Q1 2021 Turquoise Hill Resources Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the Turquoise Hill first quarter financial results Conference call. At this time of all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session if for.
At any time during this call you need assistance. Please press star zero for the operator.
This call is being recorded on Thursday may 13th 2021, I would now like to turn the conference over to Glenn Mcdowell. Please go ahead.
Thank you Joanna good morning, I'm Roy Mcdowall head of Investor Relations and communications welcome to our first quarter 2021 financial results Conference call on Wednesday, We released our first quarter 2021 results press release, MD&A and financial statements. These items are available on our website and SEDAR with me today on the call are steeve thibeault our inter.
The CEO, Luke Colton, our CFO and Jo Anne Dudley guys C. O O. This call and presentation includes certain forward looking statements and information we refer you to the forward looking statements section of the annual information form date of March eight 2021, the supplemented by our MD&A for three months ended March 31 2021.
And now I'd like to turn the call over to Steve.
Thank you Ryan and good morning to everyone. Thank you for joining us for our first quarter 2021 financial earnings call.
The first quarter of 2021 as proven to be an eventful quarter.
I'll do the glory reported exceptionally strong revenues in copper and gold production.
So we paid a non scheduled $366 million to the government of the mall Gogo for tax assessment.
Modified the hour line designed to adapt to the Q4 here with technical event.
The phase <unk> safety measures due to the COVID-19 surge in Mongolia of our expected funding GAAP as remain unchanged at $2 3 billion and our liquidity as also remained unchanged at Q3 2022.
The only took the team has continued to show their outstanding ability to adapt to the challenges they face and we continue to focus on reaching first sustainable production in Q4 2022.
In addition, shortly after the quarter ended we announced of binding add of agreement with Rio Tinto that provides on the funding plan for the completion of the Oyu Tolgoi underground development.
The impact of COVID-19 on our operation underground development continued to flips for right through Q2.
And we are proud of how the team as proud to right safety of our workers and local communities.
I will not walk through the first quarter of 2021 upbeat as efficiently as possible and open the call up to Q&A.
Please note slide two and three contained our caution the restatements.
I encourage you to read through debt.
Please moving forward to slide five.
Operationally the first quarter was extremely positive for both of us from both of safety and production perspective.
All you have to go achieved an all injury frequency rate of 0.2 per 200000 hours worked during the quarter and continued to maximize production from the open pit from Q1 production of.
Of 45000 tons of copper and 146 ounces of gold.
Or did the goes as updated the copper and gold production forecast for 2021 and is now expected to produce 150000 to 180000 tonnes of copper and 400000 to 480000 ounces of gold.
This updated guidance incorporates the impact of the modified mine design due to the easier with technical issue in Q4, 2020, and the impact of the increased penetration of the REIT measures. We have had to introduce you to the recent COVID-19 surge in Mongolia.
The company is currently assessing the significance and extent of the impact resulting from the COVID-19 pressures.
The vaccination program in Mongolia continued to rollout and as of yesterday. It is estimated that over 80% of the adult population had received their first dose while over 30% and receive their second dose.
We are seeing area of our operation, where we believe we can start to relax some of the COVID-19 ability to breakfast for a measures, but remain vigilant in ensuring the safety of our employees in the community.
At the end of March 'twenty, 'twenty, one turquoise hill at $700 million of available liquidity, which is expected to fund our operations and all the growth development into Q3 2022.
As stated earlier.
Our expected funding GAAP remains unchanged at $2 3 billion.
The improved copper price in Q1, largely mitigated the impact of the unscheduled tax payment and we remain encourage where the commodity pricing we have seen so far in the second quarter.
Moving to slide six.
Breaking down our operating performance during the first quarter. The addition to the strong production mentioned in the highlights.
Our mill throughput remained above nameplate capacity, while our C. One copper cash cost were eight brookdale. However, we'll also note the reduced 2021 production outlook, we provide the MDI line.
The reduction from our previous outlook reflect the modification of the mine design in phase for B to resolve the issue with technical concerns related to our multi bench failure in December 2020, and the impact on productivity and increased uncertainty resulting from.
COVID-19 related controlled now in place at site.
The challenges of managing the impact of COVID-19 on both our open pit and underground operation continues through the second quarter.
The underground development and concentrate shipments continued to ramp up since the current in force measure measure towards the end of Q1, while OTI, while OIBDA growth continued to price of rise the health and safety of its employee and cooperate with the government of Mongolia as vaccination.
The program Rolls out.
With that I will now end the call over to Luke Colton, our Chief Financial Officer.
Thanks, Steve and good morning to everyone on the call.
Please turn to slide seven for a summary of our key financial metrics for Q1.
Revenue for Q1, 2021 increased 303% versus Q1 2020.
