Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Canada-based, Turquoise Hill announced a solid first quarter and strong operational performance at its open pit mine, Oyu Tolgoi, in southern Mongolia. The mine has operated without disruptions and underground development has continued to advance despite COVID-19 related restrictions.


The mining company projects that Oyu Tolgoi, its sole material mineral resource property, will produce 140,000-170,000mt of copper in 2020, above the previously provided guidance in 2019. Turquoise expects copper production to increase to 170,000-200,000mt in 2021, as the company transitions to higher-grade ore in the lower pit areas and continue to increase the amount of underground development material processed.


Turquoise anticipates that continuing expansion of the Oyu Tolgoi copper mine will cost an additional $1.5bn and take two years beyond the original plan for production to begin. The company is currently discussing a proposal for $4bn in provisional funding above available liquidity, with Oyu Tolgoi’s 50.8pc owner, Rio Tinto.


Turquoise Hill has $1.8bn, according to Ulf Quellmann, the company’s chief executive officer, which, he believes, is sufficient to fund operations as well as underground and power development into Q3 2021.


The miner expects operating cash costs for 2020 to be $800-850mn, while capital expenditure on a cash-basis could be about $80-100mn for open-pit operations. Underground development will cost $1-1.1bn.


The high end of the open-pit operations guidance range was cut from $120mn resulting from lower projected spend due to COVID-19. The underground development guidance was also cut from $1.2-1.3bn on estimated impact of COVID-19, which has restricted mine access at Oyu Tolgoi, Rio Tinto, and construction partners.


The Oyu Tolgoi mine’s copper output decreased by 23pc to 35,200mt in Q1 2020 from 45,800mt in Q1 2019, however it is on track to reach 2020 copper production guidance. Copper sales fell to 25,800mt in Q1 2020, from 38,500mt in Q1 2019.


The company’s mill output increased by 17pc to 10.89mn mt in Q1 2020 from the same quarter last year, due to less ore hardness, good mill availability, and effective application performance.


The miner’s revenue fell by 62.9pc to $130.7mn in Q1 2020, from $352.7mn in the same quarter last year, mainly due to the 23.1pc decrease in copper production. Revenue attributed to copper was $97mn in Q1 2020, a decline of 56.7pc compared to $224mn in copper earnings in Q1 2019.


Turquoise’s income fell to $19mn last quarter from $105.2mn in Q1 2019, due to $198.8mn less gross margin from less revenue.

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