ENP Newswire -
Release date- 13082014 -
All figures are in US dollars unless otherwise stated.
Oyu Tolgoi had an All Injury Frequency Rate of 0.51 per 200,000 hours worked and no fatalities for the first half of 2014.
Oyu Tolgoi recorded net revenue of
Q2'14 concentrate sales increased approximately 320% over Q1'14 and exceeded production resulting in an inventory drawdown for the quarter.
In Q2'14, Oyu Tolgoi had its strongest quarterly performance since production began in 2013 with 140,000 tonnes of copper-gold concentrate produced containing 36,200 tonnes of copper.
Concentrate sales, which are expected to be strong throughout the second half of 2014, are scheduled to exceed production through the end of 2014.
Sales contracts have been signed for 100% of Oyu Tolgoi's expected 2014 concentrate production and 92% of 2015 planned production; 84% of concentrate production has been contracted for up to eight years.
Ore grades are expected to increase as the Oyu Tolgoi open pit deepens into a high-grade zone during the second half of 2014.
Turquoise Hill continues to expect Oyu Tolgoi to produce between 135,000 - 160,000 tonnes of copper and 600,000 - 700,000 ounces of gold in concentrates for 2014.
Following receipt of a Tax Act from the
The feasibility study for the underground is largely complete subject to confirmation of some estimate assumptions.
All 15 global banks participating in the Oyu Tolgoi project financing agreed to extend their commitment letters to
All parties remain committed to the underground development of Oyu Tolgoi and are working through the outstanding shareholder issues; underground development is subject to resolution of shareholder issues, the finalization and approval of the feasibility study by all shareholders, the agreement of a comprehensive funding plan including project finance and receipt of all relevant permits.
Turquoise Hill's cash position, on a consolidated basis at
In Q2'14, Turquoise Hill recorded net income of
In addition, the improvement arose from a gain of
The Oyu Tolgoi mine is approximately 550 kilometres south of Ulaanbaatar,
They include, from south to north, the Heruga Deposit, the Southern Oyu deposits (Southwest Oyu, South Oyu, Wedge and Central Oyu) and the Hugo Dummett deposits (
The Oyu Tolgoi mine has initially been developed as an open-pit operation. A copper concentrator plant, with related facilities and necessary infrastructure to support an initial throughput of 100,000 tonnes of ore per day, has been constructed to process ore mined from the Southern Oyu open pit. Development plans for Oyu Tolgoi are based on a 95,000-tonne-per-day underground block-cave mine. In
Further development of the underground mine is expected to commence once the following conditions are met: (1) successful resolution of the mine's outstanding shareholder issues; (2) agreement of a comprehensive funding plan including project finance; (3) completion and approval of the Oyu Tolgoi underground feasibility study by the Oyu Tolgoi shareholders and (4) obtaining all necessary permits for the mine's operation and development.
Safety remains a major focus throughout Oyu Tolgoi's operations and management and site leadership are committed to reducing risk and injury. For the first half of 2014, the mine's All Injury Frequency Rate was higher than Q1'14 at 0.51 per 200,000 hours worked.
Concentrate sales during Q2'14 increased 320% over Q1'14 due to ongoing improvements in customer logistics and marketing. As a result of the increase, Q2'14 sales exceeded production resulting in an inventory drawdown for the quarter.
In Q2'14, Oyu Tolgoi generated revenue of
Oyu Tolgoi's sales of concentrate are subject to a 5% royalty in
Oyu Tolgoi recognized cost of sales in Q2'14 of
Concentrate production for Q2'14 improved after recovering from thickener rake repairs in Q1'14, while mill head grades remained flat due to delayed mine advancement. In Q2'14, Turquoise Hill capitalized
The decrease in additions to property, plant and equipment was primarily due to (i) suspending the development of the Oyu Tolgoi underground mine in Q3'13 and (ii) ceasing the capitalization of costs associated with establishing and commissioning the Oyu Tolgoi mine's ore processing infrastructure on
Funding of Oyu Tolgoi by Turquoise Hill
In accordance with the Amended and Restated Shareholders' Agreement dated
For amounts funded by debt, Oyu Tolgoi must repay such amounts, including accrued interest, before it can pay common share dividends. At
In accordance with the ARSHA, a subsidiary of the Company has funded common share investments in Oyu Tolgoi on behalf of Erdenes. These funded amounts earn interest at an effective annual rate of LIBOR plus 6.5% and are repayable, by Erdenes to a subsidiary of the Company, via a pledge over Erdenes' share of Oyu Tolgoi common share dividends.
