Q1 2021 Turquoise Hill Resources Ltd Earnings Call

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Thank you for calling system and what conference are you looking to join us.

Hello, and I'd like to draw and throughput.

And as resources earnings call. Please.

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And finally, just the company you're calling from.

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Thank you all play Sharon.

The conference is now being.

Yes.

<unk> told now and police at site.

The challenges of managing the impact of COVID-19 on both our open pit and underground operation continues through the second quarter.

Yeah on the girl and development and concentrate shipments continued to ramp up sales.

Soybean and force measure measure towards the end of Q1, while OTI, while OIBDA growth continued to pride to rise their health and safety of its employee and cooperate with the government in Mongolia, and vaccination program rolls out.

With that I will now and the call over to Luke Colton, Our Chief Financial Officer.

And Steve and good morning to everyone on the call on.

Please turn to slide seven for a summary of our key financial metrics for Q1.

Revenue for Q1, and 2021 increased 303% versus Q1, 2020.

And that's driven by a 29% increase and copper production and a 462% increase and gold production as well as increases of 52 per cent and 14% and the average prices of copper and gold respectively.

The improved production metrics reflect the scheduled move to the higher grade areas and a phase or B, which we expect to see continue throughout the remainder of the year.

The increase in revenue was the primary reason for the $247 million increase and 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.

Lending to the force majeure that was announced in March of 2021.

For $157 million increase and gold revenue credits was the main reason for the significant decrease and the unit cost basis for both day, one cash costs and all in sustaining costs together with the benefit arising from the increased copper production.

For full year guidance range for cone cash costs have been adjusted to negative 20.

And 20 cents per pound of copper produced.

Which is mainly a result of the rest of the decrease and gold production guidance for 2020 one.

Capital expenditure and Q1, 2020, one was 250 million comprising $242 million on the underground and 8 million on Yelp and pets.

Flow down has been so far and 2021, which is principally due to the impact of COVID-19 restrictions and controls.

Has led us to reduce our full year guidance for underground capital to a range of 900 million two 1 billion and for open pit copper to look for your full year guidance has been reduced to a range of 105 million to $125 million.

Yeah.

You can please turn to slide eight you'll see that turquoise Hill had liquidity of <unk> 7 billion at the end of Q1, 2020 one.

Is expected to be sufficient to meet our needs are our requirements into Q3 of 2022.

Although the company made on scheduled tax payments to the Mongolian tax authority of 356 million and Q1, 2020, one 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.

And we of course continue to monitor commodity markets. The undercut COVID-19 impacts and other key assumptions and 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 to progress made.

Our liquidity outlook and estimated incremental funding 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 and agreement with the relevant stakeholders, which would include re.

Oh, tinto existing lenders and 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 turn to focus on slide nine.

Despite COVID-19 impacts the Idaho project construction and progress on the materials handling system, one which is required for sustainable production remained broadly in la and attainable.

The net.

During Q1, 2021 on the crusher, one bottom shelves for installs on the top shelf from needs and so the crusher chamber for installation.

In addition, convey about pulling commenced on the main conveyor between primary crusher, one and shop too.

Oh for progress on materials handling system on is expected to fly and key to 'twenty one due to.

COVID-19 restrictions it is not expected to materially impact the timing and the undercut commencement and sustainable first production.

Ongoing book suspensions continue to affect progress on Shah, sorry, and core and the Idaho impacted based on the Liza under NDA.

Yeah.

Hi. This is works remains dependent on mobilizing key vendors and additional thinking was almost the same to country and clearing them from corn team.

Additional shaft sinking specialists on now in Mongolia and are expected to arrive on thought during my.

Sharps rainfall and not required to support penalty right commencement. However, they are required to support production from panels, one and two during the ramp up to 95000 tonnes per day.

Private non attaining packs are expected to continue to quantitate the spot the rapidly progressing vaccination program.

That convey a day <unk> continues to progress with 800 equivalent basis completed in the quarter.

Underground development progressed 3005 hundred equivalent Nathan.

And.

