Turquoise Hill announces completion of 2020 Oyu Tolgoi Feasibility Study, updated Mineral Reserves and Mineral Resources, and an improved liquidity outlook
Turquoise Hill Resources has updated its Mineral Resources and Reserves following the Oyu Tolgoi Feasibility Study (OTFS20), which introduces a new block cave design for the Hugo North mine. This redesign has led to a decrease in the Mineral Reserves estimate due to structural pillars aimed to protect infrastructure. A substantial expansion capital cost of US$2.2 billion is anticipated, with total costs for the project ranging from US$1.3 to US$1.8 billion. The company noted ongoing COVID-19 impacts affecting operations. The NPV8 is projected at US$10 billion, maintaining a mine life of 31 years.
- Updated Mineral Resources and Reserves increase operational flexibility.
- NPV8 projected at US$10 billion suggests strong future cash flows.
- Mine life extended to 31 years provides long-term value.
- Mineral Reserves reduced due to structural pillars.
- Expansion capital costs increased by approximately US$1.5 billion.
- Ongoing COVID-19 impacts have slowed project operations.
MONTREAL, July 2, 2020 /PRNewswire/ - Turquoise Hill Resources Ltd. ("Turquoise Hill" or the "Company") today announced its updated Mineral Resources and Mineral Reserves, prepared in accordance with the requirements of National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101") and CIM definition standards for Mineral Resources and Mineral Reserves (2014), an improved liquidity outlook and deferral of the Company's interim financing discussions.
The Company's updated Mineral Resources and Mineral Reserves are being announced further to the completion of an updated Oyu Tolgoi Feasibility Study ("OTFS20") that incorporates the new mine design for Hugo North Lift 1 Panel 0. This new design reduces the Mineral Reserve estimate for the Hugo North underground mine due to the inclusion of two structural pillars, to the north and south of Panel 0 to protect ore handling infrastructure.
The Company's project manager has advised that it is expected that part of the ore contained in these pillars will be recoverable at a later stage following additional studies which are currently underway. Pending the completion of this work in 2021, the material contained in the pillars has been converted from Mineral Reserves to Mineral Resources.
The Mineral Resources and Mineral Reserves also include minor updates to the Oyut open pit resource model and account for depletions to December 31, 2019, as disclosed in the Company's Annual Information Form for the year ended December 31, 2019 ("2019 AIF").
In support of the changes, an updated technical report ("2020 OTTR") prepared in accordance with the requirements of NI 43-101 will be filed on SEDAR within 45 days of this news release under Turquoise Hill's profile at www.sedar.com.
Turquoise Hill notes that Oyu Tolgoi LLC is in the process of submittting OTFS20 with the Government of Mongolia in order to comply with local regulatory requirements. OTFS20 incorporates an update to the first sustainable production schedule and capital cost estimates for the underground mine development based on the updated Panel 0 mine design announced by the Company on May 13, 2020. Estimated total expansion capital for the underground project is in line with the recently disclosed range of US
OTFS20 does not reflect the impacts of the COVID-19 pandemic which are ongoing and continue to be assessed. A number of work fronts are directly impacted including Shafts 3 and 4 being put on care and maintenance and work on Primary crusher 1 being slowed due to the lack of availability of critical resources and restrictions on site workforce numbers.
"With the updated Mineral Resources and Mineral Reserves now completed, we remain focused first and foremost on delivering the underground project safely and remaining within the guidance ranges on cost and schedule we have previously announced", stated Ulf Quellmann, Chief Executive Officer of Turquoise Hill. "At the same time, the team is looking carefully at options for recovering material within the structural pillars and to optimise the mine plan for Panels 1 and 2 to maximise value for our shareholders."
The following table provides a summary of key outputs from OTFS20. Unless otherwise stated, all items are presented in real terms on an after-tax basis and only include Mineral Reserves.
