Friday, February 14, 2014

Turquoise Hill shares plunge on Oyu Tolgoi update

Shares in Turquoise Hill Resources (TSE:TRQ) dropped close to 8% on Thursday after the operator of the massive Oyu Tolgoi mine in Mongolia gave little indication of progress in its negotiations with the government of the Asian nation.

By early afternoon Turquoise Hill stock was changing hands at $3.48, down 7.7% and near its lows for the day. The value of the stock has more than halved over the past year.

The Vancouver-based company said talks with the Mongolian government on the expansion of the $6.6 billion mine and the reworking of the initial Oyu Tolgoi deal signed in 2009 is ongoing and that it has proposed restarting work on the underground section put on hold in July last year.

The main sticking points of the negotiations which have dragged on for more than a year appear no closer to being resolved however. Turquoise Hill said "further delays may occur if outstanding shareholder issues, including project finance, are not resolved before the expiration of lender commitments on existing project finance arrangements."

Turquoise Hill owns a 66% interest in Oyu Tolgoi in the Gobi Desert close to Mongolia's border with China with the government of the Asian nation holding the rest. The underground project which is estimated to cost up to $6 billion is where 80% of the value of the deposit is situated.

Controlling company Rio Tinto (LON:RIO) put out stellar results on Thursday which were only marred by asset impairments totaling $3.4 billion, primarily as a result of the consolidation of Oyu Tolgoi's accounts on the Anglo-Australian giant's books.

Operationally Oyu Tolgoi also hit a few roadblocks with year to date sales volumes "falling short of expectations with some sales deferred into the second and third quarters of 2014. "

"Production rates have recently been impacted by various post-commissioning issues including the failure of the rake blades in the tailings thickeners. This is expected to result in the shutdown of one line for a period of six to eight weeks," the company added.

For 2014, Oyu Tolgoi is targeting production of 150,000 to 175,000 tonnes of copper in concentrates and 700,000 to 750,000 ounces of gold in concentrates.

Oyu Tolgoi’s 2013 gross revenues were $55 million on sales of 26,400 tonnes of concentrate.

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