And we completed the St 1005 hundred cubic meters of mass excavation.

It's anticipated that lateral development rates will continue to be impacted into quota Te Ando value development work has slowed as a result of synergies thought what for some this almost all of the development required for the commencement of beyond the companies can place.

The commencement of the on the cost in mid 2021 is it came off time and it is critical to ensure once commenced the undercut and drill plant construction continues unimpeded.

Taken as a technical criteria required for a mid 2021 commencement and beyond remains on track.

The exact told me the on the coffee is under increasing pressure principally G to the rapidly evolving understanding of the race and COVID-19 impacts.

In terms of exploration turquoise hill to its wholly on subsidiary I actually called Mongolia.

For rigor exploration and S. J L. S. L. L. C operates and exploration program and Mongolia on licenses that are not part of Oyu tolgoi.

And Q1, 2020, one takeaways Hill successfully turned on for Neely.

With the addition of Qatar.

Particularly on that has three losses.

The exploration rate plans for the three checklists and licenses that they and finalized and submitted to the local authorities.

And so checkpoint hill bag and I D two licenses.

Expressions Hain plans get to continue with geophysics programs.

And on how to actually the team plans to undertake several geological survey.

Timing of the field sales and is dependent on the COVID-19 situation, but fieldwork is expected to begin in late Q2 early Q3, 2021 once the required approval thing are safe and the and titanium vaccinated.

<unk> and country expertise and experience she actually is well placed to undertake regional exploration activities.

With that on that whole hand, the call back to Steve.

I think it was everyone moving to slide 10.

I'm going to use a key milestone outlined on slide 10 provides an overview of what we are working through for 2021 and on to 2022 to keep us on track for first sustainable production in October 2022.

The first small stones are the ongoing negotiation with the government and local area, which are critical to ensure the undercut can come in as your one pointed out from a day nickel perspective.

Criteria required for the mid 2021 and commencement of the on the cut remain on track.

However, it is a non technical criteria, including confirmation of necessary regulatory and legislative approval required by the government and Mongolia.

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 and more of the government and working group and Laguardia and April and we anticipate a resumption on discussion in June following the 2021 Laguardia and presidential election.

Yeah.

The second milestone of 2021 is the undercut blasting currently scheduled for mid year.

Once Cummins, the undercut and dwell point and construction continues on embedded and we will be looking for to ramping up to first sustainable production.

The third key milestone is funding in April of course Hill, and Rio Tinto and notes and 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 its citizens and to delivering significant and 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, and we will now begin the question and answer session should you have a question. Please press the star followed by the one on you touched on phone you will hear on three Tom prompt acknowledging your request.

If you are using a speaker phone please lift the handset before pressing any case.

First question comes from Rs <unk> of Scotiabank. Please go ahead.

Hi, good morning.

And I realize you've left official all your official guidance kind of unchanged for the underground with respect to timing and and Capex and so forth, but at the same time, you're your 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 and 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, giving you the non technical issues that you need.

Plus sort of the lifting of COVID-19 restrictions.

Okay, and Theres, a couple of elements of our estate system and thanks for your question and there's a couple of elements and your question. What we are what we're focusing right now is on the other cut decision and we've been very clear that day undercut decision asked two main elements one of technical criteria, Okay, which.

Includes elements of drilling and all the elements and as mentioned by so one okay and the achievement of the technical criteria on the core for the mid 2021 commencement.

We remain on track I mean Rs, 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 our reported Q2 for a mid year for a mid year on that.

The other elements related to and the non technical that we refer and you could see that as the approval from <unk> from the government in Mongolia related to our license to operate on the ground or the the.

On the ground and we need to work on the government to proceed with these these approval and that's not different from any mine and the world that you need from levels of you'd need some approvals on some elements and so I mean as of today web and 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 was in Q2, okay, and but as you've seen there's some significant improvement and the vaccination and also other procedures that we're putting in place for.

Focusing first on the safety of our employees.

We expect that for the next couple of weeks, we should see and improving and distribution in Mongolia overall and on our site and.

