After a period of uncertainty, the Oyu Tolgoi underground project ends the year on a high note. Belying apprehensions, in late November the Mongolian Parliament gave an unconditional go-ahead to continuing with the work under the existing agreements – admittedly with the proviso that the Government must try to derive more benefit from them for Mongolia – and construction of shaft 2 -- the major shaft to transport underground ore to the surface – was complete. Ulf Quelmann, CEO of Turquoise Hill Resources, was present at the ceremony on 13 December to inaugurate operations of the shaft, and MMJ spoke to him on the state of the project and the mood of the investors.
Is this your first visit to the Oyu Tolgoi mine site?
No. I have been in Ulaanbaatar and the site almost every month over the past six months. This is a wonderful country with great people, and I try to learn more about its rich cultural history on each visit.
How important is the completion of the shaft?
It is a significant milestone in the development of the world class mine. Importantly, the shaft was constructed by a predominantly Mongolian workforce. There were some challenges, but we overcame them and now look forward to using shaft 2 to accelerate our underground development. This shaft is one of the largest in the world, but we saw it as just one component of an incredibly complex project.
What’s the next major milestone?
Finalizing the new mine design. We expect to do this in early 2020.
When Turquoise Hill Resources (TRQ) share prices were bottoming out, some blamed it on Rio Tinto’s “mismanagement” of the project. Do you agree with this?
For mining projects of this scale, delays are not uncommon, and these can impact stock performance. However, what we are focused on is ensuring that Oyu Tolgoi is built to last decades and operate in the safest manner possible for our workforce. This will in turn provide our shareholders with the greatest returns.
How is the power plant project progressing?
We continue to work with the Government of Mongolia to move the power project forward and are at an advanced stage with the process of awarding a turnkey EPC contract.
What do you think about the Mongolian Parliament’s resolution, especially in regard to the proposed review of water usage assessment? How do you view the possibility that Mongolia would offer to surrender ownership and opt for royalty?
The resolution is a positive step in the right direction and reflects Mongolia’s commitment to work together with us to develop the underground mine. The existing agreements have allowed for the development of the mine and we remain committed to exploring ways to deliver even greater benefits from Oyu Tolgoi to all shareholders.
Regarding water conservation, Oyu Tolgoi has won the IFC’s Volunteer Code of Practice Water Stewardship Award in 2018. Water conservation is a top priority and our annual water recycling rate is 88%.
How do you deal with the cost inflation for the expansion work? What’s the deadline in terms of raising additional funding? Do you have enough financing to carry on with the underground project in 2020?
Turquoise Hill expects to have enough liquidity to fund the underground development into Q1 2021 but we shall need incremental funding to sustain the work through completion. We continue to look at all funding options and have suggested to Rio Tinto the best sources for the incremental funding.
Could you give us some details about the project’s production guidance for 2020 and capital expenditure guidance for both the open pit and the underground projects?
We expect to release our 2020 production and capital expenditure guidance in early January.