Erdenes also has the right to reduce the outstanding balance by making cash payments. As at
Strong concentrate sales are expected to continue throughout the second half of 2014. Sales are expected to exceed production through the end of 2014. Oyu Tolgoi's goal is to reach four to eight weeks of concentrate production in inventory by the end of 2014.
Sales contracts have been signed for 100% of Oyu Tolgoi's expected 2014 concentrate production and long term contracts account for 92% of 2015 planned production. Additionally, 84% of concentrate production has been contracted for up to eight years (subject to mutually agreed renewals). All contracts are based on international terms.
While small amounts of higher-grade ore were processed in Q2'14, the grade is expected to increase as the mine deepens into a high-grade zone during the second half of 2014. In the high-grade zone, copper head grades are expected to reach 0.60% - 0.70% per tonne and gold head grades are expected to average approximately 1.0 gram per tonne. Turquoise Hill continues to expect Oyu Tolgoi to produce between 135,000- 160,000 tonnes of copper and 600,000 - 700,000 ounces of gold in concentrates for 2014.
As operations transition from post-commissioning to steady-state, Oyu Tolgoi has been focusing on cost reduction and productivity initiatives designed to generate positive cash flow, improve overall operational and financial performance.
Discussions with the Government of
Oyu Tolgoi is engaging with the Government of
All of the 15 global banks participating in the Oyu Tolgoi project financing have agreed to extend their respective commitment letters for the financing of the underground development at Oyu Tolgoi to
The feasibility study for the underground is largely complete subject to confirmation of some estimate assumptions.
Further underground development is expected to recommence once successful resolution has been reached on the outstanding shareholder issues including satisfactory resolution of the recent tax claims and potential breach of the Investment Agreement, agreement of a comprehensive funding plan including project financing, completion and approval of the underground feasibility study and obtaining all necessary permits for the mine.
Q2'14 development and exploration drilling
Oyu Tolgoi's exploration strategy is focused on developing a project pipeline prioritized in areas that can impact the current development of the Oyu Tolgoi ore bodies, seeking low-cost development options with the potential to directly impact the value of current operations and continuing development of legacy datasets to enable future discovery.
Final results have been received from
Turquoise Hill to sell 29.95% stake in SouthGobi
Under the terms of the agreement, which was effected in accordance with and in reliance upon the 'private agreement' exemption under the Canadian takeover bid regime and in accordance with the Hong Kong Code on Takeovers and Mergers, Turquoise Hill has agreed to sell 56,102,000 common shares that it owns in the capital of SouthGobi to the Purchaser at a price of
Under the terms of the agreement, the Company is to receive approximately
Sales and operations at the Ovoot Tolgoi coal mine
In Q2'14, SouthGobi's revenue was
Cost of sales was
Production decreased to 0.55 million tonnes of raw coal in the second quarter of 2014 compared to production of 0.64 million tonnes of raw coal in the first quarter of 2014. This decrease in production is due to SouthGobi's decision in June in response to current market conditions to reduce its production and place approximately half of its workforce in furlough. This furlough is anticipated to remain in place until the end of August subject to market conditions.
Governmental and regulatory investigations
SouthGobi is subject to investigations by
While the IAAC investigation into allegations of possible breaches of Mongolian anti-corruption laws has been suspended, SouthGobi has not received formal notice that the IAAC investigation is completed. The IAAC has not formally accused any current or former SouthGobi employees of breach of
A report issued by the experts appointed by the SIA on
A third investigation ordered by the SIA and conducted by the National Forensic Center (NFC) into alleged violations of Mongolian taxation law was concluded at the end of
The case was transferred to a
Following the initial appearances before the court by all concerned parties, the trial date for the case has been deferred until
Turquoise Hill views these accusations as unfounded and disputes these accusations and the procedures and conclusions of the investigations that led to these accusations and will vigorously defend itself and its former three employees against these charges. At this point, the three former employees continue to be subject to a travel ban.
The SIA also continues to enforce administrative restrictions, which were initially imposed by the IAAC investigation, on certain of SouthGobi's Mongolian assets, including
While the orders restrict the use of in-country funds pending the outcome of the investigation, they are not expected to have a material impact on Turquoise Hill's activities in the short term, although they could create potential difficulties for Turquoise Hill in the medium to long term. Turquoise Hill will continue to take all appropriate steps to protect its ability to conduct its business activities in the ordinary course.
