TRQ revises Oyu Tolgoi guidance

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The troubled operation has been impacted by COVID-19, a pitwall failure, beset by funding and permitting concerns around the underground expansion and a fractious relationship between mine owners.

TRQ interim CEO Steve Thibault said yesterday Oyu Tolgoi's "exceptionally strong first quarter", combined with rising copper and gold prices, had generated a 303% year-on-year increase in revenue to US$526.5 million.

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All-in sustaining costs fell from $2.39 per pound of copper produced a year ago to 49c/lb, mainly due to higher gold revenue and higher copper production.

"However, as we previously cautioned and are now able to confirm, the pit wall failure experienced in the fourth quarter of 2020, combined with the cumulative effects of COVID mitigation measures, have resulted in a downward revision in gold production guidance for 2021, from 500,000-550,000 ounces to 400,000 to 480,000oz, while the copper guidance range has expanded from 160,000-180,000 tonnes to 150,000-180,000t," he said.

"The recent surge of COVID-19 cases in Mongolia has resulted in increased precautionary measures that we expect will continue to impact openpit operations and the underground development through the second quarter, while the vaccination campaign in Mongolia and Oyu Tolgoi rolls out."

The company said despite the recent rapid escalation of the COVID-19 situation periodically pausing construction work, the technical criteria remained on track to support starting the undercut mid-year but was "under pressure" due to the rapidly evolving pandemic situation.

The undercut is also still pending critical government regulatory and legislative approvals.

"Any significant delay to the undercut would have a materially adverse impact on schedule as well as the timing and quantum of underground capital expenditure and would materially adversely impact the timing of achieving first sustainable production and, consequently, of expected cash flows from the Oyu Tolgoi underground project, thereby increasing the amount of Turquoise Hill's incremental funding requirement," TRQ said.

Its current estimate of its base case incremental funding requirement remains $2.3 billion for the overbudget $6.75 billion underground expansion.

"Turquoise Hill and Rio Tinto were in Ulaanbaatar in March and April 2021 to discuss a path forward to address outstanding concerns that the government of Mongolia has with respect to the Oyu Tolgoi underground development project including in relation to Parliamentary Resolution 92," TRQ said.

TRQ expected to resume discussions in June 2021 following the Mongolian presidential election.

Oyu Tolgoi was also collaborating with the government to secure a long-term power supply, after key milestones under an amended supply agreement were not met in March.

The government, which owns 34%, also threatened earlier this month to seek to void Oyu Tolgoi's 2009 investment agreement if the company's tax claims weren't dismissed in international arbitration.

Turquoise Hill shares (TSX: TRQ) remain near the top of a one-year range, closing down 1.7% yesterday to C$25.02 to capitalise it at $5 billion (US$4 billion).