Q4 2020 Turquoise Hill Resources Ltd Earnings Call
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. If at anytime during the call you need assistance. Please press star zero for the operator.
This call is being recorded on Wednesday March 9th 2020 I would now like to turn the conference over to Roy Mcdowall head of Investor Relations and Communications. Please go ahead.
Thank you Joanna and 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 <unk>.
Monday, we released our fourth quarter and year end 2020 of 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, our 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 supplementary buyer of M D and H. The 12 months ended December 31st March of 'twenty before.
Before I hand over the call would like to formally introduce Peter BOLE, who was appointed interim CEO of Turquoise Hill last Thursday.
Many of you on the call know Steve from his tenure as the.
CFO at Turquoise Hill from 2014% of 2017.
In addition to being tier accused CFO.
Steve was also on the or your total board and has been to the site in Mongolia multiple times on this.
<unk> and securing the $4 4 billion project finance facility and 2015.
You can find your presentation on the website and the financial and technical report section and.
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 think of Coleman, who serve as a CEO I'll circle of itself on the nearly three years, we thank all for his 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 and 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.
Second to work with the government and the mogul, Yeah, and Rio Tinto to finalize the long term power supply for you to go on and third to update all replaced the existing GDP and the matter that is mutually beneficial to all parties.
And 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 circles the old shareholders.
I will now walk through the year and update as efficiently as possible and then we'll open the.
The call for Q&A.
Please note on slide two and three day contain our cautionary statements and I would encourage you to read to read them.
On slide four.
You will see 2020 I wasn't very busy year that saw the key milestone of the new mine design for panel zero and the.
The data Oyu Tolgoi technical report and finally, the definitive estimate that Rick on Sun, the compelling value proposition that Oyu Tolgoi provides investors.
On slide five you will see Oyu, Tolgoi, 2020 operating performance, which once again has met or are the pro for the original production guidance, we set and the beginning of the year.
Of note you saw Q4 was a very strong quarter for gold production and now looking at our 2021 goal forecast of 500 to 550000 ounces.
And appreciate all of this will contribute to our 'twenty 'twenty. One estimated she won couple of cash cost of negate the 50 to 80 cents per pound of copper produce.
<unk> of 21 is set to be of great tier four early to go on.
Slide six I like all of the guys safety Records and the continue above nameplate capacity performance of the mill.
And the all injury frequency rate asphalt into a new record of <unk>.
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 the above nameplate capacity.
Yeah.
On slide seven slide seven is extremely important as it's the most treat all you to go and commitment to operate and the ESG compliant matter.
Operating and the Gobi Desert provides the additional challenge of the water.
Scarcity and.
And you will see from the slide that our operations use only approximately one third of the global average of cubic meters of water per tonne of ore process.
And 2020 all day to go he was awarded the copper and Mark.
And 2019 the cup of remark is the first and only program for responsible production and the copper industry.
The copper and Mark took the United Nations Sustainable development goals as the framework for responsible production and created a set of 32 and environmental social and governance issue area associated with sourcing minerals and metal.
By meeting the criteria all you to go and has again proven its continued commitment to environmental standard.
With that I will now and the call over to Joe on the Dudley, our Chief operating officer.
Thank you very much day on Friday.
And you can see the E <unk> and pitch on the left hand side and the Hugo North lift one of underground development on the Ross and salad.
Combined these two of body has the most tonight at 31, yeah lots of mine and the buyer.
At the 2020 reserves update and <unk>.
And you'll information Colm.
The definitive estimate and places and December 'twenty, and 'twenty and clean fun lifestyle locations on the panels there of boundary and.
And and optimize Joe point laugh.
And minimize exposure to the allowed Koch.
Yeah.
This resulted in a non material increase.
And the Hugo North Minerva day.
The 10 million tonnes of ore.
You are kind of one 8 million tonnes contained copper.
And point of the 7 million assay and <unk>.
Seinfeld.
The underground doors, the average copper grade of 1.52%, which is more than three times high and the ICP.
It's always the income time point, Trey one grams gold per tonne.
The are you crazy and I'm, calling for many of his day Madej of trade claim 3 million tons can kind of copper and.
7.2 million ounces of contango.
And you said the guidance incorporates the decrease of 41 nine tons of ore 20, non tank, which include the equation from Bonnie chime.
