Q2 2021 Turquoise Hill Resources Ltd Earnings Call

Good morning, ladies and gentlemen.

Welcome to Turquoise Hill second quarter financial results Conference call at this time no debt all participants are in a listen only mode, but the following the presentation. We will conduct the question and answer session.

At any time during this call you require immediate assistance. Please press star zero for the operator also note that the call is being recorded.

On Friday July 30th 2021, and I would like to turn the conference over to Roy Mcdonald. Please go ahead Sir.

Thank you Sylvia and good morning, I'm Roy Mcdowall head of Investor Relations and communications welcome to our second quarter 2021 financial results Conference call.

Thursday, we released our second quarter 2021.

And the release MD&A and financial statements. These items are available in the web site and SEDAR with me on the call today are Steve <unk>, our interim CEO, Luke Colton, our CFO and Jo Anne Dudley Our C. O O. This call and presentation includes certain forward looking statements and information we refer you to the forward looking statements.

<unk> section of the annual information form date of March 8.2021 of supplemented by our MD&A for the 3 and 6 months ended June 30th 2021, and now I would like to turn the call over to Steve.

It's a rock I think the ROI and good morning to everyone.

Thank you for joining us.

Our second quarter 2021 earnings call.

1 Luke and I will be available for Q&A following our presentation.

Please note the slides 2 and 3 contains our cautionary statement.

I would encourage you to read through them.

I will now walk through the second quarter 2021.

And open the call up for Q&A.

The only thing.

Turning to slide 5.

The only to go of team turned in another strong quarter for boats from both the safety and production perspective, while considering the impact of COVID-19 related challenges.

1 of them the health and safety of all of our workforce is our top priority.

<unk> reported an all injury frequency rate all of the 0.1 pool for the 6 months ended June 30th 2021 and produced 36.7000 tonnes of copper and over 100.

And the <unk> ounces of gold.

For 2020.1.

We are maintaining our production guidance to 150000.280000 tonnes of copper and 400000 to form the 80000 ounces of gold.

The quarter was nothing withheld.

Hundreds of images and the surge in COVID-19 cases in Mongolia, and the on pipe from.

The the theory of Lockdowns in countries that could result in order to grow staffing level operating as low as 25% plan at certain periods during the quarter.

Hello, Ingo of Declaration of force measure.

Is tied the company in March of 'twenty 'twenty 1.

Content with shipments to Chinese customers and we come in and have begun to ramp up from April 15, 2021, with the transport 14 contributes continually adapting to the precautionary measures against COVID-19 transmission risk.

Or is it going continue to work closely with Mongolian Chinese authority too many supply chain disruption.

The force measure will remain in place until sustained volume of convoys crossing the border can meet all of <unk> ongoing commitment to customers and onsite contemporary.

It's basically the returns to target levels.

We continue to advance the underground development project with overall project construction remaining broadly in line with the dismissal of the definitive estimate and while all product released the technical criteria are on track to exceed.

And the crop.

Given the cumulative and ongoing impact of COVID-19 delayed commitments, resulting from the non approval of the different the estimated budget by the Ot Board.

And as.

Outstanding non technical issues related to the other cut decision.

The company expects that there will be felt the impact on overall product cost in check.

Sustainable production is still targeted for October 2022.

And we will continue to monitor the situation and update the market at the appropriate.

From the financial perspective, our estimate.

We estimate the base case incremental incremental funding requirement has increased by 100 million to 2.

$2.4 billion at June 30th 'twenty 'twenty 1.

Taking into consideration the re sequencing of the open pit ore faces the.

Listen the 2021 on the ground development.

The impact of the known COVID-19 issues up to June 30th 2021as.

As well as improved commodity price forecast.

Our available liquidity of the 0.7 billion is expect to dollars is expected to be sufficient to fund.

The company requirements into Q3.2022.

Moving to slide 6.

During Q2, 2021 I'll have to go I produced over 36000 tons of copper and alert and 113 ounces of gold.

With a C..1 cash cost of 83 cents per pound.

Production was awarded in Q1, 2020.1.

From Q1, 2021, due to slower mining rate and the higher grade phase for beef, which resulted in an increase in lower grade stockpile of material.

Being processed through the mill.

For a single number of side, which at the time were below 25 per cent of plant requirement.

Adversely impacted both of the open pit operation and the only thing.

On the traffic.

For the remaining for the.

The remainder of 2021 it is anticipated.

