
Does sound like Youre getting fairly close with respect to the actual physical work required to be able to do first draw bell but.
Alright.
Are we still expected that this could get put on hold.
Waiting essentially for some of the non technical aspects of get sorted out before first draw Bell will happen here.
Yeah I'll resist of good question, but I can reassure you that we are.
All of a focus to make sure that the non technical.
I agree the technical aspect of the desk.
That's easier if I, if I could if I can say if I can say it this way but.
The non technical aspect, we are definitely working hard every every shareholders or every every of stakeholders to make it make it happen and I don't see we are on target. We're working all of these issues and debt I don't see.
Definitely at the moment anything that would divide the changed update.
Okay and then it is what right now in terms of best estimate.
Joe on the would you remind me that day.
For the first draw Bell Yeah, no problem, yeah. So we don't we haven't.
At the size of the trove outside in the Carolinas.
Paces a piece of work, but what we do talk of that is quite meaningful we achieve sustainable first production tie the 2022, which is the only really thought during the case and undercut blasting.
His plan to gain 2021.
Okay.
And then just on the power.
Certainly there is it seems like the the power plants being pushed back a little bit here, but is it your expectations that the cost for power are going to be.
Roughly similar to what they currently are in terms of imported power and having the loss of purchasing power domestically is that already included in the definitive study cost estimates released last year.
Yes.
Our list of Luca has a detailed all of that's one I must say debt I.
<unk> I don't have the detail on that one of the more milk or what would be the cost between the different that the other two didn't get time to do it on the last last five days, but Luke do you have more detailed all of that or.
Yeah listen I can I can I can try to provide a bit more details. So okay go ahead of it.
As people on the call would would know we signed an amended.
Bent to the power sector of framework agreement back in June of 2020.
And under under the.
That amended agreement the the agreement was to prioritize prioritize a state owned state funded power plants.
So the estimates that you know I've, just sort of summarized around funding GAAP liquidity et cetera. They they assume a state owned state funded power plants.
The amended P. S. FAA also has some fallback option so in an event that.
You know the state, but stayed on debt funded power power plant for whatever reason if it were if it weren't up to not happen there our fallback options in that amended P. SFA documents that include you know grid supply include a renewable adoption and also of coal based.
And O T based cold fight coal fire power plant, but for those alternative options don't form part of the sort of base case estimates for for funding GAAP and liquidity that I talked about earlier.
There are some milestones in the in the P. SFA.
The first of those milestones was related to an extension of the current <unk> contract.
And that milestone was actually the first of March March So we just passed it.
The government of Mongolia, I did formally notify O T and Rio.
Late February the the top of until the way the debt stayed on state funded power station project and will be implemented connected to the central energy system and operated under a unified look low dispatch of control.
So there's there's still some work to.
Be done obviously in the government of Bongo of you suggested that you know all of the milestone dates under the P. SFA Amendment agreement should.
Should be reconsidered and extend it.
M O T of engaging with the government of Mongolia in relation to that end and hopefully to agree of a standstill period. Following the lapse of that first of March milestone during.
During the stand still period, Oh, Gee, what ex or we wouldn't that wouldn't exercise its rights of select and proceed with an alternative power solution, but would be waiving of the <unk>, but also would not be waiving its right to do so in the future and and you know there are as you can appreciate there are discussions that are there that are underway in the relation to all.
Of that to work out you know the reasonable pathway forward on tower. So that that's kind of the update on power that I'm unable to provide I hope that's helpful.
Well I'm not sure I appreciate the color of it I'm not sure you actually answered my question.
What is assumed in the definitive.
Estimate that was put out in December does it assume.
Imported power does it assume the purchase power from tell the toward the way I guess what is assumed in the cost estimates operating cost estimate for life of mine.
We may have to go back and double check that I actually I I believe I believe that those estimates assume sourcing of power from from within Mongolia under the options and the the the the P. SFA, but we may have to take that question.
In a way Joanna unless you happen to remember off the top of your head. That's my recollection at least but we may have to take that question of way.
