financial results MONTRAL, Nov. 2, 2021 /PRNewswire/ - Turquoise Hill Resources Ltd. ("Turquoise Hill" or the "Company") today announced its financial results for the period ended September 30, 2021. All figures are in U.S. dollars unless otherwise stated.
"Oyu Tolgoi produced solid operating results in the third quarter. Copper production of 41,935 tonnes was up 16% year-over-year and 14% relative to Q2'21. The mine also produced 130,799 ounces of gold in the quarter, an increase of 256% compared to the same quarter last year and 16% more than was produced in Q2'21. Revenue for the quarter was $622.8 million, an increase of 135.6% from Q3'20 revenue of $264.4 million. Thanks to the hard work of the Oyu Tolgoi team, and despite the difficult environment created by COVID-19, we are on track to meet our production guidance for 2021. All technical undercut readiness activities to begin underground production have been completed and Oyu Tolgoi has been ready from a technical perspective to commence the undercut since July 2021." Stated Steve Thibeault, Interim Chief Executive Officer of Turquoise Hill Resources.
"While the COVID-19 situation in Mongolia is improving slightly, Oyu Tolgoi is maintaining rigorous anti-COVID protocols at site to ensure the health of our employees. Currently 100% of the Oyu Tolgoi workforce has been double vaccinated and a campaign to administer a third dose is advancing well."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
- Oyu Tolgoi open-pit and underground workforce posted an AIFR of 0.13 per 200,000 hours worked for the nine months ended September 30, 2021.
- In Q3'21, Oyu Tolgoi produced 41,935 tonnes of copper and 130,799 ounces of gold.
- Mill throughput of 9.3 million tonnes in Q3'21 was in line with Q2'21 and 7% lower than Q3'20. Processing of harder ore as well as lower SAG mill availability, due to maintenance, impacted Q3'21 mill throughput.
- Despite significant COVID-19 related challenges at the Oyu Tolgoi mine site, causing the site to operate at less than 50% of its planned personnel for Q3'21, 2021 production guidance remains on track and some underground progress has been made with the restart of Shaft 4 sinking and commencement of no-load Material Handling System 1 (MHS1) commissioning in October 2021.
- Revenue of $622.8 million in Q3'21 increased 135.6% from $264.4 million in Q3'20. Both copper and gold volumes increased by 34.9% and 338.2%, respectively, driven by the scheduled move to the higher grade areas of Phase 4B. Average copper prices were 43.8% higher and average gold prices were 6.3% lower than Q3'20.
- Income for the period was $22.9 million in Q3'21 compared with $161.7 million in Q3'20, reflecting the impact of a $299.9 million deferred tax asset de-recognition in Q3'21 (Q3'20: recognition of $131.1 million), which resulted mainly from underground delays as well as a $34.8 million increase in operating cash costs1 due mainly to higher royalty costs from increased sales revenue, additional COVID-19 related costs and higher consumption and power costs, partially offset by lower power study costs. These unfavourable movements were further offset by a $323.6 million increase in gross margin due to the increased revenue. Income attributable to owners of Turquoise Hill in Q3'21 was $34.9 million ($0.17 per share) vs $128.6 million ($0.64 per share) in Q3'20.
- Cost of sales was $1.98 per pound of copper sold and C1 cash costs1 were negative $0.65 per pound of copper produced. All-in sustaining costs1 were $0.03 per pound of copper produced.
- Total operating cash costs1 of $216.2 million in Q3'21 increased 19.2% from $181.4 million in Q3'20, due primarily to higher royalty costs from increased sales revenue, additional COVID-19 related costs and higher consumption and power costs, partially offset by lower power study costs.