That the mill feed was continued to become the price of high grade higher grade phase for B and lower grade stockpile, however, as the offline Indian production.

Gain on track for our day end of 2021 production guidance.

Mill throughput of $9.4 million.

Real tons, what's above nameplate capacity with the law.

Likely lower than.

In Q1, 2021, due to COVID-19 related lower personnel numbers and planned maintenance activities.

Despite the COVID-19 challenges the audit of <unk> team has done the grade.

Implementing additional controls and implementing and operating the open pit during Q2.2021.

And remain on track to achieve 2021 production guidance of 150000 to 180000 tonnes of copper and 400000.

Good job on the 80000 ounces of gold.

[laughter].

With that I now answered the call over to Luke Colton, our Chief Financial Officer.

Thanks, Steve and good morning to everyone on the call.

Please turn to slide 7 and I'll provide a summary of our key.

The financial metrics for Q2, 'twenty 'twenty 1.

Revenue for Q2, 2021 increased 14% from Q2 of 2020 the.

The old revenue increased by $75 million.

And that's driven by a 6 per cent increase in average gold prices and the.

<unk> hundred.

The 36 per cent increase in the volume of gold in concentrates sold.

Which reflected the scheduled move to the higher grade area in the phase for B.

Copper revenue decreased by $34 million from Q2, 2020, reflecting of 51 per cent decrease from the volume of copper and concentrate.

<unk> sold which was mainly the result of the force majeure.

Partly offset by the impact of an 83% increase in average copper prices.

Cash generated from operating activities before interest and tax improved by $261 million in Q2.2021 compared.

Underneath that.

Q1, 2021, benefiting primarily from an increase in gross margin as well as favorable movements in deferred revenue.

The latter impacted by the timing of ramp up and concentrate shipments during the quarter. Following the declaration of force measure as well as related contingency measures to.

<unk> 2 O T short term liquidity.

The 1 cash costs and all in sustaining costs, both benefit benefited from the $75 million increase in gold revenue credits.

For all in sustaining costs of this benefit was partially offset by higher royalty costs due to the increased sales revenue.

Capital expenditure in Q1, 2021 was $230 million.

And that comprised of $211 million on the underground and $19 million on the open pits.

Capital expenditure for the same period last year was $262 million.

Despite lower than expected year.

2 of them <unk> 2021 capital expenditure.

Which was due mainly to the impact of COVID-19 restrictions and controls.

<unk> full year guidance for Oakland debt capital of 105 million to $125 million and for underground capital of $9 billion to 1 billion are still.

Year to day to be achieved.

The underground capital in particular May come in at the lower end of that range.

Turning to slide 8.

Turquoise Hill had liquidity of <unk> 7 billion at the end of Q2.2021.

Which is expected to be sufficient to meet the company's requirements.

The expected 3 of 2022.

Additionally, <unk> base case incremental funding of requirement increased by 100 million the $2.4 billion as of June 30 of 'twenty 'twenty 1.

And this increase was primarily related to the recent re sequencing of ore phases of the old.

<unk> open pit mine.

The additional 2021 underground development cost impacts of the known COVID-19 issues up to 30 days of June 2021.

What's your estimated to be approximately of $100 million.

And these are partially offset by improved commodity price forecasts.

Our liquidity outlook and estimated incremental funding requirement will continue to be impacted either positively or negatively.

Various factors many of which are outside of the company's control.

The company continues to monitor commodity markets the ongoing impacts of COVID-19.

The work under.

Way to resolve the non technical undercut and other issues as well as other key factors in assessing of incremental funding requirements and intends to continue its work with the with Rio Tinto, the government of Mongolia, and other stakeholders to source of approvals for and to implement the funding heads of agreement with Rio Tinto signed in April of 2020.

'twenty 1.

Successful implementation of the heads of agreement of subject to achieving alignment with the relevant stakeholders.

Which include Rio Tinto, the government of Mongolia, existing lenders and any potential new lenders.

<unk> will continue to provide updates as appropriate on the implementations.

The progress.

And without all of the Endo I'll hand, the call over to Jo Anne Dudley, our cheap Chief operating officer.

Thank you very much like.

COVID-19, if we sorry, please turn to slide 9 place a type of non tank continued to significantly.

Correct. The Oyu Tolgoi mine in Q2, 2021 we can strike from thought personnel numbers.

And domestic and international travel, which adversely impacted both open pit operations and the underground project.

The additional 2021 development cost impact of 9 Covid.

