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Edited Transcript of TRQ.TO earnings conference call or presentation 29-Jul-20 11:30am GMT

Q2 2020 Turquoise Hill Resources Ltd Earnings Call

VANCOUVER Aug 31, 2020 (Thomson StreetEvents) -- Edited Transcript of Turquoise Hill Resources Ltd earnings conference call or presentation Wednesday, July 29, 2020 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jo-Anne Dudley

Turquoise Hill Resources Ltd. - COO

* Luke Colton

Turquoise Hill Resources Ltd. - CFO

* Roy McDowall

Turquoise Hill Resources Ltd. - Head of IR & Corporate Communications

* Ulf Quellmann

Turquoise Hill Resources Ltd. - CEO & Non-Independent Director

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Conference Call Participants

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* Hayden Bairstow

Macquarie Research - Analyst

* Oscar M. Cabrera

CIBC Capital Markets, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Colin, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Turquoise Hill Resources Second Quarter 2020 Results Conference Call. (Operator Instructions) After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Roy McDowall, you may begin your conference.

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Roy McDowall, Turquoise Hill Resources Ltd. - Head of IR & Corporate Communications [2]

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Thank you, Colin. Good morning. I'm Roy McDowall, Head of Investor Relations and Communications. Welcome to our second-quarter 2020 financial results conference call. On Tuesday, we released our second-quarter 2020 results press release, MD&A and financial statements. These items are available on our website and SEDAR. With me on the call are Ulf Quellmann, our 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 our MD&A for the 3 and 6 months ended June 30, 2020.

And now I'd like to turn the call over to our Chief Executive Officer, Ulf Quellmann.

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Ulf Quellmann, Turquoise Hill Resources Ltd. - CEO & Non-Independent Director [3]

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Thank you, Roy, and good morning to everyone. Thanks for joining us for our second-quarter 2020 earnings call. During the first half of this year, all of our lives have really changed dramatically as we've witnessed the unprecedented impact the COVID-19 pandemic has had on our health and our livelihoods. And as much as we remain hopeful that a vaccine will be developed quickly, until such time that this happens, we have to get used to a different environment that may well have changed permanently. Of course, change always brings new opportunities too. In the meantime, though, we'll have to adapt, and we hope that you and your families are healthy and safe.

As usual, on our quarterly calls, you'll be hearing not just from me but also from our Chief Operating Officer, Jo-Anne Dudley; as well as from Luke Colton, our CFO.

Turning to yesterday's second-quarter update both from an operations and underground development perspective, the team has delivered an exceptional quarter, notwithstanding and especially in view of the challenges presented by the COVID-19 pandemic. The open pit operations continued uninterrupted through the second quarter, producing 36,500 tonnes of copper and 31,200 ounces of gold. This excellent level of productivity has occurred against the backdrop of a continued best-in-class safety record. You know that safety remains Oyu Tolgoi's top priority. You're also seeing the linkage between maintaining high levels of safety on the one hand, and delivering operational excellence on the other hand. A high level of employee engagement, mature systems and processes as well as a culture of safety are key ingredients to deliver operational excellence. And that is what you're seeing at Oyu Tolgoi.

As a result of ongoing optimization work at our open pit, we've increased our full-year gold production guidance to a range of 155,000 to 180,000 ounces, reflecting initiatives to bring forward a higher gold-bearing ore into 2020. This increase has a favorable impact on our cost structure, and we've consequently decreased our full-year C1 cash cost guidance to $1.60 to $2 per pound of copper. Our full-year copper production guidance remains unchanged.

Although we've experienced slowdowns in certain areas, progress on the underground development has continued as we have been able to cross-train our highly skilled local workforce and adapt to the new realities of operating in the COVID-19 environment. During the quarter, the team used remote presence technology to successfully complete routine maintenance at Shaft 2, and payloads have returned to planned levels since. In addition to the production and underground achievements, we also completed the updated Panel 0 mine design, and we successfully amended the power sector framework agreement to prioritize a state-owned and state-funded power plant.

Finally, as of June 30, we finished the quarter with $1.5 billion of liquidity, which under current projections is expected to be sufficient to meet the requirements of the company, including its operations and underground development into early 2022.

Since the escalation of COVID-19 back in January, the Oyu Tolgoi team has been working closely with local and federal authorities to ensure the health and safety of our workforce, their families and the local communities. The Government of Mongolia has taken very decisive steps very early on in the crisis to help contain the spread of the virus. And indeed, the situation in Mongolia continues to remain stable.

