Turquoise Hill Resources Ltd. (NYSE:TRQ)
Q2 2014 Earnings Conference Call
August 12, 2014 5:00 PM ET
Jessica Largent - IR
Kay Priestly - CEO
Stewart Beckman - SVP, Operations and Technical Development
Steeve Thibeault - CFO
Ralph Profiti - Credit Suisse
Terence Ortslan - TSO & Associates
Tony Robson - BMO Capital Markets
John Roberts - Roberts Investments
Craig Hutchison - TD Securities
Daniel McConvey - Rossport Investments
Oscar Cabrera - Bank of America
Good day, ladies and gentlemen. Thank you for joining us today. Welcome to the Turquoise Hill Resources Q2 Results held on August 12, 2013. Please note that this call is being recorded, and will be available later today for replay.
I would now like to turn the call over to Jessica Largent. Please proceed. Jessica Largent - IR
Thank you, operator. I want to welcome you to our second quarter 2014 financial results conference call. This morning we released our second quarter results press release, MD&A and financial statements. These items are available on our web site and SEDAR. With me today is Kay Priestly, CEO; Steeve Thibeault, CFO; and Stewart Beckman, Senior Vice President of Operations and Technical. We will take questions after our prepared remarks.
This call will include forward-looking statements. Please refer to the forward-looking language included in our press release and MD&A.
I would now like to turn the call over to Kay.Kay Priestly - CEO
Thank you, Jess. Good afternoon and evening to many of you. I am speaking to you from Mongolia, where it is early morning here. Well its hard to believe that roughly one year ago, our Oyu Tolgoi had its first shipment of concentrate from the mine. Since then, production sales have progressed. During the second quarter, we continue to fine tune Oyu Tolgoi’s operations, as the mine transitions to a steady state.
There are several key points I want to highlight today. First; Oyu Tolgoi’s second quarter production and sales performance were the best we have seen thus far. Concentrate sales increased about three times over the first quarter. We are continuously working on operational improvements, but I am pleased with the mine's second quarter results.
Second, during the second half of 2014, ore grades are expected to increase, as the open pit deepens into a high grade zone. Small amounts of the high grade ore were processed in the second quarter, and the amount processed in July increased. This is expected to increase copper, and particularly gold in concentrates for the second half of the year. As such, we are maintaining our 2014 production guidance.
Third, following receipt of a tax audit from the Mongolian Tax Authority in June, discussion and engagement with the government is ongoing. Resolution of the tax matter is a priority. While I am here this week, I am meeting with various representatives from the government.
Before I move to operations and financial performance, I want to speak to safety, which is a critical part of our operations. Safety remains a major focus for Oyu Tolgoi and mine management is committed to reducing risk and injury. For the first half of 2014, Oyu Tolgoi's all injury frequency rate was 0.51 for 200,000 hours worked.
Turning to sales, Oyu Tolgoi second quarter revenue was $436 million for more than 200,000 tonnes of concentrate. The sizable increase was due to improvements in customer logistics and marketing. This included stronger integration between operations, outbound logistics and customers. There has also been proactive engagements with key stakeholders in the supply chain, including warehouse operators and freight handlers. These improvements resulted in Oyu Tolgoi achieving records, such as the date where eight shipments were moved using 128 trucks, the highest rate since customer collection began. One truck equals 36 tonnes of concentrate.
Second quarter sales exceeded production, resulting in an inventory draw-down for the quarter. Oyu Tolgoi also had positive operating cash flow for the quarter, which is a first. Concentrate sales are expected to be strong throughout the second half of 2014, and exceed production through the end of the year. Our goal is for Oyu Tolgoi to reach four to eight weeks of concentrate production and inventory by the end of 2014.
Moving to production; second quarter production improved, after recovering from thickener rake repairs in the first quarter. As Oyu Tolgoi reaches the high grade zone in the second half of the year, ore grades are expected to increase, resulting in stronger head grades, particularly for gold. As such, we continue to expect Oyu Tolgoi to produce between 135,000 to 160,000 tonnes of copper, and 600,000 to 700,000 ounces of gold in concentrates for the year.
As operations at Oyu Tolgoi have been transitioning from post commissioning to steady state, we have been focusing on cost reduction and productivity initiatives. Our goal is to ensure that Oyu Tolgoi is operating as efficiently as possible, and getting as much out of the mine's assets, without spending a lot of additional capital. This includes, getting increase out of both the mine and the concentrator.
