Turquoise Hill Resources Ltd. (TRQ) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning, ladies and gentlemen, and welcome to the Turquoise Hill First Quarter Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Thursday, May 13, 2021. I would now like to turn the conference over to Roy McDowall. Please go ahead.
Roy McDowall: Thank you, Joanna. Good morning. I'm Roy McDowall, Head of Investor Relations and Communications. Welcome to our first quarter 2021 financial results conference call. On Wednesday we released our first quarter 2021 results press release, MD&A and financial statements. These items are available on our website and SEDAR.
Steve Thibeault: Thank you, Roy, and good morning to everyone. Thank you for joining us for our first quarter 2021 financial earnings call. The first quarter of 2021 has proven to be an eventful quarter. Oyu Tolgoi reported exceptionally strong revenues in copper and gold production, and also we paid an unscheduled $356 million to the Government in Mongolia for tax assessment, modified our mine design to adapt to the Q4 here with and faced increased safety measures due to the COVID surge in Mongolia. Our expected funding gap has remained unchanged at $2.3 billion and our liquidity has also remained unchanged at Q3 2022. The Oyu Tolgoi team has continued to show their outstanding ability to adapt to the challenges they face and we continue to focus on reaching first sustainable production in Q4 2022. In addition, shortly after the quarter ended, we announced a binding Head of Agreement with Rio Tinto that provides and updated funding plan for the completion of the Oyu Tolgoi underground development. The impact of COVID-19 on our operation and underground development continued to fluctuate through Q2. And we are proud of how the team has prioritized safety of our workers and local communities as efficiently as possible and open the call up to Q&A. Please note Slide 2 and 3 contain our cautionary statements and I encourage you to read through them. Please move forward to Slide 5. Operationally the first quarter was extremely positive from both, safety and production perspective. Oyu Tolgoi achieved an all injury frequency rate of 0.2 per 200,000 hours worked during the quarter and continued to maximize production from the open pit from Q1 production of 45,000 tonnes of copper and 146 ounces of gold. Oyu Tolgoi has updated their copper and gold production forecast for 2021, and is now expected to produce 150,000 to 180,000 tonnes of copper and 400,000 to 480,000 ounces of gold. This updated guidance incorporates the impact of the modified mine design due to the technical issue in Q4 2020 and the impact of the increased precautionary measures we have had to introduce due to the recent COVID surge in Mongolia. The company is currently assessing the significance and extent of the impact resulting from the COVID-19 pressures.
Luke Colton: Thanks Steve and good morning to everyone on the call. Please turn to slide 7 for a summary of our key financial metrics for Q1. Revenue for Q1 2021 increased 303% versus Q1 2020 and that's driven by a 29% increase in copper production and 462% increase in gold production, as well as increases of 52% and 14% in the average price of the copper and gold respectively. The improved production metrics reflect the scheduled move to the higher grade areas in Phase 4B which we expect to see continue throughout the remainder of the year.
Jo-Anne Dudley: Thank you, very much Luke. If we now turn to Slide 9, despite COVID-19 impacts the overall project construction progressed on the Material Handling System 1 which is required for sustainable gross production remains broadly in line with the estimates. During Q1 2021 the Primary Crusher 1 bottom shells were installed and the top shells were moved to the crusher chamber for installation. In addition, conveyor belt pulling commenced on the main conveyor between Primary Crusher 1 and Shaft 2. Although progress on Materials Handling System 1 is expected to slow in Q2 '21 due to site COVID restrictions, it is not expected to materially impact the timing of the undercut commencement and sustainable first production. Ongoing work suspensions continued to affect progress on Shafts 3 and 4 and the overall impact of these delays are under review. Progress of works remains dependent on mobilizing key vendors and additional sinking resources into country and clearing them from quarantine. Additional shaft sinking specialists are now in Mongolia and are expected to arrive on site during May. Shafts 3 and 4 are not required to support Panel 0 commencement; however, they are required to support production from Panels 1 and 2 during the ramp up to 95,000 tonnes per day. impacts were expected to continue through quarter 2 despite the rapidly progressing vaccination program. The continues to progress with 800 equivalent basis completed in the quarter. Underground development progressed 3500 equivalent meters and we completed 13,500 cubic meters of mass excavations. It is anticipated that lateral development rates will continue to be impacted into Q2 and ore body development work has slowed as a result of workforce numbers almost all of the development required for the commencement of the undercut is complete. The commencement of the undercut in mid-2021 is a key milestone and it is critical to ensure that once commenced the undercut and drawpoint construction continues unimpeded. Achievement of the technical criteria required for a mid-2021 commencement of the undercut remains on-track. However, the exact timing of the undercut is under increasing pressure principally due to the rapidly evolving understanding of the recent COVID-19 impacts. In terms of exploration, Turquoise Hill, through its wholly-owned subsidiaries, Asia Gold Mongolia, Heruga Exploration and SGLS LLC, operates an exploration program in Mongolia on licenses that are not part of Oyu Tolgoi.