And we shouldn't be able to.

Ramp up the the operations.

So and that's telling you and bus.

And <unk> point is we need to wait and evaluate what would be the impact and today I don't have the information to be used.

And then as a follow up can you are you able to quantify like what does every one month delay and the undercut what does that translate in terms of impact on the capital number.

John would you like to color that please.

Yes, absolutely and thank you for the question Alright.

Hey.

And it depends on the breakeven and that Savi on the cap may be delight and suddenly.

On a stage with with indicating we arent and we aren't planning for any particular July and Indiana, the cops and kit and might not have.

Area that we've been putting a lot of what I can say into understanding at this point in that.

And we're working toward that Scott and I see on the cops as soon as it's.

Possible to dairy side in terms of our other work that continues and once the on the last thing and we do continue book on the materials handling system, one and as well and other other important work and preparation for the start of production and so.

Depending on the the race and for a particular delight that could be and counted a preparatory works at commencing production could continue and then it would obviously depend if the delay was as a result of my numbers on Sars and inability to to continue working.

Working and then that my impacts that is that other scenarios.

For us and materials handling system one has remained.

Head of schedule actually.

And often and you know even now we're saying it's forecasting ahead of schedule, but we can say that there has been pressure on the schedule in racing wakes GSA accelerated.

And impacts of COVID-19 controls and sauce.

But I mean that's.

As a follow up are you able to quantify like if if the undercut is delayed because you the non technical criteria is not met.

And what is the impact say per month of delay to the capex.

Ross and we still try and we're still would be assessing that as as you know nine delays would start to a cash but given that some you know quite a lot of where it could continue.

It's not something that we necessarily understand right at this moment because they would they are they would be book that would be ongoing said capital would continue to be spent and the other areas are.

Albeit potentially at a at a reduced right.

And there will be ongoing assessments of the IPO and real impact.

And on cost and schedule as we understand the situation and the peso.

Richard.

I think the best way to look at it is that it's not the one month for this capital because other words, it's a complex. It's a complex development and other work will be done elsewhere and some some.

Some expenses will not be done and so there would be adjusted daily now that being said it also depends on the timing if it's if it.

At the moment and we're seeing that we're within we're within the mid year and so I would not say a one month is equal to that to that much capital additional and I don't think that we're not looking at the.

And 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 the from.

Okay.

From now.

Okay. Thank you and just a final final clarification, the $6 75 billion capital number for phase II does that include the sustaining capital related to the underground that we're now seeing are being incurred and we saw some in Q1 here and I'm just curious if if the.

And capital between now and for sustainable production is included in that six seven and five number.

Okay, let's see.

Wanted to give the answer on that.

On.

Sure happy to Steve and and things for the question the question or us.

The answer to that question is no. The $6 75 billion does not include the $6 75 billion is for undergrad.

Development capital expenditure that it excludes underground sustaining capital expenditure.

And that's always been the case, if you go back and look at the different technical reports.

ERP was issued and in 2016, and and and again last year and 2020, there's always been a distinction between.

On the $6 75 billion underground development and capital expenditure and then additional underground and sustaining capex.

Thank you.

Thank you Dror and Russia.

Yes.

Thank you next question comes from Craig Hutchison at TD Securities. Please go ahead.

Good morning, guys.

And I only got a little more granularity around and your guidance cut, particularly with gold going from 500515 on a 400 for 80 or.

How much of that is COVID-19 related how much of that is grade related and.

And what kind of halfway through Q2 here and any kind of color in terms of what we should be thinking for throughput and grades here in Q2 would be appreciated. Thanks.

Okay I'll, let you wanted to respond to that respond that Craig okay.

Thank you one for me Thank you Craig.

Yeah, and I call them can you hear me.

Yes.

Okay, sorry, just on its check there sorry.

Yes, so in.

In terms of the change in particular around the production guidance and skull.

On the majority of the change in terms is that the gold production.

It has been.

The deferral of materials for <unk> five as a result of the mine rages on.

