Turquoise Hill Resources Ltd. (“Turquoise Hill” or the “Company”) today announced third quarter 2021 production for Oyu Tolgoi LLC (“Oyu Tolgoi” or “OT”) and provided an update on the Oyu Tolgoi mine.
Q3 2021 production highlights
In Q3 2021, both copper and gold production from the open pit were higher vs Q3 2020 due to higher copper and gold head grade ore from Phase 4B:
• Copper production of 41,935 tonnes, an increase of 16% vs Q3 2020 and an increase of 14% vs Q2 2021
• Gold production of 130,799 ounces, an increase of 256% vs Q3 2020 and an increase of 16% vs Q2 2021
• Copper and gold production guidance for 2021 remains within the ranges of 150,000 to 180,000 tonnes and 400,000 to 480,000 ounces respectively
Mill throughput of 9.34 million tonnes in Q3 2021 was in line with Q2 2021 and 7% lower than Q3 2020. Processing of harder ore as well as lower SAG mill availability, due to maintenance, impacted Q3 2021 mill throughput.
Oyu Tolgoi has advised that the full impacts of the previously disclosed open-pit geotechnical events as well as the on-going impacts of on-site COVID-19 restrictions have resulted in delayed waste movement, which is currently forecast to result in deferral of some open-pit metal to beyond 2024. While opportunities to reduce the impact of this forecast metal deferral are under consideration, related work is not expected to be completed until Q1 2022.

Underground Development
All technical undercut readiness activities have been completed or are on-track for completion, and Oyu Tolgoi has been ready from a technical perspective to commence the undercut since July 2021. However, undercut commencement remains delayed and is pending resolution of certain non-technical undercut criteria, including the support of all OT Board directors to increase the underground development capital and to commence discussions with the project finance lenders, obtaining outstanding, required regulatory approvals and to agree on a pathway to meet OT’s long-term power requirements.

During Q3 2021, underground development progress continued to be significantly impacted by the COVID-19 constraints on-site and in Mongolia, including restrictions on movement of both domestic and international expertise. Despite these on-going constraints, breakthrough of the conveyor decline was achieved in August 2021, and breakthrough of the service decline is forecast by the end of October 2021. Material Handling System 1 (“MHS1”) is almost complete; its construction is currently scheduled for completion by the end of October 2021, and its commissioning is scheduled for completion by the end of January 2022. Construction of the first on-footprint truck chute is well advanced and currently forecast to be completed by February 2022. Completion of both MHS1 and the first on-footprint truck chute is broadly in-line with the Definitive Estimate, which is an excellent result given the challenging circumstances. Nevertheless, given the cumulative and on-going impacts of COVID-19, continued delayed commitments resulting from the Definitive Estimate not yet having received the support of all directors of the Oyu Tolgoi Board, as well as the outstanding unresolved non-technical undercut issues, the Company now expects sustainable production for Panel 0 to be delayed until at least January 2023.
Progress on Shafts 3 and 4 has been impacted by quarantine requirements and international travel restrictions related to COVID-19, and no significant development progress on these shafts was made during Q3 2021. Consequently, Oyu Tolgoi has advised that a 9-month delay on Shafts 3 and 4 is currently forecast which, in combination with the reduced underground development progress, will result in delays to the start of Panel 2. Sinking of Shaft 4 recommenced in mid-October, and preparatory work for Shaft 3 sinking is continuing.
Study work continues on Panels 1 and 2 with future mine design refinements expected to reflect the learnings from Panel 0.

COVID-19
Mongolia continued to experience a significant number of cases of COVID-19 during Q3 2021, which continued to limit the ability of Oyu Tolgoi to maintain normal roster changes for its workers. While Oyu Tolgoi did experience an improvement to on-site personnel numbers vs Q2 2021, average workforce numbers remained below 50% of planned requirements during Q3 2021.
COVID-19 restrictions have adversely impacted both open pit operations and underground development, which, through the end of Q3 2021, have resulted in a cumulative increase of US$140 million to the estimate of underground development capital included in the Definitive Estimate. This increase includes the currently known, incremental, time-related costs of COVID-19 restrictions; however, it does not include any impacts arising from associated schedule delays or delayed commitments caused by the Definitive Estimate not yet having received the support of all the directors of the OT Board, as these are still under assessment. The Company will continue to monitor these costs and will update the market as appropriate.
All workers at Oyu Tolgoi site have had two doses of vaccine, and a third dose program is well advanced. Improvements in quarantine protocols both on-site and off-site have resulted in improvements in restrictions, which resulted in higher workforce numbers in September 2021 while still minimising the spread of COVID-19. A return to normal workforce levels is expected by the end of 2021, and Oyu Tolgoi will continue to cooperate with the Mongolian authorities to implement and maintain control measures to protect the health and well-being of its workers as well as the local community.