Steve Thibeault: Thank you, Jo-Anne. Moving to Slide 10, I'm going to use a key milestone outlaid on Slide 10 to provide an overview of what we are working tron what we are working through for 2021 and on to 2022, to keep us on track for first sustainable production in October 2022. The first milestones are the ongoing negotiation with the Government of Mongolia which are critical to ensure the undercut can commence. As Jo-Anne pointed out from a technical perspective, criteria required for the mid-2021 commencement of the undercut remain on track. However, it is a nontechnical criteria including confirmation of necessary regulatory and legislative approval required by the Government of Mongolia that are still pending and are critical elements for consideration to proceed with the decision to commence the undercut. Constructive engagement was achieved with the Government Working Group in Mongolia in April and we anticipate resumption of discussion in June following the 2021 Mongolian Presidential election. The second milestone of 2021 is the undercut blasting currently scheduled for mid-year. Once commenced, the undercut and drawpoint construction continues unimpeded and we will be looking forward to ramping up to full sustainable production. The third key milestone is funding. In April, Turquoise Hill and Rio Tinto announced a binding HoA to provide a funding plan for the completion of the underground development. The funding plan is designed to address the estimates of the remaining funding requirement of approximately $2.3 billion which is based on our commodity assumptions. We remain committed to continue delivering benefit to all stakeholders, including Mongolia and its citizens and to delivering significant long-term value for Turquoise Hill challenges. I would like to thank you all for taking the time to join our conference call and would now like to turn the call back to the operator for questions.
Operator: Thank you. First question comes from Orest Wowkodaw at Scotia Bank. Please go ahead.
Orest Wowkodaw: Hi, good morning. I realized you left officer, or your office guidance kind of unchanged for the underground with respect to timing and CapEx and so forth, but at the same time, you're release is pretty clear that you're worried about increasing pressures, I guess both, technical and non-technical. How should we think about this moving forward? I mean, it sounds like you're going to be likely increasing the CapEx and pushing back the schedule unless things radically improve. Is that the right way to think about it and does this really revolve around both the government giving you the non-technical issues that you need, plus sort of the lifting of COVID restrictions?
Steve Thibeault: Okay, there's couple of elements Orest, thanks for your questions. And there are some other elements in your question. What we are focusing right now is on the undercut decision and we've been very keen that the undercut decision has two main elements, one of technical criteria, which includes elements of drilling and all elements and as mentioned by Jo-Anne, okay the achievement of the technical criteria required for the mid-2021 commencement, we remain on tract. I mean, Orest, let's face it, we will like everybody we had some headwind with the COVID, but this actually we believe and we're on track from our point of view for a midyear start on that one. The other elements relate to the non-technical that we refer and you could see that as the approval from the Government of Mongolia related to our license to operate the underground. And we need to work with the government to proceed with these approvals and that's not different from any mine in the world that we need some levels, you need some approvals on some elements and so I mean, as of today we haven’t received those ones, but we keep working with the government to receive these approvals and be able to proceed. Now in terms of COVID and the impact, I mean the main impact of the COVID-19 was in Q2, okay? And but as you've seen there are some significant improvement in the vaccination and also the procedure that we are putting in place, while focusing on the safety of our employees, but we expect that over the next couple of weeks we should see an improvement in the solution in Mongolia overall and on our site. And we should be able to ramp-up the operation. So I'm not telling you, but the important point is we need to evaluate what will be the impact, and today I don't have the information .