By way of example, during the quarter, there was improved process control for grinding and flotation, along with the focus on optimization of reagents. There are also a number of reliability programs underway, including one focused on shovel. These examples are just a few of the initiatives being pursued, and it is clear, that the team at Oyu Tolgoi is focused on becoming a world class operation and creating value for all shareholders.
Now turning to discussions with the Mongolian Government; following receipt of a tax act from the Mongolian Tax Authority in June, Oyu Tolgoi is engaging with the government and the tax authority, to try and resolve the tax disputes. We have been very clear, that further development of the underground will commence, once the following conditions are met. Number one, successful resolution of the mine's outstanding shareholder issues. Number two, agreement of a comprehensive funding plan, including project finance. Number three, completion and approval of the underground feasibility study by Oyu Tolgoi's shareholders, and number four, obtaining all necessary permits for the mines, operations and development.
The feasibility study is largely complete, subject to confirmation of some estimate assumptions. A geological reserve update for Oyu Tolgoi is currently being reviewed, with experts from the Mongolian Minerals Council. This will eventually supersede the last Mongolian Geological Reserve, which was completed in 2009. Due to the outstanding shareholder issues, the financial and scheduled portion of the submission were omitted. It was agreed with the Ministry of Mines to start the process without the financial data, so that the review could begin on the technical aspects of the updated reserve information. All parties remain committed to the underground development at Oyu Tolgoi.
In summary, we are pleased with the sales achieved in the second quarter. There was an inventory draw-down during the quarter. Production rates have improved, and we are focused on cost and productivity improvements. There is active engagement to resolve the tax dispute, and all parties are committed to working through the outstanding shareholder issues. Our goal is to reach a resolution, by the expiration of the project finance lender commitments.
This concludes our remarks, operator, and we are now ready to take questions.
(Operator Instructions). The first question is from Ralph Profiti of Credit Suisse. Please proceed.Ralph Profiti - Credit Suisse
Hello, and thank you for taking my question and for the conference call. Kay, if the project financing does slip past September, do you expect, and are you prepared for some of the syndicate members pulling out, and have discussions on possible extension began in any capacity yet?Kay Priestly - CEO
Ralph, thanks for your question. As I mentioned, we are all aware of the September 30 date, and we are all working to that deadline. We are engaging with the banks through this process, and keeping them informed, as we progress with our discussions with the government. These commitments do expire September 30, these banks and the IFIs have been with us through this process for several years now, and are committed and still seeing very positive and upbeat, provided we can get through these key issues that still remain.
So again, we are all focused on meeting that extension, Ralph. As we get closer to that date, we will see where we are. If we make a lot of progress, I can't talk on behalf of the banks or the IFIs, but there is good engagement, they understand the issues, and we are working real hard to resolve those issues as soon as possible.Ralph Profiti - Credit Suisse
I see. Thank you. If I can ask a follow-up, and maybe this could be for Stewart, where do you sit now, and when can we expect some guidance on how the Hugo West option sits into the mine plan? Is the go ahead a function of the outcome of the underground feasibility study, or can we expect to see, perhaps a standalone strategy of bringing it into the plant for the central pit? Thank you.Stewart Beckman - SVP, Operations and Technical Development
So Hugo West at the moment remains an exploration target, and, as you are aware, we got some drilling results from them. We have been looking at the mine plan forward, and looking at how we look to reschedule that, keeping the pit that's [indiscernible], given that the undergrounds will expand from what was originally planned, and of course, the pit was optimized and to try and [indiscernible] with underground coming on. So that's where that is of course going on at all mines.
We are considering Hugo West, and is part of that -- we need to consider what we think conceptually could be there, and then we might see on whether or not that would sensibly fit within the plan, and it could [indiscernible] and move ahead with that. But other than considering it as we would, its just not a resource, its not getting any special attention.Ralph Profiti - Credit Suisse
I see. Okay. Thank you for that. Thank you.