Funding
Oyu Tolgoi has provided the Company with preliminary information that the underground delays and open-pit metal deferrals discussed above have caused an increase in the Company’s base case estimated incremental funding requirement to US$3.6 billion. The Company continues to review this preliminary information received from Oyu Tolgoi. While OT has indicated further open-pit mine plan optimization opportunities are under consideration, which could have a favourable impact on the Company’s estimated incremental funding requirement, related work is not expected to be completed until Q1 2022.
Negotiations with Government of Mongolia
In September 2021, the updated Resources and Reserves (RR19) was approved by the Minerals Council of Mongolia, and the updated Feasibility Study (OTFS20) will be able to be submitted for assessment once the RR19 registration process progresses further.

Turquoise Hill continues to engage Rio Tinto and various Mongolian governmental bodies to resolve the remaining outstanding non-technical undercut criteria, and the Company remains committed to moving the project forward and ensuring long-term and mutually beneficial solutions to the issues under discussion. Nevertheless, delayed resolution of outstanding issues, as well as the slowing of discussions as a result of the COVID-19 situation in Mongolia, will delay the Company’s expected timing for initiation of the undercut. Some contractual commitments for future works on items such as Material Handling System 2 and the Concentrator upgrade have experienced delays, as entering into these commitments is currently pending approval of the Definitive Estimate and related budget uplift by the Oyu Tolgoi Board. Any significant further delay to the initiation of the undercut would result in further, unfavorable impacts to the underground project schedule, including the timing of sustainable production for Panel 0, the timing to commence Panel 2 and the timing and quantum of underground capital expenditure, all of which would materially, adversely impact the timing of expected cash flows from the Oyu Tolgoi underground project thereby further increasing the quantum of Turquoise Hill’s estimated incremental funding requirement and would also likely in turn adversely affect the ability of the Company and Oyu Tolgoi to obtain additional funding or re-profile existing debt as contemplated by and/or within the timeframe set out in the Heads of Agreement entered into between the Company and Rio Tinto in April 2021.
Turquoise Hill remains committed to seeking resolution of outstanding issues and remains mobilized in Mongolia to continue discussions with the Government to progress timely resolution for the benefit of all stakeholders. The Company will continue to monitor the situation, assess any impact of any related delays and update the market as appropriate.

Force Majeure
Oyu Tolgoi concentrate shipment volumes to customers improved during Q3 2021; however, above target inventory levels remained at the end of Q3 2021 as a result of the COVID-19 related Mongolia / Chinese border restrictions that resulted in force majeure being declared from March 30, 2021. Shipments to Chinese customers recommenced on April 15, 2021, and Oyu Tolgoi continues to work closely with 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 Oyu Tolgoi’s ability to meet its on-going commitments to customers and to return on-site concentrate inventory to target levels.

Oyu Tolgoi Production DataAll data represents full production and sales on a 100% basis3Q4Q1Q2Q3Q9 months9 monthsFull Year20202020202120212021202120202020Open pit material mined (‘000 tonnes)23,97923,66322,58815,82922,58861,00574,03297,694Ore treated (‘000 tonnes)10,0729,5949,8139,4019,33628,55030,60640,200Average mill head grades:Copper (%)0.450.500.560.470.530.520.450.46Gold (g/t)0.210.410.680.500.630.600.180.24Silver (g/t)1.221.161.291.191.291.261.191.18Concentrates produced (‘000 tonnes)168.5190.2201.9173.2191.9567.0502.9693.1Average concentrate grade (% Cu)21.521.922.521.221.921.921.521.6Production of metals in concentrates:Copper (‘000 tonnes)36.341.645.436.741.9124.1108.0149.6Gold (‘000 ounces)378814611313139094182Silver (‘000 ounces)219231255235249739645876Concentrate sold (‘000 tonnes)167.9181.5186.392.6224.4503.3488.1669.6Sales of metals in concentrates:Copper (‘000 tonnes)34.437.939.019.646.4105.099.9137.8Gold (‘000 ounces)34661117314933384150Silver (‘000 ounces)201194207106278591566760Metal recovery (%)Copper78.985.986.379.783.983.677.479.6Gold53.768.872.269.368.770.351.058.6Silver54.664.365.362.564.164.054.056.4

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Roy McDowall
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