And that's driven by a 29% increase in copper production and of 462% increase in gold production as well as increase of the 52 per cent and 14% and the average prices of copper and gold respectively.
The improved production metrics reflect the schedule moved to the higher grade areas of the face or B, which we expect to see continue throughout the remainder of the year.
The increase in revenue was was the primary reason for the $247 million increase in cash generated from operating activities before interest and tax although the revenue benefit was partially offset by unfavorable movements in working capital and deferred revenue for.
Relating to the force majeure that was announced in March of 2021.
The $157 million increase in gold revenue credits was the main reason for the significant decrease in the unit cost basis for both the one cash cost and all in sustaining cost together with the benefit arising from the increased copper production.
The full year guidance range for cone cash cost has been adjusted to negative 20.
The 20 cents per pound of copper produced.
Which is mainly the result of the rest of the decrease in gold production guidance for 2021.
Capital expenditure in Q1, 2021 was 250 million comprising $242 million on the underground and $8 million on the open pit.
Slowdown has been so far in 2021, which is principally due to the impact of COVID-19 1919 restrictions of controls has led us to reduce our full year guidance for underground capital.
Two of range of 900 million to a 1 billion and for open pit capital of for your full year guidance has been reduced to a range of 105 million two of $125 million.
Yeah.
You can please turn to slide eight.
You'll see that turquoise Hill had liquidity of $1 7 billion at the end of Q1 2021.
Which is expected to be sufficient to meet our needs or requirements into Q3 of 2022.
Although the company made unscheduled tax payments to the Mongolian tax authority of $356 million in Q1, 2021 operational performance strong sales and pricing allowed the company to maintain its liquidity horizon.
Additionally, our base case incremental funding requirement has remained at $2 3 billion.
And we of course continue to monitor commodity markets. The undercut COVID-19 impacts and other key assumptions in assessing our future funding requirements.
Looking forward, we are engaging with the relevant stakeholders to advance the implementation of the heads of agreement with Rio Tinto and we will continue to provide updates in due course with respect the progress made.
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 the company's control successful implementation of such options may require us to achieve alignment in agreement with the relevant stakeholders, which would include re.
Oh tinto existing lenders any pinch of any potential new lenders as well as the government of Mongolia.
With that I will hand, the call over to Jo Anne Dudley, our Chief operating officer.
Thank you very much like.
If we now tend to focus on slide nine.
The spot COVID-19 impacts the Idaho project construction progress on the materials handling system, one which is required for sustainable cost production remain broadly in line tenant the desk.
The net.
During Q1, 2021 primary crusher, one bottom shelves for installs in the top shelf and the age of the Crusher chamber for installation.
In addition, convey about pulling commenced from the main conveyor between primary crusher, one and shop too.
Oh for progress on materials handling system line is expected to fly in Q2, 'twenty one due to COVID-19 restrictions, it's not expected to materially impact the timing of the on the pet connect smart and sustainable first production.
Ongoing black suspensions continue to affect current onshore strain for and the Eiffel impact of based on the lives of Enbridge, Inc.
Yeah.
Harvest of Wix remains dependent on mobilizing key vendors and additional thinking resource of the seem to country and clearing them from current chain.
Additional shaft sinking specialists on now in Mongolia and are expected to arrive on site during my.
So I'm sorry for not required to support panels here of commitment. However, they are required to support production from panels, one and two of it.
During the ramp up to 95000 tonnes per day.
The private non opinion, Patrick expected to continue for quota Te the spot the rapidly progressing vaccination program.
That can vary of day climb continues to progress the nice hundred equivalent basis completed in the quarter.
Underground development progressed 3500 equivalent Nathan.
We completed the St 1500 cubic meters of mass excavation.
It's anticipated that lateral development rates will continue to be impacted into court of Te Ando part of your development work has slowed as a result, the would you sort of wait for some of this almost all of the development required for the commencement of beyond the kind of east can place.
The commencement of the on the cost in mid 'twenty 'twenty. One is it came off line and it is critical to ensure the once commenced the other.
Cash and drill plant construction continues unimpeded.
Many of the technical criteria required for a mid 2021 commencement at the end of the cut remains on track.
However, the the exact comedy on the cost is under increasing pressure principally G to the rapidly evolving understanding of the recent COVID-19 impacts.
In terms of exploration turquoise Hill to its wholly owned subsidiary I actually called Mongolia.
The rigor exploration and that's G. L O L. L C.
Rights and exploration program in Mongolia on licenses that are not part of Oyu tolgoi.
In Q1, 2021 takeaway hill successfully turned on for Neely.
Yes.
With the addition of Qatar.
Particularly on the head straight losses.
