Friday, February 14, 2014

Turquoise Hill drops on possible further Oyu Tolgoi delays; disappointing sales volumes

Turquoise Hill Resources (TSE:TRQ) (NYSE:TRQ) shares sunk over 7% on Thursday in Toronto after the company last night said further delays might be in order with regards to the underground development of its Oyu Tolgoi mine in Mongolia.

Last July, the company announced that funding and all work on the $5 billion underground expansion of the mine would be put on hold, saying the Mongolian government wanted parliament to approve the project's financing. It has since been in discussions with the Mongolian government with the aim of resolving outstanding shareholder issues and to progress project financing. Mongolia has complained that total costs on the first phase were $2 billion higher than initially planned.

Turquoise Hill said that an option to restart underground development has been proposed, but further delays could be seen if issues are not resolved prior to the expiration of lender commitments on existing project financing arrangements.

The news Thursday follows its announcement in December that its parent company, Rio Tinto (NYSE:RIO), had secured extended commitments from banks that agreed to finance the underground expansion of the mine. The extension—to March 31—gave Rio Tinto, which owns approximately 51% of Turquoise Hill and operates Oyu Tolgoi, more time to resolve the dispute over costs with the government of Mongolia.

Turquoise Hill also said today that year-to-date sales volumes at Oyu Tolgoi have fallen short of expectations, with some sales deferred into the second and third quarters of 2014. Sixty percent of the mine's 2014 production is under contract, with additional volumes confirmed and subject to being finalized. It said production rates have been recently hit by post-commissioning issues, including rake blades failures, which is expected to result in the shutdown of one line for a period of six to eight weeks.

As such, the company is planning to pull forward plant maintenance work originally scheduled for later in the year, and is still targeting output of 150,000 to 175,000 tonnes of copper in concentrates and 700,000 to 750,000 ounces of gold concentrates.

"Oyu Tolgoi will monitor production levels and if necessary, match them to meet customer requirements, with the goal of returning to more normal levels of inventory by the end of 2014," Turquoise Hill said in its release.

The mine's 2013 gross revenues were US$55 million, on sales of 26,400 tonnes of concentrate.

Shares of the miner were down over 7.4% on Thursday afternoon in Toronto, at C$3.49.

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