And we would say the delivery of that material in approximately two to three years' time, there on some other additions that has played into that change and as you mentioned <unk> and assumptions around productivity.

And is it the next period.

And I have all sudden and factored into that change. So it is a is a combined change of that mine rages on.

And that productivity impacts and then some other other assumptions around and they all types bank said and the processing.

As a result for you would expect from that.

And tens is looking forward to the rest of the yeah. We have had a good quarter in terms of gold production.

And.

We do expect to see Q2, having some productivity impacts from the operation intensive and productivity from that I can pay it and concentrate on G to the COVID-19.

<unk> 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.

And of that and.

And we will be remaining in that high grade area.

Size for Bay for.

For all of the quarters.

Of 2021 and we and of course, having just updated guidance. We do expect your and mine are.

Within that guidance for 2020, one so hopefully that draws announces a picture for you there Craig in terms of how about its quarters will play out.

Something else to add would be.

And I see them in this part of the pit the grade is quite good and we can see the grade change when we move around and different areas all of the paint and debt and so it isn't it is at a strike for wood to just you know tell.

Tell you that the grade is going to be the exactly cyanide for the next and.

Three quarters, but just for like Qunar and certainly what we can which is we do remain and the high grade.

For the remaining quarters of this year.

And and we do expect Tonight that Tom nearly released gardens.

Greg.

Yeah.

And the same way to look at it I mean, if I would be you I would say that.

I would say that like and I joined the same overall degreed would be roughly the same on all of the quarters because of the COVID-19.

Situation in Q2, I wouldn't make an adjustment and problem. These credit over the next quarters roughly.

Okay and grades were quite hard and Q1 rate reported six eight on them.

Yes, that's it.

And we were.

I think 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 grades and the pit.

And for pretty much all of the year, I think maybe December and Theres a bit but it's not it's not even the concern, but I think that you should assume all year would be with good grade.

Okay I mean.

It seemed like the grades would have fallen quite sharply from Q1 and in order to hit for the mid point of your guidance, but okay.

Okay and 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.

And we did obviously declare force majeure and.

And there was a 30 30th from March of this year.

We are now.

Concentrate shipments have started again and they started again and kind of mid.

Mid April and we do expect them to continue to.

Ramp up over the course of Q2.

And you know the COVID-19 situation, and Mongolia, hopefully improves with vaccinations, etc, 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 as 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 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.

Clearly you know and in Q3.

And we'll 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 it's something that will completely resolve itself into in Q2 credit down to your question I think it's probably going to be something that resolved itself you know hopefully in Q.

Three but definitely over the remainder of the year.

Okay, Thanks, and maybe just for you.

Sorry go ahead.

Just Greg just to give you a bit of a flavor the old ultra drivers have been vaccinated, but theres additional procedures at the at the border and that's increased.

Cycle time of day delivery.

But like I said like Luke is saying differently, we're working and putting additional resources to make sure that we can move that inventory, but that will take a while.

Okay, Thanks, and I just wonder.

Last question for me and just in terms of how important are the Mongolian and presidential elections on resolving the apartments or a resolution 92 do you need presidential sign off for.

And it gives them.

And kind of wondering why those negotiation installed and and will resume post the presidential election and okay. Thanks.

Yeah no.

And the context is it's more like we had the we had them.

Tier two and the Rio Tinto teams, where and in Mongolia for discussion with a gun and the government logo logo on here.

And from the.

Excuse me here for.

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 COVID-19.

COVID-19, we were in the interconnection and.

And that we believe that the best the best for everyone, who is to resume the discussion after the election okay.

And we wouldn't be where that would be that would be completed.

And so I.

I don't know exactly in terms of detail, but definitely a.

A couple of points here all the parties are committed to.

I mean, we all have a common interest okay.

And the.

The proceed on proceeding with the other cut decision okay.

We know what debt, we need to resolve and have discussion around.

A resolution and 92 or a question that had been raised by the government and we're definitely committed to have a sit down and have the proper and 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 other cut criteria and the non technical debt, we've talked before and like I say these our license to operate or elements of 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, and definitely I mean like I say, we'll have will resume after and we will have all sorts of after another and we will have other periodic perhaps on discussions.

