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Edited Transcript of TRQ.TO earnings conference call or presentation 13-Nov-19 1:00pm GMT

Q3 2019 Turquoise Hill Resources Ltd Earnings Call

VANCOUVER Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Turquoise Hill Resources Ltd earnings conference call or presentation Wednesday, November 13, 2019 at 1:00:00pm 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 & Communications

* Ulf Quellmann

Turquoise Hill Resources Ltd. - CEO & Director

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Conference Call Participants

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* Craig Hutchison

TD Securities Equity Research - Research Analyst

* Dalton Baretto

Canaccord Genuity Corp., Research Division - Analyst

* Orest Wowkodaw

Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals

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Presentation

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Operator [1]

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Good morning. My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Turquoise Hill Resources Q3 2019 Financial Results and Overview of Operations Conference Call. (Operator Instructions) Thank you. Mr. Roy McDowall, Head of Investor Relations, you may begin your conference.

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

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Thank you, Jessica. Good morning. I'm Roy McDowall, Head of Investor Relations and Communications. Welcome to our third quarter 2019 financial results conference call. Yesterday, we released our third quarter 2019 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 forward-looking statements section of the annual information form dated March 13, 2019, supplemented by our MD&A for the 3 months and 9 months ended September 30, 2019.

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 & Director [3]

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Thank you, Roy, and good morning to everyone. Thank you for joining us for our third quarter 2019 financial earnings call. Today, we'll provide you with both color on our third quarter 2019 operational and financial results, which we released yesterday, as well as with an update on the commissioning of Shaft 2 and the underground development of the world-class Oyu Tolgoi mine.

This was a significant quarter for the Oyu Tolgoi team and our shareholders. Our Shaft 2 construction has now been completed, and we're in the final stages of commissioning. Shaft 2 will enable us to accelerate the underground development and progress one of the top Tier 1 ore bodies on the planet.

Operationally, the third quarter of 2019 was another strong quarter for the company from both a production and a safety perspective.

Our Oyu Tolgoi team has continued to maximize the production from the open pit. And as a result, we once again increased our 2019 gold production with a new target moving from 230,000 to 240,000 ounces, while lowering at the same time, our 2019 C1 copper cash cost range to $1.50 to -- and $1.70 range.

We also continue to build our excellent safety track record as Oyu Tolgoi achieved another strong all injury frequency rate of 0.18 per 200,000 hours worked during the 9 months ended September 30, 2019.

As you know, safety is a top priority for us and is at the heart of everything that we do. Safely mining this deposit is central to who we're and it's critical to our continued success.

During the third quarter of 2019, Oyu Tolgoi produced 28,446 tonnes of copper and 25,607 ounces of gold. The 9-month production totals of 113,400 tonnes of copper and 217,500 ounces of gold kept Oyu Tolgoi on track to achieve both its full year 2019 operational copper and the now upwardly revised gold production guidance.

Open pit operations are expected to continue mining from the lower grade Phase 4B, the lower grade Phase 6 material through the remainder of the year. Mill throughput for 2019 is expected to be approximately 40 million tonnes and it includes the processing of some material from mine stockpiles.

Turning to the underground development. Construction of Shaft 2 is now complete and has entered into the final stages of commissioning. In addition, we completed a number of final construction activities in the third quarter of 2019 with Shaft 2 Jaw Crusher system and the Shaft 2 surface discharge conveyor.

It's important to note that the underground development completed to date has not been affected by pending changes to our mine design. Ore infrastructure developed to date remains usable and in the appropriate locations for all of the mine design options under review.

I'd also like to note that Turquoise Hill is heading into the fourth quarter of 2019 on a solid financial footing with a robust balance sheet.

As of the end of September 2019, Turquoise Hill had $2.7 billion of available liquidity, which is expected to fund our operations and underground development into the first quarter of 2021.

Breaking down our operating performance during the third quarter of 2019, we remain on track to achieve our 2019 guidance of 125,000 to 155,000 tonnes of copper, and our now increased gold production guidance of 240,000 ounces.

Q3 solid operational performance was impacted by a plant shutdown brought forward from October into September, combined with higher-than-planned feed from the harder Phase 4B ore.

Both copper and gold production decreased 27.8% and 66.8%, respectively, compared to the year ago period.

