Q2 2022 Turquoise Hill Resources Ltd Earnings Call
in March 2020 and the false measure declared to customers in March 2021 was lifted. In March 2021 was lifted.
The 2022 cost and schedule update for the underground project was completed, confirming the total development capital expenditure expectation of $7.06 billion.
Turcosel and Rio Tinto agree to amend their comprehensive funding arrangement to, among other things, provide interim death funding from Rio Tinto to address the company's need term estimated funding requirements, and to extend the date by which Turcosel is required to reach additional equity capital.
Turning to slide seven.
In the second quarter of 2022, Odidigo produced 30.6 thousand tons of copper in concentrate and 47.6 thousand ounces of gold in concentrate from processing ore from the open pit, the underground and stock pot. Second quarter production was in line with our expectation and, as noted above,
We have increased our forecast goal production for 2022.
The mill throughput of 9.7 million ton in Q222 was 1% higher than Q122 and 3% higher than Q221, again in line with expectations.
The OpenPIP optimization works continues with final result expected in Q3 of this year.
COVID-19 cases identify as oligoid trend downwards and have continued at low levels.
A consequence, the testing regime has been eased, pre-site mobilization testing has ceased, and mask wearing is now required in high-risk settings only.
With improvement in COVID case load, all due to goi have been able to progressively increase on-site personal numbers, with the workforce in Q222 approaching full capacity. Thank you for superb access to the gratitude of ?.
ongoing monitoring of COVID-19 cases continues and control will be reviewed as necessary.
Since the first blasting of the undercut on January 25th, the underground team has been able to keep on or ahead of schedule, despite the initial delays to the undercut, and we maintain our expectation to achieve sustainable production in 8-1-2023. The next step is to achieve sustainable production in 8-1-2023.
With that, I will now hand a call over to Lou Colton, our T-Four-Day Full Officer. Thank you.
Thanks Steve and good morning to everyone.
If you conclude turn to slide eight, I'll provide a summary of our Q Finance metrics 4Q222.
Starting with revenue. Revenue is a 402 million in the second quarter of 22, where 21.9% higher than for the same quarter of 2021. Revenue is a 402 million in the third quarter of 2021.
And that's due to an 89.3% increase in concentrate sales with the easing of COVID-19 restrictions at the border and also the use of double trailers to ship concentrate.
Higher revenues also benefited from a 3.1% increase in average gold prices.
On-site inventory levels have returned to target levels by the end of Q222.
The higher concentrate sales volumes were partially offset by a 1.8% decrease in average copper prices and by lower copper and gold head grades from the planned transition of mining to the next phase of operations and from processing lower grade stock pound material.
Cast generated from operating activities before interest in tax of the $315.4 million in Q222 was 54% higher than the second quarter of 2021. And that's, do mainly, again, to the impact of higher shipment volumes as a result of the easing of restrictions, as well as the higher gold prices, partially offset by inflationary pressure on prices for critical supplies.
Income attributable to owners of Turquoise Hill decreased from 51 cents per share in Q221 to 41 cents per share in Q222.
The higher revenues and tax benefits for more than offset by the impact of higher cost of sales as the higher volumes of concentrate shipped contained lower metal and concentrate following the plan transition of mining from higher to lower grade areas of the open pit. You will find a decade from higher to lower grade areas the open pet.
Cost of sales is also impacted by inflation and higher input prices.
9.8 million tax benefit was recorded in Q222 versus a 19 million charge in Q221.
The recognition in Q22 was largely due to an increase in temporary differences on property plants and equipment. The recognition in Q22 was largely due to an increase in temporary differences on property plants and equipment.
Q222C1 cash costs and all-in sustaining costs were also impacted by higher cash operating costs and lower copper produced.
Due to the plant transition of mining from phase 4B to phase 5A.
All of the sustaining costs were further impacted by a 23.8 million increase in capital expenditure on service operations.
And that's due to higher maintenance componentization, higher deferred stripping from the plan, change in mine sequence, and commencement of the GSK Road construction.
Expenditures on property, plant and equipment of $260.9 million for Q222 comprised $218.2 million relating to the underground, and that includes $85.9 million in underground sustaining capital as well as capital expenditure on surface operations of $42.7 million.
Q221 capital is spent, the expenditure was 227.4 million.
If I could ask you to all turn to slide nine.
You'll see our liquidity decreased from 0.6 billion in March 31st, 2022, to 0.5 billion at June 30th, 2022. 0.5 billion at June 30, 2022.
The company estimates.