Thank you. The next question is from Terence Ortslan of TSO & Associates. Please proceed.Terence Ortslan - TSO & Associates
Good morning Kay. Good afternoon everybody. Just an operating question; in the second quarter, your concentrate grade was lower than some of the previous quarters, whereby your quarter head grades were higher? Could you explain to me why, because also recoveries are quite good actually?Kay Priestly - CEO
Stewart, why don't you take that question? Thank you, Terence.Stewart Beckman - SVP, Operations and Technical Development
Yeah Terence, we are still working on optimizing the grade circuit, and the grade is typically a trade-off with different ores and different conditions between recoveries and concentrate grade. So we do vary that numbers, where we need to incorporate with different ore swaps and different reagent machines. So it does typically vary quite widely. It averages around 25, 26 that was very much on occasion.Terence Ortslan - TSO & Associates
We should expect Stewart that to continue in the second half by 26, or 27, 25, or --Stewart Beckman - SVP, Operations and Technical Development
Typically, we are also expecting in the second half to be treating much higher grade ores, and we are with those ores, I see high concentrated grades as well. Certainly the golden concentrate is going to go quite high consecutive with the high grade, with the hot gold coming through.Terence Ortslan - TSO & Associates
Thank you for that. If you were to summarize, can you make the assumption that or expectation that the grades for copper and gold in the second quarter can increase even further in the third quarter, and stay at that level for how long?Stewart Beckman - SVP, Operations and Technical Development
We don't really go through the high grade zone in this, it will be through the last half of this year, and depending on how quickly we develop into the area, into -- may be into January for a short period, until we come back around, sort of second [indiscernible]. If you imagine that's of course, that [indiscernible] has become true and mining out of the pit -- and they will come back to mine again at [indiscernible]. So it comes really in [indiscernible].Terence Ortslan - TSO & Associates
Okay. Just a question on the four outstanding issues you mentioned, when do you think the feasibility study is going to be available for the government to show all this to review? And where are the other three issues on the -- what is left on the other three issues to still discuss or compromise or negotiate with respect to -- given some sort of timeline we can assume, because [indiscernible] August, September is on the corner. Obviously, you're doing a lot of progress, but it will be good to know, the feasibility study itself and also the other three issues, where they are on the timeline. Thank you.Kay Priestly - CEO
Thanks Terence. We are working in parallel and have working groups on all four of those issues. So nothing really is sequential Terence, because of the deadline we are all aware of. As we mentioned, we have provided our geological reserve update for Oyu Tolgoi. It has already been provided to the Mongolian Minerals Council, and its currently being reviewed with experts. Stewart has been working on this report. It’s a very lengthy report. It has a lot of technical issues. So this process is already starting with the government, and this will be updating the geological reserve which was completed in 2009. However, as I mentioned, due to the uncertainty around the tax issues that's arisen and other events, we have not provided them with the cost information, and the schedule of timing, those are the two key elements that remain unclear, is really the start date and the schedule, depending on the resolution and the timing of these issues.
But we are working and engaged with representatives from the Mongolian Minerals Council, that are required to review and sign-off this, and they have already received quite a bit of the technical data, and the reserve and resource information.
With respect to timing, its virtually complete, and we are just waiting on a little more clarity on the other issues that we are working through to distribute it to the government, and to -- and go through the final sign-off process by the Oyu Tolgoi Board, and the respective governance requirements.
With respect to the other issues, the shareholder issues, the value issues that we talked about in recent calls and over the last year, we continue to make progress, we have made progress. There are only a few issues left. Terence, we have agreed not to disclose exactly the details of those issues, but we are meeting concurrently with representatives of the government on resolving that, in addition with the engagement we have with the tax authorities and the Dispute Resolution Council in Mongolia on the tax issues. Everyone is focused on timely resolving these issues, both at the government level and at Oyu Tolgoi, Turquoise Hill and Rio Tinto. So again, its full speed ahead as I am here in Mongolia this week and I am here and we have quite a lot of meetings scheduled this week on these various issues.
The next thing is project financing. We have been working with the government too on project financing. They have all the documents, and so in parallel, that's a part of the process. And then we are working through the approval process for the necessary permits to complete the mine.
So it’s a lot of work, a lot to be done in a short period of time, but all hands are on deck, and there is a real focus on trying to announce successful resolution, so we can move forward with the underground, which is still a key priority for everybody concerned.
