Turquoise Hill Resources Ltd. (TRQ) on Q3 2021 Results - Earnings Call Transcript
Operator: Good morning, ladies and gentlemen, and welcome to the Turquoise Hill Third Quarter Financial Results Conference Call. This call is being recorded today, Wednesday, November 3, 2021. And I would now like to turn the conference over to Mr. Roy McDowall. Please go ahead, sir.
Roy McDowall: Thank you, Michelle. Good morning. I’m Roy McDowall, Head of Investor Relations and Communications. Welcome to our third quarter 2021 financial results conference call. On Tuesday, we released our third quarter 2021 results press release, MD&A and financial statements. These items are available on our website and SEDAR. With me today on the call is Steve Thibeault, our Interim CEO; Luke Colton, our CFO; and Jo-Anne Dudley, our COO. This call and presentation includes certain forward-looking statements and information. We refer you to the forward-looking statements section of the annual information form dated March 8, 2021 supplemented by our MD&A, the 3 and 9 months ended September 30, 2021. And now I’d like to turn the call over to Steve.
Steve Thibeault: Thank you, Roy, and good morning to everyone. Thank you for joining us for our third quarter 2021 earnings call. Jo-Anne, Luke and I will be available for Q&As following our presentation. Please note Slide 2 and 3 contain our cautionary statements, and I would encourage you to read through them. Turning to Slide 5. The Oyu Tolgoi open pit and underground workforce posted an all injury frequency rate of 0.13 for the 9 months ending September 30, 2021. An improvement over the rate from the 6 months ended June 30, 2021. This is an impressive achievement considering the challenges caused by COVID-19. The open pit operations continued uninterrupted through the quarter and produced 41,900 tonnes of copper and over 130,000 ounces of gold. We are maintaining our 2021 production guidance of 150,000 to 180,000 tonnes of copper and 400,000 to 480,000 ounces of gold. Although the site operated at less than 50% of its planned personnel levels in the third quarter due to the COVID personnel restrictions, the team was able to make progress on the underground project. The sinking of Shaft 4 was restarted during the quarter and in October, we began the commissioning of the Materials Handling System #1. While the volume of concentrate shipments to customers improved during Q3 versus Q2, site inventory remains above target levels, and consequently, we will maintain our force majeure until that imbalance is corrected. All technical undercut readiness activities have been completed. In order to go ahead from a technical perspective, I have been waiting since July 2021 to commence the undercut. Undercut commencement remains delayed by a number of factors, including the paning resolution of certain nontechnical criteria essential for the start of the caving operations obtaining the approval of all OT LLC Board Directors for additional investment to progress the underground development, to green light the negotiations with the project finance lenders on debt reprofiling, obtaining outstanding required regulatory approvals and securing an agreement on the pathway to meet Oyu Tolgoi’s long-term power requirements. All of these issues are the subject of ongoing discussion between the company, Rio Tinto and the Government of Mongolia. Having just returned from 6 weeks in Mongolia, where I was involved in negotiation, I can say that I was encouraged by the good effort of all parties to reach a solution so that the underground development can achieve success through a process of mutually beneficial cooperation. I can also attest that all parties are aware of the urgent needs to remove the obstacles to the start of the undercut to prevent further delays and to preserve the economic value of the project. To further that process, TRQ and Rio Tinto recently tabled a comprehensive proposal with the government that we believe address the government key concerns and ensures that the project remains a compelling value proposition for all partners. From a financial perspective, our base case incremental funding requirement has increased to $3.6 billion as of September 30 from $2.4 billion at the end of Q2. The increase reflects preliminary information provided by Oyu Tolgoi regarding the impact of the delay to the initiation of the undercut as well as additional underground development capital of $140 million in non-COVID cost impacts. Our available liquidity of $0.8 billion is expected to be sufficient to fund the company’s requirements, including funding of underground capital expenditure into Q3 2022. Slide 6 showcase both the excellence of the Oyu Tolgoi team and the contribution of gold provides to our C1 cash costs. During Q3, Oyu Tolgoi produced approximately 42,000 tonnes of copper and over 130,000 ounces of gold. This was an increase over Q2 and was driven by the scheduled move to the higher grade areas of Phase 4b. Mill throughput remained above nameplate capacity, but was slightly lower than Q2, due to the processing of harder ore as well as lower SAG mill availability due to maintenance. For the remainder of 2021, we expect that the mill feed will continue to be comprised of higher grade Phase 4b and lower grade stockpile. And we’ll remain on track to meet our updated 2021 production guidance of 150,000 to 180,000 tonnes of copper and of gold. With that, I will turn the call to Luke.