Yes, I can help for like.
Yes.
Debt you know they would sit in line with it I am the consideration of the car.
Current agreements Ah so for Clos.
And is on the standard I I switch trade AR and in country solution.
I can't exactly say when that change out of the laws in the malls line that I understand the fact that they can sit within that.
Our estimates and and the change out of the time between the two.
Okay.
Yes, I guess on debt one we'll have to get back to you and it probably gives you a bit more guidance in terms of timing of the current contract when the when it expires in what is a true we'll we'll do a follow up on debt.
Okay. Thank you okay.
Yeah.
The next question comes from Ross per field at a capital. Please go ahead.
Yeah.
Good morning, everyone. Thanks for taking my question.
We'll come back and running Ralph.
Thank you.
Look maybe this is a question for you on.
Potential tax assessment risk going forward.
And basically you know when do you file the 2019 taxes when do you file the 2020 taxes are the sort of based on North American corporate standards, and and and do you have an estimate based on the Mongolian tax authority of methodology on what the tax those tax assessments could look like and is the intention to partially pay those down and could we see.
See those before the third quarter of 2022.
Luke you want to go ahead.
Yep Yep, so let.
Let me, let me try and answer the second part of that question first I mean in terms of the timing of of of our tax our tax filings in Canada that that would just add that would just be as per the sort of normal course stuff I mean, it would be it would be similar in in Mongolia, as well in terms of the actual.
Taxes assessments in Mongolia they.
They we've received as the.
The tax assessments for a period 2013 through 2017 and periods of 2016 through 2018. So you you you could expect you know you know the the the the next audit two to start you know you know in due course over over.
You know subsequent of period. So so so 19 in 'twenty I'm not sure of the exact timing of of one that would start but you would expect obviously those periods to be looked out of normal course as well so in terms.
Terms of of the actual payment of of tax.
Oh T pays in the normal course, all of the all of the attacks that debt that it believes that OS and then in and then there are obviously the outstanding assessments that are the subject of the current international arbitration.
In relation to the 2016 to 2018 tax assessment, we have paid the amounts.
So those are the the those of the payments that have been recently made the $230 million that was discussed previously those those those invoices were received by O T <unk> and had been paid by O T. Now.
In terms of you know the overall international arbitration process that that process still continues and.
It will continue over the course of 2020, one and into 'twenty 'twenty. Two we you know we still are quite calm I'm confident in the company and Oh geez position around the outcome of those international arbitration proceeding then and you know so we we we do we do.
To the.
Feel quite positive about a favorable outcome in due course.
Fair enough okay.
Yeah, So Ralph.
Just summarize of our where we're paying our taxes, we pay the amount that were based on deal understanding that we have of just tax law in Mongolia and <unk>.
Lou Convention I mean, the amounts are in arbitration arbitration of more than the law for.
Force us to enforce the does the wrong with by law, we have to pay to pay these amounts of these.
Our right of way, Okay. So theres no theres no. There is no delay because we're in the in disagreement so when they make an assessment we have to pay right of way and then we go to arbitration or we debated and that's that's why from my point of view.
We are in the reiteration. We believe these are we have paid the right amount of tax and where we'll see so that's why in any calculation you have to be careful to make assumption that we will have these the changes I mean from our point of view, we're paying what we're supposed to.
Okay. Thank.
Thank you Steve Thanks, Luke.
Thanks for Altra, nice seeing who by the way nice talking to.
Thank you. The next question comes from Myles Allsop from UBS. Please go ahead.
Great. Thank you interest.
Think of it.
First of all of the.
Immediately after the call.
Sure.
Is there any effects of that.
So the sustainable.
Total.
The on the <unk> slide.
Sales in amongst the line too.
The sustainable production growth.
Yeah.
Yes.
Miles of the problem to hear John could you can you handle that question. Please.
Yes sure sure.
Thanks, Dave and thanks miles.
In terms of what will happen the claim beyond the couple of things are you know the commencement of the on the cost and the sustainable production nears that of sequence of events. If you lots of it may not happen and say you know we need to progress the on the cat M and create.