And Jason the NATO Pos assumptions and.
And the times J to me, but did on criteria.
The largest positive change and the 2020 compete mirrors the what's the.
Equation of the slices on criteria although.
Part of it is it was not enough tickets despite depletion from money.
If we turn to slide nine.
Yeah.
The materials handling system, one progress continues and with civil the complete on time, a crush of one and steel and cable installation continuing.
The first sustainable production the penalty right and what type of 2022 is on track the kantar.
Denise Devine the ownership.
Is the old the underground lateral development has now reached the 3000 equivalents Nathan.
With the development of the Quad the call first draw Bell substantially complete.
Oh surface infrastructure acquired to sustainable first production of all side now complete.
With the sisters of St.
Representatives on the Sars installation and commissioning of thinking related equipment continued and shaft right.
In Q4, 2020 activities Chockfull of focused on completing all construction and commissioning activity the law.
Testing and verification and preparation for shopping.
Which commenced in the early February 2021.
However, the targets the thing monitored, particularly at the panel, one and penalty and Grandpa with shock Dream Force support and we'll communicate any implications on the appropriate time.
The commencement of the on the cost in 2000 and from one is it came on time and it is critical to ensure that once the.
Beyond the top and drop on construction continues unimpeded.
This will require the technical support and such.
The confidence and commissioning dates the materials handling system as.
Well as the achievement of non technical criteria.
Working with Oyu Tolgoi and other stakeholders to ensure the critical support and yes. Thanks for successful project are in place.
I have taken and Cindy on the costs.
The Vermont studies are in progress and are focused on the evaluation of different zone and sequencing options. The panel one and two of these studies the underpinned by additional geology and technical data and is being collected from underground and Fitzgerald.
And as an update for a subset of penalty was expected and half to 2021.
With that I'll now hand, the call Ivy Hill.
Hoffman 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 2020.
Revenue for Q4, 2020 increased 83% from Q4 2019.
And that's driven by increases in both copper and gold production and price.
For full year, 'twenty, and 'twenty 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.
And 3% respectively.
The lower gold production was caused from mining lower grade gold areas of the open pit through the majority of 2020.
2020 cash generated from operating activities before interest and tax well, the 9% higher than in 2019 and.
And 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 and 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.
Please turn to side of London.
And you'll see of at Turquoise Hill had liquidity of $1 1 billion at the.
The 31st of December 2020.
Which is expected to be sufficient to meet.
Ah requirements, including continued underground development into Q3 of 2022.
This has improved from our previous estimate of Q2, 2020, two and that's driven largely by improved commodity price assumptions.
The base case incremental funding of requirement at the 31st of December 2020.
Is estimated to be $2 3 billion.
And that's down from the 3 billion reported previously.
This improvement is driven primarily by improved commodity price assumptions over the peak funding period.
The incremental funding of requirement and 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 or re profiling of existing debt that is considered.
As part of the Mou signed between Turquoise Hill, and Rio Tinto and September 2020. Both parties support the pursued 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 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 of 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 and 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 lump and implementation of such options may be it may require us to achieve alignment and agreement with the relevant stakeholders, including Rio existing lenders and potential new lenders as well as the government of Bongo yeah.
Finally in Q1, 'twenty 'twenty, one of the company purchased copper and gold put options to establish a synthetic copper and angle.
And gold price War.
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 outlined on slide 12 provides an overview of what we are working through in 2021 to keep us on track for the first sustainable production and October 'twenty 'twenty two.
The first of all stone I will address is power.
As you know we had the first power of milestone the extension of the eye and P. C supply agreement you on March 1st 'twenty 'twenty, one and the second milestone the signing of the power purchase agreement due March 31st.
On March 25th the government of Mongolia, formerly noticed a little boy, that's 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 be 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'll continue to work with gone 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 debt.
As we stated on previous calls the arbitration proceedings of comments and British Columbia, and the way are bound by confidentiality agreements that prohibit us to comment on the arbitration proceedings on 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 present the 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 requirements of the underground project with the objective of maximizing debt and minimizing our rights offering.
The only to go and independent review of the cost and schedule delays continued to advance and as with the arbitration, we will not be and 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.
Currently scheduled for June 2021.
