Turquoise Hill Resources announced its full-year financial results for 2019 and outlooks for Oyu Tolgoi mine productions in 2020 and 2021 last Friday. The company marked higher than expected gold production and on target copper production.

“Our team at Oyu Tolgoi continues to maximize our production efficiencies, which resulted in our full-year copper production to fall within our original guidance and our gold production exceeding our original targets. In addition, the mill throughput achieved its fourth year in a row of operating at above nameplate capacity,” Turquoise Hill’s CEO Ulf Quellmann said.

“2019 was also a pivotal year for underground development with the completion of the above-ground infrastructure and Shaft 2. Shaft 2 is a critical piece of infrastructure that allows the team to accelerate underground development. Productivity gains in the underground development over the last five months of 2019 have shown steady improvements with December achieving a new record of over 1,800 meters of lateral equivalent meters.”

Acknowledging COVID-19’s impact on the company’s operations, Turquoise Hill has got measures in place, including a business resilience team at Oyu Tolgoi to monitor, manage and mitigate the effects of COVID-19. The company anticipates a slowdown on the underground project, though the full impact is unknown at this time.

Quellmann added, “At this stage, the situation is very fluid and hence, we are not in a position to specify the impact on cost and schedule. In the meantime, we continue to work closely with our customers, our suppliers and the government of Mongolia.”

Highlights

• The Oyu Tolgoi mine achieved another strong AIFR of 0.16 per 200,000 hours worked for the year ended December 31, 2019. AIFR steadily declined since 2013, dropping 64 percent from 2013 through 2019.
• Full-year copper production of 146,346 tons vs original guidance range of 125,000 – 155,000 tons.
• Full-year gold production of 241,840 ounces vs original guidance range of 180,000 – 220,000 ounces.
• Full-year mill throughput of 40,777,225 tons, an increase of five percent over 2018.
• Revenue of 1.2 billion USD in 2019, decreased 1.2 percent over 2018 due to lower copper production partly offset by higher gold revenue driven by a higher average annual gold price in 2019.
• Cash used in operating activities before interest and taxes was 341.7 million USD, a decrease from 363 million USD generated in 2018, primarily reflecting the impact of reduced revenue.
• For 2019, Oyu Tolgoi’s cost of sales was 2.25 USD per pound of copper sold (2018: 2.25 USD), C1 cash costs were 1.37 USD per pound of copper produced (2018: 1.59 USD) and all-in sustaining costs were 2.08 USD per pound of copper produced (2018: 2.2 USD).
• Total operating cash costs of 774.5 million USD for 2019 came in under the company’s revised guidance and decreased 5.2 percent over 2018. This decrease was due to lower freight and royalty costs driven by lower volumes of concentrate sold and lower sales revenue respectively, and lower milling costs due to lower maintenance costs. These were partly offset by higher power study costs in 2019 compared to 2018.
• Underground expansion capital for 2019 was 1.2 billion USD, meeting the upper end of the company’s revised guidance.
• At the end of December 2019, Turquoise Hill had approximately 2.2 billion USD of available liquidity, split between remaining project finance proceeds of 0.5 billion USD and 1.7 billion USD of cash and cash equivalents.
• Shaft 2 construction was completed in October 2019 and was fully commissioned in February 2020.
• Construction is progressing on Shafts 3 and 4 with both collars now installed. Final preparations are now underway to enable commencement of main sinking operations for both shafts during the second quarter of 2020.
• Oyu Tolgoi LLC submitted the Tavan Tolgoi Power Plant’s feasibility study to the Mongolian government on February 17, 2020. The study is based on a 300 MW coal-fired power plant to be located at the Tavan Tolgoi coal fields approximately 150 kilometers from Oyu Tolgoi.

OPERATIONAL OUTLOOK FOR 2020

Oyu Tolgoi is expected to produce 140,000 to 170,000 tons of copper and 120,000 to 150,000 ounces of gold in concentrates in 2020 from both the open pit and the beginning of the underground development material being processed. Although the mid-point copper production range guidance is higher in 2020 versus the 2019 guidance, a lower gold production year is expected for 2020. This is due to the need to mine through lower grade material on the periphery of the South West pit as Phase 4B sinks towards the highest gold and copper grades in the bottom of the pit. It is anticipated that the higher grade ore will be accessed in 2021, resulting in a significant increase in gold production in 2021.

Mill throughput for 2020 is expected to be approximately 40 million tons and operating cash costs are projected to be 800 million USD to 850 million USD.

Turquoise Hill anticipates capital expenditure for 2020 on a cash-basis to range between 80 million and 120 million USD for open-pit operations, and under 1.3 billion USD for the underground development exclusive of any expenditure on power.

Open-pit capital is mainly comprised of deferred stripping, equipment purchases, tailings storage facility construction, and maintenance componentization. Underground development capital includes both expansion capital and VAT.

Detailed analysis work on the final mine design is still anticipated to be completed during Q1 2020, and the definitive estimate, which will include the estimate of cost and schedule for the underground project based on the updated design of Panel 0, is still expected to be delivered in Q2  2020.

2021 OUTLOOK

Production in 2021 is expected to increase to a range of 170,000 to 200,000 tons of copper, and 450,000 to 500,000 ounces of gold, as Oyu Tolgoi transitions to the higher grade ore in the lower benches of the pit and continues to increase the amount of underground development material processed.

Turquoise Hill currently expects to have enough liquidity to fund its operations and underground development into Q2 2021.