A shadow for.
Drove hill to be constructed on Tonight, and and we need to get being the enough drove hill construction until they reach a critical hydraulic radius of each point, we say with them they've got the societal sales production and so the read the sequence of events that needs to happen.
There might be some sort of flex between.
How much is done you know depending on timing, but in general the needs of segments of things. So it is important to consider that when we're thinking about.
What happens in between the two day, if that makes sense.
Okay. That's helpful.
The decision about the other countries that the.
Oh Gee blew through the how much interest of three of them in terms of the timing of the blockages.
The.
Joanne on the Oakland.
Yeah, sure and say the being paying for Sidney I told the board would approve without.
Ultimately approved say the status on the cutting and debt.
Cash Q, it'll say hello at the governance processes.
With the export price to that and until it is it is the decision taken at the highest level from the organization.
Okay.
Most of it.
Some of the three models. This is a decision the loot keyboard.
Yes of course.
And then with the two.
Okay.
On the yen.
Could you give us the sentence.
You mentioned.
The higher copper and gold prices.
How were trying to all of us comparable versus the total.
Sure.
Suppose I was there any meaningfully higher price to sponsor the.
How much risk is there around the Q3.
Well the Tom what was the price environment.
Mhm.
Luke I think you can then you should you can answer that one.
I will do my best so the.
The price is assumed in our base case.
$2 3 billion.
Are there based on on kind of consensus pricing at at approximate to the reporting date. So so 30 <unk> of December.
Obviously, the the price the spot current current spot price for copper is higher than than you know what in terms of price would have been on the 30 <unk> of December. So if you. If you assume if you assume spot pricing you.
The sensitivity you may have you know that that would improve the liquidity position that would improve.
From that perspective.
The hedging program, we haven't we haven't provided a lot of details around what the floor is and I don't think I can get overly specific but I. The answer your question I, if I remember correctly I believe the.
The the the the floor is is it it it it it provides downside price risks for.
The tech Shen of of of.
Basically 10% I think it's about 10 per cent of the base case. So so from from that perspective, you know, where where where shielded from any sort of downside pricing revenue for copper and gold you know.
More than 10 per cent from the base that debt.
That base case, if that makes any sense at all.
Okay.
That helps in terms of.
Some of them.
The question just.
Uh huh.
So the change in the home.
On the tax flow at the beginning of January.
And then the space from talk about sitting kind of rules.
G III.
Is that are of concern for yourselves.
All of the concern.
Okay.
Okay.
Although it cannot get the exactly the type of a change in the tax the.
Pets.
Yeah. She was in terms of you remembered index.
Oh.
Uh huh.
And then essentially I really have no idea of.
So the pattern here.
Yes look you would have you would have a comment on debt.
So so the the three to one.
Debt to equity we've already been we've already been operating under that assumption. So I'm not I'm not sure specifically what changes to Mongolian tax law, you're referring to we do all of a very strong.
No tax team at the O T level that will obviously be all over that and we'll make sure that we we you know we we we maintain compliance from a tax perspective, and we continue we continue to pay the amount of tax debt, we owe us as we always strive to do and and and and Mongolian.
All of the the jurisdictions in which we operate.
Around the thin the around the thin cap point I I don't I don't believe it's an issue at this stage an end and we were always were always operating under the sort of three to one debt to equity ratio anyway. So.
I think.
Hopefully that helps answer the question. We can we can follow it up with more detail, if we need to but but no issues of been highlighted to me.
Thank you ladies and gentlemen, we have reached the end of our Q&A session I will now turn the call back over for closing comments.
So are you, making any commentary guys. That's my first one so of ROI do you have any comments of additional or should I just make one.
No. We are we are good to end the call Steve.
Yeah, Okay, but I would say.
I'll just make a comment I think of it much guys.
For the call and I'm sure in the next couple of weeks, we will have time to to discuss in and have the coal into its cold with you guys. Okay. Thanks very much for the call.
Ladies and gentlemen, this concludes the conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.