Turquoise Hill Resources today announced its financial results for the year ended December 31, 2019. All figures are in U.S. dollars unless otherwise stated.
“For 2019, the Oyu Tolgoi mine recorded another year of excellent operational results, and record industry-leading safety performance,” stated Ulf Quellmann, Turquoise Hill’s Chief Executive Officer. “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 name-plate capacity.”
“2019 was also a pivotal year for the 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 the 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.”
“Today, COVID-19 presents a pandemic on a global scale that is affecting everyone and certainly also our business. We have got measures in place including a business resilience team at Oyu Tolgoi to monitor, manage and mitigate the effects of COVID-19. 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
Full Year 2019
• Safety is a top priority and is critical to our continued success. 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% from 2013 through 2019.
• Full year copper production of 146,346 tonnes vs original guidance range of 125,000 – 155,000 tonnes.
• 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 tonnes, an increase of 5% over 2018.
• Revenue of $1.2 billion in 2019 decreased 1.2% over 2018, impacted by 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, a decrease from $363.0 million generated in 2018, primarily reflecting the impact of reduced revenue.
• For 2019, Oyu Tolgoi’s cost of sales was $2.25 per pound of copper sold (2018: $2.25), C1 cash costs1 were $1.37 per pound of copper produced (2018: $1.59) and all-in sustaining costs1 were $2.08 per pound of copper produced (2018: $2.20).
• Total operating cash costs1 of $774.5 million for 2019 came in under the Company’s revised guidance and decreased 5.2% 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, meeting the upper-end of the Company’s revised guidance.
• At the end of December 2019, Turquoise Hill had approximately $2.2 billion of available liquidity, split between remaining project finance proceeds of $0.5 billion and $1.7 billion of cash and cash equivalents. We currently expect to have enough liquidity to fund our operations and underground development into Q2 2021.
• Shaft 2 construction was completed in October 2019, and was fully commissioned in February 2020. The service hoist allows for the movement of 300 people per cage cycle, adding to the maximum of 60 people per cage cycle through Shaft 1, while the production hoist has the ability to lift 35,000 tonnes of material to surface daily.
• 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.
• Since the restart of underground development in June 2016, 32.9 total equivalent kilometres and 155.3 cubic kilometres of mass excavation has been completed. Mining of the primary crusher 1 excavation which is over 30,000 cubic metres in volume was completed in June 2019 and handed over for civil construction work to commence.
• Detailed analysis work on the final mine design is still anticipated to be completed during the first half of 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 the second half of 2020.
• In May 2019, the Parliamentary Working Group (PWG) concluded and submitted its report to the Economic Standing Committee. From the report, a Resolution was put forward by the PWG and passed unanimously in a plenary session of the Parliament of Mongolia on November 21, 2019 and published on December 6, 2019.
• The Tavan Tolgoi Power Plant (TTPP) Feasibility Study was submitted to the Government of Mongolia on February 17, 2020 by Oyu Tolgoi LLC. The study is based on a 300 MW coal fired power plant to be located at the Tavan Tolgoi coal fields approximately 150 kilometres from Oyu Tolgoi.


