Turquoise Hill’s Checkbook Takes Hit on Oyu Tolgoi Issues

As the company faces delays and cost hikes at the Oyu Tolgoi copper mine, Turquoise Hill Resources (TSX:TRQ,NYSE:TRQ) saw losses of US$736.7 million over Q2.

The financial blow to the company was cushioned by revenues of US$382.7 million, which represents a 12 percent increase from Q2 2018. However, the loss still marks a stark contrast from Q2 2018’s profits of US$204.4 million.

According to the company, an impairment charge of US$0.6 billion at Oyu Tolgoi’s cash-generating unit was a primary cause of the losses.

The company owns a 66 percent stake in the project through its majority shareholder Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO), while the other 34 percent belongs to the Mongolian government.

While the project is set to become one of the world’s largest copper mines, its developing underground component was hit with a significant cost and timeline hiccup in mid-July.

Due to potential stability risks in underground mine design, the layout is now being re-examined, pushing first production back by as much as 30 months.

Expected development costs also rose from US$5.3 billion to a range of US$6.5 billion to US$7.2 billion.

Despite these difficulties, Oyu Tolgoi produced 39,156 tonnes of copper and 71,825 ounces of gold over the last quarter. Copper guidance for 2019 remains the same at 125,000 to 155,000 tonnes, while the upper end of gold production guidance grew from 220,000 to 230,000 ounces.

Compared with Q2 2018, copper production dropped 0.6 percent due to decreased head grade. However, gold production grew 43.7 year-over-year due to a 19 percent increase in head grade.

All-in sustaining costs were US$1.54 per pound of copper produced, versus US$2.42 per pound in Q2 2018. The decrease came primarily as a result of higher gold sales.

As of 11:42 a.m. EDT in Toronto, Turquoise Hill’s share price was down 1.33 percent at C$0.74.

As of Wednesday (July 31), copper was trading at US$5,925.50 per tonne on the London Metal Exchange.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.