Lower copper and gold production results in 15% revenue drop for Turquoise Hill

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Turquoise Hill Resources updated on its quarterly financial results and review of operations earlier this week. It highlighted that the company’s revenue reached 209.2 million USD in the third quarter of 2019, declining 15.1 percent from 246.5 million USD in the same period of last year.

The revenue slump was due to 66.8 percent decrease in gold production and 28 percent decrease in copper production, which were expected by Turquoise Hill. In the report, the company noted that the decreased production and a five-percent decrease in copper price was “partly offset” by a 22 percent increase in the average gold price in the reference period.
“Operationally, the third quarter of 2019 was another strong quarter for the company from both a production and safety perspective. Our Oyu Tolgoi team has continued to maximize the production from the open pit and as a result, we have once again increased our 2019 gold production with the new target moving from 230,000 to 240,000 ounces,” stated Turquoise Hill’s CEO Ulf Quellmann. “We also continued to build on our excellent safety track record as Oyu Tolgoi achieved another strong All Injury Frequency Rate of 0.18 per 200,000 hours worked during the nine months ended September 30, 2019.” 

He continued, “Turning to the underground development, construction of Shaft 2 is now complete and has entered into the final stages of commissioning.The service hoist transports 300 people per cage cycle versus a maximum of 60 people per cage cycle through Shaft 1, and enables us to accelerate the underground development and monetize one of the best undeveloped ore bodies on the planet.”

Turquoise Hill’s income for the third quarter of 2019 was 45.1 million USD compared to 15.2 million USD in the same period of last year. This increase was driven by a 53 million USD of additional deferred tax assets recognized in Q3’19 compared to Q3’18, partly offset by a 30.5 million USD lower gross margin driven by the reduced revenue. 

Cost of sales of 174.2 million USD decreased by 3.8 percent from 181 million USD, reflecting lower volumes of concentrates sold, partly offset by the impact of increased unit cost of sales per pound of copper sold. Unit cost of sales of 2.44 USD per pound of copper sold increased by seven percent from 2.28 USD in Q3’2018, reflecting lower average mill head grades and recoveries impacted by transitioning to the lower grade Phase 4B ore. 

Total operating cash costs of 175.1 million USD declined by 10.8 percent from 196.4 million USD principally due to lower mining and milling costs benefitting from cheaper fuel, lower freight costs and royalty costs driven by lower sales volumes and revenue, partially offset by increased power study costs. Operating cash costs include the five-percent royalty payable to the Mongolian government and exclude deferred stripping costs. 

Cash generated from operating activities amounted to 6.1 million USD, down 92 percent from 76.2 million USD in Q3’2018. This primarily reflects the impact of lower sales revenue and movements in working capital.

At the end of September, Turquoise Hill had approximately 2.7 billion USD of available liquidity, split between remaining project finance proceeds of1.1 billion USD and 1.6 billion USD cash and cash equivalents. The company’s cash and cash equivalents were unchanged from December 31, 2018 and down 6.7 percent from 1.7 billion USD at September 30, 2018.

IAAC investigation

On March 13, 2018, Turquoise Hill announced that Oyu Tolgoi LLC received information requests from the Independent Agency Against Corruption (IAAC) for information relating to Oyu Tolgoi LLC. 

IAAC has also conducted interviews with representatives of Oyu Tolgoi LLC in connection with its investigation. Turquoise Hill has inquired as to the status of the investigation and Oyu Tolgoi LLC has informed the company that the investigation appears to relate primarily to possible abuses of power by certain former government officials in relation to the investment agreement, and that Oyu Tolgoi LLC is complying with IAAC’s requests in accordance with relevant laws. 

“To date, neither Turquoise Hill nor Oyu Tolgoi LLC have received notice from IAAC, or indeed from any regulator, that either company or their employees are subjects of any investigation involving the Oyu Tolgoi project. The investment agreement framework was authorized by the Mongolian Parliament, concluded after 16 months of negotiations and reviewed by numerous constituencies within the government,” the company said in a statement.

c assured that it has been operating in good faith under the terms of the investment agreement since 2009 and believes that it is a valid and binding agreement as well as proven to be beneficial for all parties. 

“Adherence to the principles of the investment agreement, ARSHA (a subsidiary) and underground plan has allowed for the development of the Oyu Tolgoi mine in a manner that has given rise to significant long-term benefits to Mongolia. Benefits from the Oyu Tolgoi open-pit operations and underground development include, but are not limited to, employment, royalties and taxes, local procurement, economic development and sustainability investments,” the company said.

Dulguun Bayarsaikhan