Mill throughput increased by 4% in the third quarter of 2019 compared to the year ago period as a result of processing softer ore.

Underground development in the third quarter was very encouraging as we achieved a new record for lateral development and moved Shaft 2 into the final commissioning phase.

During the third quarter, rope-up was completed for both the service cage and the production hoist with the service cage successfully completing low test runs, while low testing of the production buckets continued into October.

Construction of Shaft 2 has been completed, and it is now in the final stages of commissioning. Shaft 2 is a 10-meter diameter shaft, sunk to approximately 1.3 kilometers below the surface.

This is a critical piece of infrastructure that will accelerate the underground development of the Oyu Tolgoi Mine. The shaft uses the world's largest production hoist motor that can lift 60-tonne skips.

When operating at maximum capacity, production hoist has the ability to lift 35,000 tonnes of material to the surface daily.

With the construction of Shaft 2 complete and the service hoist operating permit being granted, the service hoist now allows us to transport 300 people per cage cycle versus a maximum of 60 people per cage cycle through Shaft 1.

48-tonne capacity cage can now be used to support logistics, transporting supplies and components for the development of the mine.

Commissioning of the production hoist continues with over 2,700 tonnes of rock successfully hoisted to surface, and we continue to work with the regulatory authorities to finalize the permitting. We look forward to utilizing this major increase in capacity to accelerate our underground development.

Turning to the lateral underground development and infrastructure progress, the third quarter has witnessed strong productivity gains.

Extensive focus on the most critical development areas over the past 5 months has reaped substantial improvements as the underground development progressed 3.6 total equivalent kilometers during the quarter, with the team achieving a record 1,385 equivalent meters of lateral underground development in September.

Since the restart of the underground development, 28 total equivalent kilometers and 22.1 kilometers of lateral development have been completed.

In addition to the progress made on Shaft 2 and the accelerated lateral development, Shaft 3 preassembly of headframe modules commenced during the third quarter, while Shaft 4 vertical assembly of the sinking stage was completed, along with the commencement of stage fit-out.

Primary Crusher 1 civil works are ongoing, with the team successfully constructing the 8 meters of wall at the underside of the surge bin and the completion of the mine dry building.

With that, let me now turn the call over to Jo-Anne Dudley, our Chief Operating Officer, who will provide you now with an update of our work to finalize a new mine design. Jo-Anne?

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

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Thank you. Thank you, Ulf. Hello, everybody. Please turn to Slide 8. The highest grade Panel 0 will remain the initial target and a number of refinements are under review to determine the final mine design.

The first of the decisions that has been made is to retain a mid-access drive only on the apex level of Panel 0.

This is an integral step towards completing the final mine design. However, it is too early to accurately determine the potential impact on cost or schedule.

Decisions on productivity assumption and on footprint underground infrastructure such as the location of the ore passes and options for panel sequencing will need to be completed before an update on the development capital or schedule can be finalized.

The design modifications being considered are focused around the Panel 0 mining area. All the other major infrastructures, such as shaft and primary crushers are unchanged from feasibility study plan.

It should be noted that Panel 0, which is the highest grade design of the Oyu Tolgoi underground remains our priority target irrespective of the design changes.

The mine design work that will form the basis for the Definitive Estimate mine plan focuses on several design alternatives. They're aimed at reducing risk to production ramp-up in light of additional geotechnical information we now have. Productivity rates are also under review as a result of experience to date.

The company will focus -- will continue to focus on minimizing the impact to the production schedule and cost as it works through the detailed analysis and testing of each mine design modification.

And we'll update the market in conjunction with the progression of the Definitive Estimate review.

In addition to working closely with Rio Tinto, Turquoise Hill has engaged independent third-party consultants to provide the company with insight and technical support into the planning and estimate process that is currently underway. Independent experts also providing insight into the progress of key construction work at the mine site. We continue to expect the Definitive Estimate to be completed in the second half of 2020.

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 & Director [5]

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Yes. Thank you very much, Jo-Anne. Let me turn to Slide 9. In reference to our partnership with the Government of Mongolia, we continue to work constructively with the government on multiple fronts. The parliamentary working group is in the process of drafting resolution, which will then be reviewed by the Economic Standing Committee. And in the meantime, the Mongolian Tax Authority and Oyu Tolgoi, LLC, continue to negotiate the $155 million tax assessment.