Orest Wowkodaw: And as a followup, can you, are you able to quantify like what does every one month delay in the undercut, what does that translate in terms of say impact on the capital number?
Steve Thibeault: Yes, Jo-Anne, would you like to cover that please?
Jo-Anne Dudley: Yes, absolutely and thank you for your question Orest. So it depends on the reason that the undercut may be delayed and certainly as Steve was indicating we aren’t planning for any particular delay in the undercut to another, a scenario that would have been putting a lot of work into understanding at this point, in that. We're working towards that start of the undercut as soon as it is possible to do so. In terms of the work that continues, once the undercut starts blasting, we do continue work on the Materials Handling System 1, as well as other important work, in preparation to the start of production. And so, attending on the reason for a particular delay that could be encountered prepared to work production could continue and that this would have depend, if the delay was as a result of my numbers on file and inability to continue working, then that might impact that as a scenario. But as the Materials Handling System 1 has remained ahead of schedule actually up and you know even now we're seeing it forecasting ahead of schedule. But we can see that there has been pressure on the schedule in recent weeks, due to the accelerated impacts of COVID control at site.
Orest Wowkadow: But, yes I mean, I have a followup, are you able to quantify, like if the undercut is delayed because you, the non-technical criteria is not met, but what is the impact say per month of delay to the CapEx?
Jo-Anne Dudley: Right, and we’re still trying -- we still would be assessing that as non-delay which starts to occur. But given that some-- quite a lot of work could continue, it is not something that we necessarily understand right at this moment because it would be work that would be ongoing, so, capital would continue to be spent in other areas albeit potentially at a reduced rate. And there will be ongoing assessments of the overall impact on costs and schedules as we understand the situation better.
Steve Thibeault: I think the best way to look at it Orest is that, it’s not the one month for this capital because other words it’s a complex development and other work would be done elsewhere and some expenses will not be done, so there would be just a delay. Now, that being said, it all also depends on the timing. If it -- I mean, at the moment we’ve saying that we’re within the mid-year, and so I would not say one month is equal to that much capital addition and I don’t that -- we’re not looking at the mid-year timing as having an impact or significant impact on the CapEx, you should not look at it this way from that point.
Orest Wowkadow: Okay, thank you. And just a final clarification. The $6.75 billion capital number for Phase 2, does that include the sustaining capital related to the underground that we’re now seeing being incurred? We saw some in Q1 here and I'm just curious if the sustaining capital between now and for sustainable production is included in that $6.75 billion number?
Steve Thibeault: Okay, Luke, do you want to give the answer of that?
Luke Colton: Sure, happy to Steve, and thanks for the question Orest. The answer to that question is no. The $6.75 billion does not include, the $6.75 billion is for underground development capital expenditure and it excludes underground sustaining capital expenditure and that’s always been the case. If you go back and look at the different technical reports TRQ has issued in 2016 and again last year in 2020, there's always been a distinction between the $6.75 billion underground development capital expenditure and then additional underground sustaining CapEx.
Orest Wowkadow: Okay, thank you.
Steve Thibeault: Thank you, very much Orest.
Operator: Thank you. Next question comes from Craig Hutchison at TD Securities. Please go ahead.
Craig Hutchison: Good morning guys.
Steve Thibeault: Good morning, Craig.
Craig Hutchison: I'm trying to get a little more granularity around your guidance cut, particularly with gold going from $500,000 to $550,000 to kind of $400 to $480, how much of that is COVID related and how much of that is grade related? And we’re kind of halfway through Q2 here and any kind of color in terms of what we should be thinking for true put in grades here in Q2 would be appreciated? Thanks.
Steve Thibeault: Okay, I’ll let Jo-Anne to respond to that, just on that Craig, okay? Jo-Anne can you take…?
Jo-Anne Dudley: Thank you, Steve, thank you Craig. Yes, no problem, can you hear me?