Luke Colton: Thanks, Steve, and good morning to everyone. If you could please turn to Slide 7, I’ll provide a summary of our key financial metrics. Revenue for Q3 2021 increased by 135.6% from Q3 of 2020. Bill revenue increased by $193 million and that’s driven by a 338% increase in the volume of gold in concentrate sold, and that’s due to mining higher-grade areas of Phase 4b, partially offset by a 6% lower gold price. Copper revenue increased by $164 million from Q3 2020, and that’s due to a 44% higher copper price and a 35% increase in copper volumes due to higher grades. Cash generated from operating activities before interest and tax was $355 million in Q3 2021, and that’s $262 million higher than Q3 2020. Q3 ‘21 gross margin was $324 million higher due mainly to the increase in revenues. This was partially offset by unfavorable movements in working capital and deferred revenue as contingency measures put in place during Q2 2021 to improve OT short-term liquidity unwound during Q3 2021. Income per share attributable to owners of TRQ decreased from $0.64 per share in Q3 2020 to $0.17 per share in Q3 2021. This decrease mainly reflects the impact of a $300 million deferred tax asset derecognition in Q3 2021, which arose as a result of an overall weakening and taxable income forecast due to the underground delays. This impact was partially offset by the increase in gross margin previously mentioned. C1 cash costs and all-in sustaining costs in Q3 2021 both benefited from $193 million increase in gold revenue credits versus Q3 2020. For all-in sustaining costs, this benefit is partially offset by the higher royalties that OT paid on the higher revenue. Capital expenditure in Q3 2021 was $217 million, and that’s comprised of $201 million underground and $16 million open pits. Capital expenditure for the same period last year was $255 million. The ongoing impact of COVID-19 restrictions and controls drove the lower-than-expected capital expenditure and are expected to continue into Q4 of 2021. As a result, TRQ’s full year capital guidance has been reduced, $80 million to $100 million for the open pits is the revised guidance. And for the underground, it’s $0.8 billion to $0.9 billion. So I could get you to turn to Slide 8. You’ll see that Turquoise Hill had liquidity of $0.8 billion at the end of Q3 2021, which it expects will be sufficient to meet the company’s requirements into Q3 2022. As disclosed in the company’s Q3 2021 production update, its base case incremental funding requirement increased to $3.6 billion, and that’s primarily as a result of the forecast delayed sustainable production for Panel 0, which is now expected to be in H1 2023, which is broadly in line with the forecast 6-month delay to undercut commencement. Additionally, TRQ’s base case incremental funding requirement incorporate other assumptions, including updates to metal price assumptions, the definitive estimate, which estimated a development capital cost of $6.75 billion. And then COVID-19 restrictions through the end of Q3 2021, which have resulted in a cumulative increase of $140 million to the estimates included in the DE and that’s through the end of September 2021. The impact of the open pit mine redesigns in response to previously reported geotechnical events, the resequencing of open pit ore phases due to the delayed commitment of the undercut and of course, the impact of COVID-19 research and the controls on the open pit waste movements. Further information on all of that is provided in the company’s Q3 2021 MD&A. The company’s estimated incremental funding requirement as well as its liquidity outlook will continue to be impacted either positively or negatively by various factors in addition to the aforementioned and many of those are outside the company’s control. To address its forecast funding and liquidity requirements, the company’s lending plan includes the head of agreements reached with Rio Tinto in April 2021. And of course, its successful implementation is subject to achieving alignment with the relevant stakeholders, including Rio Tinto, existing lenders, potential new lenders in the government of Mongolia as well as market conditions and other factors. And those factors would include resolution of the remaining outstanding nontechnical undercut criteria and other items that form part of the ongoing negotiations with the government of Mongolia. Any significant further delays to the initiation of the undercuts or nonfulfillment of any of the other identified in the heads of agreement could adversely affect the ability of the company and OT LLC to obtain additional funding or reprofile existing debt as contemplated within the time frame set out in the heads of agreement. However, the company is currently in discussions with Rio Tinto to consider potential adjustments to the time frame and other aspects of the heads of agreement, which would help to address the company’s forecast funding and liquidity requirements. And with that, I’ll hand over the call to Jo-Anne Dudley, our Chief Operating Officer.