Oyu Tolgoi is also at an advanced stage with a competitive tender process to award a turnkey engineering procurement and construction, or EPC, contract for construction of the Tavan Tolgoi based power plant and has shared certain preliminary cost estimates for the project with Turquoise Hill and the Government of Mongolia.

I'd now like to turn the call over to our Chief Financial Officer, Luke Colton, to speak about the company's financial performance for the third quarter of 2019. Luke?

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

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Thanks, Ulf, and good morning, everyone. If I could get you to please turn to Slide 10, I'll give you a summary of our key financial metrics for the third quarter of 2019.

Starting off with revenue in the third quarter was $209 million, which represents a decrease of 15% compared to $246.5 million in the third quarter of 2018, and that's primarily due to the significant expected decreases in gold and copper production as we transition to the lower grade Phase 4B ore and stockpiles.

Cash generated from operating activities in Q3 of 2019 was $6.1 million compared to $76.2 million in the third quarter of 2018. Cash used in operating activities before interest and tax was $13.1 million in Q3 2019, and that compares to cash generated of $52.5 million in the year ago period. That primarily reflects the impact of lower sales revenue and movements in working capital.

The company recorded income of $45.1 million for Q3 of 2019, and income attributable to owners of Turquoise Hill of $71.7 million or $0.04 per share.

This is compared to income of $15.2 million and income attributable to owners of Turquoise Hill of $53.2 million or $0.03 per share in Q3 of 2018.

The increase in income from Q3 2018 to Q3 2019 was primarily due to the impact of additional deferred tax assets recognized in Q3 2019 when compared to Q3 2018, and this is partially offset by lower gross margin resulting from the lower sales revenue.

C1 cash costs of $2.14 per pound of copper produced increased 29.7% from $1.65 in Q3 of 2018, reflecting lower copper production. This movement will be discussed in a bit more detail on the next slide.

C1 cash cost guidance for the year has been reviewed down to a range of $1.50 to $1.70 per pound of copper produced. This is due to the impact of the increase in the gold production guidance, combined with the revised reduction in operating cash cost guidance to approximately $800 million.

If you look at Q3 2019 in isolation, C1 cash costs of $2.14 per pound of copper produced were above the full year expected range due to the impact of lower gold sales revenue, driven by the lower gold production.

All-in sustaining costs of $2.84 increased 24% from $2.29 in Q3 of 2018. Similar to the C1 cash cost, the increase was primarily due to a reduction in copper production, partially offset by lower royalty costs resulting from the lower sales revenue in Q3 2019 versus Q3 2018.

Capital expenditure was $329.2 million in the third quarter compared to $328.8 million in Q3 2018 and includes $297 million in underground development spends, with the remainder related to open pit activities. In addition, OT had further capital commitments of $0.8 billion as of 30th of September 2019.

Turning to Slide 11, where we show the reconciliation of OT's C1 cash costs per pound of copper produced from the third quarter of 2018 to the current quarter. The principal movement was driven by the lower copper production, and its impact upon direct costs as well as its impact upon TCs, RCs, and freight differential costs.

Whilst total gold revenue decreased period on period, there was actually a marginal benefit when considering the amount of gold revenue on a unit basis per pound of copper produced.

Moving to Slide 12. Turquoise Hill's liquidity balance at the end of quarter 3 2019 was $2.7 billion, with $1.6 billion in cash and cash equivalents and $1.1 billion of remaining project finance proceeds.

We currently expect to have enough liquidity to fund operations and underground developments, including progression of Tavan Tolgoi based power plant into Q1 of 2021.

As a result of the incremental underground CapEx and further scheduling delay, which we announced in July, we will require significant incremental financing to sustain underground development and construction of a Tavan Tolgoi based power plant beyond this time frame.

As it's been previously noted, there is an option to raise additional external financing and not subject to the required approvals to assist in funding development going forward, including during underground commissioning and ramp up.

However, there are important variables that could impact the ultimate amount of additional financing required.

Whilst progression of the Definitive Estimate will continue to clarify the company's funding requirements, we have put forward a proposal to Rio Tinto as to how best source incremental funding necessary to progress underground development over and above our $2.7 billion of available liquidity.