Class action lawsuit
On or about
The proposed class action seeks general damages against all defendants in the sum of
Due to the inherent uncertainties of litigation, it is not possible to predict the final outcome of the action or determine the amount of any potential losses, if any. However, in the opinion of Turquoise Hill's management, at
Election of directors at Annual Meeting of Shareholders
All nominees set forth in the Turquoise Hill management proxy circular dated
New Chief Financial Officer
Class action lawsuits
The lawsuit seeks to recover damages resulting from alleged misstatements about the Company's financial performance and business prospects arising from revisions to its recognition of revenue on SouthGobi's coal sales, as disclosed on
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Certain statements made herein, including statements relating to matters that are not historical facts and statements of the Company's beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute 'forward-looking information' within the meaning of applicable Canadian securities legislation and 'forward-looking statements' within the meaning of the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995.
Forward-looking information and statements relate to future events or future performance, reflect current expectations or beliefs regarding future events and are typically identified by words such as 'anticipate', 'could', 'should', 'expect', 'seek', 'may', 'intend', 'likely', 'plan', 'estimate', 'will', 'believe' and similar expressions suggesting future outcomes or statements regarding an outlook. These include, but are not limited to, statements respecting anticipated business activities; planned expenditures; corporate strategies and other statements that are not historical facts.
Forward-looking statements and information are made based upon certain assumptions and other important factors that, if untrue, could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such statements or information.
Such statements and information are based on numerous assumptions regarding present and future business strategies and the environment in which the Company will operate in the future, including the price of copper, gold and silver, anticipated capital and operating costs, anticipated future production and cash flows, the ability to complete the disposition of certain of its non-core assets, the ability and timing to complete project financing and/or secure other financing on acceptable terms, and the evolution of discussions with the Government of
Certain important factors that could cause actual results, performance or achievements to differ materially from those in the forward looking statements and information include, among others, copper, gold and silver price volatility, discrepancies between actual and estimated production, mineral reserves and resources and metallurgical recoveries, mining operational and development risks, litigation risks, regulatory restrictions (including environmental regulatory restrictions and liability), activities or assessments by governmental authorities, currency fluctuations, the speculative nature of mineral exploration, the global economic climate, dilution, share price volatility, competition, loss of key employees, additional funding requirements, capital and operating costs for the construction and operation of the Oyu Tolgoi mine and defective title to mineral claims or property.
Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements and information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended.
All such forward-looking information and statements are based on certain assumptions and analyses made by the Company's management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements, however, are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information or statements.
With respect to specific forward-looking information concerning the construction and development of the Oyu Tolgoi mine, the Company has based its assumptions and analyses on certain factors which are inherently uncertain.
Uncertainties and assumptions include, among others: the timing and cost of the construction and expansion of mining and processing facilities; the impact of the decision announced by the Company to delay the funding and development of the Oyu Tolgoi underground mine pending resolution of outstanding issues with the Government of
The cost, timing and complexities of mine construction and development are increased by the remote location of a property such as the Oyu Tolgoi mine. It is common in new mining operations and in the development or expansion of existing facilities to experience unexpected problems and delays during development, construction and mine start-up. Additionally, although the Oyu Tolgoi mine has achieved commercial production, there is no assurance that future development activities will result in profitable mining operations.
In addition, funding and development of the underground component of the Oyu Tolgoi mine have been delayed until matters with the Government of Mongolian can be resolved and a new timetable agreed.
These delays can impact project economics.
The Company's MD&A also contains references to estimates of mineral reserves and mineral resources. The estimation of reserves and resources is inherently uncertain and involves subjective judgments about many relevant factors. The mineral resource estimates contained therein are inclusive of mineral reserves. Further, mineral resources that are not mineral reserves do not have demonstrated economic viability.
The accuracy of any such estimates is a function of the quantity and quality of available data, and of the assumptions made and judgments used in engineering and geological interpretation (including future production from the Oyu Tolgoi mine, the anticipated tonnages and grades that will be achieved or the indicated level of recovery that will be realized), which may prove to be unreliable. There can be no assurance that these estimates will be accurate or that such mineral reserves and mineral resources can be mined or processed profitably.
Readers are cautioned not to place undue reliance on forward-looking information or statements. By their nature, forward looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur.
Events or circumstances could cause the Company's actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements are included in the 'Risk Factors' section in the Company's Annual Information Form dated as of
Readers are further cautioned that the list of factors enumerated in the 'Risk Factors' section of the AIF that may affect future results is not exhaustive. When relying on the Company's forward-looking information and statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.
Furthermore, the forward-looking information and statements herein are made as of the date hereof and Turquoise Hill does not undertake any obligation to update or to revise any of the included forward-looking information or statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The forward-looking information and statements contained herein are expressly qualified by the cautionary statement.
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