But the point I want to make Craig is that you should not necessarily linked together the other.

The decision with the discussions with the government.

Elements that would become and buttoned up 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 Joanne I wanted to come back to the development rates and Q1 and debt are also going to.

Impact Q2.

Hum.

And if we just exclude the critical elements. These non technical factors.

And 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 and construction or materials handling and can you help me understand that a little bit better.

Get the Joanne to answer your question Ralph.

Okay. Thank you thanks Ralph.

So you're.

You're correct and in terms of what share you sign day, we saw and it's not Tom shop train for that they support the lives that ramp up.

And the materials handling system, one has been a key priority and.

And as we've mentioned it has been at hand and Oh.

But definitive estimate intended share Jill them, but you know were saying, hey, Duane and suites.

These and lightest acceleration of COVID-19 control.

And.

The other pieces lateral development as you mentioned and almost all of the development required to commence 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 system that are under construction and that will continue.

And right up until the start of production.

The schedule is going relatively well and they've really managed it extremely well giving.

Even they are the current and or certainly the situation with COVID-19 and pad it might be with just mentioning that.

The materials handling system on this prioritize and and so they've done quite well yeah.

Currently has no active cases of COVID-19.

And and you know additional personnel.

And plans to be transported to thought to increase numbers on construction.

The next few weeks as well as well as and in fact fashion program progressing. So we react and we are certainly seeing green shoots here, but we also recognize that things have been difficult for for the chain.

Leading up to the end of this quarter and into Q2.

Hopefully that's helpful.

Is it as a thank you for that.

And that's all from my understanding of that.

Sustainable profit cave propagation occurs at 30 draw bells I'm. Just wondering do you have a target rate for drug on construction, where you know where do you expect to be say you know mid 2020. One end of 'twenty 'twenty. One can you help us with a little bit of a schedule on draw Bell construction.

Yes.

And suddenly he's a schedule for that drove out construction and Mr.

And with the style of of type money that way.

And we're using a miss one of Oyu Tolgoi and he got North mine and.

On the POS is all either at the extraction level prior to that day development and for the last thing I'll draw bells. So we currently don't have any draw bells, and we wait until we wait until.

We stopped firing on the cotton and we actually are able to safely stopped doing that work and.

And size that is.

Something like that is that is after they started 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 he's a reasonable estimate as we understand the rock mass.

But ultimately the start of production is government thought the rough math and its behavior.

After we on the cost and and.

This has the cave instrumented to understand when.

<unk> came in and says and that would be when are.

The first sustainable production actually came on site.

So the number for a draw bells ease and approximation and it should be reasonably close on that.

And ultimately we will be looking to the rock mass to give us that the on the go ahead there and.

And make the criteria to stop production in 2022.

Got it and well understood, yes got it thanks very much.

Yeah.

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 ours, and then and then to Craig and you've mentioned a couple of times, Steve that you need to see a license to operate and Mongolia and I think this is a specifically related to resolution and 92, but also I mean Joanne when she was answering.

Or his question she said that you're still doing prep work on materials handling and other items.

Isn't it isn't one or the other like do you need a license to operate.

Did you book to undercut and I mean spending any other capital underground when 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.

Why why wouldn't they be kind of under the same.

And at the same kind of thought process.

Yeah, let me answer that for a chunky.

A couple of them and all of them and so you had in your and your statement or your question here I just wanted to.

Just wanted to answer.

The first the first one relates to the the non.

Non technical and the Razorfish and 92, you should separate okay because.

In order to operate and the mine in the World you need you need some approval by the by the government and some elements that are 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, our example and more.

Other things that you would have and so there's elements 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 on 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 that 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 proper authorization and approve.

<unk> to proceed with it because theres no theres no other way to change it okay. The underground mine itself and the lateral development and the mining yet is getting ready for that for the for the for mining.