This tax issue though is key, and they understand that the investment agreement and the fundamentals of it are important and critical for us to continue to invest money, and they therefore understand the importance of resolving this issue, in conjunction with these other issues.Terence Ortslan - TSO & Associates
I really appreciate, and I am sure all the shareholders do, the complications and also the patients on the part of the experts to go through these emotions. But just remind me please what level of decision-making in each case have to go through the parliamentary system, and cannot be voted by the experts and by the Minister and Security Council?Kay Priestly - CEO
The government has confirmed that a parliamentary approval is not required for the -- progressing with the underground. However, we will need unanimous approval at the OT board for the project financing, which includes the three representatives from the government, and they are representing the government and working very closely with the executive branch of the government, as well as all the leaders in government on these issues.
So there is also a requirement in the project financing, the MIGA letter will require one of the Ministers of Economic development to sign off on certain aspects of the project financing, and of course, our feasibility study is requiring sign-off by the Minerals Council and [indiscernible] the mining minister.
So all of the ministers and cabinet are very engaged of course, but we are working through this with the OT representatives, who are representing the government as you go through many of these issues.
Now on the tax act, that resolution -- the tax issues requires us to go through the Mongolian process, which we are going through, as you know, and there has been very active engagement over the last few weeks and continuing into this week to move that forward.
Thank you. The next question is from Tony Robson of BMO Capital Markets. Please proceed.Tony Robson - BMO Capital Markets
Kay, good morning, good afternoon, good evening to everybody else. Thank you for your time. Just following up I think it was Terence's question on grade length. Stewart said that the high grades would continue on into January. Can we take it from that then, the rest of the months of the other quarters will be quite flat, so your first half production for copper and gold in 2015 will be the same roughly as the second half? Thank you. And if I could, any guidance on the head grades for copper and gold, if I could see the other view, it would be greatly welcomed. Thank you.Stewart Beckman - SVP, Operations and Technical Development
Yeah Tony, we had lot of [indiscernible]. We will see more of the high grade zone in the medium term, but we haven't given any guidance yet on next year's production.Tony Robson - BMO Capital Markets
Okay. But did I understand your answer correctly, that January would be high, and then the following months would be lower? And you mentioned going back into the high grade core, how frequently would that happen? Are we talking, as you are mining around the pits every couple of quarters, or is it greater then in terms of lease [ph]?Stewart Beckman - SVP, Operations and Technical Development
No. It varies, it depends on what the mine schedule and the mine design is, and I am not willing to speculate on that, even as we haven't tried for next year, and as I pointed out earlier, we are looking at what we do to optimize and cause as much grade and value forward, and we are looking at quite a number of options that we believe are coming out. We will look at once new material needs to be slightly longer term, by going into the central part of the pit, which was not previously our plan.
So while we haven't done that, we are kind of speculating on what next year's numbers are going to look like, and I think we provided those last year, and about being less -- probably at the same time we have settled and signed them up.Tony Robson - BMO Capital Markets
Okay. Thank you very much.
Thank you. The next question is from John Roberts of Roberts Investments. Please proceed.John Roberts - Roberts Investments
Yes. To be quite blunt, without the underground mine and with the Government of Mongolia creating tax problems and arresting previous employees. I am a little concerned that the mine would not be growing concern with just the open pit alone. I'd like your opinion on it. And good morning Mongolia.Kay Priestly - CEO
John, clearly, the underground is a significant part of the value of this mine, and right now, we are focused on progressing the underground. We've run into challenges, as you know, but the government is working on this. They also recognize the value and the underground, and as I mentioned there is good engagement, there is good dialog, and we are working through these issues.
This is new for the country, a project like this, its a huge impact to Mongolia. It will be a significant part of their GDP and this is new territory. But I can assure you that everyone recognizes the value of this amazing resource and reserve, and we are doing everything we can to move forward with the discussion.John Roberts - Roberts Investments
Well I quite understand that Kay. But my concern is, that the service deposits that you're mining, and the investment already put in, is not enough unless you get the underground drilling. I know it has affected the Government of Mongolia. I know you are playing war, you guys, because you are laying off employees, you are trying to make them nothing [ph] for an investment in the Government of Mongolia. Mongolia is quite down over the last two years because of the situation. They are playing taxes and they are playing criminal suits against employees. What is the chance of nationalization?Kay Priestly - CEO
John, I can't speak on behalf of the government, all I can continue to say is that, there is good engagement with various representatives in governments on our issues. And its taking time, it has taken a lot of time to work through those issues, but we are working through them and we are very focused on reaching resolution, and that's why this is such a critical juncture, where in a space now, where we need some assurety on the investment climate and the investment agreement being the foundation, before we can advance further funds, and that's why this has taken so much time, because we want to get it right.John Roberts - Roberts Investments
Well I know you were held up by the elections in Mongolia. Who won that? To me it just seems that if something isn't done with everything by September 30th, it might be a lost cause?Kay Priestly - CEO
Well John as I said, we are all aware of the deadline. These are lot of issues, but we have been working through them for some time, and we are continuing to focus all hands on deck between now and then, to make good progress. We can't give any guarantees, but I can assure you that the fundamentals of the investment agreement are important, and we have kept that very clear throughout the discussions, and that's the basis of the framework for us to proceed.