Our sales increased in the second quarter with the easing of trucking restrictions within China and improved border access. The underground development has continued to progress, although it has been impacted by COVID and the associated travel restrictions as well as other restrictions that have been imposed in order to contain the spread of virus. The Oyu Tolgoi business resilience team continues to work with the Mongolian authorities to monitor and prevent the possibility of any COVID-19 cases occurring.

As I touched on earlier, the second quarter was another excellent quarter from an open pit productivity perspective. Despite COVID-19, the mill continues to operate at above-nameplate capacity levels, processing 106,000 tonnes of ore per day over the quarter. As a result of transitioning into higher-grade material as part of our mine optimization efforts, we experienced improved recovery rates, increased gold production and lower C1 cash costs. We expect this to continue for the rest of 2020 and as a result, we've increased our full-year gold guidance -- gold production guidance and also lowered our full-year C1 cash cost guidance.

Safety is our highest priority. What do we mean by that? Well, it means that we are clear that all of our employees and contractors have the right to work in a safe environment and to expect to be able to go home safe to their families at the end of the day. For the first 6 months of 2020, our All Injury Frequency Rate increased slightly to 0.22. This marks a slight increase compared to last year's performance; however, it is still a very creditable performance, and the Oyu Tolgoi team is absolutely focused on learning from every incident and continue to review and revise its operating and safety policies and procedures to ensure that we maintain our best-in-class safety record.

So I did highlight our strong track record in delivering on our commitments. Over the past 5 years, we've met or exceeded both our copper and gold production guidance to the market. Our increased 2020 gold production guidance has not impacted our 2021 outlook, and we look forward to benefiting from meaningfully higher gold production as we target higher gold grade ore as a result of our mine optimization work.

Let me now turn the call over to Jo-Anne Dudley to take you through the underground development and the new Panel 0 mine design. Jo-Anne?

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Jo-Anne Dudley, Turquoise Hill Resources Ltd. - COO [4]

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Thank you, Ulf. Hello, everybody. Please go to Slide 9. Before turning to the technical report, let me provide you with a snapshot of progress elsewhere. During the quarter, ordinary course shortening of the newly commissioned Shaft 2 ropes was completed using remote presence technology with payloads returning to plan. Due to restrictions arising from COVID-19, Shafts 3 and 4 remain in care and maintenance. We continue to work towards a solution to enable specialist shaft sinking personnel to return to site.

Works on some underground materials handling infrastructure has slowed due to restrictions on the number of person on-site to manage COVID-19 related risk. We have, however, seen Primary Crusher 1 return to 24-hour shifts following a period of day shift only. The project continues to review the impacts of COVID-19 on the underground development with the program of work currently underway.

Underground lateral development had another record quarter with average monthly advancement of 1,831 equivalent meters compared to 1,822 in quarter 1. Good progress also continues on the conveyor decline with just under 1 equivalent kilometer of lateral development in the quarter. The restrictions imposed on total personnel numbers at site may require redeployment of lateral development crews on to other critical path activities in Q3 2020 in order to minimize any potential COVID-19 impacts.

Please turn to Slide 10. Oyu Tolgoi has completed and submitted a new feasibility study, OTFS20, to the Government of Mongolia, with TRQ anticipating release of an updated technical report in the third quarter. The technical report will incorporate impacts of the refined Panel 0 mine design on schedule, sustainable production and capital cost estimates as well as an updated mineral reserve and mineral resource statement. The key highlights are sustainable first production is now targeted as February 2023 with a range of October 2022 and June 2023. Total development capital costs of $6.8 billion with a range of $6.6 billion to $7.1 billion as a result of the inclusion of structural pillars to protect ore-handling infrastructure, reclassification of mineral reserves to mineral resources. And our project manager advises us we can anticipate that a proportion of these pillars will be recoverable with additional studies currently under way.

Lateral development and construction of the underground material handling system continues to progress favorably towards first sustainable production from Panel 0 despite the challenges of COVID-19. It's important to stress that the ongoing impacts of COVID-19 are not yet known and remain under review by the project; therefore, they will not be included in the technical report. The next phase of design studies ongoing includes a review of design options for Panel 1 and 2 to reflect Panel 0 learnings in addition to a program of work to assess the impacts of COVID-19.

I'll be available for questions. But in the meantime, Ulf, would you like to continue?

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Ulf Quellmann, Turquoise Hill Resources Ltd. - CEO & Non-Independent Director [5]

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Yes. Thanks very much, Jo-Anne.