The exploration of White claims for the three checklist of licenses that they finalize and submit it to the local authorities.
So it checked like hill bag and I D T license at the ex.
Depression pain plans get to continue with geophysics programs.
And on how to actually the team plans to undertake several geological survey.
Timing of the field the season is dependent on the COVID-19 situation, but fieldwork is expected to begin in late Q2 really Keith for 2021 once the quantity of listing of safe and the entire team is vaccinated.
Due to our in country, the tastes and experience she actually flow price AMETEK Rachel exploration activity.
With that I'll now hand, the call back to the states.
Thank you everyone moving to slide 10.
I'm going to use the key milestone outlined on slide 10 provides an overview of what we are working through for 2021 and the onto 2022 to keep us on track for first sustainable production in October 2022.
The first of all of stones are the ongoing negotiation with the government of Logia, which are critical to ensure the undercut can come in as the one pointed out from the technical perspective.
Criteria required for the mid 2021 of the commencement of the on the cuts remain on track.
However, it is of non technical criteria, including confirmation of necessary regulatory and legislative approval required by the government of the Mongolia, There does still pending and are critical elements for consideration to proceed with the decision to come as the older car.
Constructive engagement was achieved with the government of more of.
The government working group in Laguardia in April and we anticipate a resumption of discussion in June following the 2021 logo in the presidential election.
Yeah.
The second milestone of 2021 is the undercut blasting currently scheduled for mid year.
Once comments, the undercut and dwell point construction continues unimpeded and we will be looking for to ramping up to first sustainable production.
The third key milestone is funding in April to of course Hill, and Rio Tinto and notes of binding HOA to provide the funding plans for the completion of the underground development.
The funding plan is designed to address the estimated remaining funding requirement of approximately $2 $3 billion, which is based on our current commodity assumptions.
We remain committed to continue delivering benefits to all stakeholders, including Mongolia, and the citizen and to delivering significant long term value for turquoise Hill shareholders.
I would like to thank you all for taking the time to join our conference call and wed now like to turn the call back to the operator for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear of three Tom prompt acknowledging your request.
If you are using a speakerphone please lift the handset before pressing any case.
First question comes from all of that's why Codell at Scotiabank. Please go ahead.
Hi, good morning.
I realize you've left official all your official guidance kind of unchanged for the underground with respect to timing and capex and so forth, but at the same time, you're you release, it's pretty clear that you're you're worried about increasing pressures I guess, both technical and nontechnical.
You know how should we think about this moving forward I mean, it sounds like youre going to be likely.
Likely increasing the capex in pushing back the schedule unless things radically improve is that the right way to think about it and does this really revolve around both the government are giving you the non technical issues that you need.
Plus sort of the lifting of of COVID-19 restrictions.
Okay. There's a couple of elements of our estate system and thanks for your question and there's a couple of elements in your question. What we are what we're focusing right now is on the on the cut decision and we've been very clear that the other cut decision as two main elements one of technical criteria, Okay, which.
Includes elements of the trailing in all the elements and as mentioned by so one okay. The achievement of the technical criteria of the core for the mid 2021 commencement.
We remain on track I mean, all risks, let's face. It we were like everybody. We had some headwind with the COVID-19, but definitely we believe from and where we're where we're on track from all of our point of view for a mid year for mid year, our total debt.
The other elements related to the non technical debt, we refer and you could see that as the approval from the from the government of non Golia related to our license to operate the on the ground or the the underground and we need to work with the government to proceed.
With these these approval and that's not different from any mining of the world that you need from the levels of you'd need some approvals on some elements and so I mean as of today. We haven't received those one but we keep working with the government to receive these approvals and be able to proceed okay.
Now in terms of COVID-19 and the impact I mean, the main impact of the COVID-19 was a it was in Q2, okay, and but as you've seen there's some significant improvement in the vaccination and also of the procedures that we're putting in place for.
Focusing first on the safety of all of our employees.
We expect the or the next couple of weeks, we should see an improvement in distribution in Mongolia overall and on our site.
And we shouldn't be able to.
Ramp up the the operation.
So I'm not I'm not telling you.
<unk> point is we need to evaluate what would be the impact and today I don't have the information for you.
And then as a follow up can you are you able to quantify like what does every one month delay in the undercut what does that translate in terms of impact on the capital number.
John would you like to color on that please.
Yes, absolutely and thank you for the question Alright.
Hey.
It depends on the breakeven in that kind of the on the cost might be the light and suddenly.
As stated with some indicating we arent we arent planning for any particular July Indiana, the cost to get my mother of scenarios that we've been putting a lot of work into into understanding at this point in that.
We're working towards that Scott of the undercut as soon as.
Possible to Jerry Tsai Intel.
