Q1 2022 Turquoise Hill Resources Ltd Earnings Call
The ceremony to celebrate this moment, what's held on January 25th and was attended by many <unk> from the government of more gold here.
We look forward now to ramping up production from the underground and becoming one of the largest copper producers in the world.
Other highlights of the first quarter include.
And all injury frequency rate of 0.09.
Gold production guidance being increased from a range of 115 to $1 65 to $1 35 to $1 65 ounces and trending towards the end.
Of the range.
Cross border concentrate shipments to China have improved and that resulted in an onsite content with inventory decrease of 30%.
And Amanda's HOA with Rio Tinto at provides a pathway to address the company estimated funding requirement.
Preliminary underground project Capex forecast of 7.06 billion.
The base case incremental funding requirement remaining unchanged at $3 4 billion dollar.
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<unk> received an offer from Rio Tinto to purchase the shares held by our minority shareholders for $34 Canadian.
A plan of arrangement.
On slide seven.
The first quarter recorded another little all injury frequency rate of zero point or nine per 200000 hours worked.
One of the lowest recorded quarter.
Order in recent years.
This is an excellent outcome and reflects the continued excellence of our <unk> team as they operate the open pit ramp up the underground mine and continue with further underground development.
Production in the quarter was 39000 tons of copper and 59 2000.
CIS of gold.
This is in line with our expectation and includes production from the underground mine.
The mill throughput remained above nameplate capacity, even though we had scheduled downtime for maintenance.
<unk> cash costs were $1 66 per pound.
The open pit optimization continue with final results expected in Q3 of this year.
We continue to actively manage COVID-19, and Thats seen workforce level returned to almost full capacity.
The increase content III shipments into China are resulting in our onsite concentrate inventories falling by 30% in Q1.
We are maintaining the force measure until there are sufficient volumes of on voice to ensure <unk> ability to meet its ongoing commitments to customers and return onside concentrate inventory to target levels.
Since the first blasting off January 25th the underground team has been able to keep on schedule. Despite the initial delays.
Two the undercut, we maintain our expectation to achieve sustainable production in <unk> 2023.
The proliferate the preliminary 2020 to cost and schedule update for the underground project up seven points over 6 billion provides great greater confidence in our capital expenditure for the reminder of the underground project.
The cost and schedule update is still under review with the final outcome expected in Q2.
With that I will now hand, the call over to Luke Colton, our Chief Financial Officer.
Thanks, Steve and good morning to everyone.
If you could please turn to slide eight I'll provide a summary of our key financial metrics for the quarter.
Revenues of $403 million for Q1, 2022 were 23, 5% lower than for the same quarter of 2021.
And that's due to the planned transition of mining in the open pit to the next phase of operations.
Partially offset by the impact of higher prices.
Copper and gold volumes decreased by 33% and 60% respectively.
Phase four B was completed in March of this year and mining actively started to ramp up in phase five.
Average prices were 17, 9% higher for copper and four 3% higher for gold.
Cash generated from operating activities before interest and tax of $123 million in Q1 2022.
<unk> was 51% lower than the first quarter of 2021.
And that's due to the planned transition to phase five and the open pit and higher operating expenses due to inflationary pressures on prices for critical supplies.
Income attributable to owners of Turquoise Hill increased from $1 18 per share in the first quarter of 2021 to $1 37 per share in the same period of 2022.
This increase mainly reflects higher recognition of deferred tax assets and higher operating expenses.
But partially offset by lower by lower revenue.
$257 million of deferred tax assets recognized in Q1 2022 compared to $52 million in Q1 2021.
The recognition in Q1 2022 was due to an increase in temporary differences related primarily to tax depreciation on property plants and equipment and an increase in utilization of 2016 losses against higher projected 2020 to taxable income driven by higher metal pricing.
In Q1 2022.
<unk> cash costs and all in sustaining costs were also impacted by lower copper volumes and lower gold credits due to the planned transition of mining to phase five as well as higher operating expenses.