<unk> maintained the lives up to June 30, 2021 is estimated to be approximately $100 million.

This estimate includes incremental travel accommodation quarantine and standby costs as well as accounting for productivity impacts.

As the COVID-19 impacts from mine.

Ongoing the company will continue to monitor them and update the market as appropriate.

The spot days additional COVID-19 challenges of real construction progress of materials handling system, 1 which was not required for on the commencement is required for sustainable production remains broadly in line.

<unk> of the destination and is now over 90% complete.

We're close to the continued on primary crusher, 1 which is expected to be completed in Q3 of the sea.

Specialist shafts sinking personnel have arrived in Mongolia to prepare for the recommencement of sinking activities and shops are aimed.

For well Charles for them for not required to support the commencement of penalty erode the are required to support production from panels, 1 and 2 during the ramp up to 95000 tonnes per day.

The commencement of the on the cut is a key milestone and these critical to ensure that once commenced.

The other cut draw point construction continues unimpeded.

From a technical perspective, all of electrical development and production drilling initiate the on the cut is complete with supporting infrastructure for panels here of production on track for the completion under the current soft conditions.

However, the exact timing of the on the cut is on.

Pricing pressure, principally due to the outstanding non technical criteria, which you get to the net.

And also of the risks associated with the rapidly evolving COVID-19 situation.

Turquoise Hill through its wholly owned subsidiaries I should go long L. L C Haruki.

<unk> LLC and S. G L. S. L L C.

<unk> and exploration program in Mongolia on 3 losses that are not part of Oyu tolgoi.

The current restrictions on pay for movements in the AUM in the go V and Dawn of go the provinces have resulted in the life of field work, which we're planning to begin in Q3.

Safety remains our first priority and appropriate measures would be maintained to protect our exploration team contractors and the communities in which we work with.

With that I'll hand, the call back over to Steve.

But he was the 1 turning to slide 10.

I'll like to all of the cheap on the ground.

Milestone we are focused on for the balance of 2021 and into 2022, taking us to sustainable production of panel zero.

First and foremost the health and safety of our employees and local community remains our top priority.

Or did the go it will continue.

Let me walk with the Mongolian authorities.

Best manage the current COVID-19 situation.

The company continued to focus on meeting the and this just true enable other cut commencement.

Although we faced significant challenges during 2 of Q2.2021, including.

Including from Covid related culled strength, all publicly to technical criteria to support the initiation of the of.

On the on the Cup are either completed or on track to be achieved.

So called Hill, Rio Tinto and Oyu Tolgoi.

To engage with various Mongolian.

And governmental bodies with a view to resolving obtaining non technical undercut criteria and all parties remain committed to moving the project forward and the mutually beneficial manner.

However.

As we have previously noted.

The laid a resolution of the non technical on the clock.

Yeah, just far as the lead the company expected timing for the initiation of the on the Cup.

The decision on the non technical criteria of continue to move forward and T. O. P was currently working to return to Mongolia for formal discussion with government officials.

Absolutely.

The took us the company liquidity of 0.7 billion at the end of Q2 'twenty 'twenty 1.

It is expected to be sufficient to meet its requirements, including funding of underground development onto Q3, 2022, and we intend to continue to work with Rio Tinto the.

Government of Mongolia, and other stakeholder to source approval for and to implement for and to implement the funding of the agreement.

The company will continue to work with Rio Tinto, the government of Mongolia, and other stakeholder with a focus on advancing these important priorities.

Ravi the piece and it will continue to provide updates as and when appropriate.

Before before I turn the call to <unk> for Q&A.

I would like to extend my sincere gratitude to the little Guy team and the government of mogul yet for the according to the effort.

To price for wise, the health and safety of the Oyu Tolgoi workforce and the local communities.

I would like to thank you all for taking the time to join our Q2.2021 conference call and I would like and I would now like to turn the call back to the operator for any questions.

Thank you Ms suitable ladies and gentlemen, if you do have a question at this time. Please press star followed by 1 of your touched on the phone you will then hear a sweet home prompt acknowledging of your request and should you decide to withdraw your question simply press star followed by 2 and if you're using a speaker phone. We do ask that you. Please lift the handset.

Before pressing any keys. Please go ahead of the press Star 1 now if you have any questions.

And your first question will be from Orange Walkabout at Scotia Bank. Please go ahead.

Hi, Good morning, I'm, Steve can you give us a better sense of where things stand on the discussions with the government.