1 Please refer to Section – NON-GAAP MEASURES – on page 18 of this press release for further information.

• In February 2020, the Company announced that Oyu Tolgoi LLC has been unable to reach a resolution of its dispute with the Mongolian Tax Authority with respect to its tax assessment, and will be proceeding with the initiation of a formal international arbitration proceeding in accordance with the dispute resolution provisions of the Investment Agreement and the Underground Plan.
• In March 2020, the Company announced that following the first positive test for COVID-19 in Mongolia, the Government of Mongolia increased its restrictions on flights in and out of the country and on the movement of goods and people within and across its borders. The Company announced there would be a slowdown on the underground project, the full impact of which is unknown at this time. The Company will update the market once more information is available.
Fourth quarter 2019
• Copper production in Q4’19 of 32,906 tonnes was lower compared to Q4’18 due to decreased head grade driven by the transition from Phases 4A and 6A, to Phase 4B, Phase 6B and lower grade stockpiles. As anticipated gold production in Q4’19 of 24,344 ounces was significantly lower compared to Q4’18 due to the planned transition from Phase 4A to the lower grade sources of Phase 4B and stockpiles.
• In Q4'19, mill throughput was higher than the same quarter of 2018 due to overall feed hardness being lower as a result of increased Phase 4B ore and Phase 6B ore, as well as lower grade stockpiles material feed in blending. Mill availability and equipment utilization were higher in Q4’19 than the same period of 2018.
• Shaft 2 construction was completed in October 2019 and the fully certified state commissioning certificate for Shaft 2 being received on February 19, 2020.
• Work advanced at Shaft 4 with the sinking stage installed into the shaft barrel and headframe modules installed. Work on the commissioning of the headframe and winder buildings is well advanced ahead of the commencement of sinking in the second quarter of 2020. At Shaft 3, we completed the construction of the sinking gantry and it was placed into the shaft during the first week of January 2020. Headframe module placement has commenced.
• A decision was made in Q4 to retain a mid-access drive only on the apex level of the mine design of Panel 0 (P0). This is one of a number of integral decision points in narrowing options to complete the final P0 mine design, however it is too early to accurately determine the potential impact on the overall cost or schedule. Recent work, including the mid-access drive decision, indicates that the schedule delay is within the 16 to 30 months range but is trending away from the lower end.
• Productivity improvements resulted in increased underground lateral development rates during the fourth quarter, with an average rate of 1,607 equivalent metres (eqm) per month compared to 1,214 eqm in the third quarter, with December seeing a record 1,809 eqm.
• Revenue of $221.4 million in Q4’19 decreased 36.0% from $346.2 million in Q4’18, primarily due to both a 79.2% decrease in gold production and a 20.7% decrease in copper production, reflecting the transition from mining Phase 4A to lower grade Phase 4B and stockpiles.
• Cash used in operating activities before interest and taxes was $42.4 million, a decrease from $146.1 million generated in Q4’18, primarily reflecting the impact of reduced revenue.
• Cost of sales was $2.46 per pound of copper sold, C1 cash costs
2 were $2.21 per pound of copper produced, and all-in sustaining costs2 were $2.97 per pound of copper produced.
• Total operating cash costs2 of $194.6 million in Q4’19 decreased 19.7% from $242.3 million in Q4’18. This was principally due to lower milling and mining costs due to lower maintenance costs and lower royalty costs due to lower sales revenue.
• During Q4’19 underground development spend was $289.7 million, resulting in total project spend since January 1, 2016 of approximately $3.5 billion.
OPERATIONAL OUTLOOK FOR 2020
Oyu Tolgoi is expected to produce 140,000 to 170,000 tonnes 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 tonnes.
Operating cash costs2 for 2020 are expected to be $800 million to $850 million.
Capital expenditure for 2020 on a cash-basis is expected to be approximately $80 million to $120 million for open-pit operations and $1.2 billion to $1.3 billion 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.
C1 cash costs2 are expected to be in the range of $1.80 to $2.20 per pound of copper produced, up from 2019 guidance largely reflecting the reduced gold production estimate. Unit cost guidance assumes the midpoint of expected 2020 copper and gold production ranges and commodity assumptions of $2.71 per pound copper and $1,362 per ounce gold.
2021 OUTLOOK
Production in 2021 is expected to increase to a range of 170,000 to 200,000 tonnes of copper, and 450,000 to 500,000 ounces of gold, as we transition to the higher grade ore in the lower benches of the pit and continue to increase the amount of underground development material processed.
OUR BUSINESS
Turquoise Hill is an international mining company focused on the operation and continued development of the Oyu Tolgoi copper-gold mine in Mongolia, which is the Company’s principal and only material mineral resource property. The Company’s ownership of the Oyu Tolgoi mine is held through a 66% interest in Oyu Tolgoi LLC


2 Please refer to Section – NON-GAAP MEASURES – on page 18 of this press release for further information

(Oyu Tolgoi); the remaining 34% interest is held by Erdenes Oyu Tolgoi LLC (Erdenes), a Mongolian state-owned entity.
The Oyu Tolgoi mine is located approximately 550 kilometres south of Ulaanbaatar, Mongolia’s capital city, and 80 kilometres north of the Mongolia-China border. Mineralization on the property consists of porphyry-style copper, gold, silver and molybdenum contained in a linear structural trend (the Oyu Tolgoi Trend) of deposits distributed over a 12 kilometres interval of a 25 kilometres corridor of mineralization. The first of those (the Oyut deposit) was put into production as an open-pit operation in 2013. A second deposit, Hugo North (Lift One), is under development as an underground operation.
The copper concentrator plant, with related facilities and necessary infrastructure, was originally designed to process approximately 100,000 tonnes of ore per day from the Oyut open pit. However, since 2014, the concentrator has improved operating practices and gained experience, which has helped achieve a consistent throughput of over 105,000 tonnes per day. Concentrator throughput for 2020 is targeted at over 110,000 tonnes per day and expected to be approximately 40 million tonnes for the year due to improvements in concentrator performance and ore characteristics.
At the end of Q4’19, Oyu Tolgoi had a total workforce (employees and contractors), including underground project construction, of approximately 13,800, of which 93% were Mongolians.

SELECTED ANNUAL FINANCIAL INFORMATION
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