One comment 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 undercut 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, and 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 Rachel and prompt acknowledging of request.
Are you seeing 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.
And that's a bad and everything right.
Okay.
The liquidity GAAP estimation, and the $2 3 billion.
It's down from 3 billion and the 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 the minimum cash balance and this assumption.
Okay.
Luke can you handle that question. Please.
Yes of course, thank you for the question in terms of R. R.
The funding gap, our remaining funding GAAP, you're correct that the reduced from the $3 billion.
Now on to $2 3 billion as per our our year and estimates.
You are on Europe, I think you'd 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 improved.
<unk> price assumptions for both copper and gold.
In terms of.
And the way that $2 3 billion.
Works and <unk>.
So any benefit.
You know.
For the amount at the end of.
And that 2.3 is the full amount of 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 the okay.
And then Steve.
And with the change here and in terms of off leaving and you entering is there any change and 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.
And that's that's like I've 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 cough, and then not far from that.
And that's all helped us both parties the real into the argues you'll have a better understanding of the range and so we're proceeding.
And we're seeing okay and then finally is.
Coming back to the financing again is the.
The non dilutive streaming transaction still an option that's being considered or is that now off the table.
Luke do 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 fact that it is based obviously on the surface and basic principles and and.
That is really finding the best the cost of capital on balance with the need to ensure efficiency and stability and how we fund.
And 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.
And the relevant stakeholders and and you know once once the board and and special Special Committee are happy.
And we have made significant progress and 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 that you know the relevant negotiations continue with the view to arriving at of funding plan that isn't the best interest of the company and.
And in terms of the options that have been looked at there there really isn't and he changed from what we've communicated in prior quarters. So so we continue you know we we we've looked at on obviously the the options that are summarized in the Mou, which include re profiling additional supplemental senior.
Debt.
On a 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 and good morning, guys.
Couple of more questions on the funding side of the thanks. So first question.
Two points of the 1 billion funding gap and 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, you guys are willing to send after five days of another round of all of the question the round funding and and that detail. So Luca will answer all of those one and the alluvial to 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%.
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 dollar number and some of this has been stated previously if it you know if we're successful in achieving our re profiling of objectives that well that will of course reduce that funding gap from the $2 3 billion by by $1 4 billion, So where do you sit down debt nine.
$100 million.
We also and 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 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 what would put us in a position where we could we can fill that that remaining funding GAAP of 400 million or or potentially for the more than that 400 million and of course, you know and as a final backstop you know we can't we can't we can't complete.
The discount on the possibility of an equity offering but from from our perspective.
The the objective continues to be to maximize the sort of low cost debt financing and minimize you know the quantum of of in the equity offering as much as possible.
Okay, great. So just to clarify, though that 15% comes from the sensitivity of that Rio put out around the definitive estimate.
Another question the <unk>.
Tax payments that you've made in February.
And then it was just over $200 million is that.
Out of your current liquidity.
Yes, so the tax the tax payments have already been made so the liquidity forecast debt that I think I.
I just discussed of into Q3, 2020 two incorporates the payments of those two tax invoices, which which the two together were about 230 million U S.
Right right.
But you disclose your liquidity position as of December 31 of these payments were made of February, but youre, saying, the Q3 and operating lease.
Deutsche Bank and Jeremy.
No I'm and 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 and to into Q3 of <unk>.
122 that forecast incorporates the payments of those few tax invoices.
Right, Okay and.
And then just maybe switching to the undercut and again this is a bit of of funding question here, but the.
The targeted data and <unk> and the Mongolian election as of June on the channel.
On the off chance that you guys don't wrap everything up.
To a 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 have a dev and inter on that one of.
Yeah.
The alto <unk> and I'll be honest.
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.
And 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 delayed to the first sustainable production would have a you know we did I I sort of sensitivity around that and I believe the sensitivity was you know for every.
And one month of delay that had a and impact on on value or on N T V.
$100 million U S. So hopefully that helps to answer your question of bet.
No that's great.
That's the context and maybe just.
Just on the sorry, sorry to interrupt.
I would say debt we are all aware, okay at the company at O T and the Edgar This debt. This is this this is a key milestone and I can tell you we have the board meeting coming in pretty soon at davinci level and that 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 ourself for that for us to move ahead with the June undercut okay.