All in sustaining costs were further impacted by an $18 million increase in open pit sustaining capital expenditure and that's due mainly to higher deferred stripping from phase five waste removal and commencement of the GSK Road construction.
Expenditures on property plant and equipment of $230 million for Q1, 2022 were made up of $204 million relating to the underground.
And that includes $85 million in underground sustaining capital as well as open pit capital expenditure of $26 million.
2021 capital expenditure for the same period was $250 million.
Liquidity decreased from $1 7 billion at the end of the year to $6 billion. At 30 31 March 2022, as cash flows generated from Ot's open and operations.
Not sufficient to meet the additional investment required from the underground project. The base case incremental funding requirements at the end of March 2022, as Steve mentioned remained at three 4 billion.
If you could please move to slide nine.
And again, noting that turquoise Hill had liquidity of $6 billion as of 31 March 2022, decreasing from $1 7 billion at year end.
And that the funding gap at the 30 <unk> of March 2022 remained at $3 4 billion as.
As commodity price improvements largely offset the drop the impacts of the 2022 cost and schedule update.
Specifically trc's base case incremental funding requirement incorporate metal price assumptions for copper and gold over the incremental funding period, and we have noted in our MD&A.
The outcome of the 2022 cost and schedule update reflecting an increase in development capital from $6 75 billion to $706 billion.
And that number is inclusive of the non incremental COVID-19 cost impacts.
The current forecast a sustainable production for panels zero, which remains the first half of 2023, the current forecast of delays to shafts three and four.
One 8 billion of scheduled principal repayments, which the company is attempting to re profile.
And any updates or changes to mine plans of either the open pit or underground mine, including from the optimization efforts currently underway, which as Steve mentioned, we'll be ready in Q3 of this year.
The details of these and other items are discussed more fully in our MD&A, which is available on the company's website, the SEDAR and Edgar.
The company continues to focus on the implementation of its amended HOA with three of.
Which we entered into on January 24.
And related efforts to implement remain underway.
As provided for in our year end 2021 presentation. We present. The note we presented the nodal notable elements of the amendment HOA on this slide for convenience.
Rio Tinto proposal to take the company private is currently under consideration by a special committee of the <unk> Board and its advisors and related considerations could influence the order nature size and timing of the various elements of the amended HOA.
Under the current base case assumptions additional equity in excess of the initial $650 million would not be required if the re profiling SSD and co lending are fully successful.
The amended HOA provides that if necessary turquoise hill could be required to raise up to a total of $1 5 billion less the amounts raised an initial equity offering.
Further equity offering and a form of its choosing.
Should they occur any significant further delays at the underground projects are non fulfillment of any of the conditions precedent identified in the amended HOA would also adversely affected the ability of the company and Ot LLC to obtain additional funding or to re profile existing debt as contemplated by or within the timeframe set out in the Amanda.
HOA.
Additionally, the company continues to monitor among other things commodity markets. The ongoing impacts of COVID-19, undercut progression and progression of the other key underground development milestones.
Our liquidity outlook and estimated incremental funding requirement will continue to be impacted both positively or negatively by various factors factors. In addition to the aforementioned and not all of those are within the company's control.
And with that I'll hand, the call over to Joanne our COO.
Do you think.
Now turn to slide 10.
In Q1 2021.
On footprint, Chuck Shaffer commissioning activities.
Cleaning.
And the key infrastructure and clot point penalty tactical production.
Oh, Matt Thanks, Goodbye Schmidt complaining.
In Q1, 2020, and we've told the ranking.
And shop train Hall, which are critical for us to think slashing and continuing development.
<unk> planned footprint panel, what I'm, saying.
All on the <unk> changed on the 24th of January 2020.
And on the Cat losses five on January <unk>.
And good progress towards.
Hi.
And kind of initiation and cleaning excavation.
Traction of Calpine.
Starting into Taiwan and to continue with preliminary results expected before the end of half one 2020.
Ongoing.