Back to resolving the non technical criteria of like are we at the beginning stages.

Are we close to the end.

Any color you can share and whether it's.

Whether you need to split that up by the different issues in terms of the non technical maybe that would be helpful.

Yes, okay.

The first RF.

I think it's important to understand that over the last couple of months, we have a very difficult situation from Walt.

In terms of environment Okay.

Had the COVID-19 debt has hit the site and mogul yeah.

The presentation of the election.

<unk> that created a focus on the government on that particular thing and we had none of them. So there was there was a difficult environment in meantime, what we've done is that during that period of time, we have for.

Progress on the on the technical criteria as we mentioned, but we have also continue having.

Having discussion with some of the government official okay.

And we have continued to work from.

Previously with the government bodies to engage and to move a couple of to move the themes on the.

On the non critical criteria. So work has been done and that's okay.

Now RF is very important that made everybody everybody wants to oh come into to the for the project.

And what we want to do is to make sure that where we're moving as fast as possible and that's why the <unk> and Rio Tinto team will be back in <unk>.

Golar in August to start the discussion and continue the discussion on a more full of fall of the basis on a more formal basis.

You shouldn't expect also that the.

The first of discussing would be really to discuss the.

The aspect related to the on the cost criteria okay. The.

That's going to be the first 1.

And we believe that.

Discussion around cost and benefit.

And the resolution of 92 can be in parallel but will be could take more time.

That would be that would be ideal.

Okay and.

Just following up.

On that Steve can you like you've your disclosure talks about that delays in these in the in starting the undercut at some point are going to have a material impact on on the sustainable first production and capital numbers et cetera.

The I realize it's not linear but.

At what point does that happen.

Is it a 3 month delay of 5 month delay like when do we need to get concerned that we've reached that materiality threshold of delay.

Yeah no.

Yeah, you're right all of this is not it's not linear and it's difficult for me to tell you exactly as of 3 months, we will give you a significant 1.

Because.

There's a lot of activity that needs to be undertaken to evaluate what will be the impact in what will be the consequences. So I would say that the only thing I can tell you is that we will definitely see a work and inform you. When these things when we have better information and win the program. So the key.

Key point is that we're focusing on the negotiation we have we have the team and world.

Working as fast as possible to resolve it.

And when we will have 1 would have been doing the formation.

Well that day.

But if this is not resolved in this quarter, let's say by the end of the third quarter.

Is that material or not material.

Well I would I mean, it's all of it.

I don't want to give a number but the.

I would I would not I wouldn't let's say that would be material in terms of the it depends it depends on what it depends on the deal it youre right, but this quarter from my point.

1 of you when that would be material.

Okay. That's helpful. Thank you Steve for Okay.

Thank you next question will be from Ralph proceeding at 8 capital. Please go ahead.

Good morning, and thanks for taking my questions.

All right for you.

Oh I'm good Stephen thank.

Steve I want to delve into specifically the approval of the definitive estimate and the budget uptake.

And I'm trying to understand a little bit better.

The body of work that the government is doing to get themselves comfortable.

With.

The the the original cost overruns are these strictly discussions that you're having with them.

And sort of sort of you know at the table or is the government performing things like independent of economic evaluations outside of the scope of the technical report where these go further than just merely discussions.

<unk> of you getting them over the line and I'm trying to understand what exactly is needed to convince them.

The sign off on of those 2 specific matters.

Some somewhat wasn't being done by the the Ot Board has the commission.

Independent of consulting.

Our group to review these costs in the shingle, Okay, and that's reported won't be the positive shortly and based on debt inflammation of the Goldman debt will get report that won't be available from the government on the shareholder as we are in Q2 understand.

Legally.

<unk> the.

The cause and the reason of the of the <unk> and also the additional cost and based on that and Theyre going to be a best of then the thinking will be inflammation debt will be used I know also there there are different key or I'm, assuming you would have thought they would have.

People.

That's going to help them from the financial perspective true models to understand what it is but firstly.

The core of the inflammation would be that reported from it.

Yeah.

Okay. Okay. Thanks for that that's helpful. Yeah.

My second question is as it pertains to the debt re profiling.

And in the in the contingency that there are scheduling delays.

And the potential to rollover into different tranches of project Finance is coming due are you limited only to the $1.4 billion in debt re profiling of <unk>.

Can you go more or does that risk of scheduling and capex.

Strictly fall on on the potential funding GAAP from an equity issue perspective, okay.