Of course, and then maybe just one last one from me are you in a position of tell US what you purchased in terms of the putts, just notional amount of strike prices and that sort of thing.
And I want to.
And we Gotta go ahead.
Yeah. So again, that's unfortunately, not information that we've put in and 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.
And the intention of that is obviously to preserve or our liquidity position on the downside so effectively and protect.
Protect us from sort of downside pricing and maintain that liquidity position for as long as possible. So that we can obviously have the time that we need to you.
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.
You know prices continue to improve for copper or you know of gold bounces back then and then you know where we're not we're not that doesn't put on what what we've done doesn't cut it and a 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 and you guys touched on the financing.
And 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.
And 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 will take that one Greg.
I think that definitely the.
Work has been done towards the thing to understand the net.
And and couple of a couple of initial contacts where definitely we are working and 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 <unk> 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 the role of the will be clearer and will move ahead. Okay. So I would say and your timeframe you should you should count on I mean between now and in June and see a lot of activities here.
Okay and.
The debt profile and discussions going well.
Yes.
Yeah.
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 1.4, we're quite confident.
And is your expectation that the the new CEO is if it's not yourself and.
And we'll be independent and you know the new Ford member will also be independent as well.
I dug in and be able to comment on that one but I can tell you that the board as and.
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.
Yeah.
And then just.
And operations question you guys when you're part of your 2021 guidance there was some issues around geotechnical concerns and phase four b. The open pit the change the mine design and in 2020, one two and trying to yes.
Are there any updates on how about the status is going and I think you guys were anticipating and providing 2022 outlook on some of that work was done so.
Okay, Yeah I appreciate it.
Craig Zoe on the will answer that question for you.
Okay. Thanks, very much thanks, Dave and thanks Christ.
So with respect to that.
And it takes me couple of banks. It was it was really not anything outside of a business as usual.
Situation they seem that happens on that.
See you tightened and taking the past and it's something that I can.
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.
With minor alterations of the bond as on today and with the structure is of concern that led.
And that's multi bench value and a small piece and the areas will be behind him and the next five.
In terms of.
What we're saying in terms of updated.
Guidance beyond 2021 the.
The sequence and design he is on.
Rajiv and I.
Given the talk.
Timing of the file yes.
Simba.
And it means that we needed to relax the 'twenty, two planned and and OCI and includes the usual business improvement kind of opportunities and think considered.
And that works the same price debt.
And I will come back to the market as soon as the cash 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 and.
The late evening for each area and I agree and embrace the notion and that's where you are so low.
Couple of questions from me just firstly on.
A lot of you saw on this the tax.
The Texas at the Cape sort of.
And please see the earnings every quarter and how do we thinking about that going forward of and itself sort of what are the right.
Millions of dollars and then does that cash.
The use of similar credits this year or how do we sort of model that true.
Hmm.
Go ahead and look at.
Yeah, no. Thanks thing taking good question.
So.
Listen deferred tax deferred tax credits and is an area.
You can appreciate of of of estimation on the and judgment and it's impacted by many variables such as commodity price estimates the et cetera.
Red reserves and resource estimates development capital of 10 minutes mine planning scheduling and et.
Et cetera.
Broadly speaking.
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.
Up until that period of time, where.
You know O T 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 as well.
The trade with sustainable production of type production.
Yeah.
Yeah, so so under our accounting policy and it gets a little bit technical right, but under our accounting policy on borrowing costs related to construction or development of of the underground are capitalized and until the point of which substantially all of the activities that are necessary to make the asset ready for its intended purpose are complete.
So there's a degree of the degree of judgment there, obviously, but we estimate that you know at this point and 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 and then.
And the commentary on the quarterly basis and flaws of everything to the ready to go on the grandis.
Joe and what work has to be done from EBITDA to get to first of all bill or are you ready to do first draw Bell and.
And as a result of what is the underground and actually doing between now and when you get approval to pick it up.
So on your guidance of it.
Yes sure. Thank you Steve Thanks Heightens, the the question well Needless to say you know of Quaker.
Very good the working hard on the ground at the mine.
And with.
We're continuing to see.
Complete construction and materials handling system, which is on track.
So they still which is still it can be done.
Barry.
Mining development, the quad to support panels zero, so that work is still on golf.