Jo-Anne Dudley: Thank you very much, Luke. Let’s turn to Slide 9 for the underground development and exploration update. COVID-19 continued to significantly impact the Oyu Tolgoi mine in Q3 ‘21. Constraints on personnel numbers on site and domestic and international travel adversely impacted both open pit operations and the underground project. The additional 2021 development cost impact of the known COVID-19 delays up to September 30, 2021, is estimated to be approximately $140 million. As COVID-19 remains ongoing, the company will continue to monitor impacts and update the market as appropriate. Despite COVID-19 challenges, commissioning of Materials Handling System 1 commenced during the quarter. While not required for undercut commencement, a fully commissioned Materials Handling System 1 is required for sustainable production. While Shaft 3 and 4 did not progress during Q3, Shaft 4 sinking recommenced in October, which is a great step forward for the project. Readiness work for Shaft 3 sinking continues to progress. Although Shaft 3 and 4 are not required to support the commencement of Panel 0, they are required to support productions from Panels 1 and 2 during the ramp-up to 95,000 tonnes per day. The commencement of the undercut is a key milestone, and it is critical to ensure that once commenced, the undercut and drill point construction continues unimpeded. From a technical perspective, all lateral development and production drilling to initiate the undercut is complete and supporting infrastructure for Panel 0 production is on track for completion under the current site conditions. Exact timing of the undercut is dependent on the satisfaction of remaining outstanding nontechnical criteria. I’ll now cover exploration progress in the quarter. Turquoise Hill through its wholly-owned subsidiaries, Asia Gold Mongolia LLC, Heruga Exploration LLC and , operates an exploration program in Mongolia on 3 licenses that are not part of Oyu Tolgoi. Despite restrictions on people movements in the Ömnögovi and Dornogovi Provinces in Q2, the exploration team was able to fully complete our planned 2021 field work during Q3. Safety remains our first priority, and appropriate measures will be maintained to protect their exploration team, contractors and the communities in which we work. Reaffirming our commitment to local communities, the exploration team made COVID-19 aid donations to the Mandakh and Khanbogd soums during the quarter. With that, I’ll now hand the call back to Steve.
Steve Thibeault: Thank you, Jo-Anne. Turning to Slide 10. I would like to focus on the key milestones to take us to sustaining production of Panel 0. As we have stated before, from a technical perspective, Oyu Tolgoi has been ready to initiate the undercuts in July 2021. Despite the COVID-19-related constraint, Q3 saw the breakthrough of the conveyor decline, Shaft 4 sinking recommenced and preparatory work for the Shaft 3 sinking has continued. The breakthrough of the service decline is forecast for this month and completion of the Material Handling System 1 and the first on footprint Chute are broadly in line with the definite estimate. The Oyu Tolgoi team from my point of view have done an amazing job. The key outstanding issue facing Oyu Tolgoi is resolving the nontechnical criteria to initiate the undercut. Primary among these is obtaining the approval of all the directors of Oyu Tolgoi Board, the necessary additional investment to advance the underground development. The longer the delay in approving the budget uplift, the greater the risk that Oyu Tolgoi will have to slow down the work on the underground. We continue to reengage with the Mongolian government and Rio Tinto to resolve all the outstanding nontechnical issue that must be resolved before caving operations can commence. To further that process, TRQ and Rio Tinto have tabled with the government a comprehensive proposal that we believe addresses the government key concerns while maintaining economic value of the project for all stakeholders. Before I would turn the line for Q&A, I want to express my appreciation for the effort of the Oyu Tolgoi team. They delivered a solid performance in Q3 under what continued to be challenging circumstances. Thanks to them, we had good production from the open pit, and we’re able to advance elements of the underground with less than half of the number of worker plans. That they were able to do this while maintaining Oyu Tolgoi safety performance is noteworthy and commendable. And with that, we will begin the Q&A.
Operator: Your first question comes from Jackie Przybylowski of BMO.
Jackie Przybylowski: I guess, my first question, I know in the release that you gave some guidance in terms of delays for Shafts 3 and 4 and for Panels 1 and 2. And you’ve given those in a number of months of delay from the previous disclosure in the definitive estimate. I can’t find in the definitive estimate where those time lines were previously disclosed. So could you either tell us when you’re expecting now Shafts 3 and 4 and Panels 1 and 2 or at least what the definitive estimate was envisioning for those? Because I just -- I can’t see it.
Steve Thibeault: Okay. Jo-Anne, do you want to take that question?