Craig Hutchison: Yes, I can.
Steve Thibeault: Yes.
Jo-Anne Dudley: Okay, sorry. Just wanted to check there, sorry. Yes, so, in terms of the change in the picture around the production guidance of gold, the majority of the change in terms of that, the gold production has been the deferral of materials size bars as a result of the mine redesign, and we would see the delivery of that material in approximately two to three years time. There are some other additions that have played into that change, and as you mentioned COVID and assumptions around productivity over the next period have also impacted into that change, so it is a combined change of the mine redesign. It’s also some productivity impacts, and then some other assumptions around the being said and the processing results we would expect from that. In terms of looking forward to the rest of the year, we have had a good quarter in terms of gold production, and we do expect to see Q2 having some productivity impact from the operation in terms of productivity from the open pit and the concentrator due to the COVID controls that have been implemented at site. However, with the vaccination program and the controls that are being used, we expect to see some recovery of that and we will be remaining in that high-grade area of Phase 4B for all of the quarters of 2021, and we -- and of course having just updated guidance, we do expect to remain within that guidance for 2021. So hopefully that draws enough of a picture for you there Craig, in terms of how those quarters will play out. I mean, I guess something else to add would be, the -- in this part of the pit, the grade is quite good and we can see the grade change when we move around in different areas of the pit. And so, it isn’t straightforward to just tell you that the grade is going to be the exact same over the next three quarters. But just to let you know, settling what we can is which is, we will remain in the high grade for the remaining quarters of this year and we do expect to make that newly released guidance.
Steve Thibeault: Craig, you know what, the same way to look at it, I mean if I would be you, I would say that like you know, when they are saying, overall the grade would be roughly the same on all of the quarters except because of the COVID situation in Q2 I would make an adjustment and probably spread it over the next quarters roughly.
Craig Hutchison: Okay. I mean the grades were quite high in Q1 right? They were 0.68 I think?
Steve Thibeault: Yes.
Craig Hutchison: That’s it.
Steve Thibeault: But we’re expected to be in that grade, I mean there’s always variability okay, but we’re expecting to be in the high grade in the pit for pretty much all the year. I think maybe December a little bit, but it is not even the concern, but I think that you should assume all year would be with good grade.
Craig Hutchison: Okay, I mean, I just -- it seemed like the grades would have to fall quite sharply from Q1 in order to hit certainly the point of your guidance, but okay. Just in terms of sales do you guys anticipate catching up here in Q2 or do you think there’ll be some carryover into Q3?
Steve Thibeault: Luke, can you answer that please?
Luke Colton: Yes, I know, well, happy to do that. Craig, it’s a good question, so we did obviously declare forced measure and I think it was the 30th of March of this year. We are now concentrate shipments have started again, they started again kind of mid-April, and we do expect them to continue to ramp up over the course of Q2, as you know, the COVID situation in Mongolia hopefully improves with vaccinations et cetera. And that’s what we’re aiming to do and we’re working very closely with the Government of Mongolia and the Government of China to sort of resume normal shipping operations as soon as possible. But as Jo-Anne has alluded to, there have been COVID related impacts. We are expecting to see some COVID related impacts in Q2. So, what I would suspect is that you should see improvement over the course of Q2, but I expect there will probably still be a fairly high inventory balance at the end of Q2, which we will continue to draw down hopefully in Q3. We’ll get back to normal by the end of Q3, that’s kind of what we’re targeting at the moment in terms of getting our inventory balances back down to normal levels. So, I don't think it’s something that will completely resolve itself in Q2. Craig, down to your question, I think it's probably going to be something that resolved itself, hopefully in Q3, but definitely over the remainder of the year.
Craig Hutchison: Okay. Thanks and maybe one last question, sorry go ahead.
Steve Thibeault: Yes, Craig, just to give you a bit of flavor, the -- I mean all truck drivers have been vaccinated, but there’s additional procedures at the border and that’s increased the cycle time of the delivery, but like I said, like Luke is saying this -- we’re working and putting additional resources to make sure that we can move that inventory, but that will take a while.