Thank you. The next question is from Craig Hutchison of TD Securities. Please proceed.Craig Hutchison - TD Securities
Hi there. I guess my question regards to -- you have taken a multi-pronged approach to try and resolve all these issues, is there some sort of oversight committee that's helping you guys coordinate amongst all the government agencies to advance these things, because it looks like the signatures and sign-offs from a number of different groups and parties, now with the tax audits in place.
And the second question, I know the T-bills come due in October for $100 million. Do you guys expect to receive that money, or is that going to be postponed? Thanks.Kay Priestly - CEO
Okay. Thanks. I didn't your name, sorry.Craig Hutchison - TD Securities
Craig Hutchison, sorry.Kay Priestly - CEO
Craig, oh hi Craig, thanks. The oversight -- we clearly have representatives from TRQ. We have Tinto and Oyu Tolgoi working through all these issues. I feel very comfortable with the oversight and the process, the governance process to work through all these issues with the government, and some of them are related. So to answer your question Craig, yes, we have a lot of work streams going, we have a lot of issues, but we have been working on them for quite some time, and we have made progress on many, and I feel confident and comfortable with the process there.
On the T-bill, yes, there is a treasury bill that is due in October. In fact, this amount was included in the budget for Mongolia for this year, that they would be repaying us. So currently, that amount is due, and right now, we expect that amount to be paid in October.Craig Hutchison - TD Securities
Okay. Then I guess one last question, this is a question for Stewart, the C1 cash costs, what were they in Q2, if you've calculated them?Kay Priestly - CEO
Steeve, do you want to take that?Steeve Thibeault - CFO
Yeah, I can take that. Hi Craig, how are you? I am Steeve here. Craig, no, we haven't provided that information. I think that's a key point that we had, and I know its something that people would like us to provide, with the 2014, with the ramp-up, the costs are definitely, you know it has been in line with a normal operation. Now that being said, we hadn't provided that information. You can use some of the information of the financial information, to get an estimate. But I can tell you Craig, that we are looking and we are trying to revisit that position definitely in line with the plan and the operation being more stable. That's definitely something that we are looking to provide in the future.Craig Hutchison - TD Securities
Okay. Thank you.
Thank you. (Operator Instructions). The next question is from Terence Ortslan of TSO & Associates. Please proceed.Terence Ortslan - TSO & Associates
I apologize, I got cut off in between. I am sure you can answer the question, or did you get all the questions Kay, with respect to parliamentary approval of certain parts of the discussion or conclusion?Kay Priestly - CEO
I am sorry Terence, can you ask that question again?Terence Ortslan - TSO & Associates
The question was about the -- at what level the parliamentary approvals are needed for the discussions you are having and instead of just the security council or at the government level?Kay Priestly - CEO
Terence, the government has made it clear that parliamentary approval is not required for these items. We are working with the various ministries where required and the Oyu Tolgoi board unanimous approval of the project financing is required there, and that includes the three representatives from the government.Terence Ortslan - TSO & Associates
And the tax issue, remind me please, SouthGobi sale, was it conditioned upon the tax issue being resolved?Kay Priestly - CEO
You're talking about the SouthGobi tax issue?Terence Ortslan - TSO & Associates
Correct. I guess the last time on your call, you made that share divestment, is it subject to the tax issue as well, or is it -- the buyer assumes the liability for that?Kay Priestly - CEO
Well we have a signed purchase agreement that -- and they are very aware that we have the tax case coming up, August 25. So again, South Gobi believes that we have -- SouthGobi has paid all its taxes properly, and is defending this case vigorously. So the agreement between TRQ and the purchaser, right now, they are aware of this and we are not providing the details of the agreement, but we feel very strongly that this tax issue will be resolved.Terence Ortslan - TSO & Associates
Okay. And I am sorry, one lat question on the concentrates, are you going to keep the level of the contracts or you will increase the contractual amount from the level of discourse today, going forward?Kay Priestly - CEO
Terence I am not sure you are asking about the concentrate sales?Terence Ortslan - TSO & Associates
Correct. The contractual agreements you have? Going forward, 85% committed, you will increase there you will keep it at the -- keep shifting percentage at the spot level going forward?Kay Priestly - CEO
Well we have 100% committed for this year.Terence Ortslan - TSO & Associates
Correct.Kay Priestly - CEO