Jo-Anne Dudley: Yes, sure. Thanks, Steve. Thanks, Jackie. In the definitive estimate -- sorry, in this investment, we haven’t given the exact date. Certainly, in the technical report, we gave some indications. But ultimately, what’s important about those shafts is that they are supporting infrastructure for the ongoing development of Panel 2, which is the next panel that will be mined following Panel 0 and Panel 1. And so as per the disclosure in the MD&A, we have highlighted the important time frames that drive impact to the ramp up. And so we’ve focused on what was -- what’s important when it comes to the ramp up of the mine to 95,000 tonnes a day, hopefully, that’s helpful.
Jackie Przybylowski: Yes, I guess, I hope you appreciate it. It’s a little difficult for us. You’ve said, so for example, Shafts 3 and 4 have a 9-month delay, but we don’t really know from when to what? It’s just a little bit difficult for us to model that. But -- I mean, if there’s any other kind of color you can give, but I guess we can work with the info that you give is that sort of -- is that that we can have. Okay. Anyway, maybe I’ll just ask you a different question. We saw yesterday your -- one of your shareholders put out an open letter and was asking for some clarity on what your response to the independent review of geotechnical issues -- or sorry, of delays and cost over. Is there any information or response or color that you can give in terms of what Turquoise Hill’s view of that independent report is or what your response to that might be?
Steve Thibeault: Yes, Jackie, what we’re doing, we’re conducting a detailed review of that particular report, okay? And I will add that, that reports a confidential report at the OT Board, but we’re conducting a detailed review. We’re taking a number of different clarification and supporting detail explanation for certain broad conclusion that were in the report. And when we all have concluded this detailed review, we’ll update the market as appropriate.
Operator: Your next question comes from Orest Wowkodaw of Scotiabank.
Orest Wowkodaw: I’ve got a couple of questions, too. First of all, can you walk us through the increase to the funding gap from $2.4 billion to $3.6 billion. And a couple of angles to this, like your liquidity -- estimated liquidity runway of Q3 ‘22 is unchanged, right? So to me, that would suggest that really, the funding gap is beyond what we -- from a time line perspective is further out. But maybe it would be really helpful for us to get some color is what kind of commodity assumptions are baked into this, what kind of production assumptions from the open pit are baked into this for ‘22, ‘23 and I guess, ‘24. Maybe we could start there, if possible.
Steve Thibeault: Okay. Very good. Luke, do you want to take that question?
Luke Colton: Yes. Sure, Steve. Happy to do that. And thanks for the question. There are actually a few questions in there. So I’ll do my best to answer them. And if I miss anything, please do let me know. At a high level, we did have a sort of $1.2 billion increase to the funding gap in the quarter. You’ll remember from our Q2 2021 MD&A that the funding gap at that time increased from $2.3 billion to $2.4 billion, and that was primarily due to a resequencing of ore phases of the open pit mine, and that was largely offset by improved commodity price forecasts. And in terms of commodity price forecast, we -- what we use effectively as consensus pricing at the balance sheet date. So that would be the assumption that we use. For Q3 2021, the primary cause of the increase from $2.4 billion to $3.6 billion is the deferral of revenue caused by the delay to the start of the undercut and sustainable production. There’s also additional COVID-19-related costs of $40 million in the quarter, and that brings the total as of 31st of September 2021 to $140 million. The company has repeatedly and consistently warned that a significant delay to the start of the undercut would have a material impact on project schedule including the timing of sustainable production per panel 0, and that could adversely impact the timing of expected cash flows from the underground, thereby increasing the amount of the incremental funding requirements. And obviously, when that became apparent in Q3 2021, we felt it was important to update the market, and that’s what we’ve done. So let me stop there. Hopefully, I’ve answered most of your questions, but let me know if you’ve got any follow-ups there.
Orest Wowkodaw: Well, I guess what kind of production assumptions are baked into this estimate over the next few years?
Luke Colton: Yes. So we haven’t actually issued production guidance beyond 2021. We are still working to be able to issue our production guidance for 2022. So I’m probably not going to be able to answer your question super specifically. But obviously, the impact of the 6-month delay to sustainable production is having the impact of some of the anticipated underground production out into later periods, and that’s what’s causing -- the main reason anyway that’s causing the funding stopped over the sort of critical period, which is kind of 2022 through 2024.
Orest Wowkodaw: Okay. And then in the release 2 weeks ago, it disclosed your estimate for Panel 0 sustainable production was January ‘23. In the release today, it says just H1 ‘23, and I realize January is an H1. But are we to interpret that, that it’s slipped well beyond January at this point?