And with that, I will hand the call back to Ulf.

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

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Thank you, Luke. Turning to Slide 13. The Oyu Tolgoi Hugo North underground deposit is one of the best Tier 1 ore bodies on the planet, and the significant progress made during the third quarter has allowed us to accelerate the underground development and drive closer to reaching first sustainable production.

During the third quarter, we witnessed record underground lateral development, an increase to the gold production guidance, a decrease to our C1 cash cost guidance and an integral decision for the updated mine design, which is the retention of a mid-access drive on the apex level of Panel 0.

Shaft 2 construction is complete, with the service hoists now able to lift 300 workers per cage cycle, and it is in the final stages of commissioning.

And we enter the fourth quarter of 2019 with sufficient liquidity to fund our operations into the first quarter of 2021.

We continue to work towards the completion of the final mine design, targeting the highest grade Panel 0, and we expect to be able to provide our shareholders and the markets with an update in early 2020 and a final Definitive Estimate in the second half of 2020.

The Oyu Tolgoi team, which is made up of 92% of Mongolian nationals, has a proven track record of operational excellence and a strong safety record.

As we move closer to the milestones of the Definitive Estimate and first sustainable production, we drive closer to the monetization of our shareholders of a rare, high-grade, low-cost, long-life copper and gold deposit.

And in conjunction with our world-class partner, Rio Tinto, Turquoise Hill remains committed to working with our Mongolian stakeholders to bring the Oyu Tolgoi underground mine into production.

So with that, let me now turn the call over for questions back to the operator. Jessica, I think that's you handling that, if I could hand the call back over to you, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Orest Wowkodaw of Scotiabank.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [2]

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I apologize for the phone quality here. Just curious on the financing proposals. You mentioned that you've put a proposal forward to Rio Tinto. And I'm curious whether that proposal would include streaming -- a potential streaming transaction for the precious metals and/or whether there's any potential for a bridge loan from Rio Tinto until some of the other issues are sorted out?

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

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Orest, thanks for the question. Let me just ask Luke maybe to respond to that as he is over -- thanks for the question, Orest.

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Luke Colton, Turquoise Hill Resources Ltd. - CFO [4]

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Orest, thank you very much for the question. And I can certainly appreciate the reason why you're asking it. You can appreciate from our perspective we're looking at all of our options at this stage, and you can also appreciate that at the moment, we do still have $2.7 billion in liquidity.

Specifically sort of related to the discussions with Rio, we'd love to be in a position to give more detail, but you can appreciate at this stage, we're not really in a position to be able to do that. Those discussions at this point are confidential. But rest assured, we're certainly engaging with Rio Tinto, and we have the best interests of Turquoise Hill as a company in our minds as we are having those discussions with Rio.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [5]

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But I mean that being said, can you talk broadly about what nondilutive financing options you're considering among the suite of available options?

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

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So again, I can appreciate why you -- I appreciate the importance of that question. And rest assured, from a Turquoise Hill perspective, from the perspective of our company and doing what's right for our shareholders, we have looked at and are looking at the options that you would expect us to be looking at, and we've cast the net very wide. But in terms of the actual discussions with Rio Tinto at this stage around the proposal that we've put forth, it wouldn't be appropriate at this time to go into any more detail.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [7]

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Okay. Maybe if I could ask this one more in a different way. Is there anything structurally that would prevent a theoretical streaming transaction in the case of OT?

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

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Not that I am aware of at this stage, but you can obviously appreciate in relation to any form of financing that we may want to put forth or we might may want to take forward for everyone's consideration, you can appreciate under the agreements that we've got.

There are definitely sort of approval rights, et cetera, all of that has to be taken into consideration. From a structural perspective, at this stage, I'm not aware of anything.

Obviously, there's more work to do in that space. But at the moment, I'm not aware of anything, Orest.

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Operator [9]

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Your next question comes from Dalton Baretto of Canaccord.

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Dalton Baretto, Canaccord Genuity Corp., Research Division - Analyst [10]

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I was also going to ask a financing question, but it doesn't sound like we're going to get a whole lot of detail today. So maybe I'm going to ask a different one instead. I was surprised to hear you say that the parliamentary working group is still drafting the resolution, that it hasn't hit the Economic Standing committee yet.