- Underground capital spend in Q3'21 was $200.6 million, including $63.7 million of underground sustaining capital. Total underground capital spend since January 1, 2016 was $5.1 billion, including $0.3 billion of underground sustaining capital, as of September 30, 2021. Given the total underground development spend of $4.8 billion and contractual obligations of $0.4 billion as at September 30, 2021, Oyu Tolgoi is expected to reach the total $5.3 billion underground development (actual spend plus contractual obligations) as stated in the original 2016 feasibility study, during November 2021. In the event that the necessary additional investment to progress underground development is not supported by all directors of the OT LLC board by the end of November 2021, OT LLC will be at risk of having to slow down further work on the underground development.
- Cash generated from operating activities was $350.6 million in Q3'21 vs $77.6 million in Q3'20, reflecting a $261.9 million improvement in cash generated from operating activities before interest and tax, which resulted from a $323.6 million increase in gross margin from increased sales revenue, partially offset by unfavourable movements in working capital1 and deferred revenue. Deferred revenue decreased in Q3'21 mainly due to exceptionally high deferred revenue at June 30, 2021, which was impacted by the timing of ramp-up in concentrate shipments during Q2'21 following the declaration of force majeure as well as related contingency measures that were put in place during Q2'21 to improve Oyu Tolgoi's short-term liquidity that started to be unwound during Q3'21. Deferred revenue increased in Q3'20.
- Oyu Tolgoi concentrate shipment volumes to customers improved during Q3'21, compared to Q2'21; however, above target inventory levels remained at the end of Q3'21, reflecting the impact of COVID-19 related Mongolian / Chinese border restrictions, which resulted in force majeure being declared since March 30, 2021. Shipments to Chinese customers recommenced on April 15, 2021, and Oyu Tolgoi LLC (OT LLC) continues to work closely with the Mongolian and Chinese authorities to manage any supply chain disruptions. The force majeure will remain in place until there are sufficiently sustained volumes of convoys crossing the border to ensure OT LLC's ability to meet its ongoing commitments to customers and to return on-site concentrate inventory to target levels.
- All technical undercut readiness activities have been completed, and Oyu Tolgoi has been ready from a technical perspective to commence the undercut since July 2021. Undercut commencement remains delayed and is pending resolution of certain non-technical undercut criteria, including the support of all OT LLC Board directors to increase the underground development capital investment and to commence discussions with the project finance lenders, obtaining outstanding required regulatory approvals and agreeing on a pathway to meet OT LLC's long-term power requirements, all of which are critical elements for consideration to proceed with the decision to commence the undercut and remain the subject of ongoing discussions. See the section of this press release titled "Negotiations with the Government of Mongolia".
- As a result of the cumulative and ongoing impacts of COVID-19, continued delayed commitments from the Definitive Estimate not having received the support of all directors of the OT LLC Board, as well as the outstanding unresolved non-technical undercut issues, the Company now expects sustainable production for Panel 0 to be delayed to H1'23, broadly in line with the currently forecast 6-month delay to undercut commencement.
- Progress on Shafts 3 and 4 has been impacted by quarantine requirements and international travel restrictions related to COVID-19. As a result, no significant development progress on these shafts was made during Q3'21. Consequently, OT LLC has advised that a 9-month delay on Shafts 3 and 4 is currently forecast which, in combination with a COVID-related reduction in underground development progress as well as expected changes to mining scope, is currently forecast to delay the initiation of Panel 2 by approximately 14-16 months compared to the Definitive Estimate. Panel 1 is currently forecast to be impacted to a lesser extent with an approximate commencement 11 months later than the Definitive Estimate. These delays are expected to extend the ramp up to 95,000 tpd by a similar timeframe. Efforts to minimize the delays to Panel 1 and Panel 2 due to ventilation constraints ahead of Shaft 3 and 4 commissioning continue. See the section of this press release titled "Oyu Tolgoi Underground Update".
- Turquoise Hill's current estimate of its base case incremental funding requirement is $3.6 billion (June 30, 2021: $2.4 billion). The increase reflects preliminary information provided by OT LLC primarily regarding the delay to the initiation of the undercut.
- As at September 30, 2021, Turquoise Hill has $0.8 billion of available liquidity, which under current projections is expected to meet the Company's requirements, including funding of underground capital expenditure, into Q3'22.
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