The company's estimated base case incremental funding requirement at the end of Q222 was 3.6 billion, and that's an increase of 0.2 billion from the March 31st, 2022 estimate.
and that's impacted primarily by updated commodity pricing assumptions as well as increased live war and inflationary assumptions.
Specifically, TRQ's base case incremental funding requirement incorporates metal price assumptions for copper and gold over the incremental funding period. And we did provide those in our latest MVNA.
development capital of 7.6 billion as per the finalized cost and schedule update
The current forecast is the sustainable production for panel zero, which remains at H1 2023.
The timing for SAS 3 and 4 as per the finalized 2-mmmi saw and the
1.8 billion of scheduled printable repayments which
The company is attempting to reprofile and the details of these and other items are given in more detail in our latest MDNA, which is available on our website, Cedar and Edgar.
The company continues to focus its efforts on delivering the repro filing of scheduled principal repayments as well as progressing the other elements of its recently amended funding HOA with Rio. And you can find that on our website, feed on our Edgar as well.
As Steve mentioned, the recently secured amendments provide among other things interim debt funding from Rio to address the company's near term estimated funding requirements and to extend the day by which Turquoise Hill is required to raise additional equity capital.
The reattentive proposal to take the company private is currently under consideration by the Special Committee of the TRQ Board and its advisors, and related considerations could influence the order, nature, size, and timing of the various elements of the funding HOA.
Under current base case assumptions the company estimate it could still need to raise proceeds of approximately 0.4 billion in addition to the initial equity offering of 650 million contemplated by the funding H.O.A.
And that assumes that the reprofiling SSD and colending are delivered successfully.
Any significant further delays to the underground project or non-fulfillment of any of the conditions precedent identified in the funding HOA could also have an impact on the company's ability to fully implement its comprehensive funding arrangements and may increase the quantum of additional equity that would need to be raised.
Additionally, the company continues to monitor among other things commodity markets, the ongoing impacts of COVID, the underground and draw bell progressions, as well as progression of the other key underground development and our stock demand for FDA.
So, the company's liquidity outlook and estimated incremental funding requirement will continue to be impacted either positively or negatively by various other factors, many of which are outside of the company's control.
With that, I will hand the call over to Joanne Dudley, RCLO.
Thank you, Luke.
If we now turn to slide 10.
This quarter finalisation of the 2022 Cost and Schedule Update re-confirmed underground development capital at 7.06 billion and expected commissioning of Shastor in four in the first half of 2024. In the first half of 2024.
Q2 2022 also saw the firing of the first two draw belts with a third fired under July 29th on the head of schedule. Q2 2022 also saw the firing of the first two draw belts with a third fired under July 29th on the head of schedule. Q2 2022 also saw the firing of the first two draw belts with a third fired under July 29th on the head of schedule. Q2 2022 also saw the firing of the first two draw belts with a third fired under
Personnel numbers continued to return towards target levels as we move towards a COVID normal environment.
For underground development, work continued on materials handling infrastructure to support the underground mine post-Rampup Panel 0.
and on the thinking of Shastory and Faw, which on July 3rd had reached the list of 193 and 2908 meters below ground respectively.
Underground operations completed 26.1 kilometres of undercut drilling and over two kilometres of drill bell drilling in the quarter.
Q2 also saw over 8,000 square meters of undercut blasting with material hoisted from shaft one and two above expectations. Q2 also saw over 8,000 square meters of undercut blasting with material hoisted from shaft one and two above expectations. Q2 also saw over 8,000 square meters of undercut blasting with material hoisted from shaft one and two above expectations.
Turning to exploration, 2022 fieldwork included mapping sampling and a magnetic survey was completed in Q2.
At the bag license, field work is scheduled to be completed in Q3, including the drilling of two diamond drill holes.
I expect to be able to share updated results of notes and field work in the second half of 2022.
If we turn to slide 11 we can see the key near-term milestones for panel 0 as well as the critical activities to enable a ramp-up of production to 95,000 tonnes per day.
Important milestones for 2022 include the first strawberry firing in Panel 0, which was completed in the second quarter. Sustainable production for Panel 0 is still expected in the first half of 2023, trending earlier within that timeframe than previously expected.
The cost and schedule re-forecast reconcerned the expected commissioning dates for Shastory and For in the first half of 2024, approximately 15 months later than the definitive estimate. Approximately 15 months later than the definitive estimate.
Changes in mining scope, as well as COVID-19 related work restrictions, impacting both Shastery and For, as well as underground development progress, are expected to cause delays in the commencement of panels 102.
