Turquoise Hill stocks rise despite narrower FY profit

VANCOUVER (miningweekly.com) – The NYSE-listed stock of Rio Tinto subsidiary Turquoise Hill Resources rose sharply after market close on Monday, gaining nearly 6% to $3.24 a share, after the company reported a full-year profit for 2016 and a positive production outlook for this year.

In 2016, Turquoise Hill recorded net income attributable to shareholders of $210.6-million, or $0.10 a share, compared with net income of $313.3-million, or $0.16 a share, in 2015.

The company attributed the decrease mainly to fewer gold ounces sold on the back of lower output and copper prices, partly offset by cost reductions and adjustment to deferred tax assets.

Revenue of $1.2-billion in 2016 was down 26.4% over 2015, mainly reflecting the reduced gold sales and lower copper prices, which were partially offset by higher gold prices.

Concentrate sold in 2016 of 828 600 t was up 1.1% over 2015, reaching an all-time yearly high.

Cost of sales for 2016 were $861.8-million, compared with $975-million in 2015, reflecting lower sales of metals in concentrate and reduced cost of production as a result of cost savings. Turquoise Hill said operating cash flows before interest and taxes in 2016 were $399.2-million, compared with $650.5-million in 2015. This reflected the impact of reduced gold output and lower copper prices.

Capital expenditure (capex) on property, plant and equipment was $326.3-million on a cash basis in 2016, compared with $116.2-million in 2015, attributed to both underground and openpit capital activities.

Turquoise Hill’s cash and cash equivalents as at December 31, were $1.4-billion.

OYU TOLGOI
The massive Oyu Tolgoi mine, located 550 km south of Ulaanbaatar, Mongolia’s capital city, is said to have performed well during the fourth quarter, as openpit operations focused mainly on phases 4 and 6.

Concentrator throughput increased 7.4% over the prior quarter, pushing the average throughput rate up to 106 700 t/d for the quarter, which was a quarterly high.

Copper production in the three months ended December was broadly consistent with the prior period, while gold output increased 32.4% over the third quarter, owing to the final processing of Phase 2 ore. Copper grades in the fourth quarter were as expected as operations focused mainly on Phase 6 of the openpit.

Oyu Tolgoi is expected to produce 130 000 t to 160 000 t of copper and 100 000 oz to 140 000 oz of gold in concentrates this year.

Openpit operations are expected to mine in phases 4 and 6 during the year, while stockpiled ore will also be processed during the year.

The lower output when compared with 2016 is mainly the result of about one-quarter less copper head grade and about one-half less gold head grade. During 2016, the mine plan for Phase 4 was divided into two stages, referred to as Phases 4A and 4B, in expectation of reaching the high-grade gold zone of Phase 4 around mid-2018. Therefore, mine stripping for 2017 will focus on Phase 4A.

Operating cash costs for 2017 are expected to be about $720-million, compared with $775-million in 2016. The reduction reflects cost improvements and the impact of lower logistics costs from decreased production.

Capex for 2017 on a cash basis is expected to be about $100-million for openpit operations and $825-million to $925-million for underground development.

Significant underground development programmes are currently under way, including underground lateral development, sinking of shafts 2 and 5, support infrastructure and the convey-to-surface system. At the end of 2016, the underground project workforce had grown to more than 2 000 people with continued growth expected to peak in 2018.

Rio Tinto operates the massive Oyu Tolgoi copper/gold mine, which is 66% owned by its Turquoise Hill arm and 34% owned by the Mongolian government.