In terms of all of the work that continue once the on the stop loss thing.
We do continue but on the materials handling system, one eight as well as other other important work in preparation for the start of production and sales.
Depending on the the reason for it to take care of delay that could be encountered a preparatory works of commencing production could continue and then it would obviously depend of the July with as a result of.
My numbers on Sars and the inability to to continue working.
Working then send that my impacts that is that of the scenario.
For us the materials handling system one has remained.
Head of schedule actually.
<unk>, often and you know even now we're saying it's forecasting ahead of schedule, but we can say that the has seen pressure on the schedule in recent weeks do you see the accelerated.
The impacts of kind of the control of the sauce.
But.
I mean as a follow up are you able to quantify like if if the undercut is delayed because you. The non technical criteria has not met what what what is the impact of say per month of delay to the capex.
Right and are.
We're still trying we still would be assessing that as as you know nine delays, which stopped two of cat given that some of you know quite of lot of where it could continue.
You know, it's it's not something that we necessarily understand right at this moment because they would they are they would be quick that with the ongoing capital would continue to be spent in the other areas are.
Albeit potentially out of at a reduced rice.
And there will be ongoing assessments of the Ivo Ivo impact.
On cost and schedule as we understand the situation of the besso.
Richard I think the best way to look at as it always is that it's not the one month for this capital because other words. It's a complex is the contract development and other work would be done elsewhere in some.
Some expenses will not be done so that would be just the daily now that being said if the old also depends on the timing if it if it I mean at the moment, we're seeing that we're within we're within the mid year and so I would not say of one month is equal to that to that much capital additional.
Think of that we're not looking at the.
At the midyear mid year timing as having an impact or significant impact on the Capex you shouldn't just look at it this way from that.
From the phone.
From now.
Thank you and just a final final clarification, the $6 75 billion capital number for phase two does that include the sustaining capital related to the underground that we're now seeing are being incurred we saw from in Q1 here.
Just curious if if the sustaining capital between now and for sustainable production is included in that six of seven five number.
Okay. Luke do you want to give the answer of that.
Sure happy to Steve and Thanks for the question the question or us.
The the answer to that question is no. The the $6 75 billion does not include the $6 75 billion is for undergoing.
Development capital expenditure of the it excludes underground sustaining capital expenditure.
And that's always been the case, if you go back and look at the the different technical reports.
The RFP was issued in 2016, and and and again last year in 2020, there's always been the distinction between.
The $6 75 billion underground development capital expenditure and the additional underground sustaining capex.
Thank you.
Thank you very much of Orissa.
Yeah.
Thank you next question comes from Craig Hutchison at TD Securities. Please go ahead.
Good morning, guys.
I'm, just trying to get a little more granularity around your guidance cut, particularly with gold going from 500000 to 559 of 400 for 80 yeah.
How much of that is COVID-19 related how much of that is grade related.
We're kind of halfway through Q2 here any kind of color in terms of what we should be thinking for throughput in grades here in Q2 would be appreciated. Thanks.
Okay I'll, let you wanted to respond to that respond that Craig okay.
Thank you for once a day thank you Craig.
Yes, no problem I'm kind of hinting Jessica.
Yes.
Okay, sorry, just wanted to check the sorry.
Yeah. So.
In terms of the change in particular around the production gods of golf.
The majority of of the change in terms of that the gold production has been the.
The deferral of material size five as the results at the mine rages on AR, and we would say the delivery of that material.
In approximately two to three Years' time, there are some of the additions that has played into that change and as you mentioned kind of bid and assumptions around productivity.
Is it the next period.
It has all of sudden factored into that change. So it is the ease of combined change of the mine redesign.
Some of that productivity impacts and then some of the other assumptions around the or type of thing said and the the processing of.
As a result, we would expect from that.
In terms of looking forward to the rest of the yeah. We have had a good quarter in terms of calls for adoption.
And.
We do expect to see Q2, having some productivity impacts from the operation intensive productivity from the I can pay it and the concentrated you each of the I'm kind of the controls that have been implemented at size. However, with the vaccination program.
And the the controls.
For the thing we expect to see some recovery.
Of that <unk>.
And we will be remaining in that high grade area of.
Fateful day for.
For all of the quarters.
Of 2021 and we and of course, having just updated guidance. We do expect your of mine with.
Within that guidance for 2021, sorry, hopefully that draws announces the picture for the bad Craig in terms of how.
How about its quotas will play out I mean, I guess something else.
<unk> would be.
The in this part of the pit the grade is quite good and we can see the grade change when we move around in different areas of all of the peace and debt and so it isn't it isn't straightforward to just you know tell you that.
You know the grade is going to be the exactly cyanide for the next.