Steve Thibeault: Jo-Anne, would you like to give some color to that change that we did?
Jo-Anne Dudley: Yes, no problem. Thank you, Steve. Thank you, Orest. Yes, so we’ve had more time with intimation since the release. And if we look at -- if we look back at the technical report, OTTR20, that broadly the time frames between the key milestones laid out in the OTTR20 remain consistent with the current plan. And so we have had a 6-month delay to the commencement of undercut and a similar delay consequently to sustainable production. So -- but we need to remember, we actually haven’t started the undercut yet. So there does remain some uncertainty here and the disclosure reflects that. It is important that the remaining items preventing the commencement of the undercut resolved as quickly as possible, and the team is very focused on working with our stakeholders to achieve that.
Orest Wowkodaw: Okay. And maybe a final question for me at this point. Do you see any opportunities to improve this funding gap through resequencing of the open pit or perhaps resequencing something in the underground? Is there any opportunities to reduce that $3.6 billion number at this point?
Steve Thibeault: Jo-Anne, do you have a bit of color around the optimization?
Jo-Anne Dudley: Yes, thank you. Thank you, Steve. Yes. So the team are working on developing and investigating optimization opportunities to try to bring metal forward into the funding gap period, and we’re in the preliminary stages of that analysis. It’s important to note that while we’ll do everything we can to accelerate the work, we believe our current forecast is realistic and achievable. It is a normal process for Oyu Tolgoi to look for these opportunities to bring metal forward and there is some time for that to happen. So the optimization work will continue, and we will come back and announce any results of the work when we are able to.
Orest Wowkodaw: Okay. And sorry, one more if I could. Just, Steve, you talked about that you’re reviewing the results of the independent consulting group. I mean that report was submitted 3 months ago. When could we realistically anticipate that your review of your questions and clarification is completed and the market can update there? What’s the timing?
Steve Thibeault: No specific timing, but I could say that we’re getting close to be finalized. And like I said, for us, it’s important to have a good review and have the supporting detail for the explanation. And so we’re working on that. So it should be -- it will come, it will come. I can tell you.
Orest Wowkodaw: But like will it come this year? Or is it likely now a ‘22 event?
Steve Thibeault: My goal would be that it would come this year, okay? But I mean it’s not -- the review is not finished, and that could change, but my wish would be that it’s going to be completed this year, okay?
Operator: Your next question comes from Craig Hutchison, TD Securities.
Craig Hutchison: Just a follow-up question on the financing shortfall of $3.6 billion. Are you guys able to tell us like what time frame that is that shortfall occurs. Is that like a late 2022 or early 2023? Like when do you consider the absolute low in terms of your cash flow requirements.
Steve Thibeault: Okay. Luke, do you want to handle that?
Luke Colton: Yes, sure. So at the moment, we have liquidity that takes us through -- that takes us into Q3 of 2022 next year. So obviously, post that absent any other sort of corrective measures that the funding gap would start to build up in beginning in Q3 2022 and then the sort of critical funding gap period, Craig, is that funding gap sort of builds up, so the $3.6 billion is during that 2022 to 2024 period.
Craig Hutchison: Okay. And in terms of, I guess, the cost overruns, the $1.2 billion. Any way you can kind of break it down roughly in terms of what was attributed to the open pit and what was attributed to the delay to the underground?
Luke Colton: Yes. So again, Craig, for Q3, the majority of the increase was really related to the delay to first sustainable production and that was caused by the delay to the undercut. In Q2, we had some adjustments for things like resequencing of the open pit and obviously pricing assumption. But the main change in Q3 is really the impact of the 6-month delay to the undercut and the impact of that on sustainable production.
Craig Hutchison: Okay. And I think the last one for me...
Steve Thibeault: Sorry, Craig, to interrupt. I’m not sure if you mentioned cash, but there is no, I mean, the only cost increase. I just want to make sure, maybe I misunderstood, but there’s no cost increase. The cost increase, there’s one related to the COVID. But really what it is, it’s a shift in the revenue and the production. So that’s what we’re -- when we come to $1.2 billion increase in the funding, it’s mostly related to revenue. Revenue or shift in the revenue. Maybe I was not -- I missed on your question.