Before I turn you over to Luke, let me provide you with just a quick update on our discussions with the Government of Mongolia. If you turn to Slide 11, as you know, Oyu Tolgoi has an obligation to secure a long-term domestic source of power for the Oyu Tolgoi mine. On the 20th of June, Oyu Tolgoi and the Government of Mongolia reached an agreement to jointly prioritize and progress a state-owned and state-funded power plant at Tavan Tolgoi.

To that end, the Power Sector Framework Agreement that was signed in December 2018 has been amended accordingly, and it contains a number of key milestones including the reaching of an agreement with the current power provider, the Inner Mongolian Power Corporation, to extend the existing power import agreement by the 1st of March next year; the signing of a PPA, a power purchase agreement, for the supply of power to the Oyu Tolgoi mine by the 31st of March next year; and finally, the commencement of construction of no later than the 1st of July next year with the commissioning within 4 years thereafter. If some of these milestones cannot be met, then Oyu Tolgoi is entitled to select from and implement the alternative power solutions specified in the Power Sector Framework Agreement, including an Oyu Tolgoi led coal-fired power plant or a primary renewable space solution.

If you turn to the next page, I'll provide you just a very brief update on some of the other aspects of our dialogue with the Government of Mongolia. The tax dispute remains unsettled for the time being. You might recall, we've informed the markets on prior calls that on the 20th of February, Oyu Tolgoi had proceeded with the initiation of a formal international arbitration in accordance with the dispute resolution provisions of the investment agreements. That continues to be the case. We remain, of course, of the opinion that Oyu Tolgoi has paid all taxes and charges required.

And with regards to progressing the 2019 parliamentary resolution in relation to the Parliamentary Working Group report, we have had engagement in the second quarter of this year with the working group that had been put together by the government. The focus and the progress of these discussions centered largely around power, and we've just provided you with an update on that. Following last month's parliamentary elections, we are now looking forward to reengaging with the new government in order to further progress the issues that have been identified in the resolution.

Let me now turn the call over to Luke, our CFO, to take you through our financial highlights. Luke?

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Luke Colton, Turquoise Hill Resources Ltd. - CFO [6]

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Thanks, Ulf. Hello, everyone. If you can please turn with me to Slide 13, I'll give you a summary of our key financial metrics for Q2 of 2020. Starting up with revenue, which decreased 27% from Q2 of 2019, and that's principally due to the 51% decrease in gold production together with the 7% decrease in copper production and those result mainly from the transition of Phase 4a to lower grade Phase 4B ore in the Southwest area of the pits. In addition, the average price of copper fell by 12%, although that was favorably offset by the impact of a 31% increase in the average price of gold. These significant price fluctuations were primarily due to the impact of COVID-19 on global commodity markets. The reduction in revenue contributed to lower cash generated from operating activities, which was also impacted by contrasting working capital movements Q2 2020 when compared to Q2 2019.

Working capital in Q2 2020 was negatively impacted by an increase in trade receivables driven by the impact of rising copper prices on their revaluation at the end of the period. Trade payables decreased through Q2 2020 compared to an increase through Q2 2019, and that's primarily as a result of lower capital expenditure in Q2 when compared -- in Q2 2020 when compared to Q2 2019. The significant decrease in gold production in Q2 2020 versus Q2 2019 was also the primary reason for the increase in C1 cash costs as the decrease resulted in lower gold revenue credits. The period-on-period increase in all-in sustaining costs was not as significant as the increase in C1 cash costs, and that's mainly due to the offsetting impact of lower open-pit sustaining capital and lower royalty costs due to the lower sales revenue.

If I can ask you to now turn to Slide 14, you'll see that Turquoise Hill has $1.5 billion of available liquidity, which under current production is expected to be sufficient to meet the requirements of the company including our operations and underground development, into early 2022. The expectation has improved due mainly to lower estimated LIBOR rates on project finance interest payments, continued focus on operating cost savings and other optimization efforts as well as updated assumptions regarding the impacts of COVID-19. As a result of this improvement in liquidity, we decided to further -- we decided to defer further discussions with Rio Tinto regarding possible interim funding arrangements.

Looking to the longer term, Turquoise Hill's liquidity outlook will continue to be impacted either positively or negatively by various factors. Many of these are outside the company's control. Based on the latest cash flow projections, our base case incremental funding requirement is expected to be $3.6 billion, and our minimum estimate is expected to be at least $3 billion. These estimates incorporate principal repayments of $1.9 billion as well as interest and similar charges of $1.1 billion. I do not assume any reprofiling of existing principal repayments or any additional external financing.