Full body knowledge acquisition continuing.
We have 25 kilometer trailing plan 2022 and 2023.
Mike Thank Joe maintenance of intent.
<unk>, which from Hugo North lift one horizon and <unk>.
Heartland completed dependent.
Yeah.
In terms of exploration Turquoise Hill.
<unk> actually call on calling at LLC.
Exploration LLC and SG&A.
Next page programming Mongolia on three market that.
<unk>.
Currently planning.
Planning is underway and the 2022 exploration program, which includes patent risk.
<unk> identified in 2021.
The infill program completed.
During the warmer months.
If we turn to slide 11, we can see the key near term montblanc penalty right that sounds great claims for Nigel and ramp up of production.
<unk> tons per day.
An important milestone for 2020 can claim.
Applying and penalty right, which is anticipating key train at this time.
Annual production company right.
Expected in <unk>.
2023.
The preliminary outcomes cost can change on a full cost savings expected commissioning guidance shops rainfall needs to have a.
2024.
Following undercut commencement in January 2020 panel, one and two are expected to be light due to changes in mining Skype influenced tightened <unk> rejection impacting box shafts rainfall and Thats ground development progress.
Previously Scott.
When you shop transform the chapter includes change on finalized.
<unk> 2010, and assessment of any impact on panel, one and two will be completed.
I like to shop painful Im not expected to result in equivalent line to panel line today, given the contract settlement price and fed action opportunities are under investigation.
<unk> remains on track key during 2010.
At this timing of some final production in half one 'twenty train and not expected to be impacted by the appetite and chenzhou shops rainfall.
That.
I'll hand, the call back to Dave.
Thank you very much everyone.
To wrap up the first quarter was transitional Puerto Rico.
Take holders with many accomplishments including a.
Our renewed partnership with the government of <unk> and.
An amended funding agreement with Rio Tinto.
The initiation of the undercut blasting, Google North lift one ore body, which has started the production process of the underground mine and the old old deal that cut was delayed we are still on track for our forecast <unk> 102023 sustainable production.
Preliminary cost estimate of the underground development, capex, including known Covid cost assumptions.
Is seven 6 billion below analysts' consensus.
Workforce workforce numbers on slide <unk>.
Our recovered to over 90%.
On slide concentrate inventory level has decreased by 30% in Q1.
We are well on the path of transforming OLED to go underground.
A truly tier one operating mine and becoming one of the largest copper producer in the world for the benefit of all stakeholders.
And with that I would like to turn the call back to the operator for questions.
Thank you very much if you would like to ask a question today. Please press star followed by one on your telephone keypad now and if you change your mind to answer your question has been answered please christoph.
Our first question is from the line of arrest.
Hey, Kevin.
Rest. Your line is now open if you'd like to proceed with your question.
Okay.
Thank you and good morning.
Your release for your review.
The fact that hi, good morning, everybody.
The release speaks to the fact that the.
Updated capex estimate for phase two.
706 billion is preliminary and there is some areas under review can you. Please elaborate in terms of what areas specifically and.
Whether you see incremental risk to the capex associated with those areas.
Yes, we don't want to take that.
And Tyler yes.
Yes.
Thank you.
Repeatedly conducting and clarifying our.
And Chantal.
We're not seeing any significant differences at this point.
Scaling the context.
Hi.
We made we made had some caution.
But predominantly ASCI can sustain around share count.
At this stage.
Alright, sorry, sorry, Joe I, just wanted understand youre, saying, you potentially see risk to the schedule not nothing.
Not necessarily the capital items themselves.
Yes, it does.
Yes.
Haven't analyzed yet.
And can I take it.
<unk> is not that bad.
<unk> panel.
Remains on track.
Production.
It's Mike <unk>.
That we werent feeling at the moment.
Okay.
There is about 2 billion left to spend on the phase III.
Based on this updated number can you give us any guidance on what the cadence would be over the next couple of years in terms of the breakdown.