As noted in the documents that we post release a lot of the.
Footprint development of the level.
The three levels of extraction on the kind of mitek sort of looks largely largely can place.
And and so you know that that development on footprint is largely is largely complete the.
You know the paces that of the.
Claude before first draw Bell.
And so we continue to work on the materials handling system and it.
We'll continue lateral development well at <unk>.
Just of course, the ongoing development of the mine essentially.
And.
Obviously, there's obviously going on as well the support just kidding.
And the panels the rise our production right and and that includes mining has come by the bias of surface.
They call on which are.
Which is progressing well this year and then I'll cite shops rainfall of that book continues as well.
Okay, and just the follow up on that Joe and just on the shelf.
South range for me and just looking at the diagram in the presentation the.
The light delivery of the others does that impact the morning, right of pedal the zero or is it boards and the impact on half price you could ramp up of panel to rule on whichever one kind of place.
Yeah. So I mean, it's a good question and kind of zero day production can ramp up without shas rainfall.
The.
And we continue as we've noted we continue to stay kind of the travel restrictions.
Impact travel.
Which things and it's been challenging to get the specialists the sauce and G&A.
And I'll, let Joel at the hardware and the cadence.
And in Mongolia, and and offshore obtain.
Try to get people back in to sell assets and you know and making good headway on resuming.
Resuming regular slot so we can get specialists.
The special numbers of.
So that to support the sinking.
So.
So the published ignite the panels the panels can be bond independently, so theres not necessarily technical and aid the.
The continuous mining from panels, there ought to be out of the panel.
And the sustainable production of panels, the euro is on track.
And we are continuing to go on a surprise gross as you would expect and we'll communicate any implications, particularly if the panel one and two ramp hawk, which saw strength for support and the appropriate time as the.
Information on materializes.
Okay, great. Thanks, Phil and I was just wanted to follow on.
The local I guess just on the Capex guidance for this year and I understand the quarterly sort of.
Broken out of the underground capex into sustaining the sort of.
I understand what that actually the difference between the two is and how should we break up the sort of billions of dollars for the ship.
Yeah.
Steve do you want me to handle that one.
Yeah go ahead, yeah. So the the St. The the sustaining capital of guidance that sort of separately.
<unk> and the guidance is for the open pits on the underground the underground guidance that was issued for 2020 one.
Includes and amounts.
The related to two development and capital. So this goes back to you know the the <unk>.
Work, that's needed that needs to be done to deliver.
The sustainable first production.
On the underground for panel zero and then there's also some work and that's more of a sort of a we call it the underground and sustaining capital, which on 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.
And the brake pads, and we got net quarter or how do we think of the.
No. The majority of the the large majority of it sorry on Hayden and 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 the you know the that the the capital that's needed to needed to deliver panels Aero sustainable first production.
Okay terrific. Thanks for all of that Oh later day.
Yeah.
Thanks, David.
The next question is a follow up from Rs <unk> with Scotiabank. Please go ahead.
Yes, hi, thanks for taking the follow up I'm, just curious again on first draw Bell expectations. What what is the current expectation there and it does sound like Youre getting fairly close with respect to the actual physical work required to be able to do first draw bell.
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.
Yes, I'll resist of good question, but I can reassure you that we are.
All of his 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 on.
On 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 on these issues and debt I don't see.
And definitely at the moment anything that would the visor changed update.
Okay and that's it is what right now in terms of best estimate.
Joe on the would you remind me that day.
For the first draw Bell, yes, no problem, yeah. So we don't we haven't.
On the slides of this.
Throw of Bill Dyer Karin.
And paces a piece of work, but what we do.
Can you talk about is quite meaningful we achieve sustainable first production and out tie the 2022, which is the only really thought during the case and undercut blasting.
And is planned 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.
And having the loss of purchasing power domestically is that already included in the definitive study cost estimates released lobster.
Yes.
Our list of Luca has a detail on that one I must say debt I.
<unk> I don't have the detail on that one of the more milk and what would be the cost between the deferred and that's all of it it didn't get time to do it on the last last five days, but Luke do you have more detail on that or.
Yeah. It was back into I can I can try to provide a bit more detail. So okay go ahead of it.
And people on the call would would know we signed an amended and an amendment to the power sector of framework agreement back in June of 2020.