Craig Hutchison: Okay, thanks. And just one last question remains, just in terms of, how important are the Mongolian Presidential elections on resolving the Parliamentary Resolution 92, do you need Presidential sign-off or I guess, I’m kind of wondering why those negotiations stalled and will resume post the presidential election outcome? Thanks.
Steve Thibeault: Yes, no. The context is more like, we had the -- I mean TRQ in Rio Tinto, our teams were in Mongolia for discussions with the Government of Mongolia from the end of May, from the end of March to April, the end of April. I mean, definitely, Craig, I mean Mongolia was facing a significant surge in the COVID and we were in the election and we believe that the best for everyone who was to resume the discussion after the election. Okay? Where we would be, that would be, that will be completed. And so, I don’t know exactly in terms of detail, but definitely couple of points here. All the parties have committed to, we all have a common interest finitely Craig, a couple of points here, all the parties are committed to- I mean we all have a common interest, okay? Being the proceeding with the undercut decision, okay, we know that we need to resolve and have discussion around Resolution 92 or questions that have been raised by the government, and we’re definitely committed to have -- sit down and have the proper discussion in order to have. But it is also likely that we may, we will -- I mean there is some discussion to have related to the undercut criteria and the non-technical that we talked before, and like I said, these are license to operate or elements of license to operate that we need to have, but I would expect that the discussion with the Government of Mongolia definitely will, I mean like I said, we'll resume after and we'll have after will have other period to have some discussions. But the point I want to make Craig, is the that you should not necessarily link together the undercut decision with the discussion with the government. There are some elements that would be common, but not everything.
Craig Hutchison: Okay thanks, guys.
Steve Thibeault: Okay.
Operator: Thank you. Next question comes from Ralph Profiti at Eight Capital. Please go ahead.
Ralph Profiti: Good morning, thanks for taking my questions.
Steve Thibeault: Good morning Ralph.
Ralph Profiti: Good morning. Steve and Jo-Anne, I wanted to come back to the development rates in Q1 and that are also going to impact Q2 and if we could just exclude the critical elements, these non-technical factors, what sits behind commencement of the undercut as the critical path? It doesn’t seem like it's Shaft 3 and 4, is it really dropped all development in construction or material handling, can you help me understand that a little bit better.
Steve Thibeault: I’ll let Jo-Anne to answer your question there Ralph.
Jo-Anne Dudley: Okay, thank you. Thanks Ralph. So, you’re correct in terms of what you’re saying there with it’s not cam Shafts, lies the porter, light head ramp up. The Material Handling System 1 has been a key priority and as we’ve mentioned it has been head of the -- investment in terms of schedule, but we’re seeing headwinds, we’ve- these -- acceleration of COVID control and the other piece is left shoulder development as you mentioned and almost all of the development required actually came in undercut cutting is complete, so the development is well advanced at the moment. We still do have aspects of the Material Handling System that are under construction and now continue right up until the start of production, but the schedule is going relatively well, and they’ve really managed it extremely well given the current or certainly the situation that COVID has had. It might be worse just mentioning that, the Material Handling System 1 is prioritized and so they’ve done quite well. The site currently has no active cases of COVID and additional personnel plans to be transported to site increased numbers on construction has been over the next few weeks as well, as well as the vaccination program progressing. So, we are still mixing, doing chutes here, but we also recognize that things have been difficult for the change leading up to the end of this quarter and into Q2. I hope that's helpful.
Ralph Profiti: It is, it is, thank you for that. Jo-Anne, it’s also my understanding that sustainable propagation occurs at 30 drawbills, just wondering, do you have a target rate for drawbell construction, where are you now? Where do you expect to be say, mid-2021, end of 2021? Can you help us with a little bit of a schedule on drawbell construction?