Description | Units | OTFS20 |
Material Processed | bt | 1.2 |
Copper Headgrade | % | 0.82 |
Gold Headgrade | g/t | 0.30 |
Silver Headgrade | g/t | 1.89 |
Recoverable Copper | blb | 19.5 |
Recoverable Gold | Moz | 8.4 |
Recoverable Silver | Moz | 51.7 |
Mine Life | Years | 31 |
Expansion Capital | US$b | 2.2 |
Payback Period | Years | 6 |
NPV8 After Tax | US$b | 10.0 |
Notes: | |
1. | All financial metrics reflect the Company's financial analysis of OTFS20 metrics. |
2. | NPV8 is Net Present Value of mineral reserves at a discount rate of |
3. | For mine planning the metal prices used as part of OTFS20 to calculate block model Net Smelter Returns (NSR) were copper at |
4. | OTFS20 NPV8 uses long-term metal prices of: copper at |
5. | NPV8 and Payback period analysis uses the Mineral Reserves reported in OTFS20 that are set out in this announcement. |
6. | NPV8 is calculated as of January 1, 2021 and excludes expansion capital up December 31, 2020 of approximately |
7. | The estimate of Mineral Reserves may be materially affected by environmental, permitting, legal, title, socio-political, marketing, or other relevant issues including risks set forth in the 2019 AIF and other filings made with Canadian securities regulatory authorities and available at www.sedar.com. These updated estimates differ from those reported in the 2019 AIF and reflect incorporation of changes in the Hugo North Panel 0 design. |
8. | Payback period and mine life are calculated from January 1, 2021 and are rounded to years. |
9. | OTTR16 can be accessed under Turquoise Hill's profile at www.sedar.com. |
10. | Expansion capital numbers are presented inclusive of VAT. |
Refined Hugo North Lift 1 Mine Design Lowers Execution Risk
On May 13, 2020, Turquoise Hill announced a new block cave mine design for Panel 0 with an anticipated delay to sustainable production of approximately 25 months (with a range of 21 to 29 months), and an increase in development capital cost of approximately US
For the development of the Panel 0 mine design, Turquoise Hill engaged subject matter experts to undertake an external and independent assurance process that focused on a technical review of the proposed mine re-design options, and a review of the schedule and estimating process.
The Hugo North Lift 1 mine plan incorporates the development of three panels and in order to reach the full sustainable production rate of 95,000 tonnes per day from the underground operations, all three panels need to be in production. During the ramp-up phase through to full capacity of the underground operations, the Oyut open pit will continue to provide the incremental ore to achieve the expected 105,000 to 115,000 tonnes per day throughput for the life of Hugo North Lift 1.
The design change results in a more resilient mine plan able to effectively operate within the Panel 0 geotechnical conditions as now understood. The 2020 OTTR will incorporate and reflect these updates.
The block cave design incorporated in OTFS20 varies from the OTFS16 design through:
- 120m structural pillars included to the north and south of Panel 0, protecting ore handling infrastructure and increasing the optionality of sequencing Panel 1 and Panel 2;
- Ore handling facilities moved into the structural pillars, improving excavation stability;
- Drawpoint spacing updated from 28m x15m to 31m x 18m, improving extraction level stability; and
- Modified panel initiation approach for Panel 0, minimising stress damage to extraction level.
The Company believes the existing feasibility study designs for Panel 1 and Panel 2 remain executable based on the current orebody understanding. However, with the introduction of structural pillars, the remaining panels become independent, allowing for much greater operational flexibility. This provides an opportunity to:
- Optimise the extraction level elevation for each panel independently;
- Evaluate the potential to convert Measured and Indicated Mineral Resources below the current Lift 1 extraction level to Probable Mineral Reserves;
- Complete additional confirmatory drilling and data collection in support of potential Panel 1 and Panel 2 design refinements; and
- Include structural pillar recovery level(s) in the integrated Hugo North Lift 1 mine design.
Panel 1 and Panel 2 design optimisation studies have been initiated to explore these opportunities. These studies are not expected to delay the ramp up of Panel 1 or Panel 2 Drilling work is underway and the resulting updates to geotechnical modelling and mine design review are expected to continue into 2021.