Would you like to the debt to answer that question.

I am sure I will do my best to answer that question. So I mean, just generally from a re profiling.

The filing perspective.

While we do we do provide the lenders Webb with status updates et cetera, we haven't been able to formally progressed those re profiling discussions.

We're still waiting to source the necessary approval that the Ot board level.

And to get our fellow directors I'm comfortable with the commencement of those.

The other 3 profiling efforts, but we are we are working hard to do that and.

That's not something that we absolutely want to progress over the next few months.

In terms of the benefit we think.

<unk> that we can get from re profiling.

We do still think we can get a benefit of of up to $1.4 billion.

And that's just a function of the sort of.

Principal repayments that come due over the relevance.

Cary and of the incremental funding.

Funding requirement. So if we are able to re profile the debt.

And our intention is still to do that then over over the the relevant funding gap period, the benefit of that would be up to 1.4 billion. So that that remains our focus.

Got it understood okay.

Thanks, Lucas Thank you Steve.

Thank you Ralph.

And your next question will be from Hayden Bhalla with Macquarie. Please go ahead.

Oh My gosh, it's heightened business from Macquarie just a couple of questions for me Firstly just on <unk>.

The shops, particularly 3 and for just interested to understand.

The timing on that I mean, you've got the business, assuming we get the panels here I Wonder why I mean at what point of those shops need to be finished the start of development works I think penalties coming from the Pentagon for memory to make sure that when you run out of penalty of end of food production.

And you can then transfer of independents do without.

Without slowing down again.

Okay.

1 of the will answer that question for you head of.

Okay. Thank you thanks heightened for that test for that question.

So.

Just in terms of some south sign for what and and the July.

Is that that was saying at the moment as a result of that.

Is it.

That situation and the impact in particular on the travel as well as restrictions on pay per mile isn't it.

We we don't need shelter for the penalty rate of production to ramp up to approximately 30000.

Today.

We do need it to ramp up post a panel of zero and so as you can always had panels a 2 in 1 so.

Optimization work has been carried out to date to try to minimize the impact of the life, but you know there are limits on on what we can do.

With the ventilation that we have and any further significant to life creep back that ramp up post panels here are causing a delay to the increase in production beyond the about a 30000 tons per day, we continue to work on trying to optimize our the work that some of the ventilation we have.

Hum.

The schedule impacts of of COVID-19 of being assessed and they'll continue the pace assessed and will provide an update as and when we are we are able to as you can appreciate it is the ease of difficulty.

At this at this time.

So.

Comfortable with Joanne that no matter how much for the lay of the reason when this all of it means is you. Just you don't you run panel zero, but doesn't have a massive amount of reserves and if the F..30 of 30000 ton a day and you just don't push the expansion sort of is that the main impact here or is there risk to the.

Slowing of production between the 2 panels.

Yes.

Yeah. So I mean, I guess I would say that you know are the kinds of delays that we might be looking at at the moment I'm not long day life. So I think that's something to really think about is that we we have personnel on site.

And we'll in country and some of them for it to.

To re commence work and at the moment, we're planning to re commence in August. The route you know the there are plans at the moment to re mobilize a larger amounts of pay for 2 size and all the way.

Air Force working on thought is vaccinated, so although we are seeing.

Ongoing impacts of car is it ease of situations that are you know we are certainly working to try to ramp up of personnel and say the the kind of delight, we are saying that we may see.

It is something that we certainly will come back with.

Saying at we you know we're not in the position at this stage feed of deeply say the ease of July of hopefully that helps you know that we are hoping to race out thinking in August.

Yeah.

And then on the undercut itself.

Well I guess interest of Tonight.

Many people do you actually need all sorts of stop at Aqua.

How much of these restrictions to be lifted and give them. We say why is 2.3 for it in some countries for how comfortable would you need to day that you can run it.

The people restrictions come be put back.

Part of this at some point and still be out of manage the operation.

Yeah, absolutely and that's a it's a really good question and you know I guess for I guess something that we would say you said you know the Reis high rights of a vaccination and sit at my old personnel thought all vaccinated right now are we are still.

Phil adhering to and we always will of course adhere to the government bodies requests on how to manage Covid debt you know at the moment, we are saying on the ongoing impacts in it in terms of rasta duration and it and it this requires careful management to ensure.

On the day would be the appropriate amount of personnel and personnel with the right skills available for start on the cutting activities and so as you say there you know there is it is certainly something that needs to be a considered prior to starting blasting and we wouldn't start until.