Craig Hutchison: No, no, fair enough. And maybe lastly for me. I mean, I guess, a couple of months back, there were some -- there was an article in the media talking about pretty specific numbers around some of the concessions that yourselves and Rio Tinto are willing to offer the Mongolian government, and they quoted a number of $350 million of additional revenue over the next 3 years in addition to existing royalties and taxes. I was just wondering, does the $3.6 billion financing shortfall, does that account for any concessions to the Mongolian government? Or should we think of that as something on top of that number?
Steve Thibeault: Yes. I will end on that. No, it doesn’t include that. And the reason, Craig, is that these -- we’re in negotiation. There’s a lot of detail to go through. The final outcome of the negotiation is not known yet. So I would say nothing has been included in the current funding that we communicated.
Operator: Your next question comes from Ralph Profiti, Eight Capital.
Ralph Profiti: Steve. The first one is on -- I’m wondering what the significance is of the $5.3 billion, which is the original feasibility study from 2016 CapEx, right? That is a number that we’re going to be reaching very, very soon and is the only thing that’s actually been approved by all parties in the OT LLC. Is there anything that prevents OT from continuing to spend their budget, say, in 2022 without the approval of the incremental budget from the government of Mongolia?
Steve Thibeault: Yes. No, the -- it’s a good point, Ralph, because the $5.3 billion is pretty much committed at the moment, and we cannot spend more than that. Okay? That’s very important. We need to understand that this is a very, very large project. This is a project that is extremely complex, okay? And what we need to do, we need to move that project with the support of all shareholders. We cannot run this project route from a month-to-month basis because you have long term -- in order to make it efficient, you need to have long-term commitment. And what we’re reaching right now, we have -- we’re reaching the end of the budget. And definitely, what needs to happen now is we need to have the additional investment of the $1.4 billion, the one that we talked in the definite estimate, okay? The additional investment required to complete the underground mine. And we need to do that from all of what all shareholders, including the government and Rio Tinto and TRQ, okay? That’s very important. And the reason why is that we need to proceed with the undercut, we need to resolve the regulatory approval. We need also to get support for the discussion for financing. So there’s a lot of things that must be done, and we cannot continue managing on a monthly basis or neither to be -- to go above budget.
Ralph Profiti: Okay. Yes. That makes sense. Okay. My second question is on something you talked about in your commentary, Steve, about -- and it was in a previous question about this debt forgiveness and the accelerated returns for the government of Mongolia. Within that proposal that you just presented, can you maybe outline what is the process for review? And when are you hoping to get some type of an answer?
Steve Thibeault: Okay. As I said, I mean, like I said, Ralph, I’ve been in Mongolia for 6 weeks, I came back for that -- for the quarter and that review here. Just right now, I’m going back. I was quite encouraged by the tone of the discussion, the discussion with the government and also more importantly, the commitments that everyone is having, okay, and having right now. So there’s a lot of discussion even this week, I was involved in discussion. What’s important, Ralph, is that we all have a common objective here. The objective is really to make sure that the underground, and that’s shared by TRQ, Rio Tinto and also the government, the government of Mongolia, okay? And it’s that the objective are continuation of the underground development, the commencement of the undercut and the sustainable production. So we’re committed there. And in terms of proposal, I mean, the proposal from our point of view really address the key concern that the government had, okay, which were mostly around the debt and when they would get dividend. But it always change. And Ralph, you would know, a negotiation is not finished until it’s finished, and we’re still having discussions on the forms and different elements on that one. So I cannot commit, I cannot give you the details, but what I can tell you is that we are and also the government, we’re all focusing to move forward, and we are working very hard to make it happen.
Operator: Your next question comes from Dalton Baretto, Canaccord.
Dalton Baretto: Most of my questions have been answered, but I’m hoping I can follow up on a couple of Ralph’s questions there. So first of all, just on the $5.3 billion versus the $6.75 billion, is there an option at all to maybe approve a small portion of the increase, so you don’t have to go tools down on November 30?
Steve Thibeault: Yes. It is a good question, Dalton. But like I said, yes, that’s a possibility, okay? We could do that, and the government and the company could decide that for -- in order to continue on the discussion of the negotiation to do that. So yes, that’s an option. However, it’s not something that we can do on a perpetual basis, okay? Dalton, it’s like building your house and you’re just approving a weekly budget. You would have problem to -- eventually to coordinate all the activities. So in other words, yes, it can be done, but it’s not the best and favorable solution. And what we’re looking eventually is to really to get a support for the entire budget and be able to move with the -- on the cut as well.