Sensitivity Estimates
Economic sensitivity of the project relating to a number of key variables set forth in OTFS20 are outlined in the figures below:
Reserve Case Price Sensitivities | ||||||||
NPV8$billions | Copper Price | |||||||
$US, 2020 Real | - | - | - | Base Case | + | + | + | |
Gold | - | 5.9 | 7.1 | 8.3 | 9.3 | 10.3 | 11.3 | 12.3 |
- | 6.2 | 7.4 | 8.5 | 9.5 | 10.5 | 11.5 | 12.5 | |
- | 6.4 | 7.6 | 8.8 | 9.8 | 10.7 | 11.7 | 12.7 | |
Base Case | 6.7 | 7.9 | 9.0 | 10.0 | 11.0 | 12.0 | 12.9 | |
+ | 7.0 | 8.1 | 9.2 | 10.2 | 11.2 | 12.2 | 13.1 | |
+ | 7.2 | 8.4 | 9.4 | 10.4 | 11.4 | 12.4 | 13.3 | |
+ | 7.5 | 8.6 | 9.7 | 10.6 | 11.6 | 12.6 | 13.6 |
Notes: | |
1. | NPV8 is Net Present Value at a discount rate of |
2. | All values are presented on a $US, real 2020 basis. |
3. | Base case copper price is based on consensus estimates with a long-term forecast of |
4. | Base case gold price is based on consensus estimates with a long-term forecast of |
Oyu Tolgoi Reserve Case Sensitivities | ||||||
Impact on NPV8 ($m) | Cu Price | Au Price | Opex | CAPEX | +/- | |
+ | 1,990 | 466 | 663 | 186 | 1,016 | |
- | (2,096) | (434) | (657) | (186) | (912) |
Notes: | |
1. | NPV8 is Net Present Value at a discount rate of |
2. | All values are presented on a $US, real 2020 basis. |
3. | Base case copper price is based on consensus estimates with a long-term forecast of |
4. | Base case gold price is based on consensus estimates with a long-term forecast of |
5. | Costs considered are forward as of January 1, 2021. |
Updated Mineral Resources and Mineral Reserves
OTFS20 incorporates updated Mineral Resource and Mineral Reserve estimates for Hugo North Lift 1 and there has been no change to the Oyut open pit Mineral Reserves relative to those set forth in the 2019 AIF. Mineral Resource estimates for Hugo North have been updated since the 2019 AIF, while the Mineral Resources for Hugo South, Oyut open pit and Heruga remain unchanged.
2020 Oyu Tolgoi Mineral Reserves
Oyut Deposit Open Pit Mineral Reserves as of December 31st, 2019 | ||||||||
Classification | Ownership | Mineral Reserves | Contained Metal | |||||
Ore | Cu | Au | Ag | Copper | Gold | Silver | ||
(Mt) | (%) | (g/t) | (g/t) | (Mt) | (Moz) | (Moz) | ||
Proven | Oyu Tolgoi LLC | 307 | 0.52 | 0.39 | 1.32 | 1.6 | 3.8 | 13.0 |
Probable | Oyu Tolgoi LLC | 477 | 0.39 | 0.23 | 1.14 | 1.9 | 3.5 | 17.4 |
Total (Proven + Probable) | Oyu Tolgoi LLC | 783 | 0.44 | 0.29 | 1.21 | 3.5 | 7.2 | 30.5 |
Oyut Stockpile Mineral Reserves as of December 31st, 2019 | ||||||||
Classification | Ownership | Mineral Reserves | Contained Metal | |||||
Ore | Cu | Au | Ag | Copper | Gold | Silver | ||
(Mt) | (%) | (g/t) | (g/t) | (Mt) | (Moz) | (Moz) | ||
Proven | Oyu Tolgoi LLC | 48 | 0.33 | 0.12 | 0.93 | 0.2 | 0.2 | 1.4 |
Hugo North Deposit Underground Mineral Reserves as of December 31st, 2019 (updated June 30th, 2020) | ||||||||
Classification | Ownership | Mineral Reserves | Contained Metal | |||||
Ore | Cu | Au | Ag | Copper | Gold | Silver | ||
(Mt) | (%) | (g/t) | (g/t) | (Mt) | (Moz) | (Moz) | ||
Probable | Oyu Tolgoi LLC | 400 | 1.51 | 0.29 | 3.11 | 6.0 | 3.8 | 40.0 |
Probable | EJV | 40 | 1.54 | 0.53 | 3.63 | 0.6 | 0.7 | 4.6 |
Total Probable | 440 | 1.51 | 0.32 | 3.16 | 6.7 | 4.5 | 44.7 | |