Not necessarily the mine mining yet, okay, but when you're starting to undercut you really starting the mining operation and you cannot stop it and we wanted to make sure that one and we start we would have.

And we won't have any delay.

What is most important during the undercut is to make sure that your progress at the right level. So you guarantee the.

On the sustainable production and the specific time.

Yeah.

So is it is it fair to say.

Thanks for the clarification is it fair to say that the undercut can start.

For the investment agreement is finalized.

That's.

I would say, yes, okay, and I think that it would be a reasonable objectives would be reasonable to say that we could we could proceed without having resolved. These elements because we're committed to resolving it okay, because that's important and needs to be resolved, but on the same time, we could definitely when do we get the approval to proceed.

With the other cut we can we can move ahead.

Got it thanks very much for that clarification, that's that's really helpful. Thanks, Steve.

And it for me.

Welcome and thank you.

Thank you next question comes from Delta and Dorado at Canaccord. Please go ahead.

Oh, I do apologize or rocket that with Scotiabank.

Hello, and thanks for taking the follow up on this one is actually for Luke.

On the your estimate for the financing requirement the $2 3 billion can.

Can you give us a little bit more color on on.

On minimum cash assumptions and that like I E.

Does your existing debt require you to maintain a certain minimum cash or does that assumption or is that not the case and you know it.

Does that put that estimate of two three and assume you are taking your cash effectively to zero at some point next year.

And so the estimate of $2 3 billion would assume debt that we're taking the cash all the way down to zero.

Obviously, we wouldn't want to get to that point, but.

And $3 billion does assume we we we take the cash balance 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.

You know that funding gap well in advance of getting to that point.

So.

Thank you for that but does your existing debt require you to maintain a certain minimum cash balance and where do you have no restrictions.

And 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 and I'll hop to follow that question up and get back to you.

Okay. Thank you.

Yes.

And I would say debt.

And there is.

There is there's a lot of elements and you've seen 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 is a lot of information and the pricing and all that that's happening. So it's very variable and environment at the moment, but like Lucas and we'll get back to you on that hundreds and hundreds of millions.

And.

Or any amount required if we have any.

Thank you.

Thank you next question is from Dalton Barreto at Canaccord. Please go ahead.

Thanks, Good morning, everybody and Steve I want to pick up on what we know.

Good morning, Steve I wanted to pick up on what Jacky was asking you about.

And specifically what you said in terms of the undercut b.

Able to progress without resolution 992 satisfied.

Is that something you guys would be willing to do my understanding is that real.

Fused to progress on unless that happens specifically because as you said once you start the undergrad and there's no stopping so if resolution 90 twos not resolve you you're basically hostage now.

Okay.

There are a couple of elements there okay.

First one.

Yes.

We need.

Can I, how can I approach it.

The key elements, Okay is that from.

The first element and we need to resolve is make sure.

Delta and that we have the lights and the elements on the approval from our license to operate okay.

We are committed I mean, let's face it there is differences and the resolution 90 to bring some concern from the government and Mongolia to be resolved and it's around the cost of the projects and their distribution on benefits.

I mean.

This is negotiation that we're going to have and will take a certain time. However, both party on committed to make sure that we are creating and we're proceeding with the value of the on the project and.

Despite the fact that it may take some time for these all the detail of reserves and Linda to be resolved. Okay. What's important is that we move ahead with the approval of the day.

I would call it the regulatory approval to proceed with the on the Grill and we can work together to fix but net to fix but to discuss the original resolution and 92 and be able to move forward. So there's a scenario where you definitely can separate the two and half.

Proper a discussion around the the elements or concern that we have and the resolutions and 92, while still proceeding and whether you're on the cup.

I would say.

The Delta on where are.

We have 79 floors on debt 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 on whether it does the proper and discussion with the government around the.

Around the theyre concerned around the cost and the benefits.

And I guess I'm wondering you know.

Why would the government and give you approval to proceed if the economics are uncertain and B Y, which you guys and want to proceed if the economics are uncertain.

Okay.

I think debt.

And then I can definitely debt what is important for us first.

And also we are aligned.