And under under the.
And that amended agreement the the agreement was to prioritize prioritize of state owned state funded power plants.
So the estimates that you know I I'm, 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 and and events that.
You know the state funds and stayed on debt funded power power plant for whatever reason and if it were if it weren't up to not happen there our fallback options and that amended P. SFA documents that include you know grid supply on include a on a renewable adoption and also of coal based and OTA.
Base called five coal fired power plant, but that those alternative options don't form part of the sort of base case estimates for funding GAAP and liquidity that I talked about earlier and.
There are some milestones and the in the SFA.
The first of those milestones was related to and extension of the current IMT see contract and.
And that milestone was actually the first of March March So we just passed assets.
And the government of Mongolia, I did formally notify O T and Rio late February the the tab and Hawaii the.
Stayed on state funded power station project.
And will be implemented connected to the central energy system and operated under a unified low low dispatch of control.
So there's there's still some work to.
Be done obviously and the government of Bongo all of you suggested that you know all of the milestone dates under the Psf and amendment agreement and should.
Should be reconsidered and extended.
On O T of engaging with the government of Mongolia in relation to that and and hopefully to agree 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 but also would not be waiving its right to do so and the future and and you know there and you can appreciate there are discussions that are there that are underway and the relation to all.
Of that to work out you know the reasonable pathway forward on power.
And that's kind of the update on on on tower that I'm unable to provide I hope that's helpful.
Well I'm not sure I appreciate the color, but I'm not sure you actually answered my question.
What is assumed in the definitive.
Estimate that was put out December does it assume.
The power does it assume the purchase power from tell the towards the way I guess, what is assumed and the cost estimates operating cost estimates of life of mine.
And 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.
And 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 the way.
Yes, I can help flake and <unk>.
Debt you know there certainly with the I and consideration of the current.
Current agreements Ah.
The supply.
And is on the standard I I switch.
And in country solution.
So I can't exactly say when that change out of the was in the modeling.
I understand the is on standard that if I can sort of thing.
On that.
Our estimates and and there was the change out of the time between the two.
Okay. So on.
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 and what is the suite will the will do a follow up on debt.
Okay. Thank you okay.
Yeah.
The next question comes from Ralph <unk> at eight capital. Please go ahead.
Yeah.
Good morning, everyone and thanks for taking my question and.
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 and estimate based on the Mongolian tax authority 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 do 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 part of the sort of normal course stuff and there would be it would be similar and in Mongolia, as well and in terms of the actual.
Taxes assessments and Mongolia they.
And they we we've received as the.
The tax assessments for a period 2013 through 2015 and periods of 2016 through 2018.
You you you could expect you know you know the the debt that the next audit two two starch you know you know in due course over over you know subsequent of period. So so so 19 and 20 I'm not sure of the exact timing of of when that would start but you would expect obviously.
And those periods to be looked at and normal course as well.
And so in terms of of the actual payment of of tax.
You know O T pays and the normal course, all of the all of the attacks that debt that it believes that OS and then and and then there are obviously the outstanding assessments that are the subject of the current international arbitration on.
In relation to the 2016 to 2018 tax assessment and we have paid the amounts.
Those of 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 and and have been paid by O T. Now.
In terms of you know the overall international arbitration process that that process still continues and it.
It will continue over the course of 2020, one and into 2020 two.
Well you know, we still are quite calm and confident in the company and Oh geez position around.
Around the outcome of those international arbitration proceeding then and you know so we we we do we do and <unk>.
Continue to.
Hum.
Feel quite positive about a favorable outcome in due course.
Fair enough I got the program.
And so Ralph.
And we're just summarized the hour we're paying our taxes, we pay the amount that were based on deal understanding that we have of just tax law and in Mongolia, and likelihood convention I mean, the amounts are in arbitration and albeit.
<unk> and more than the low.
Of course us to force of does the wrong with by low we have to pay to pay these amounts of these.
The right away, Okay. So theres no theres there.
There is no there is no delay because we're in the in disagreement and so when they make and assessments 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 and the arbitration and we believe these are we have paid the right on the left 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 the changes I mean from our point of view, we're paying what we're supposed to.
Okay.
Steve Thanks, Luke Okay.