I mean, obviously, you've given us already 'twenty two guidance, but I'm wondering how much of that $2 billion remaining as planned.
Planned to be spent in 'twenty three.
24 and beyond.
It's.
Or is do we have an accident provided.
Guidance beyond 2022, and maybe that's something we can take away and see what we can provide want us to cost and schedule update is complete.
It's worth it's worth noting that the sort of.
Key funding period is kind of 2022 to 2024, So you would expect.
Okay.
You would expect that approximately $2 billion as you've noted to be spent over that period of time.
The sum of it though extend beyond.
That period I'm, just wondering as we as we work on your funding gap three.
$3 4 billion sort of how to.
Profiled the remaining capex.
There may be a very small tail that extends into 2025, but the majority the vast majority of the remaining spend will occur.
To occur in 2022 through 2024.
Okay. Thank you very much.
Thank you and I'll ask the next question is from the line of Ralph <unk>.
Ross Your line is now open if you'd like to proceed.
Yes, thanks, operator, and good morning, Steve.
Good morning, Ralph how are you.
I'm good. Thank you I have two questions.
Firstly.
Maybe another way of asking the sort of the capex for the remaining capex.
Luke could you could you help me understand.
The remaining Capex, maybe what where is that money being spent specifically.
And maybe a little bit of help on what component of the remaining capex is related to labor as opposed to plant equipment and infrastructure.
Sure.
I'll do my best and I'll, probably let Joanne.
Correct anything that I get wrong here.
If you look at the sort of key remaining pieces of development that needs to be completed between now and.
'twenty two.
<unk> or early 2025.
You've got the.
Materials.
Shaft, three and four it needed to be completed.
<unk> got the materials handling system too and the related primary crusher to you also have.
The the conveyor to surface that needs to be completed so the sort of conveyor that needs to be constructed within the current chambers.
And you've got the concentrate or upgrades. So those those are the major pieces of work.
Work that need to be completed.
To complete the 706 billion.
And a good portion of that.
<unk> committed although there is still a good portion still to be committed as well.
And there would be a component of that but that's labor I don't know the exact percentage off the top of my head but.
It wouldn't be an insignificant portion.
Your line I don't know if you can add any further color there.
Not on that.
Component cost when it comes to light.
While we have.
And our guidance like cost as part of the cost of top line and that has in it.
Part of that plant.
Yes got it okay.
Helpful. Thank you.
And Joanne when we read in the MD&A about.
Seth a shaft.
Thinking delays.
Particularly and number three and number four.
Preliminary would you consider these sort of execution and performance related or are these more technical related youll techniques rock mechanics et cetera could you help us with that.
For that please.
Sure.
That's helpful.
Thanks, Adam.
Great.
Construction is significantly impacted.
<unk> G by heightened related to lie.
Hi.
When we say when we find talent now.
And.
The work that we're doing it by Moody's assessing productivity in the shops.
It's not necessarily fast.
Geotechnical conditions, despite more around our ability.
Attract.
Right.
Paul.
As well.
Okay.
Productivity.
Consent and Barry.
Significant program of work.
On July 10th highest productivity and we have kind of whack a quite successful in Oyu tolgoi.
To improve performance outweighed continued to modestly we see traction.
Providing.
Information that we can at the moment.
Alright understood, yes quite helpful. Thank you very much.
Thanks, Ron.
As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
And our next question is from the line of Craig Hutchison of TD.
TD Securities. Your line is now open. Please proceed.
Hi, good morning, everyone.
Good morning, Greg I was wondering if you could provide.
Steve I Wonder if you could provide an update with respect to how the debt refinancing process is going for re profiling.
Sure happy happy to do that Craig.
So it's going well long story short we've got regular.
Meetings scheduled with the lenders and.
Turquoise Hill Rio Tinto, the lenders are all talking on a regular basis, they're asking good questions or providing good information the technical review the related technical reviews are underway.
<unk>.
It's going very well.