The government and and and.

And the company.

We all along and debt, 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 are there we need to.

For the like I said the project is mostly completed and we need to make sure that for proceeding and moving with the appointed element, which is which is the other cut and we need to find a way to resolve the ECB funding at the appropriate time and have the dedication to do it on both sides and I think that's doable.

And my view.

Yeah.

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 to a point and the negotiations were.

You know you're at an impasse on resolution 92.

Do you handle that then if you can't stop there on OCA.

I mean definitely I'm confident that we can we can find a path forward.

About them differently.

Okay, maybe switching gears something else Craig asked you about but I was sort of confused as to the answer and that's got to do with the gold production. This year. If you were if you go and rates are going to stay approximately the same.

And what's driving the lower them.

The lower guidance is it throughput I mean, where exactly is COVID-19 impacting it.

Okay, and you want to answer that please.

Yes, sure and I think that was I'm really pleased you asked that you ask that question dealt and because I don't think that was there at tyco and suddenly it wasn't what I was trying to say what I was trying to say is that there has been if we look at the guidance for the year and we do some simple math on the growth that has seen produced in Q1.

And then we look at the reminder of the year, we're still going to have production in each of those quarters from the high grade area of sites for all day.

However, we can also say that quantity.

And we'll have some impact as a risk on on production from the paint and through the plant as a result of the COVID-19 non tank controls that we've had in place either recent lakes at size for that.

You'll be and impact on quite a hell and hope, we do remind and nighthawk right and we just updated the production guidance.

Is that is that helpful.

It is I'm just on.

Trying to understand.

Okay.

Okay.

Sorry for Lucky.

Does it I think we lost two adult and.

Operator are you still are.

And they'll come back.

Perhaps as long and they have gotten muted.

I'm still here can you hear me now.

Yes, Scott how we can.

Oh, sorry, yes.

Having issues for this call for the last 30 minutes or so.

Sure. Yes, I guess my question is if youre going to be and the higher grades and 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 on was not to be clear I was not saying, we will be processing that sign cried for every quarter from here.

What I was saying is that we will pay and the high grade areas of the pit for the reminder for here, but if we do some math between the they are the production go on just released and what what some same produced in Q1, we'll say what what what we think will happen on either the remaining for.

And I call them and that's as much God and took occupancy there is variability in these high grade areas it's not.

And not mining on a book size.

And they there is a lot of difference and the grades and in these parts of the pit and there is variability with COVID-19 that we're saying for the rest of the year. So you know.

I'd love to provide you with a bit more granularity, but I just don't think its appropriate given the uncertainties around which way of talking.

And also like to note that with them.

It doesn't and another way to look at it is debt.

The and.

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 and it's right on the bottom okay and.

And in very specific area and you can you can say debt because of the slip we had to do a step and so that means that we had to we have to make lost some benches, okay or and and make it less accessible at the bottom of the pit. So technically okay when debt covenant for B, we modified the current for.

B, where we don't have all the access that we wanted to have at the bottom of the pit where some of the I agreed a gold was okay. It will be mine 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 the distribution of the on.

For the copper the copper ore is different we have access elsewhere. So that's why we have less of a change and the in the copper guidance, that's mostly what it is.

Okay. So that's more clear because you know we keep talking about the COVID-19 impact for what you. Just said is it's a function of the pit wall slip and and that's kind of what I was trying to get at because and.

And your Q4 GAAP disclosure it said that there wasn't going to be and impact on guidance and and so I just wanted to clarify. So this is a function of the pit wall slip and access of certain zones that you had planned on mining, but I can't right now.

It is and the reason why we I mean, we said that it takes a while and you understand that with evaluating evaluating the fold and and how it would behave and you try something and it doesn't work you have to step and more that has an impact eventually and that's what we're seeing this quarter that finally that it had a bigger impact on what.

And we originally.

And that 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.

Okay.

Yes. Thank you very much everybody for attending this call really want to appreciate your 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 and thank you again for attending and hope everybody has a great day. Thank you very much.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines have a great day.