Can you maybe give us a sense for when you expect the standing committee to actually review this draft? And when you expect them to get back to you in terms of what their ask is?

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

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Yes. Thanks, Dalton, for the question. And look, we'd love to give you a specific time. I think the parliamentary working group process, as you know, has been unfolding for a long period of time going back into the early part of last year. And as much as we'd love to give you visibility, I think, Dalton, we got to recognize it's not a process that we control. It's really run, of course, by the Mongolian authorities. We've got to respect that. We do maintain, we have maintained, together with OT and Rio as joint stakeholders, constructive dialogue for a period of time.

But we cannot simply, because we don't control the process, give you a specific time as to when that resolution might be drafted and when it turns to something that we then need to respond to. But in the meantime, we're engaged, very much involved. But it's really a process that is run and controlled by the Mongolian authority and we remain engaged, but don't control, and therefore, I can't give you a specific date, Dalton.

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Dalton Baretto, Canaccord Genuity Corp., Research Division - Analyst [12]

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Okay, no problem. Maybe if I can ask a slightly different question then. If you've got sufficient funding to last you through Q1, what is the absolute latest that your syndicate needs to have the information that requires before it can make its decision?

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Luke Colton, Turquoise Hill Resources Ltd. - CFO [13]

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Right. So we do, at the moment, as kind of we said in our earnings call and MD&A, we do think we have enough liquidity at this point to take us into Q1 of 2021.

And obviously, there's a lot of work being done at an OT level and other places to try and optimize the spend, push that data out, if we can. In terms of the engagement with PF lenders, there have been engagement with PF lenders.

Those discussions are ongoing. We do have a pretty good idea of what that process would be and sort of the timing associated with it.

It's probably somewhere in the sort of 9-month range, maybe a little bit more than that. But you can appreciate that we're looking at other options as well.

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Dalton Baretto, Canaccord Genuity Corp., Research Division - Analyst [14]

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Okay. And then maybe just one last one from me. I thought I heard you say that you've got a general sense now or some sort of a ballpark number on what the EPCM contract on the power plant would cost. Are you able to share that with us?

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Luke Colton, Turquoise Hill Resources Ltd. - CFO [15]

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Yes. So we have been provided with a preliminary figure from Rio. I understand that's also been shared on a preliminary basis with the Government of Mongolia. But we're not yet in a position, and I apologize for this, we're not yet in a position where we're ready to make that number public.

There's still internal review and assessment that we need to do within TRQ with the help of our independent advisers to make sure that we're comfortable with the number and that it's a number that we can stand behind.

And that's something that we're working very hard to do quick currently, and we'll do it as quickly as we can.

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Operator [16]

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(Operator Instructions) Your next question comes from Craig Hutchison of TD Bank.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [17]

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A couple of questions from me. Obviously, you can't say too much on the financing, but have you submitted -- the proposal that you submitted to Rio, have you also submitted that to the Government of Mongolia?

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Luke Colton, Turquoise Hill Resources Ltd. - CFO [18]

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It's been submitted to Rio at this stage.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [19]

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You haven't shared with the government. Okay. In terms of the Power Source Framework Agreement, you mentioned that in your MD&A, there are certain milestones that have passed and you're seeking to, I guess, make adjustments to these milestone table. Can you talk about what those milestones are? And I guess, why were they missed?

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Luke Colton, Turquoise Hill Resources Ltd. - CFO [20]

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Yes, sure. So -- and that PSFA document, it is actually on our website, so you could actually go and have a look at this in a bit more detail if you wanted to. The end date, so probably the most important milestone is to be in a position where we have a power plant up and running by, I believe it's the 30th of June of 2023, and that's obviously still something that everybody is working towards.

There were some interim milestones over the course of 2019. Some of those had to do with sort of funding principles and agreeing those funding principles with the Government of Mongolia.

There are other sort of milestones that kind of are tied to the sort of EPC process and negotiation of agreements related to the TTPP power plant.

Some of those agreements, the EPC process itself, is still ongoing, but we obviously are working quite hard to complete all of that hopefully in the near future, certainly as quickly as possible.