Jo-Anne Dudley: Yes, there certainly is a schedule for drawbell construction, with the style of cave mining that we're using this one of a tall . The undercut passes over at the extraction level prior to the development and the blasting of all drawbells. So we currently don’t have any drawbells and we won’t until we start firing the undercut and we actually aren’t- are able to slightly start doing that work. And so, that is something that is after the start of undercutting if you like. In addition, in terms of the actual timing of sustainable first production, the estimates of the number sales is reasonable estimate as we understand the rock mass, but ultimately the site of production is gathering aside the rock mass and it’s behavior. After we undercut and we have the cave instrumented to understand when tidying commences and that will be when the first sustainable production actually commences. So the number of drawbells, even approximation, it should be reasonably close, but ultimately we will be looking to the rock mass to give us the go ahead there and lead the criteria to start production in 2022.
Ralph Profiti: Got it, well, understood. Yes, got it, thanks very much.
Operator: Thank you. Next question comes from Jackie Przybylowski at BMO. Please go ahead.
Jackie Przybylowski: Thanks very much. I guess, I just want to circle back to Steve’s response to Orest, and then to Craig. You’ve mentioned a couple of times Steve, that you need to see a license to operate in Mongolia and I think this is specifically related to Resolution 92. But also, I mean, Jo-Anne when she was answering Orest’s questions, she said that you’re still prep work on materials handling and other items. Is it one or the other, like do you need a license to operate to do both the undercut and spending any other capital underground? Wouldn’t that kind of be the same? I’m just - I’m a little confused as to why you're pursuing some of the development activities but not the undercut? Why wouldn’t they be kind of under the same kind thought process?
Steve Thibeault: Yes, yes, let me answer that, Jackie. I think there are a couple of elements you had in your statement or your question here that I just want to answer. The first one relates to the non-technical and the Resolution 92. You should separate those two, because in order to operate any mine in the world, you need some approval by the government and some elements that are related to your license to operate. For example, okay an annual mine plan approved by the government and these are, I mean that’s just one example of the same tests you would have. And so there's elements right now that were waiting approval, we submitted and but we’re awaiting approval from the government to be able to proceed and work, this is where we need to discuss with the government and the different departments to make sure that we’re moving on these elements and some of those weren’t- have not received yet and we want to proceed there. The second element is that on the negotiation you put that separate, okay, but it is also important to understand that once you start the undercut, that’s it. I mean you cannot stop it. So, you need to make sure that you have the proper authorization and approval to proceed with it, because there's no other way to change it, okay. The underground mine itself and the lateral development is not mining yet, it is getting ready for the -- for mining but it is not necessarily the mining yet okay, but when you start the undercut you’re really starting the mining operation and you cannot stop it. And we want to make sure that once we start we won't have any delay , we won't have any delay because what is the most important during the undercut, is to make sure that you progress at the right level so you guarantee the sustainable production at a specific time, okay.
Jackie Przybylowski: So, is it fair to say -- thanks for the clarification. Is it fair to say that the undercut can start before the investment agreement is finalized?
Steve Thibeault: Yes, I would say yes.
Jackie Przybylowski: Okay.
Steve Thibeault: I think that it would be reasonable, Jackie, it would be reasonable to say that we could proceed without having resolved these elements because we're committed to resolving it okay, because that’s -- to be resolved but at the same time, we could definitely, when we get the approval to proceed with the undercut, we can move ahead.
Jackie Przybylowski: Got it. Thanks very much for that clarification. That’s really helpful, thanks Steve. That’s it from me.
Steve Thibeault: You’re welcome. Thank you.
Operator: Thank you. Next question comes from Dalton Baretto at Canaccord. Please go ahead. I do apologize, Orest Wowkodaw with Scotia Bank.
Orest Wowkodaw: Thanks for taking the follow up. This one is ’s actually for Luke. On the- your estimate for the financing requirement, the $2.3 billion, can you give us a little bit more color on minimum cash assumptions in that? Like, i.e. does your existing debt require you to maintain a certain minimum cash or does that assumption or is not the case and it does not cross that estimate of 2.3 assume you're taking your cash effectively to zero at some point next year?
Luke Colton: And so the estimate of $2.3 billion would assume that we’re taking the cash all the way down to zero. Obviously we wouldn’t want it to get to that point. But -- the $2.3 billion does assume we take the cash balance all the way down to zero and of course the objective at the moment is to focus on implementation of the HOA, so we’re able to resolve that funding gap well in advance of getting to that point.