Trade corridors, but just for like Qunar sit and like what we can which is we do remain in the high grade.
For the remaining quarters of the Sia AR and AR and we do expect to make that time nearly released gardens.
Greg.
Yeah.
The same way to look at it I mean, you probably wouldn't be you I would say debt I.
I would say that like I joined the same overall degreed would be roughly the same on all of the quarters, except because of the COVID-19.
The tuition in Q2, I wouldn't make an adjustment and probably spread it over the next quarters roughly.
Okay, because I mean grades were quite high in Q1, right they were six or eight of them.
Yes.
I mean, we expect it to be and Thats, great. I mean, there's always variability, okay, but we're expecting to be in the east and in the high grade in the pit.
For pretty much all of the year I think maybe December of little bit, but it's not it's not even the concern, but I think that you should assume all year with the with good grade.
Okay I mean.
It seemed like the grades would have the follow up quite sharply from the.
Q1 in order to hit sort of the midpoint of your guidance, but okay.
Okay just.
In terms of sales do you guys anticipate catching up here in Q2 or do you think there'll be some carryover into Q3.
Luke can you answer that please.
Yeah, I know I will happy to do that Craig. It's a good question. So we.
We did we did obviously declare force majeure and.
I think it was the 30 30th of March of this year.
We are now.
Concentrate shipments have started again they started again kind of mid.
Mid April and we do expect them to continue to.
Ramp up over the course of Q2.
You know the the COVID-19 situation in Mongolia, hopefully improves with vaccinations et cetera, and you know.
That's not what we're aiming to do and we're working very closely with the government the government of Mongolia, and the government of China to sort of resume normal shipping operations as soon as possible.
But as Joe on the alluded to there have been you know COVID-19 related impacts we are expecting to see some you.
You know COVID-19 related impacts in Q2, so what what I would suspect is that you you you should see improvement over the course of Q2, but I I I expect there will probably still be a fairly high inventory balance at the end of Q2, which we will continue to draw down hoped.
Wally you know and in Q3 it.
I will get back to normal by the end of Q3 about kind of what we're targeting at the moment in terms of getting you know our our inventory balances back down to normal level. So I don't think of something that will completely resolve itself into in Q2, Craig down to your question I think it's probably going to be something that resolved itself you know hopefully in Q3.
But definitely over the remainder of the year.
Okay.
Sorry go ahead of it just Craig just to give you a bit of flavor of the I mean, all of all truck drivers of been vaccinated, but theres additional procedures at the at the border and that's increased the the cycle time of the delivery.
But like I said like Lucas, saying differently, we're working and putting additional resources to make sure that we can move that the inventory, but that will take a while.
Okay. Thanks, maybe just one last question for me just in terms of how important or of the Mongolian presidential elections on resolving the department of the resolution 92, do you need presidential sign off for.
Hum.
I'm kind of wondering why those negotiations stalled and will resume post the presidential election, okay. Thanks.
Yeah, no the kind of.
The context is it's more of that we had the we had the.
Tier of Q and the Rio Tinto teams were in the in Mongolia for discussions of the gun with the government logo Mongolia.
From the.
Excuse me here.
From the end of May from the end of March to April at the end of April.
I mean definitely.
Great.
<unk> was facing.
A significant surge in the the.
COVID-19, we were in the election.
And that we believe that the best the best for everyone was to resume the discussion after the election okay.
We wouldn't be where that would be that would be completed.
So I.
I don't know exactly in terms of detail, but definitely a.
A couple of points here all of the parties are committed to.
I mean, we all have the coming interest okay.
In the.
The proceed or proceeding with the other cut decision okay.
We know what debt, we need to resolve and have discussion around.
Resolution of 92 or a question that I have been raised by the government and we're definitely committed to have a sit down and have the proper discussion in order to have but it is it is also likely that we may I mean, we will I mean, there was some discussion to have related to the on the cut.
So the end of the Cubs criteria and the non technical debt, we've talked before and like I say these are our license to operate or elements of the license to operate that we need we need to we need to have but I.
I would expect that the discussion with the government of Mongolia of definitely well I mean like I say, we'll have will resume after and we will have all sorts of after net them will have other periods to have some discussions.
But the point I want to make Craig is that you shouldn't necessarily linked together the on the.
The decision with the discussion of what the government. There are some elements that would become an but not everything.
Okay. Thanks, guys.
Okay.
Thank you next question comes from Ralph <unk> at eight capital. Please go ahead.
Good morning, Thanks for taking my questions.
Good morning, Ralph.
Good morning, Steven and Joanna I wanted to come back to the development rates in Q1 of them that are also going to.
The impact Q2.
Hum.
And if we just exclude the critical elements of these non technical factors.