We'll continue to progress our engagement with several key stakeholders, including Rio, to address the longer-term funding requirements of Oyu Tolgoi. Together with our financial and other advisers, we have already considered, evaluated and prioritized a range of financing options including a possible reprofiling of OT's existing debt as well as the possibility of raising additional financing by OT. Each of these options, if implemented, would have the effect of reducing the incremental funding requirement. However, successful implementation of these options, it is subject to achieving alignment and agreement with the relevant stakeholders, including with Rio Tinto, existing lenders, any potential new lenders and the Government of Mongolia and also -- as well as market conditions and other factors.

As we disclosed in our MD&A for the quarter, there are many factors that could impact the quantum of the incremental funding requirements. These include, but are not limited to, the actual amount of development capital required, the timing of sustainable first production and associated ramp-up profile, the manner in which the amended PSFA is implemented, the impact of COVID-19 as well as the outcomes of the definitive estimate and the studies for Panels 1 and 2.

And with that, I am happy to hand the call back to you, Ulf.

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Ulf Quellmann, Turquoise Hill Resources Ltd. - CEO & Non-Independent Director [7]

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Thanks very much, Luke. If you are able to turn to the last page, Page 15, please. The ability of Oyu Tolgoi to continue operating uninterrupted through the COVID-19 pandemic whilst many other mines around the world have had to either shut down or curtail operations, is a testament to both the Oyu Tolgoi team as well as the Mongolian people. Whether it's maintaining best-in-class safety and productivity levels or using remote technology to work, especially to oversee and resolve technical issues in the underground development, our workforce at Oyu Tolgoi continues to excel quarter-after-quarter. Although Mongolia was early to respond to the pandemic and has one of the lowest number of cases in the world, we remain diligent and continue to work with both the local and federal authorities to prioritize the health and safety of the Oyu Tolgoi team and the wider community.

Key milestones achieved during the quarter included the announcement of the updated mine design for Panel 0, an agreement to prioritize and progress a state-owned and state-funded power plant, an increase in our 2020 gold-production guidance and extended liquidity into 2022. It's been just over a year now since we've announced the revised underground cost and schedule range. And since then, we've delivered on the key milestones that we've set out thus far for our shareholders.

We're now in the process of completing the new technical report for 2020 that we expect to publish in the third quarter. This report will provide shareholders with additional data points and information, which will highlight once again the quality of the Oyu Tolgoi orebody and the value proposition for investors. In addition, the updated data will greatly assist in our ongoing efforts to advance our long-term funding strategy. Although COVID-19 will continue to challenge our underground development, we maintain our focus and commitment to deliver on the key value drivers that are instrumental in unlocking the value embedded in this world-class asset, Oyu Tolgoi.

So this concludes our prepared remarks. Let me now turn the call back to the operator for any questions. Operator, over to you, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) So your first question comes from Hayden Bairstow of Macquarie.

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Hayden Bairstow, Macquarie Research - Analyst [2]

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Just a couple from me. Just on the underground, I mean, Rio sort of talked about a little bit at their result as well tonight, I mean, just on -- it appears you can start getting people in -- back into Mongolia, but it's like a 5-week quarantine or something. I just want to understand, is that sort of starting to happen now? So you're only a month or so away from getting some decent people back on-site to start Shaft 3 and 4, that sort of stuff? And also just on the Panel 0 redesign, I mean, just trying to understand, just the scope of where the ore is? I mean how long would it be before you could get back in and get those pillars out? Is it sort of 10, 15 years away? I just want to understand how far away it would be to get the rest of that sort of parts of the high-grade out of the mine?

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Ulf Quellmann, Turquoise Hill Resources Ltd. - CEO & Non-Independent Director [3]

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So thanks for the question, Hayden. Maybe what we'll do, maybe Jo-Anne, you can take the second question. Let me address the first question, Hayden, in relation to getting people into country. You're right, what you referred to earlier. So there has been a charter flight from Australia into Mongolia early last week, where we managed to get people in from Perth directly into Mongolia. So that's good news, and that's important because what it allows us to do effectively, Hayden, is make sure that people that are in-country for a long, long time to replace the roster and get some people out back home to their families and fly other expatriates in to replace them and effectively maintain the current levels of coverage that we have in country. The quarantine timelines that you're referring to, Hayden, you're right, they are very long. So first of all, we are pleased to note that the Mongolian authorities have enabled us to actually get people into country, in this case from Australia. We're pleased with that level of cooperation.