Orest Wowkodaw: So, but and thank you for that. But does your existing debt require you to maintain a certain minimum cash balance or do you have no restrictions?
Luke Colton: I’m going to have to get back to you on that question. I don't believe it does, but I’ll have to follow that question, I can get back to you.
Orest Wowkodaw: Thank you.
Steve Thibeault: And Orest, I would say that, there’s a lot of elements and I'm not saying that is going to be less guys, I’m not saying -- guys I'm not saying that, I’m not saying that, our estimate is 2.3 but here’s a lot of information in the pricing and all that that’s happening so, it’s very variable environament at the moment but, like Luke is saying we’ll get back to you on that $100 million.
Luke Colton: Or any amount required, if we have any.
Orest Wowkodaw: Thank you.
Operator: Thank you. Next question is from Dalton Baretto at Canaccord. Please go ahead.
Dalton Baretto: Hi thanks, good morning everybody. Steve, I want to pick up on…
Steve Thibeault: Good morning, Steve.
Dalton Baretto: Good morning, Steve. I want to pick up on what Jackie was asking you about, and specifically what you said in terms of the undercut being able to progress without Resolution 92 satisfied. Is that something you guys will be willing to do? My understanding was that Rio refused to progress unless that happens, specifically because as you've said, once we start the underground there is no stopping. So, if Resolution 92 is not resolved, you're basically hostage now.
Steve Thibeault: There are a couple of elements there, okay, the first one, we need, how can quote that. The key elements okay, is that from the first element we need to resolve is make sure Dalton, that we have the license, the elements of the approval from the license to operate okay, we are committed, I mean, let’s face it, there is differences and the Resolution 92 brings some concern from the Government of Mongolia to be resolved and it’s around the pass of the projects and its distribution of benefits. I mean, this is negotiations that we are going to have in rotate a certain time. However, both parties are committed to make sure that we are creating and we’re proceeding with the value of the under project and despite the fact that it may take some time for these, all the detail of Resolution 92 to be resolve okay, what’s important is that we move ahead with the approval of the -- I would call it the regulatory approval to proceed with the underground. And we can work together to fix, not to fix but to discuss the Resolution 92 and the multiple forward. So there is a scenarios -- not to fix but not to discuss the Resolution 92 and be able to move forward. So there’s a scenario where you definitely can separate the two and have a proper discussion around the elements of concern that we have in the Resolution 92 while still proceeding with the undercut. But I would say Dalton we’re in, we had 79 floors of that 80 floor building done what’s important is that ahead and we move ahead and we’re treating the value while we're having this discussion--- the proper discussion for the government around their concern around the cost in the benefits.
Dalton Baretto: But I guess I'm wondering, A, why would the government give you approval to proceed if the economics are uncertain and B, why would you guys want to proceed if the economics are uncertain?
Steve Thibeault: I think that, definitely that’s what is important for us. First, Dalton, we are aligned, the government and the company, we are aligned. We need to create and generate the value. The distribution of that value is going to be something that we’re going to have to discuss and to have the discussion. From my point of view, I mean, we are aware it’s -- we need to -- it’s -- we’re at the, like I said, this project is mostly completed and we need to make sure that we’re proceeding and moving with the important element which is the undercut. And we need to find a way to resolve the funding at the appropriate time and have the dedication to do -- and I think that’s doable, that’s my view.
Dalton Baretto: Okay, so on the assumption that you'll get the approval to proceed with the undercut, and that you initiated the undercut and then you get to a point in the negotiations where, you know, you're at an -- on resolution 92, how do you handle that, if you can't stop the undercut?
Steve Thibeault: I mean definitely, I'm confident that we can find a path forward, Dalton, definitely.
Dalton Baretto: Okay. Maybe switching gears to something else Craig asked you about and I’m sort of confused as to the answer and that’s got to do with the gold production this year. If your gold rates are going to stay approximately the same, what’s driving the lower guidance? Is it throughput? I mean where exactly is COVID-19 impacting it?
Steve Thibeault: Okay, Jo-Anne do you want to answer that please?