That the confident that we can maintain staffing levels to allow us to do so safely and efficiently.

So while we've seen some improvement in staffing levels in recent weeks the has been sporadic and the have varied depending.

Depending on the Covid situation in country and the flow on restrictions that.

<unk> need to be implemented at the mine for us and so ultimately take a risk based decision on this but it is it is something that will factor into that.

Yeah, Thanks, Jonathan and so you just 1 last 1 of them the government negotiations.

Well, we had a chat with with the Angolan rarely this.

In 2 weeks, but it was just it feels to me like it's more of the it's just it's everything or nothing there's not a phased approach of you need to you have to get granular on everything and then they'll just say, yes, a lot of is that sort of where its heading to you all.

No.

Definitely.

We can we can.

This world and move on from area.

Sure shortly I believe okay and debt, albeit I'll be able to tell you when the 1 will be done and finished but.

At the moment I believe that we can we can resolve and focus on the on the cut criteria and as I said I mean, a lot of a lot of the.

The discussion or not with the overall government all of the if there are other.

Governmental body, Okay, and we're working very close I mean, all the teams are working very close to get these things moving and we see we see good improvement and we see improvement in that area and movement.

But so personally.

It's not all or nothing is there can be a where the hope I hope that we're going to be able to move on on the on the on the discussion necessary for the club and then the cost and benefit and the requirement from the government.

Can concurrently move on those things on parallel.

And the resolve them at the right time.

But like I say, let's see I'll be able to tell you when we're done.

Okay, and then just the final call me.

Hello.

Comment on the railroad doing the the disks.

<unk> also had more of they've been saying publicly that clearly taking hold.

I believe rest of the approach.

The yesterday and government relations, so whether the the expedia, which the process, although none of it.

Resulting in the full going a bit more to the government of course.

Who's going to be the case in the previous management.

Yeah.

Kind of the governmental depth of you're right.

Thanks.

Okay. Thank you.

Thank you.

As a reminder, ladies and gentlemen, if you do have any questions. Please press star followed by 1 on your Touchtone phone.

And your next question will be from Dalton Barreto of Canaccord. Please go ahead.

Thank you good morning, Steve and team.

Good.

Yeah.

I wanted to start out by following up on that last line of questioning there. So some of the procedural.

For a perspective on the assumption that the negotiating team.

From your side as well as the government's negotiating team come to terms.

Does that agreement that instead of that needs to get approved by Parliament.

Morning.

Yeah, the 1 I'm not certain of.

I guess theres from this.

The.

Now I'll be honest I'm not quite sure exactly what the of course, that's in the iPhone.

Nowhere is it just because they could add substantial challenge of the process and I am asking.

I am sorry on the Isle.

I understand but we'll check that because I don't want to give you a wrong answer here okay.

Perfect.

And then.

All of that kind of same vein.

If the undercut is delayed or sort of suggesting materially.

Do you have a sense for what your holding costs.

Good day as well as the costs associated with the mobilizing and then re mobilizing your contractor force.

Okay. John do you have an answer on that or can you provide some answer on this.

Yeah.

Thank you safe.

So in terms of in terms of course, you know the this is something.

But the project's team are continually evaluating and so it is something like the set that is being worked on.

You know, we would say that in terms of cost incurred a we've obviously disclosed this information we have the hand now.

And you know from that are we can we can look at the kinds of of costs that are happening at the mine it.

Without you know with the current situation and end of life that we're having.

And you know way of saying a slower flow of course.

Expenditure than than planned reflecting the reduced work at the moment.

In terms of in terms of the what would happen post are the on the cut firing you know we continue and suddenly the the team at <unk> continues to seek opportunities to try to.

The pine schedule, but they will be a limit ultimately as to how much schedule can be maintained if we continue to say the life.

And there's certainly other opportunities that are being looked at to try.

To try to maintain that schedule.

And we will continue to do that.

Right.

So that's the it might not be the before the full answer that you'd like but that's the that's sort of where we were at the 1 on costs at the moment.

Yes, no that's fine.

What do you assume the schedule is kind of slipped I was more concerned around the cost okay, maybe a couple of kind of longer term questions.

Of course, there seems to be some new language in the disclosure of.

Around power supply and specifically cautioning that there is a chance you may end up being connected to the Mongolian grid without tapping of told the way online.

Yeah.

