Turquoise Hill income surges in 2018

Turquoise Hill Resources (TSX: TRQ; NYSE: TRQ) reported 2018 income of US$394.3 million — a 255.4% jump over 2017’s US$110.9 million — driven by an increase in gold production and sales from its Oyu Tologi copper-gold mine in Mongolia.

Gold production surged 150% year-on-year to 285,000 ounces, while copper production of 159,100 tonnes marked a 1.1% increase over 2017.

Revenue of US$1.2 billion was 25.6% higher than 2017’s US$939.8 million, and cash generated from operating activities reached US$180 million, up from US$118 million in 2017.

Cost of sales came in at US$777.2 million compared with US$763.8 million in 2017.

Cost of sales was US$2.25 per lb. copper sold in 2018, compared with US$2.32 per lb. copper sold in 2017, reflecting higher volumes of metals in concentrate sold and reduced unit costs of production.

All-in sustaining costs came in at US$2.20 per lb. of copper produced in 2018, compared with US$2.39 per lb. copper produced in the year-earlier period.

The strong financial results were a combination of higher gold production and reduced unit costs of production from higher head grades and recoveries (which benefited from the processing of Phase 4 ore that contained higher gold content).

In addition, the balance sheet benefited from reduced depreciation and depletion due to certain long-lived assets reaching the end of their depreciable lives and lower finance costs due to higher amounts capitalized to property, plant and equipment.

As for underground development work at Oyu Tolgoi, the company reported underground lateral development advanced 10.3 equivalent kilometres in 2018, a 68.9% increase over 2017.

Capital spent on the underground expansion last year reached US$1.2 billion, for a total of US$2.3 billion invested between January 2016 and December 2018.

Oyu Tolgoi was initially developed as an open-pit operation. The copper concentrator plant was originally designed to process about 100,000 tonnes of mineralized material per day and is now operating at 105,000 tonnes per day. This year the company is targeting a throughput rate of 110,000 tonnes per day for a total of 40 million tonnes in 2019.

The company forecasts a delay to sustainable first production from the first quarter of 2021 to at least the end of the third quarter of 2021. Project costs are expected to remain within the US$5.3 billion budget.

Turquoise Hill expects to produce 125,000 to 155,000 tonnes of copper and 180,000 to 220,000 oz. gold in concentrates this year.

Late last year the company signed a Power Source Framework Agreement with the Mongolian government, which provides a binding framework and path forward to build a power project at Tavan Tolgoi and create the basis for a long-term source of domestic power for Oyu Tologi.

Oyu Tolgoi, 550 km south of Ulaanbaatar, Mongolia’s capital, is 80 km north of the country’s border with China.

Mineralization consists of porphyry-style copper, gold, silver and molybdenum and makes up part of a linear structural trend of deposits that include Heruga, Oyut, and the Hugo Dummett deposits (Hugo South, Hugo North and Hugo North Extension).

Shares of Turquoise Hill Resources on the TSX have traded within a 52-week range of $1.94 and $4.37 per share.

At press time in Toronto, its shares were trading at $2.23 apiece. The company has 2.01 billion common shares outstanding for a market cap of $4.5 billion.