Now that the cost and schedule reforcast has been completed, work to confirm the timing of the first drawbells in panels 1 and 2 is now underway, but the shaft delays are not expected to result in equivalent delays to panel 1 and 2, given the current underground development approach and further mitigation opportunities under investigation.
The impact of the additional sharp delays on the commencement of panel 1 and 2 is under assessment and expected to be known during Q3 2022. With that I'll now hand the call back over to Steve.
Thank you very much, Ellen. I'm not as sightsteaded in my opening remarks.
We made significant progress in the first half of the year for the benefit of all TurcoSeal stakeholders.
Following the positive reset of our relationship with the Government of Mongolia and the blasting of the undercut in Q1, we have confirmed the cost and schedule of the underground project spider.
We have begun firing the drawbell head of schedule.
We continue to forecast the sale of production in the first half of 2023.
We have raised our 2022 Gold Production Guidance.
Our on-site concentrated inventory level had returned to target level and we have amended the TRQ Rio Tinto funding arrangement to provide interim debt funding and extend the date by which TRQ is required to raise additional equity capital.
Auditor Goy is progressing on many fronts and delivering against the milestone we have set out and we look forward to ramping up the underground and becoming one of the largest copper producer in the world the benefit of all stakeholders. The benefit of all stakeholders.
With that, I would like to turn the call back to the operator for questions.
Thank you. We will now start today's Q&A session.
If you would like to ask a question, please press star, followed by one on your telephone keypad. Now, if you change your mind, please press star, followed by two. When preparing to ask your question, please ensure your phone is unmuted locally.
Our first question to take today comes from Orist, Wilkudau from Scotiabank. Your line is now open.
First, welcome to from Scotiabank. Your line is now open.
Well, I good morning. Good morning, I was wondering where you can get some color. Good morning, I was wondering where you can get some color.
Good morning everybody. I was wondering if we can get some color on what this new mine plan coming out in Q3 is going to contain. And I'm wondering specifically if it will disclose a year by year production ramp up type expectation for both in the combined open pit and underground, along with things like sustaining capital on a year by year basis. I'm wondering how much detail this report is going to have for us. Thank you.
Okay, thanks, or I see a question.
So, you know, we regularly see updated plans, and it's certainly a regular current as we understand more of how the plans of the mine comes together when as things change. And so we continue to see the mind design requirements for this one coming together. And as we, as we stated, we're working on understanding.
the impact of the updated timing of CHAR 3 and 4, as well as some mind-on-refinements of panels 2 and 1, aiming to reduce risk to the ramp up. And so over time, we will see parts of that plan, both those changes in design moving to the plan. Now, cutery won't contain all of those updates and so we'll need to make a judgment at the time and engage with our team.
to understand whether we would provide a detailed understanding of ramp up over a longer period, but we certainly will provide the most accurate information at the time that we can.
Sorry, does that mean that it may not contain kind of an outlook for the next couple years for things like sustaining capital and production. Well, sustaining capital and production. Well, sustaining capital and production.
So we usually would provide, we have a time table obviously to provide that information, you know, for example, guidance in January of each year. So we have a, we have a cadence that we work to on some of those things. It just, in particular in terms of ramp up, we still are continuing those mind design refinements that into 2023 for some of panel's modern and true.
And as a result, we're still working out the details of those sequences, for example, for those areas of the mine. So we'll provide the updates that we can. And we're providing a current update in Q3, which we expect to see updates to the mine plan as you would regularly see on a project like this and of this magnitude.
Okay, okay. Thank you. And just one more if I may, and Steve, this one's for you. We're coming up to almost five months here since the proposed plan of arrangement was disclosed by Rio Tinto.
You know, where do we go from here in the sense that I'm surprised just the length of?
time has passed here and
Should investors sort of think about what the next steps are here for the special committee? Can this just go on a definite one?
No. I mean, RS is a...
question that a lot of people have, okay, but you understand that the special the special committee, I mean, they're involved in a substantial and detailed process involving a very complex tier one asset, okay, and it's a long life, mine, it's a lot of different characteristics, okay, and
I'm confident that the special committee is taking the time it needs to have all the information and data requires to make the right decision and that in the best interest for the best interest of our minority shareholders. Okay. But that being said, the special committee, I mean, when the, the will, like they said before, okay. They will provide further comment when disclosure is required or appropriate, and I'm sure that the Wendy will have the material development.
That's a special committee will advise the market and now we're a shareholder on the timely basis.