Dalton Baretto: Understood. And then just maybe in terms of what you have disclosed around the negotiations, Ralph mentioned the debt reduction. And then there’s also some talk about accelerated returns on the debt reduction. So with the 2016 agreement, part of that was knocking down the shareholder loans from $7 billion to $2.8 billion. Are we talking kind of the same order of magnitude here?
Steve Thibeault: Dalton, I’m not commenting on negotiation. I’ll be able to -- I hope I’m going to be -- I wish I’ll be able to tell you in a couple of weeks. And I’ll give you all the detail there. But in the meantime, things are changing. Things are going so I’m not commenting on the detail. Okay?
Dalton Baretto: Okay. That’s understandable. So maybe I’ll move on then. This consultants report that you guys are reviewing, how much of a role does the resolution of some of these inconsistencies that were identified play in terms of the government actually agreeing to a deal?
Steve Thibeault: I mean it’s really at the OT Board that is being -- it is something that needs to be resolved, I admit. But without going to the detail, this is something that is being handled by the OT Board, and that’s up to the Board to decide on the details there.
Dalton Baretto: Okay. And then just maybe one last one. I’ll ask you the same thing I asked you last time. If you do come to a deal with the negotiating committee, does that proposal have to be ratified by Parliament?
Steve Thibeault: And I’ll have the same answer as I did last time, Dalton, I think that I’ll leave that to the government exactly how they want to do that. I would say that’s a possibility that they won’t do that. But I’m sure that if they do -- they will -- they’re confident that the process will be quite fast. But I cannot comment on how they will do it.
Operator: Your next question comes from Orest Wowkodaw, Scotiabank.
Orest Wowkodaw: Just following up again on Dalton. But just following on the line of questions that Dalton and Ralph were asking you. Like from an outsider perspective, it feels like there’s little progress in terms of these negotiations with the government to deal with the nontechnical criteria here. And where -- I’m trying to get a better understanding of, I mean, how long can this limbo continue for Rio Tinto and Turquoise Hill decide that you can’t keep the project in this holding pattern and we need to do a tools down type of statement like we saw in 2015. Like is that a real possibility?
Steve Thibeault: Okay. Two things. Orest, you mentioned little progress. I would say that -- I hope my message is clear that the -- there is basically a strong commitment and also a lot of work that is being done at the moment. So if I take the government is very generous towards this time. They’re taking a lot of time on that. They have different committees. So this is a difficult negotiation and Orest, you wouldn’t definitely agree with me on that one. And it’s -- I would not say a little progress. It is -- I mean, it’s an intense negotiation at the moment, okay? How long can we stand at that process? I mean my answer is I cannot be clear on that. We are -- we are at the -- we are on the inflection point here, okay? This is -- we are at the time where we spent the money that we had -- not spend, I’d say committed the money that we had approved or was approved. We cannot continue that project. And I would say a decision unless there’s a partial or full budget update. We cannot continue managing that budget like that. And we don’t have -- we won’t have the rights. So a decision needs to be made. It needs to be made now, okay? That’s where -- we’re at the point where we need to make a decision and move on.
Orest Wowkodaw: And if there is no...
Steve Thibeault: Towards your what we need to do, we need to have an agreement, not the decision. We need to have an agreement, and we’re working extremely hard to make it happen. That’s what I wanted to say exactly.
Orest Wowkodaw: Okay. Has there been any agreement on any of the major issues so far that you can comment on? Is it all or nothing type of agreement?
Steve Thibeault: If you, Orest, you know that’s in negotiation, you’d start different points, you are doing on the points, you go further, you come back. I cannot comment until it’s finished.
Orest Wowkodaw: Okay. Steve, just to clarify what you’re saying, like you say you’re at an inflection point here. So does that imply that if there is no agreement in any kind of timely manner that we could see a tools down type event ahead? Or am I misinterpreting what you’re saying?
Steve Thibeault: No. I would say that if we cannot reach an agreement in the near future, we’ll be forced -- we’ll need to consider very unattractive option and that includes the risk of having to start to suspend some work because we won’t have the budget always.
Operator: Your next question comes from Jackie Przybylowski, BMO.
Jackie Przybylowski: I’ll try not to beat a dead horse here, but I think Dalton raised a good point about the -- whether this needs to be ratified in Parliament. And to go back to your response to Orest that you’d need to see an agreement fairly soon in order to keep progress on construction. What do you define an agreement does? And if the Mongolian government decided this need to be ratified by Parliament, would you need that whole process to be finished before you’ve considered that you’ve reached an agreement?