How much of a probability is that.

Okay.

Local of answered that question the loved them.

So the the discussions on power with the government of Mongolia, or our ongoing discussions.

From an O T perspective.

As you can appreciate it's very important for us to.

Mitigate the relevant risks and to make sure that we do have power of certainty going forward and that will be.

An important focus of critical point of focus for us in in those discussions.

Government of Mongolia, So so any solution.

However, the solution ends up being is going to have to provide you know the relevant the.

Degree of power of certainty, whether or not that you know the the primary solution and in the amend.

With the SFA or if it's 1 of the alternative solutions and clearer including grid supply.

You know over the relevant period of time, we're gonna have to make sure that we have the sort of right back up the ability to access.

Power while while.

You know whatever is being constructed and needs to be constructed or upgraded or whatever it is so that that's gonna be of focus it has been and will continue to be of focus and the discussions with government around power.

The discussions with government around power or are actually in process in the.

The moment and we are hoping we are hopeful that we can make good good progress around this particular area over the course of the next few months.

You know certainly from our perspective, that's the intention and and and you know we we will get to an answer that makes sure that the OTT that we put.

See you in a position where you know when all point in the process Oh T will have stable reliable power.

Got it okay. Thanks for that and then.

Another kind of longer term question so the shack.

<unk> for for all intents and purposes are now.

Okay and then.

Wow.

And the mining.

Well with infrastructure, moving and so on which.

It's very reminiscent of what happened with panel zero.

When will we see some sort of estimate in terms of what that's going to cost.

For you from the capital perspective, as well as from the schedule perspective.

Yeah, so 1 of them.

The would you are getting the answer on this.

Yes. Thanks. Thanks.

Dave.

Hi.

In terms of Kathleen you know, what we would say you know.

At this stage.

As I was saying earlier, you know, we're expecting that shaft sinking should be going to commence.

In the in EMEA teacher, and once we start to see the progress are.

With.

What's going to happen with the Covid situation.

That will put us in a in a bit of position to be able to understand the overarching impacts to the extent there are some of or how large they could be.

On the overall project cost.

And schedule.

At this stage, we've certainly disclose the information that we have at hand, including where we are on schedule such that we understand it.

As I was saying before the the planning team have done the very best to continue to optimize the work that is done to minimize the life, but.

But if we continue to see shaft sinking a delight then we will we will need to review what that looks like and so you.

We don't have any update beyond what we've provided today, but it is ease of the pace of work that we are obviously, keeping a very close eye on.

And we do have a reasonable transparency around that and the working with the team on it.

Understood. Okay, and then maybe just 1 last 1 from me and this is kind of a more definitive answer.

The 137 million cash inflow.

This past.

Last quarter that you've all of it or you've attributed to deferred revenue and contingency for Ot short term liquidity on the.

Can you very simply explain to me what the source of that for me.

Yes Luke.

And all of that question for you Oh.

[laughter].

I don't know I will try to put it as simply as I can.

The process of effectively.

From a from a deferred revenue perspective is.

At the point, where the concentrate inventory gets loaded onto a truck.

And leaves the mine site.

A short period of time after that happens we receive a cash payment from the relevant customer.

But the revenue isn't recognized until the final sale occurs titled.

Transfers et cetera, and that actually happens not when the concentrate leaves the mine site, but 1 of the customer picks up the concentrate from the warehouse in China.

So over that period of time between when we receive that initial cash payment and the customer actually.

Italy picks up the order from the Chinese warehouse, we recognize deferred revenue.

So the reason that youre seeing the increase in deferred revenue over you know.

The Q2 period, it really just has to do with.

The ramp up where we'd.

We began to ramp up our shipments again in April following the declaration of force Majeure, and and you know that you know there have been ups and downs over the quarter, but we just we just had.

<unk> had.

Better.

Ability to get.

Those.

The shipments across the border towards the end of Q2 of this year and that that effectively what resulted in the higher deferred revenue new revenue balance this quarter versus last quarter.

So in terms.

The what we might expect going forward.

We are we are hoping obviously that and all of this the subject of Covid, but we are we are hoping that we're able to bring down our on site inventory levels over the second half of this year and hopefully put ourselves in a position where we can.

We can lift the force majeure that obviously something that we're working towards at the moment subject to Covid et cetera.

So we are we are hoping obviously that debt that you know.

We can bring those those inventory inventory levels down over the course of the next 3.

And the 6 months and that will obviously realize the.