Okay, does this new mind plan that's coming up in Q3? Is that?
Do you think that's part of the analysis or perhaps something that the special committee is waiting for in terms of trying to establish the appropriate evaluation for the company or are they not related?
No, I would say always they're not related because we're looking really for the overall long term. Okay, and I think the my plan will be reshuffling a couple of elements, but what will be the impact. I mean, some elements will be considered, but I wouldn't say the key element is not to wait for that one and I want to be clear, it's not to wait for that one for in order to make a decision or discussion. Okay.
Okay, thank you very much.
Thank you, Ares.
Our next question today comes from Ralph Prifiti from 8Captural. Your line is now open.
Thank you. you
Great. Thanks, operator. Good morning, Steve.
Good morning, Ralph, are you?
Well, thank you. I have two questions. One for Joanne and one for Luke. And maybe I can start with Joanne.
Presumably, you do have a drawbell schedule to get you to the 16th to 21 drawbells. And I'm wondering how we should be thinking about that. Is this sort of something that's linear, one every say three weeks or so, or does the increased confidence that come with these geotechnical assessments allow you to increase the rate of drawbell initiation between now in the first half of 2023?
Thank you Riles for your question. So we're just at the beginning of undercutting and drawbell construction and the teams are both learning about our ground conditions and how to best optimise our progress as well as understanding our geotechnical conditions. And we expect that over time the rate of drawbell construction will ramp up.
But initially it is expected to be a steady raise, averaged over more than say three weeks due to the geometry of the ground. So we have seen good progress. We saw the first drawbell fighting Q2 rather than Q3. We will continue to see progress and a very steady ramp up.
in the rate of drawbell construction over time out to sustainable production. And by the time we're out at that sustainable production we should be at a fairly regular rate of construction over every month or two. And hopefully that's helpful.
Yeah, yes, thank you. Okay. Okay, and Luke, maybe one for you this additional 400 million.
in equity proceeds. It appears to be sort of a plug that happens outside the timing framework of the HOA. And I'm just wondering in your analysis to get to that number, should we be thinking about that as sort of a 2024 number?
Yeah, I'll do my best to...
help you answer that question because it is an important one.
I think the first thing to mention is
As everybody knows, we do have an obligation to raise $650 million in equity by the end of this year, and that hasn't changed. So that's still the plan. We did obviously update our funding gap number, and you're right, as we think about how we fill the $3.6 billion, we do believe that there's going to be a need for around $400 billion.
that would come into play given the increase to the funding gap.
But the exact timing and quantum of that call a trailing equity raise is going to be dependent on the other elements of the funding HOA and how they've progressed.
So, that would be the things like the advances from Rio Tinto, the reprofiling, the colend, the discussion with the lenders around additional supplemental senior debt. All of those things will play into our ability to fill the funding gap and then what the quantum of any final equity raise would be.
You will see from our financial statements in MDNA that we believe when you take into consideration those other elements of the funding HOA, and this would be before any trailing equity raise. We think we have liquidity that will get us until at least June 30th of 2023. So I wouldn't expect that trailing equity raise to happen prior to that. The exact timing whether or not 2020, you know, late 2023, 2020.
Our next question today comes from Dalton Barreto from Canaccord. Your line is now open.
Great, thanks. Good morning, Stephen. I'd like to start by following up on what Ralph was asking there. So that trailing $400 million, give or take, two questions on it. Number one, like Luke said, it's predicated on that $3.6 billion number. And I'm just wondering, you've signaled that you could possibly see sustaining first production earlier in H1. Oh, OK.
What timing is that 3.6 billion number based on? Does that factor in, you coming into sustainable production earlier or not?
Yeah, it's, um, listen, I'll try and answer that question, and then Steve and Joanne may have to correct me, but our estimate for sustainable production is still H1 2023. We do think there's a possibility for that to trend a little bit earlier within that six-month period, and obviously the calculation of the 3.6 takes that into consideration, but that's where we're at at the moment, and we're not quite in a position where we can be more specific than H1 2023 yet.
but we obviously continue to monitor to that. And if we get to the point where we can be more specific as things progress than the guys on the ground actually doing the blasting, get a bit more comfortable with the processes, et cetera, then we'll obviously look to update people. Let me stop there and see if I misspoke. And if Steven Joann wanna correct me. No, the only thing I would add, Dalton is that, definitely if we're progressing and the sustainable production is.
be conservative, okay, but we took a mid-range approach with a calculation for the 3.6 but it could be positive but we don't know the magnitude so I'm just careful what the... but that could be something that could bring some some positive elements.