And then I think we have over 90% committed for 2015 now, 92%.Terence Ortslan - TSO & Associates
But the rest of it is base upon the open pit production, not underground production, correct?Kay Priestly - CEO
The underground production doesn't start until much later, so this is all based on the open pit, our estimate of the open pit production.Terence Ortslan - TSO & Associates
Correct. But this further, I think going forward you disclosed that 85% is committed for going back, I think 2020 something like that. But is that only for the open pit site, and not the underground? Nothing has been committed from underground?Kay Priestly - CEO
Yeah. I don't think we have anything committed from the underground right now Terence. It is going to be a ramp-up period. Right now, our focus is on the open pit. But we are focused on the longer term contracts, and we have extensions of up to 10 years, so at that point, because its based on percentages of production, it would -- the underground would start replacing the open pit.
So to answer your question, what we are focusing on is long term contractual arrangements with these smelters, that as we progress and start producing from the underground, that it would be included in these agreements. Now we do annually review the terms of the agreements, but we are developing long term relationships.Terence Ortslan - TSO & Associates
Finally, I have asked this question many times before, but opportunity always exists or by -- when you review those feasibility studies and possibilities, its always possible, and gearing-wise quite likely, you may be able to shrink or decrease the time element in the critical path for production. In this feasibility study of the underground, have you achieved some landmarks, whereby, it will be less than the original time periods disclosed to the public?Kay Priestly - CEO
Well Terence, we haven't finalized a schedule for the underground at this point. We are still working through finalizing that as we speak. So we don't really have any updated information on the schedule yet.Terence Ortslan - TSO & Associates
When do we expect that?Kay Priestly - CEO
Again -- Stewart, I will let you take that.Stewart Beckman - SVP, Operations and Technical Development
It will be [indiscernible]. Let me take the feasibility report and going through the process. We are, as far as possible, in parallel, preparing the technical report and so that we will be in a position to issue that, in a timely manner, when its appropriate for us to do so, and the schedules will be in there. And I think that's to do with the current level of uncertainty, with what's going on, those issues are certainly a significant driver of value and that depends on when we are able to settle these issues and restart the mine.Terence Ortslan - TSO & Associates
Thank you very much.
Thank you. The next question is from Daniel McConvey of Rossport Investments. Please proceed.Daniel McConvey - Rossport Investments
Hello Kay and everyone. Two questions. Kay, is it fair to say that the willingness of the government and the different authorities there now is picking up, as you get closer to that deadline?Kay Priestly - CEO
Daniel, I can say, it is fair to say that they are very engaged, and working through these issues with us expeditiously. So there is a willingness of the government to move forward and reach resolution on these issues.Daniel McConvey - Rossport Investments
Okay. Thanks. Thank you. Stewart, I just want to follow-up my question last quarter just a little bit, the blockading qualities of the underground, how would you compare it to maybe other Rio projects etcetera. Is it -- in terms of its caving qualities?Stewart Beckman - SVP, Operations and Technical Development
Okay. So I think last time, what I'd say it was, and its -- we have seen the technical report, there is quite on a lot on the [indiscernible]. We have no concerns about how well will we cave, and certainly, we have no severities into the [indiscernible] engineering, and most of our contingency sticks to -- in making sure that the -- its attraction levels are [indiscernible]. Ore body, which means that it paid well, and means that it presents some more challenges at the extraction level. But we don't have any concerns at all about how well the cave will go.Daniel McConvey - Rossport Investments
Okay. Thank you. So could you just repeat the focuses on -- I missed some words with the static?Stewart Beckman - SVP, Operations and Technical Development
Okay. So the focus is on making sure that the level is below the case, so where we drill through [indiscernible], and the extraction at those levels, making sure that as the cave propagates that moves some of the stresses, that are transferred from the cave mass down below to that operating [indiscernible].Daniel McConvey - Rossport Investments
Okay. But no more so --Stewart Beckman - SVP, Operations and Technical Development
We are on that [indiscernible]. And subsequent to that, we have done most which will complement the previous, and that will be [indiscernible].Daniel McConvey - Rossport Investments
Okay. Thanks Stewart.