What sits behind commencement of the undercut as the critical path.
It doesn't seem like it's shaft three and for US It really draw Bell development of construction or materials handling kind of help me understand that a little bit better.
Get the John to answer your question Ralph.
Okay. Thank you thanks Ralph.
So.
You're correct in terms of what share you sign the lease thought it's not Tom shop trained force that they support the life of that ramp up.
The materials handling system one of them.
<unk> has been a key priority.
And as we've mentioned it has been at hand.
All of the definitive estimate intend to share Jill them, but you know were saying hey, Duane the suites of.
The lightest acceleration of COVID-19 control.
And the.
The other paces lateral development as you mentioned and almost all of the development required.
The minutes on the cost cutting is can place. So the development is well advanced at the moment.
We still do have aspects of the materials handling for two met all of our under construction and that will continue.
Right up until the start of production.
The schedule is going relatively well and they've really managed it extremely well, giving given they are the current or certainly the the situation with COVID-19 and pad it might be with just mentioning that.
The materials handling system from us prioritize and ex so they've done quite well unit. The thought currently has no active cases of COVID-19.
<unk> aims and additional personnel at the.
Planned to be transported to thought to increase numbers on construction.
The next few weeks as well as well as the effect of fashion program progressing. So you know we we are we yes at my saying a green shoots here, but we also recognize that things have been difficult for all of the chain a leading up to the end of this quarter and into Q2.
Hopefully that's helpful. It is.
It is thank you for that.
Joanne that's all from my understanding of that.
Sustainable profit cave propagation of crews at 30 draw bells I'm. Just wondering do you have of target rate for draw the construction, where where you know where do you expect to be say you know mid 'twenty 'twenty. One end of 2021 can you help us with the little bit of a schedule on the draw Bell construction.
Yeah. So the there's certainly ease of a schedule for the trove El construction with the.
The with the style of of type money that way.
We're using a missed one of I totally off the Hugo North mine at the.
The undercut passes all of Utah.
The extraction level prior to each of the day development and the the last thing I'll draw bells. So we currently don't have any draw bells in the blind until we wait until.
We stopped firing the beyond the cotton, we actually are able to safely start doing that work.
Inside that is.
Something like that is that is after the start of on the cutting if you lock.
In addition.
In terms of the actual timing of sustainable first production that the.
Estimates of the of the number of sales ease of reasonable estimate as we understand the rock mass.
Ultimately the start of production is government thought the rough math and its behavior.
After we on the cost and.
This has the cave instrumented to understand when.
<unk> came in for us and that would be when the.
The first sustainable production actually can run since.
The number of true draw bells, he's an approximation it should be reasonably cost.
But ultimately we will be looking to the rock mass to give us the the the go ahead there.
And meet the criteria to stop production.
In 2022.
Got it well understood, yes got it thanks very much.
Okay.
Thank you next question comes from Jackie Schabowski at BMO. Please go ahead.
Thanks, very much I guess I just wanted to circle back to to Steve's response to Orange and then and then to Craig I mean, you've mentioned a couple of times Steve the.
You need to see a license to operate in Mongolia, and I think this is.
Specifically related to resolution of 92, but also I mean Joanne.
The <unk> question, she said that you're still doing prep work on materials handling and other items.
The is it is it one of the other like do you need of license to operate.
Did you both the undercut and I mean spending any other capital underground.
When that kind of be the same I'm just I'm a little confused as to why you're pursuing some of the development activities, but not the undercut them.
Why why wouldn't they be kind of under the same under the.
The same kind of thought about this.
Yeah, Yeah, Yeah, let me answer that the chunky I think there's a couple of them in all of them and so you had in your in your statement of real question here I just wanted to I.
Just wanted to answer.
The first the first one relates to the the non technical and the resolution of 92, you should separate those two okay because.
In order to operate any mine in the World you need you need some approval by the by the government and some elements that are all related to your license to operate for example, Okay. And then you would might plan approved by the government. Okay and these are I mean, that's just one example of example of more of.
Of the things that you would have and so there's elements of right now that we're waiting approval, we submitted and but were waiting approval from the government to be able to proceed and where this is where we need to discuss with the government and the the different departments to make sure that we're moving all of these elements and some of those.
I've not been I've not been received yet and we want to proceed there. The second element is that on the negotiation you put that separate okay, but it's also important to understand the once you start the other cut that's it I mean, you cannot stop it so you need to make sure that you have the proper the per.
For authorization and the approval to proceed with it because theres no theres no other way to change it okay. The underground mine itself and the lateral development is not the mining yet is getting ready for the for the for the full mining, but it's not necessarily the mine the mining yet okay, but when you start dealing with.
Cut you really started in the mining operation and you kind of stop it and we wanted to make sure that when we start we would have.