Oyu Tolgoi Project Mineral Reserves as of December 31st, 2019 (updated June 30th, 2020) | ||||||||
Classification | Mineral Reserves | Contained Metal | ||||||
Ore | Cu | Au | Ag | Copper | Gold | Silver | ||
(Mt) | (%) | (g/t) | (g/t) | (Mt) | (Moz) | (Moz) | ||
Proven | 355 | 0.49 | 0.35 | 1.27 | 1.7 | 4.0 | 14.5 | |
Probable | 917 | 0.93 | 0.27 | 2.11 | 8.5 | 7.9 | 62.1 | |
Total (Proven + Probable) | 1272 | 0.81 | 0.29 | 1.87 | 10.3 | 11.9 | 76.6 |
Notes: | |
1. | CIM Definition Standards for Mineral Resources and Mineral Reserves (2014) were used for reporting of Mineral Reserves. |
2. | NSR values used for Mineral Reserves estimation are based on forecast long-term copper, gold, and silver prices of |
3. | Assumptions for smelting refining and treatment charges, deductions and payment terms, concentrate transport, metallurgical recoveries and royalties are included in the NSR values. |
4. | Processing and general administration costs used to determine cut-off NSR values vary between |
5. | For the Hugo North Mineral Reserves, a NSR shut off grade of |
6. | For the Oyut Mineral Reserves, only measured Mineral Resources were used to report proven Mineral Reserves, and only indicated Mineral Resources were used to report Probable Mineral Reserves. |
7. | For the Hugo North Mineral Reserves, Measured and Indicated Mineral Resources were used to report probable Mineral Reserves. |
8. | The effective date of the Mineral Reserve estimates is December 31, 2019. |
9. | EJV is the Entrée Joint Venture. The Shivee Tolgoi License and the Javkhlant License are held by Entrée. The Shivee Tolgoi License and the Javkhlant License are planned to be operated by Oyu Tolgoi LLC. Oyu Tolgoi LLC will receive |
10. | The estimate of Mineral Reserves may be materially affected by environmental, permitting, legal, title, socio-political, marketing, or other relevant issues including risks set forth in the 2019 AIF and other filings made with Canadian securities regulatory authorities and available at www.sedar.com. These updated estimates differ from those reported in the 2019 AIF and reflect changes in the Hugo North Panel 0 design. |
11. | Totals may not add due to rounding. |
Hugo North Lift 1 Mineral Reserve Comparison 2019 AIF to OTFS20
The Hugo North Lift 1 Mineral Reserves have been updated to reflect the new Panel 0 design. The new design resulted in the conversion of the material contained in the structural pillars from mineral reserves to mineral resources. Principally as a result of the conversion, the estimated probable Mineral Reserves at December 31, 2019 at Hugo North are approximately 6.7 million tonnes of copper and 4.5 million ounces of gold, compared with the previously disclosed 7.9 million tonnes of copper and 5.4 million ounces of gold.
While this update reflects the current Panel 0 mine status, it does not reflect any opportunities that may arise from the recovery of the structural pillars or Panel 1 and Panel 2 optimisation studies, expected to continue into 2021.
Hugo North Deposit Underground Mineral Reserves Comparison | ||||||
Classification & Report | Ownership | Mineral Reserves | Contained Metal | |||
Ore | Cu | Au | Ag | Copper | Gold | Silver |
(Mt) | (%) | (g/t) | (g/t) | (Mt) | (Moz) | (Moz) |