Okay, and then and then maybe switching gears. I mean we you know while the special committee does its thing. We are steadily marching towards December 31st and
I'm just wondering while they are deliberating, are you guys proceeding full steam ahead on the debt re-profiling and the incremental senior secured debt? I'm just wondering if we can get an update, where are you in that process? Is that dependent on the special committee at all? And how comfortable are you that you'll meet the December 31 deadline?
Yeah, that's a really good question, and the short answer is we are marching ahead with all of that, right? So, we're not delaying our consideration of the funding HOA and its various elements while the Special Committee is negotiating the proposal with Rio. And in terms of the specific elements that you mentioned, yeah, we are progressing the reprofiling, you know, we're in a sort of…
regular cadence of, you know, sharing information with the lenders and discussing things with the lenders and negotiating with the lenders. So all of that is progressing at the moment. And, you know, I would say that, that, that, you know, I believe that things still are very positive to be able to complete that repro filing, you know, in advance of that December 15th. I think it is principle repayment.
So quite encouraged there. And yeah, we are definitely in discussion with, bankers and lenders and advisors around, and Rio Tinto as well, around the other elements of the H-O-A that need to be progressed in the short term. So all of that continues. So all of that continues. So all of that continues.
at a very important and as rapid as we can pace.
Great, thank you for that. And then just one last one for me. Are you...
free to draw down the full $400 million from Maria while the special committee is still contemplating the proposal?
Yeah, so that 400 million is not contingent on a proposal outcome. I mean, there are some other conditions precedent. You can kind of see those in the funding HOA that's on our website. But yeah, our deliberations and our finalization of that sort of 400 million early advance is progressing well. And, you know, there isn't anything in the proposal per se or the other elements.
press start followed by one on your telephone keypad. If you change your mind, please press start followed by two. And it's question today comes from Craig Hutchinson from TD Securities. Your line of powers.
Good morning, guys.
What do you think? Just follow up questions, I think. Just follow up question on the updated mind plan. I think there was, you guys were looking at doing some optimization work with respect to the open kid and I think moving some metal forward. Well that being cool is in the update mind plan.
And I guess the second question, could we expect an update in terms of the funding gap when you guys released that update?
Craig I might take the first part of your question there. So in terms of the updated mine plan it will be a full update across the underground and open pit mines as we would always do on an annual basis. There is always optimisation work done and you're very correct we did note that there would be optimisation work coming and that will be included. There will be a number of changes both with the underground and the open pit mine as we...
because that is something that we would be looking to do. It always takes a little bit of time for the mind plan to make its way into the underlying models that we use for calculation of liquidity calculation, the funding gap, etc. So that might take a couple of weeks, but the intention would be as soon as we can, obviously, and it's probably going to be in conjunction with our Q3 release, but we're able to do it earlier that something we would consider.
But yeah, the intention would obviously be to update the funding gap for the outcomes of that optimization work and the updated mind plan.
Okay, I mean follow up the funding gap went from 3.4 to 3.6 billion.
It's now the additional plug is 400 million. You just talk about that differential there. It's a couple of extra hundred million dollars of equity.
and he talked about maybe why that is why wouldn't be to stir $2009 of additional equity.
Yeah, sure. Great. Listen, the short answer is it's just for finding the refinement of assumptions, right? So you had the $200 million increase in, and these are all rounded numbers, right? But you have a $200 million increase in the funding gap. And that's off the back of increased, sorry, sorry, updated commodity pricing assumptions, updated assumptions around.
LIBOR, updated assumptions around inflation, all of those are the reasons for the sort of first 200 million. And then when you're talking about the rest, it's just really refinement of the various assumptions as we have more information around how the other different elements of the funding HOA will be delivered and the benefit that each of those different elements will be delivered. So as we go through the process, we have more information. We're able to refine those assumptions. And that's what's going.
So in terms of the contingency, so we've just reviewed all our costs as part of the 2022 Costs and Schedule Update and there certainly does remain contingency within that updated estimate to project completion. So yeah, there is still contingency remaining.
Okay, thanks guys.
Okay, thanks, right?
Thank you, that does conclude today's Q&A, therefore, conclude today's conference call. That concludes call for Terk Khoi's Hill Q2 2022 financial results. You may now disconnect your line.
Q&A, therefore, conclude today's conference call. That concludes for Turkquoise Hill Q2 2022 financial results. You may now disconnect your line.