We won't have any daily.
What is the most important during the undercut is to make sure that your progress at the right level. So you guarantee the.
The sustainable production and the specific time.
Okay.
So is it is it fair to say.
So thanks for the clarification is it fair to say that the the undercut can start of for the investment agreement is finalized.
That's.
I would say, yes, okay, I think that it would be a reasonable objectives would be arisen volt to say that.
We could we could proceed without having the resolve these elements because we're committed to resolving it okay. Because that's important needs to be resolved, but at the same time, we could definitely when do we get the approval to proceed with the the other cut we can we can move ahead.
Got it thanks very much for that clarification. That's that's really helpful. Thanks that's.
That's it for me.
Youre welcome. Thank you.
Thank you next question comes from Delta Imperato at Canaccord. Please go ahead.
I do apologize I spoke of that with Scotiabank.
Hello, Thanks for taking the follow up this one is actually for Luke.
On the your estimate for the financing requirement the the 2.3 billion share.
Can you give us a little bit more color on on minimum cash assumptions in that like I E. Does your does your existing debt require you to maintain a certain minimum cash or does that assumption or is that not the case and does.
Does that put the estimate of 2.3 assume you're taking your cash effectively to zero at some point next year.
So the estimate of $2 3 billion would assume debt that we're taking the cash all of the way down to zero.
Obviously, we wouldn't want it to get to that point, but the the.
$3 billion does assume we we we take the cash balance of all the way down to zero and of course the objective at the moment is is to focus on the implementation of the HOA. So we're able to resolve that.
Of that funding gap well in advance of of getting to that point.
Okay.
Thank you for that but does your existing debt require you to maintain a certain minimum cash balance of where do you have no restrictions.
The I'm gonna have to get back to you on that question I don't I don't believe it does but but I'll have to follow that I'll hop. The followed by question up and get back to you.
Okay. Thank you.
Yes.
And all of this I would say debt.
There's there.
There's there's a lot of of elements and you've seen the the.
I'm, not saying that there's going to be less guys on the thing that our estimate is two three but theres a lot of it there's a lot of information in the pricing and all of that that's happening. So it's very variable the environment at the moment, but like leukocyte, we'll get back to you with that hundreds of millions.
Or any amount of required if we have any.
Got it thank you.
Thank you next question is from Dalton Barreto at Canaccord. Please go ahead.
Thanks, Good morning, everybody, so Steve I want to pick up the morning.
Good morning, Steve I wanted to pick up of them with Jackie was asking you about it.
And specifically what you said in terms of the undercut the <unk>.
Tables of progress without resolution 992 satisfied.
Is that something you guys would be willing to do my understanding is that real.
<unk> to progress of unless that happens specifically because as you said once you start the underground there's no stopping so if resolution 90 twos not resolve you you're basically hostage now.
Okay.
I mean.
There are a couple of elements of it okay. The first one.
We need.
Oh can I, how can the approach that.
The key elements, Okay is that from the <unk>.
The first element that we need to resolve is make sure.
The Allison debt, we have the license the elements of the approval from the license to operate okay.
We are committed I mean, let's face it there is differences and the resolution of 90 to bring some concern from the government of Mongolia to be resolved and it's around the cost of the projects and the distribution of benefits.
I mean.
This is negotiation that we're going to have and will take a certain time. However, both party of committed to make sure that we are creating and we're proceeding with the value of of the on the project and.
Despite the fact that it may takes total time for these all of the detail of resolution two to be resolved. Okay. What's important is that we move ahead with the approval of the the way I.
We've called it the regulatory approval to proceed with the other.
The the on the Grill and we can work together to fix but net to fix but to discuss the original the resolution of 92 and be able to move forward. So there's a scenario where you definitely can separate the two and have the.
The proper of discussion around the the elements of concern that we have in the resolution of 92, while still proceeding and one of the other cut but I would say delta.
The belt on where are.
We have 79 floors of the 80 floor building done.
What's important is that we move ahead, and we where we're creating the value while we're having this discussion of whether it be the just the proper discussion for the government around the.
Around the theyre concerned around the cost and the benefits.
But I guess I'm wondering a.
Why would the government give you the approval to proceed if the economics are uncertain and B Y, which you guys would want to proceed if the economics are uncertain.
I think debt.
Okay.
Italy debt what is important for us first.
We are aligned.
The government and and and and the company.
We all of volume that we need to we need to create and generate the value.
The distribution of that value is going to be something that we're going to have we're gonna have to to discuss and have the appropriate discussion from my point of view I mean, we all of their it's we need to if so where are the like I said the project is mostly completed and we need to make sure of that we're proceeding in.