The cash that is currently locked up in inventory.

So listen I don't know hopefully that was hopefully that was that was fairly clear and I do understand the deferred revenue side I was more focused on the contingency funding for Ot short term.

I was just wondering if you have kind of a separate facility for short term liquidity that's outside of everything we're seeing.

So so the contingency measures that I mentioned in the script are really around sort of short term.

Working capital.

Related.

Measures that were implemented to try and to try and bring some cash forward.

As opposed to something sort of short term facility financing related.

The Ot does have a small revolver that I can draw on and we actually did draw on it I.

Towards the beginning of this year or around Q1, and that's going to be reflected obviously in a friend of our financial statements for the year to date.

So it does have a small revolver that it can draw on you know just just for mainly to sort of help.

It helped to manage working capital but.

Belief, but the but the contingency the kitchen of the contingency measures that I referred to are more more around the short term measures that were implemented over the course of of Q2, just to try and bring some cash forward into Q2.

Understood. Thank you guys. That's all for me.

Thank you for that.

Thank you. Your next question will be from Craig Hutchison at TD Securities. Please go ahead.

I'm wondering Craig.

Good morning.

You guys mentioned the plan to resume the sinking of shafts 3 and 4 in August the doesn't make sense to invest in the underground work.

<unk> 2 and 3.

Sort of house soon 1 ahead of an undercut decision from panel zero.

And I guess at what point of delay of future investments in the underground to preserve capital here.

Okay.

Would you like to answer the question of cooking.

Yes.

Yes, sure thanks very much price.

Got.

It absolutely makes sense to to regime thinking of the shops as soon as we possibly can you know there's no doubt that the COVID-19 situation has forced the same at size to really look at what.

What each of the nice important.

Components of the scheduled to progress.

Given the concerns that we've had around.

Getting people at sites and keeping them at sauce and managing quarantine.

So I would.

We've been focused on the materials handling system, 1 of which of course supports.

The panels the rise.

The production and and so that that has gone relatively well.

Given the circumstances. It has been impacted by the continued to make progress and we understand the the rights of progress with the the numbers of personnel, we've been able to maintain its size over the last few months.

You know and and shaft sinking to the chefs.

I'll strain for is is behind that materials handling system..1 work, which is you know some of the reason that we haven't shopped. They now, but the progress that but it also needs of more complex work force because we do need international experts to provide us with the assistance are on the on that.

Im thinking more of it because it is complex work and the safety is complex as well around those shops, and we're doing a quite a number of people to progress from however, it is very important because these pieces of infrastructure take some time to complete a there is variability around the debt.

Net shop, Leashing, Tommy depending on the.

The ground conditions and other factors.

At our encountered during thinking and they support the ramp up of of panels, a 2 in 1 which are required and we need where we require multiple panels to to be able to run.

They come up to.

To the 95000 tons, a day and and so it is important that we bring those panels zone as soon as possible. So you know that's the reason of why that work is absolutely critical at the moment to progress just bought the kinds of challenges that that you are rising there.

I hope that answers the question.

It does.

Just maybe 1 last question Luke.

<unk> talked about the force measure of what's kind of required to the lift out force measure I think of you guys said earlier.

100% of your of your work force has now been docs natives.

Luke.

Looking at all in terms of that.

Sure.

Gregg obviously the focus there is is it.

Is getting the concentrate across the border.

And having enough improvement in the concentrate in those China, China, Chinese warehouses, where we have the right level of confidence that we can.

Meet our ongoing commitments to.

For the customers. So in that regard obviously, we're focusing on measures to get the concentrate across the border more quickly and to bring down those onsite inventory levels. You know COVID-19 is creating a bit of drama there, but we're doing our best to work through that and we are hopeful.

Will that over the course of the second half of this year hopefully sooner rather than later, we can we can continue to bring those onside inventory level levels down get the concentrate across the border and then when we have the right level of confidence that we've got enough.

Johnson trade in the right place to to meet our.

Current customer commitment that that would be the point that we would consider them and hopefully we'll be able to lift the force of the measure.

Okay. Thanks for.

Yeah.

Got it great.

Thank you.

Ladies and gentlemen, this day.

Does conclude our question session for today as well as the conference call. We thank you for attending and at this time asked that you. Please disconnect your lines have yourselves a good weekend.

<unk>.

Yeah.

Hum.

Hum.

Hum.

The.

The.

Yeah.

Hmm.

Yeah.

[music].