Thanks, Altra nicely and you are by the way nice talking to.
Thank you. The next question comes from Myles Allsop from UBS. Please go ahead.
Great. Thank you guys just a couple.
And the things I want to clarify first of all of it.
Immediately after the call.
Ladies and gentlemen.
Is there any effects of that.
The first sustainable production total.
The on the <unk>.
Okay.
With the results.
And I see the sustainable production.
Christian.
Yes.
Okay.
Miles of the problem to hear you joined did you can you handle that question. Please.
Yeah sure sure. Thanks.
Thanks, Dave and thanks miles.
In terms of what will happen between beyond the blasting.
The commencement of the on the cost and cash.
At this time of production there is the sequence of events. If you lost that may happen and so we need to progress the on the Cox and.
And create.
On a shadow of useful.
Drove hill to be constructed on.
Denis and and we need to get enough doorbell constructed to reach a critical hydraulic radius of each point, we say with them and they've got to sustainable first production and so the read the sequence of events that needs to happen.
And maybe some sort of flex between.
How much is done and depending on timing, but in general at least the segments of things. So it is important to consider that when we're thinking about.
And what happens in between the two day if that makes sense.
Okay.
And it makes the decision about the on.
The cost is that the.
Oh, Gee brutal and how much.
The interest is real in terms of the timing of the blockages.
And.
Joanne on the Oakland.
Yeah, sure and sorry, the they intend to set the arcade cordwood occurring.
Would ultimately approved the.
And the status on the cutting and debt.
Q, what I'll say hello at the governance processes.
And.
Forward price to that and and so it is it is the decision taken at the highest levels of the organization.
Okay.
And ultimately models. This is a decision of beauty board.
Yes of course.
Okay.
And then with the two.
Okay.
Yeah.
Could you give us the sentence.
You mentioned.
The higher copper and gold prices.
And how were trying on comparable versus the total auction and <unk>.
Moving on.
The higher place the sponsor.
And how much risk around the Q3.
Well the Tom what was the price environment.
Mhm.
Luca. Thank you Ken and then you should you can answer that one.
That would be and my best so the the.
The price is assumed in our base case.
The $2 3 billion.
Are there based on on kind of consensus pricing at at approximate to the reporting date. So so 30 parts of December obviously, the the price the spot current current spot price for copper is is higher than than you know what in terms of the pricing would have been on the 30 <unk> of December.
So if you if you assume if you assume spot pricing you have.
The sensitivity you may have you know that that would improve the liquidity position that would improve.
From that perspective, the hedging program and we haven't we haven't provided a lot of details around what the Flores and I don't think that and get overly specific but I to answer your question I, if I remember correctly I believe.
And the the the the floor is is it it it it provides downside price risks protection of of of.
And basically 10% I think it's about 10% 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% from the base that that base case, if that makes any sense at all.
Okay.
Uh huh.
One of them.
And the question.
So in terms of India.
One of the impacts slow at the beginning of January.
And then the space from talk about sitting kind of moves teeth.
For each one and.
And how is that of a concern for yourselves and why.
And.
Okay.
Okay.
Cannot.
And don't cannot debt exactly you're talking of a change in the attacks the <unk>.
Net.
Yeah. So as it turns you remembered and tax regulations and.
Oh, yes.
And.
And then she would potentially.
And I have no idea.
And the pattern here.
Yes look you would have you would have a comment on debt.
And 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.
And what changes to Mongolian tax law, you're referring to we do out of a very strong you know tax team at the O T level and 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.
And to pay the amount of tax debt, we owe us as we always strive to do and and and and Mongolia and all of the the jurisdictions in which we operate.
The around the thin the around that.
And then cap point I I don't I don't believe it's an issue at this stage and and and we were always were always operating under the sort of three to one.
Debt to equity ratio anyway, so so I think 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.
Now turn the call the call back over for closing comments.
So why are you, making any commentary guys. That's my first one so of ROI do you have any comments on additional or should I just make one.
No. We are we are good to end the call Steve Yes.
Okay, but I would say can I, just make a comment and thank you very much guys.
For the call and I am sure and the next couple of weeks, we will have time to to discuss and and have the coal into its called with you guys. Okay. Thanks very much for the call.
Yeah.
Ladies and gentlemen, this concludes the conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Yeah.