But as you say, it's about 5 weeks of quarantine in Mongolia and then, upon return back to Australia, there's another 2 weeks. So it's -- these are long timelines of quarantine. And therefore, you wouldn't expect these kind of flights and changes to happen all that frequently only because you're losing too much time in transition because people are being tied up in quarantine. But the good news is that that flight has taken place. And Armando Torres, who's the CEO of Oyu Tolgoi, you know him, he and the team are looking for ways to do this on a more regular basis.

At this stage, we're limited to do this from Australia. At this stage, we are not able to extend this to other countries. We talked on previous calls about South Africa, for example, where some of our key personnel is coming from. That at the moment is not an option. But having said that, we're obviously pleased to be able to have at least started a limited service from Australia into Mongolia. So I hope, Hayden, that answers your first question. Jo-Anne, are you able to address the second question?

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Jo-Anne Dudley, Turquoise Hill Resources Ltd. - COO [4]

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Yes, sure. Thank you for your question. So in terms of the pillar recovery considerations and the timing of those, at the moment there's a program of work underway to look at a variety of options for recoveries of pillars and for optimizing Panel 1 and 2 -- the mining of Panel 1 and 2, to incorporate risk reduction from the learnings of Panel 0, but also the inclusion of those pillars gives us the opportunity to have some independence between the mining areas. And so we are reviewing our options and with the variety of options under consideration, the timing of that material differs between options, because in some options, there may not be pillars, there may be part of a panel at an alternate elevation. And as a result, the different options have different answers when it comes to the recovery of that material, with some being sooner or later.

The evaluation of those options is really looking at the practical timing. Well, one of the key factors is the practical timing of grade and value. It's an important consideration and so the opportunity to recover that higher-grade material as early as possible is certainly part of the criteria that is being considered. So I can't necessarily definitively answer your question, but I can say that it is part of consideration and the different options have a variety of answers when it comes to the timing of that material.

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Hayden Bairstow, Macquarie Research - Analyst [5]

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And that includes, I guess, deepening of the shafts and everything, depending on where these new extraction levels are for Panel 1 and 2?

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Jo-Anne Dudley, Turquoise Hill Resources Ltd. - COO [6]

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I'm really pleased you asked that question actually because as far as the options we're looking at, we're really not looking at really large changes. We're really just talking about finessing these elevations. And so Shaft 1 to 5, including Shaft 2 [material-]handling is all absolutely reusable and usable in their current state. There's no need for deepening of that kind of infrastructure for the options that we're considering. The Primary Crusher 1 and the materials handling system up Shaft 2, it's all absolutely able to be used. Some of the further ore-handling infrastructure closer to the footprint, it would obviously need to alter with elevation. But essentially, a lot of those mainline areas for ore handling are usable for all of the options that we're looking at. So no, we don't need to deepen any shafts. It's all about the ore-handling infrastructure close to the footprint.

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Hayden Bairstow, Macquarie Research - Analyst [7]

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Okay. Great. And just one for Luke. I didn't want to leave you out, Luke. Just on the power station, I mean, if you guys are the main offtake partner and/or PPA partner and consumer of the power, under the lease accounting rules, doesn't the debt end up on your balance sheet or the liability end up on your balance sheet anyway, and it gets included as debt whether you own it or build it or the government does? Just trying to understand how that all works.

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Luke Colton, Turquoise Hill Resources Ltd. - CFO [8]

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Yes, Hayden, thanks for not leaving me out. It's much appreciated. Yes, listen, it's a good question. It's also probably a bit early to answer that question. You do have some familiarity it seems with the lease accounting rules. So what you're raising is a valid consideration, but it does ultimately matter -- or the ultimate determination anyway is really based on -- will be based on the PPA that gets negotiated in the terms of that PPA as well as final decisions. You're very right that OT is very likely to be the primary -- possibly the only significant off-taker, so that will need to be taken into consideration. But it does ultimately depend on not just that but some of the other terms that will get negotiated. So you raised an issue we're definitely keeping it in mind, and at the right time we'll be able to be a bit more specific there, but it will depend on -- it will be something that's determined as the PPA itself is negotiated.

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Operator [9]

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Your next question comes from Oscar Cabrera of CIBC.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [10]

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I was just wondering -- or let me first start with -- by saying that we appreciate the increased transparency that you guys have. That's really helpful for our analysis. And the first question is with regards to the increasing gold production in 2020 not affecting 2021. I was wondering if you can provide color on what this entails? Is it that you have better grade reconciliation, higher grades and therefore, even though you pull higher-grade forward, it didn't affect 2021?