And in the meantime, there has been good engagement with the Government of Mongolia to keep things understood between the various parties and as necessary to discuss whether or not those milestone time lines need to be relooked at and renegotiated.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [21]

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Okay. Thanks. As we sort of shift forward to 2020, I realized you guys haven't put out your guidance, and I know typically, you put it out in December or sort of early January. But can you just give a sense in terms of what you're thinking in terms of throughput and grades, in particular, gold grades? Do you think gold grades will materially pick up from these levels? Or should we expect both gold and sort of copper grades to be similar levels to 2019?

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Jo-Anne Dudley, Turquoise Hill Resources Ltd. - COO [22]

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Craig, thanks very much for your question.

So as you mentioned, the detailed guidance will come out in December. The way that the planning work is done at Oyu Tolgoi is to maximize the cash flow based on dollars per mill hour through the plant, and that takes into account both copper and gold value.

And so we're working on maximizing the value. And that drives -- and that -- and where -- the position we're in the pit drives those metal levels as we progress. And so a good way to think of it is that we're sinking through Phase 4B towards down towards the bottom of the pit, which is higher in grade, but we're progressing on the margins of that pit at the moment, and that is reflected in our current performance. So for the detail, I think we need to wait until December, but the team at site is working really hard to optimize revenue for the business, given the current situation, and they're doing a great job of controlling costs and trying to focus on generating value for the business.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [23]

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Okay. Maybe just setting a broader question, do you think the open pit could be free cash flow positive at curtain spot prices?

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Luke Colton, Turquoise Hill Resources Ltd. - CFO [24]

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At current spot prices, listen, Craig, I think the answer to that question is we're looking at it now. We're going through our planning and budgeting process, obviously, making sure we understand the assumptions that underlie that planning and budgeting process and what the sensitivities to it might be. But we will issue guidance as soon as we can, we're targeting December at this stage.

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Operator [25]

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All right. There are no further questions at this time. Please proceed.

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Ulf Quellmann, Turquoise Hill Resources Ltd. - CEO & Director [26]

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Okay. Thanks, Jessica. Thanks, everyone, on the line. Look, thanks for dialing in this morning. I appreciate that there were some questions where people were looking for some more specific answers, which we have to sort of defer to a later point in time. That is not, obviously, because we're not working on things. I think from our perspective, the third quarter highlights were really ones that say the operational performance of the team has been really strong.

Jo-Anne just commented on that. What the team in -- at Oyu Tolgoi is driving for is to run the open pit mine as efficiently, as safely, as productively, as cash generative as positive -- as possible, both this year, and that is true for next year and the year thereafter.

And in part, that's driven by the fact that the team realizes, of course, that with the time delay we had on the underground, we need to do everything we can to get the open pit operation to compensate as much as possible that cash flow that we now need.

So that's an important thing for the team to do, and that's what Armando Torres, the CEO of OT, and his team are doing.

The second piece is, I think you've heard some really good progress reports on the underground development. Last time we spoke in August, some of you have been to a site visit in September as well. We've laid out some of the key milestones or gating items that we think we will deliver against as we work towards the final mine design and the Definitive Estimate.

You've seen in the third quarter some tangible progress and some tangible deliverables. So the Shaft 2, construction of Shaft 2 is complete. We -- you've seen some tangible progress on productivity. You've seen a decision on the mid-access drive trial, all of which were things we have flagged as key milestones, and that's what we've done. And we anticipate to do that going forward.

So really, I think what you see in the team to do is to focus on the controllables, right? We drive hard the controllables, cost, cash flow performance, safety.

You haven't heard us tighten the range on cost or schedule so far. And that's simply the fact that we think that we should demonstrate progress, and we should show performance, not declare victory too early even though you've seen some encouraging signs.

And in the meantime, I think some of the comments that Luke and Jo-Anne have provided you with on financing and power, and Dalton, even to your question, parliamentary working group, I think these are just discussions that you would expect us to have to move forward on some of the other critical deliverables, whether it's power or financing.

But that lead time is a little bit longer than on some of the other items. So really, the focus for us and for the team has been on manage the controllables, deliver strong operational performance and do what we said we would on delivering the underground.

That's been the focus on the third quarter. I think you've seen some evidence, and that's what you should expect to see from us going forward.

So with that, let me leave it there. Thank you for your participation. Thanks for dialing in this morning.

Thanks for your question. And with that, Jessica, we'll close off the call. Thanks very much, everyone.

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Operator [27]

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