Thank you. The next question is from Oscar Cabrera of Bank of America. Please proceed.Oscar Cabrera - Bank of America
Thank you, operator. Good morning, afternoon and evening everyone. I just wanted to confirm that you said that you would not spend any money until you have a resolution from the government? And the reason I am asking this question is, in Rio Tinto's presentation for the first half results, they have included some capital foryou’re your [indiscernible] underground? And I think you mentioned this in your remarks already?Kay Priestly - CEO
Yes Oscar. I was just confirming that its important that the stability of the investment agreement be withheld, and we need that comfort before we will progress or spend any capital. Having said that, as I mentioned, also earlier, we are very focused and engaging with the government, and they are very focused too. All parties want this to go forward. So the plan is to go forward. And I can't speak on behalf of Rio Tinto in there -- and what's in their capital plan, but the plan is, that we will reach resolution and we will move forward with the underground.
Having said that, we are at a critical juncture right now. We have these key issues that need to be resolved, and I just want to emphasize, that our position hasn't changed Oscar, that these four key issues are critical, and we need to resolve those before we move forward with progressing the money -- spending the money and moving forward with the underground.Oscar Cabrera - Bank of America
That's good. Thanks very much for that. Assuming that everything goes according to plan, and you do get a resolution by September 30, can you remind us how long would you expect to get people back into the underground, and when would you -- when could we expect production from the underground to start?Kay Priestly - CEO
Stewart, why don't you take that question from Oscar?Stewart Beckman - SVP, Operations and Technical Development
Right. I guess Oscar, that's one of the key outstanding pieces of work in the [indiscernible] to understand when we will get confirmation from them to pursue. It will take us some time to make that up. We have maintained key engineering in a fairly small time. We are continuing to progress with implementing nice contracts. We are -- at the bit of the moment, on nearly 15 contracts, and are working on a number of other key contracts. So there is not to delay the restart as far as [indiscernible] and timing of course. The relationship with the -- particularly the Mongolian Mining Authority [indiscernible] in the contracts.
It will depend a little bit on how much fund we get for the restart, how long it will take to bring that out; and we have -- and of course, we are running different scheduled iterations specifically to bring the underground back up. We have some clarity in the need to [indiscernible] building what we believe are the central taxes, but that is to finalize the feasibility study. [indiscernible].Oscar Cabrera - Bank of America
But I mean, would it be too aggressive to assume that production can be resumed or you can get production from the underground by 2019?Stewart Beckman - SVP, Operations and Technical Development
That's possible [indiscernible] depending on when you get the restart.Oscar Cabrera - Bank of America
Moving on to another subject, I know this is not -- its still important, but this is not a material amount in -- within Turquoise, but SouthGobi, you sold half of your holdings, and just wondering, the company is going through really difficult times because of metal prices. You have provided a line of credit to the company, and there is a debenture payment coming due. In the event that the company doesn't have liquidity to pay that -- or to come up with a payment, would you still support that, or if you can provide context around your -- the remainder of the equity holding, what is expected over there?Kay Priestly - CEO
Well Oscar, Turquoise doesn't have any current plans for the remaining equity holding. Although, the company continues to evaluate alternative. I think we previously indicated, that we remain focused on managing OT, our core asset. The agreement was entered into, and there as a special committee of the Turquoise Hill board that worked with CIBC as the financial advisor. We view the various options, and as you referred to, because of the liquidity situation, this transaction appeared to maximize value, and also provide a good path forward for SouthGobi from a liquidity standpoint.
So we have to see how things unfold, but we continue to be focused at the Turquoise Hill level on Oyu Tolgoi is our key focus going forward.Oscar Cabrera - Bank of America
Great. Best of luck Kay. Thank you.Kay Priestly - CEO
Thank you, Oscar.
Thank you. There are no further questions registered at this time. I would now like to turn the meeting over to Ms. Kay Priestly. Please proceed.Kay Priestly - CEO
Okay. Thank you, operator, and I want to thank everyone for joining us today. This concludes our call. Thank you.
Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.
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