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Ulf Quellmann, Turquoise Hill Resources Ltd. - CEO & Non-Independent Director [11]

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Oscar, thanks for the question, and thanks for your comment earlier about providing good transparency and clarity. Jo-Anne, is that something that you're happy to take on, Oscar's question on why does gold bringing forward into 2020 not affect 2021, what's driving that?

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Jo-Anne Dudley, Turquoise Hill Resources Ltd. - COO [12]

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Yes. Yes, sure. Thank you, Ulf, and thank you for your question, Oscar. So you talk about reconciliation. And I would say we continue to see consistent performance from a reconciliation perspective at site and we aren't seeing that as a driving force. At this point, the mine-planning team did some fantastic work on optimization of sequence and redesign and looking at resources to advance the pit faster than was anticipated, which has brought gold into 2020. And that higher-grade zones, the mining of that extends all the way through 2021. And so really it's about the geometry of the ore body and the rate we're mining, and that is what's driving the length of that period. So we've looked into 2021 with the current plan, and we're seeing the consistency of that grade out into 2021.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [13]

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Okay. Then Ulf, we're also happy to see that you will provide a ramp-up schedule in your technical report. What I was wondering, though is, with Shaft 3 and 4 still in care and maintenance, how long -- if this continues, how long before the sustainable -- not the sustainable production, sorry, but production thereafter would be affected? I don't know if you can provide any color whatsoever or would you wait until the technical report is out?

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Ulf Quellmann, Turquoise Hill Resources Ltd. - CEO & Non-Independent Director [14]

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I'd like to say wait until the technical report is out, Oscar. You just gave me that opening, but maybe I'll -- I mean, Jo-Anne, are you willing to provide a little bit of color? I mean the technical report is pretty much around the corner, Oscar, but maybe, Jo-Anne, if you're willing to maybe provide a bit of context around Shaft 3 and 4 and the role they play and what they are critical for, maybe that would be helpful.

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Jo-Anne Dudley, Turquoise Hill Resources Ltd. - COO [15]

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Yes, certainly, Ulf. Thank you. Yes. So as you know, the technical report will be coming out, as we have noted and we should -- we need to remind people that COVID-19 impacts aren't included in the technical report. It's an active and ongoing situation. And as we've mentioned, there is ongoing work at site to try to move as much of this work forward as we can. But ultimately, although we're making good progress towards getting ready for sinking, it's not likely that we'll see major movements until there is more freer personnel movement in terms of travel and we can get specialists back to site. And so the team are working on understanding what the impacts of COVID-19 might be, and we anticipate that we may be able to say more about that towards the end of the year, as we complete the definitive estimate. But for the long-term production of the mine, both Shafts 3 and 4 are required to provide ventilation. And so they are critical infrastructure for us.

We continue to make good progress towards first sustainable production from Panel 0 and with the 3 shafts that we have and with construction of the materials-handling infrastructure. But Shafts 3 and 4, we will need to continue to assess as we go forward, the impacts of COVID-19 on the longer-term production ramp-up. We're just -- it's just too early to be able to provide a definitive answer there.

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Operator [16]

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(Operator Instructions) Okay. So there are no further questions at this time. Please proceed.

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Ulf Quellmann, Turquoise Hill Resources Ltd. - CEO & Non-Independent Director [17]

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Thank you, operator. We will then wrap up the call very shortly. I would say, as a high-level summary, I think you've seen that the second quarter has seen very strong performance and progress on many fronts, whether that is operational performance in the open pit or whether it's progress in some of the other key value drivers, whether it's progressing the underground, whether it's progressing with power or providing more visibility and time and flexibility on funding.

Of course, we'll have to continue to live with the impact of COVID for some time. It's important for us and for the business that we don't get distracted by that. We will stay focused and focus on doing the things that we can control. And of course, OT continues to be an outstanding asset. And we, as a management team, together with the Oyu Tolgoi management team, we will put all our energy towards working with our key stakeholders and partners, and that includes Rio Tinto, Government of Mongolia, any capital providers as well as any other suppliers or consultants, in order to successfully deliver on the key milestones that we've set out for you.

So with that, let me thank you for you joining the call this morning. Thank you for the questions, and we'll finish the call with that. Thank you very much, everyone. Bye-bye.

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Operator [18]

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Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.