I would say I would say overall, we're still on track and I'm optimistic that we can we can get the re profiling across the line before that December principal repayment.
Okay great.
Maybe a couple of follow up questions just with regards to the timing of the evaluation process Thats been done by the special Committee and their advisors any sense on when that might wrap up.
Now what we what we know.
No not really I mean, it's the team is working with that Craig Okay. The Special Committee is working with.
Ben you either get a bank and also the financial adviser. They are in the process right now I don't have a specific date on when that process will be finished but it should be I mean, if you consider the guidance. We gave before okay. It should be within these wound, but I cannot confirm a specific date is up to the special Committee and.
Yeah.
At the moment they are at work.
And maybe a similar question might be a similar answer but just the timing with regard to the special Committee decision.
Making the decision on financing whether to pursue maybe a bridge financing REO.
Considering the original option, maybe Mike refinancing any timing around that.
What I can tell you is we're working we're working on that Craig and that hopefully we can we can finalize that.
And the short horizon.
So, but we're still in discussions with Rio Tinto.
Okay.
And maybe just one last question from me with regards to the Capex This year.
Underground, but you provided the one two to $1 1 billion.
Can you break that down between development and sustaining capex.
Hi, Don.
I remember if thats something that we.
And to the public domain I don't think it is.
So Craig let us, let us take that away and it is possible to break it out, but let us take it take that away and see if thats information that we can provide in a subsequent release.
Okay. Thanks, guys.
Hey, Greg.
Thank you and our next question is from Thomson Vanessa.
Good afternoon.
Line is now open. Please proceed.
Thanks, Good morning, Steve and team.
Most of my questions have been answered.
Most of my questions have been answered.
One question on the REO.
It involves any form of a non solicitation clause or is the special committee.
We could go out and find.
Other bids for the 49%.
Thank you.
Okay.
I will not go through the detail of.
Delta and the only thing I can tell you that the committee is doing the work of vegetation and working with the financial advisors and they will they are.
Exactly looking at the different the different options.
We all know that the asset is a coca cola asset to estimate.
Working with the value leader and a financial adviser.
Our role is as I said before to determine what's the value.
And then start the negotiation with all of the detail on how theyre going to do it I cannot comment.
Okay, but are you, saying that this is purely evaluation exercise ahead of a negotiation with the Rio or is there a broader scope in terms of.
Looking at potential suitors.
I haven't said I Havent said that this was just the vegetation.
It might I don't know if this is helpful. At all but I think it's important to remember that the proposal itself is non binding. So I don't think there is anything in the proposal that binds us to do anything and maybe maybe that's the answer to the first question that you asked.
Obviously, the parties have expressed certain preferences, but I don't think theres anything.
And the proposal itself that is binding and of course, those scopes a bit broader but thats something thats being overseen by our special Committee David appointed the right advisors. They are appointed BMO from Mr Strategic perspective and Theyre.
And they are acquainted TV from a valuation perspective so.
All of this is being very carefully considered by the special Committee and.
We're confident that.
Those progressed us to an appropriate outcome and seek all the all the information needed in order to have the discussion with Rio Tinto.
Got it okay. Thank you that's helpful. And then my follow up is and I think I know the answer this but I just wanted to make sure.
The outcome of this process in no way impacts the amended agreement you have it correct.
Correct.
That's correct I mean, there is nothing in the proposal, but it changes the binding nature of the amended HOA Rio has requested that we refrain from doing equity over the period of time that we're considering the proposal, but again, that's the sort of non binding request.
And we are in discussions with them around whether or not they are able to provide sort of interim financing on acceptable terms that would then give us the runway, we sort of need to consider that proposal and as Steve noted.
A minute ago those those those discussions are underway and we're hopeful that we can get them to a good landing point in the near future.
That's great. That's very helpful. Thank you guys.
Okay. Thanks.
And we have no further questions for today. So this concludes.
<unk> first quarter two financial results call.
Thank you for everyone, who has joined US you may now disconnect your lines.
Yeah.