Steve Thibeault: No. I mean, it’s -- how do I explain to that, Jackie. -- there are definitely key points that needs to be resolved, okay, when we need to -- we need to agree to proceed with the additional investment of $1.4 billion, okay? So going from that $5.4 billion to the 6-point-something, $6.7 billion, I think that we talked before. So there’s a decision made to me on that one. So the project team can start to commit the money. We need also to have support financing because we’ll need money. And so that’s pretty clear. There’s still some regulatory approval that needs to be done, okay? But it all depends. I mean, we won’t -- we are in that situation right now. We need to -- there’s a pressing moment to make it happen, okay? And definitely, I’m hoping that the government will be in a position to approve quickly -- to approve quickly. And now and Jackie, well, depending on circumstances, we’ll adjust, but the uplift of the investment -- of the additional investment, it’s a key to be able to move the support. So the element I mentioned are very important that we see the government moving on those things. And like I said, I hope that they’re going to be able to approve quickly.
Jackie Przybylowski: So I mean that’s a formal legally binding approval, not an informal handshake sort of approval. Is that right?
Steve Thibeault: That’s what we want, that’s what we want, but there’s always shades of gray in these things, and I think that one will get there, we’ll have to evaluate it. But definitely, a formal agreement because the key point here, we want to be able to make that investment and start -- and have the regulatory. The elements out there, we need those one, okay, to be able to move so if a question of ratification or approval, I mean, it will depend what form and what -- where we stand at that time. But definitely, what we want is assurance that we can move safely with that project once we make -- once we make the additional investment.
Operator: Your next question comes from Richard Hatch, Berenberg.
Richard Hatch: I just wonder -- I’ve got a couple of questions. The first one, I wonder if you may be able to give us any kind of order of magnitude on the impact of the medium term production profile based on kind of the previous technical report that we’ve got to kind of just off the back of these delays, whether you were unable to give us that. And then just on that, as you kind of bringing those next panels into production into the medium term. Jo-Anne, how comfortable are you with the geotechy going to have to make any move, kind of mine plan revisions with regards to support? And then secondly, I’m sorry, I am flogging the dead horse on this one, but just so I can get it right in my own head. Is the kind of the very basic order of play, you agree a fiscal term straight, you agree a budgetary with the various stakeholders in the project. You can then take that to the board of OT LLC that gets approved and then you can kind of take the project forward and we can kind of progress from there. Is that the kind of the basic way that you’re looking at it, get the agreement signed and agreed with the government, then agree on the OT LLC level and then kind of develop the undercut?
Steve Thibeault: Yes. Richard, I’ll answer the second one and Jo-Anne will do the first. On the comment on -- definitely the increase in the investment of $1.4 billion that we need at the moment is definitely an OT LLC approval. That’s what it is. And the directors need support from -- support all directions from the government. So you can understand what would happen in this case. So that’s only what happened. Jo-Anne, you want to answer the production deal and the production?
Jo-Anne Dudley: Yes, no problem, Steve. Thank you, Richard, for the question. So just in terms of the impact on the ramp up. So we would -- so you’d be familiar that in the technical report in Chapter 16, there’s a production profile. And so we would see the disclosure is announcing an alteration to that profile ramping up to the 95,000 tonnes a day post Panel 0 ramp up. And so we’re seeing that overall ramp up is taking longer in the order of the delay to those -- to the commencement of those panels. Now there’s ongoing work in this. And so it is something that as we understand the situation more, as shafts are in full progress, there will be a better understanding of where we’re heading to a better degree. But that’s probably the best I can provide at the moment. There will be ongoing optimization efforts to try to do more with the same ventilation constraints. And we will provide any updates we can as they materialize. In terms of geotech and further revisions, with respect to support, I don’t know that support is where we would see major evidence. And certainly, we’ve continued to drill and collect more ore body knowledge as is appropriate with a project of this size. And the drilling in Panel 2 North is complete, and it’s showing overall less structure than we saw in Panel 0. But this is still a deep cave and we need to try to minimize risk as we head into production. And so there are mine design refinements that are going on as noted in the MD&A. And that work, we will advise if any material updates to that as they crystallize. So we do expect some mine design refinements, but it’s all about minimizing risk as we head into production and into the ramp up. So hopefully, that’s useful, Richard.
Operator: Ladies and gentlemen, as there are no further questions on the phone lines, we will conclude today’s conference call. We thank you all for participating and ask that you please disconnect your lines. Have a wonderful day.