Jo-Anne Dudley: Yes, sure. And I think that was -- I’m really pleased you asked that question Dalton, because I don’t think that was the right take away, well it definitely wasn’t what I was trying to say. What I was trying to say is that, there has been, if we look at the guidance for the year and we do some simple math on the gold that has been produced in Q1, then if we look at the remainder of the year, we’re still going to have production in each of those quarters from the high grade area of Phase 4B. However, we can also say that Quarter 2 will have some impact as a response on production from the pit and through the plant as a result of the COVID-19 controls that we've had in place over recent weeks at site. So there will be an impact on Q2. However, we do remain in those high grades and we’ve just updated the production guidance. So, is the helpful?
Dalton Baretto: It is. I’m just trying to understand…
Jo-Anne Dudley: Sorry, we lost you.
Steve Thibeault: Is it? I think we lost you Dalton.
Roy McDowall: Operator, are you still?
Operator: Dalton is still connected, perhaps his line may have gotten muted. Dalton?
Dalton Baretto: I'm still here, can you hear me now?
Jo-Anne Dudley: Yes, go ahead.
Roy McDowall: Yes, we can.
Dalton Baretto: Sorry, I’ve been having issues with this call for the last 30 minutes or so. So, yes, I guess my question is, if you’re going to be in the higher grade, should we then assume that the impact is on the amount of material you’re mining and processing? And then is that restricted just to Q2 or the rest of the year?
Jo-Anne Dudley: Yes, I mean, I guess I was not- to be clear, I was not saying we will be processing the same grade every quarter of the year. So what I was saying is that, we will be in the high grade areas of the pit for the reminder of the year, but if we do the math between the production guidance just released and what's in Q1, we’ll see what we think will happened over the remaining three quarters, and that’s as much guidance as I can give. There is variability in these high grade areas. It’s not -- we're not mining iron ore or bauxite. There is a lot of difference in the grades in these parts of the pit and there is variability with COVID that we’re seeing for the rest of the year. So, I’d love to provide you with a bit more granularity but I just don’t think it’s appropriate given the uncertainties around which we're talking.
Steve Thibeault: Dalton another way to look at it is that, and I guess you’re speaking mostly about the- around the gold okay, when you look at the gold, the gold is at more specific area in the pit, it’s right at the bottom. Okay? And very specific area. And you can sit back wards because of the slip we had to do a step in. So that means that we have to make, lost some benches, okay, and make it less accessible at the bottom of the pit. So technically, okay, with that current 4B we modified our current 4B where we don’t have all the access that we wanted to have at the bottom of the pit where some of that high grade gold was. Okay? It will be mined later, okay? We’ll be able to mine it later, but this year we don’t have access. Now on the copper side we have other area, because the distribution of the ore, the copper ore is different. We have access elsewhere, so that's why we have less of a the change in the copper guidance, that’s mostly what it is.
Dalton Baretto: Okay, so that’s more clear because, we keep talking about the COVID-19 impact but what you just said is, it’s a function of the pit wall slip. And that’s kind of what I was trying to get at, because in your Q4 disclosure, it is said that there wasn't going to be an impact on guidance and so I just wanted to clarify. So this is function of the pit wall slip and access to certain zones that you had planned on mining but can’t right now?
Steve Thibeault: It is. And the reason why we- we said that, it takes a while, you understand that with evaluating the fault and how it will behave and you try something, it doesn’t work, you have to step in more, that has an impact eventually and that's what we’re seeing this quarter that finally it had a bigger impact than what we originally had planned, because we had not finished all the analysis.
Dalton Baretto: Understood. Thank you, guys.
Steve Thibeault: Okay, thank you.
Operator: Thank you. That concludes today’s Q&A session. I will now turn the call back over for closing remarks.
Roy McDowall: Yes, thank you very much everybody for attending this call. I really want to appreciate your time and your interest. If there’s any follow up questions, you can reach out to myself, Roy McDowall info@turquoisehill.com or my email address. So, on that, thank you again for attending. Hope everybody has a great day. Thank you very much.
Operator: Ladies and gentlemen this concludes the conference call for today. We thank you for participating and we ask that you please disconnect your lines. Have a great day.