Moving with the appointed element, which is which is the on the cut and we need to find a way to resolve the the funding at the appropriate time and have the dedication to do it on both sides and I think that's doable that's my view.
Okay. So on the assumption that you get the approval to proceed with the undercut and that you initiated the undercut.
And then you've got two of pointed in the negotiations were.
You know you're at an impasse on resolution ninety-two, how do you handle that then if you can't stop the under cost.
I mean definitely I'm confident that we can we can find the path forward.
About the definitely.
Okay, maybe switching gears to something else Craig asked you about but I was sort of confused the actually the answer and that's got to do with the gold production. This year. If you were if you go the grades are going to stay approximately the same.
What's driving the lower them.
The the lower guidance is it throughput I mean, where exactly is COVID-19 impacting it.
John you want to answer that please.
Yes, sure and I think that was I'm really pleased you asked that you ask that question because I don't think that was the right Tycho at what it certainly wasn't what all of US trying to say what I was trying to say is that the has been if we look at the guidance for the year and we do some simple math on the gold that has been produced in Q1.
And then we look at the reminder of the E. We still going to have production in each of the always quoted from the high grade area of sites for all day.
However, we can also say that quantity.
I will have some impact as the risks on on production from the paint and true the plant as the result of the COVID-19 non tank controls that we've had in place is the recent lakes at size. So there will be any impact on Q2.
A hell of hope, we do reminding the Nighthawk right and we just updated the the production guidance.
Is that is that helpful.
It is I'm just.
Kind of understand.
Yeah.
Okay.
Okay.
Sorry for Lucky.
Because we I think we lost two delta.
Operator are you still are.
Okay, so kind of that could perhaps his line may have gotten muted.
I'm still here can you hear me now.
Yes, Scott how we can.
Oh, sorry, yeah.
Having issues of this call for the last 30 minutes or so.
Sure. Yes, I guess my question is if youre going to be in the high grades should we then assume that the impact is on the amount of material youre mining and processing.
And then as that restrict adjusted Q2 or the rest of the year.
Yeah. So I mean, I guess of was not to be clear I was not saying we will be processing the signed grade for every corner of the year.
What I was saying is that we will be in the high grade areas of the peak for the remainder of the year, but if we do some math between the they are the production gone just released and what what some of the same produced in Q1, we will say well, what we think will happen in either of the remaining for a call.
Got it.
And that's as much guidance as I can give there is variability in the high grade areas. It's not you know we're not mining on all of the bulk size the.
There is a lot of difference in the grades in the in these parts of the pit and the is variability with COVID-19 that we're saying for the rest of the year. So you know I'd love because the thought you would be the bit more granularity, but I just don't think its appropriate given the uncertainties around which way of talking.
The answer of on the loan.
That's another way to look at it is debt.
The.
And I guess Youre speaking youre speaking, mostly around the around the gold. Okay. When you look at the gold the gold is at more specific area in the in the pit it's right on the bottom okay and in very specific area and you can you can share that way because of the slip we had to do of stepped in and so that means that we had to.
We have to make the lost some benches, okay or and make it less accessible at the bottom of the pit. So technically okay. When debt current for B, we modified the current for B, where we don't have all of the access that we wanted to have at the bottom of the pit where some of the I agree.
Our gold was okay. It will be moving later, okay, we'll be able to mine. It later, but this year. We don't have access now on the copper side, we have other area because of the distribution of the or the copper the copper ore is different we have access elsewhere. So that's why we have less of the change in the.
In the copper guidance, that's mostly what it is.
Okay. So that's more of a clear because you know we keep talking about the COVID-19 impact for what you just said, it's a function of the pit wall slip and that's kind of what I was trying to get at because.
Q4 of the disclosure it said that there wasn't going to be an impact on guidance and so I just wanted to clarify. So this is a function of the pit wall slip in access of certain zones that you had planned on mining, but I can't right now.
It is and the reason the war, we I mean, we said that it takes a while you understand that the with evaluating evaluating the fold in and how it would behave and you try something and it doesn't work you have to step in more of that has an impact eventually and that's what we're saying this quarter that finally, the it has a bigger impact of what we do.
Originally had.
The plan because we have not finished all of the analysis.
Understood. Thank you guys.
Okay. Thank you.
Thank you for that concludes today's Q&A session I will now turn the call back over for closing remarks.
Yes. Thank you very much everybody for attending this call of really what I. Appreciate your your time and your interest if there's any follow up questions. You can reach out to myself Roy Mcdowall in for Turquoise Hill Dot com or my email address so on that.
Thank you again for attending and hope everybody has a great day. Thank you very much.
Ladies and gentlemen, this concludes the conference call for today, we thank you for participating and we ask that you. Please disconnect your lines have a great day.