Turquoise Hill Resources (TRQ -7.6%) says FY 2013 gross revenue for its Oyu Tolgoi gold and copper project in Mongolia totaled $55M, falling short of initial projections, with some sales expected to be deferred into Q2 and Q3 2014.
TRQ says an option to restart underground development of Oyu Tolgoi has been proposed even as negotiations with the Mongolian government continue to resolve outstanding issues that led to the project's suspension last July.
Further delays in the project may occur if outstanding shareholder issues are not resolved before the expiration of lender commitments on existing project finance arrangements.
Production rates recently were hurt by various post-commissioning issues which will result in the shutdown of one line for up to eight weeks, but TRQ continues to project 2014 output of 150K-175K metric tons of copper in concentrates and 700K-750K oz. of gold in concentrates.
Rio Tinto (RIO) holds a 50.8% controlling interest in TRQ.
Turquoise Hill Resources (TRQ +0.2%) is upgraded to Hold from Reduce with a C$4.50 price target, up from C$4.25, at TD Securities, as the firm foresees higher near-term copper prices and lower long-term gold prices and rolls forward its distributable cash flows estimates for the Oyu Tolgoi mine by one year.
With the rights offering complete, the firm estimates TRQ now has a positive net cash position, which should grow over the rest of the year from strong cash flows generated from Oyu Tolgoi.
The firm expects TRQ to complete an updated feasibility study for Oyu Tolgoi with 6-12 months and resolve the key outstanding issues with Mongolia's government to allow resumption of the underground mine construction.
Turquoise Hill (TRQ +9.7%) shoots higher a day after reporting its Oyu Tolgoi copper and gold mine in Mongolia produced 76.7K metric tons of copper in concentrates during 2013, and inventories are expected to rise during Q1 2014.
Copper and gold in concentrates during Q4 rose 8% and 18%, respectively, Q/Q.
TRQ, which owns a 66% interest in Oyu Tolgoi and is in turn 51% owned by Rio Tinto (RIO +3.5%), says the mine is still producing more concentrate than it is shipping.
Some sales have been deferred to Q2 and Q3, and inventory levels should return to normal by the end of this year, TRQ says.
Turquoise Hill (TRQ -24.1%) founder Robert Friedland says he plans to participate fully in the company's $2.4B rights issue; the mining tycoon owns a 10% stake in TRQ, which means he would have to pay ~$240M if he takes up his share of the rights issue.
More than 1B shares are expected to be issued, resulting in a doubling of TRQ's shares outstanding; the rights will stop trading on Jan. 7.
Also, Friedland, the executive chairman of Ivanhoe Mines (IVAN), says he remains interested in pursuing a secondary listing for that company.
Turquoise Hill (TRQ -26.7%) shares are sharply lower as the rights issued under the miner's recent $2.4B rights issue began trading on a when-issued basis today in Toronto.
More than 1B shares are expected to be issued under the rights offering, resulting in a doubling of TRQ's shares outstanding.
TRQ will use the proceeds to repay Rio Tinto (RIO +2%)for a $600M bridge loan and $1.8B in interim funding, and to use any remaining funds for the continued financing of the Oyu Tolgoi copper-gold project; TRQ has stumbled in its negotiations with the Mongolian government over financing for the mine.
Turquoise Hill's (TRQ +8.1%) rights offering, first announced two weeks ago, is expected to yield gross proceeds of $2.4B. Net proceeds will be used to both fund the Oyu Tolgoi project, and to repay all sums outstanding under Turquoise's $1.8B interim funding facility and $600M bridge facility.
Each Turquoise Hill shareholder will receive the right to purchase one share for each share owned as of Dec. 6, at a price of either $2.40 or C$2.53..
The rights will begin trading on the NYSE/Nasdaq on Dec. 3, and expire on Jan. 7. Turquoise expects to issue 1.006B shares via the offering.
Rio Tinto (RIO) has agreed to purchase any shares not taken up through the rights offerings, in return for a 3% standby commitment fee.
Turquoise Hill Resources (TRQ -7.1%) sinks at the open on plans for a new rights offering to fund expansion of the Oyu Tolgoi mine, citing uncertainty around talks with the Mongolian government that has delayed financing.
TRQ says discussions with the government are continuing in order to reach agreement on outstanding issues: "There is positive engagement between the parties and progress is being made."
TRQ and Rio Tinto (RIO) will extend the maturity date of the interim funding facility and the new bridge facility to no later than Jan. 15, 2014 to allow for completion of the rights offering.
The Oyu Tolgoi concentrator consistently achieved throughput capacity of above 95% of capacity during Q3 and is now operating at nameplate capacity of ~100K metric tons/day of ore; operations continue to progressively ramp up and are now expected to produce 72K-77K metric tons of copper in concentrates for 2013.
Turquoise Hill Resources (TRQ -2.7%) says it will restate financial results for 2010-12 and part of this year after its SouthGobi (SGQRF) subsidiary decided to change the way it recognizes revenue.
SouthGobi, which produces coal at the Ovoot Tolgoi mine in Mongolia, says some sales were booked after delivery to the customer’s stockpile at the mine; the restatement will reflect the recognition of revenue after the coal is loaded onto the customer’s trucks.
TRQ owns a 58% stake in SouthGobi, and Rio Tinto (RIO) owns 51% of TRQ.
Turquoise Hill Resources (TRQ) says the Oyu Tolgoi concentrator in Mongolia continued to ramp up during Q3 and is now operating at nameplate-capacity of ~100K metric tons/day of processed ore, and expects to produce 75K-85K metric tons of copper in concentrates for 2013.
Given the mine and concentrator are still early in development and operation, ore grades and recovery rates are expected to improve throughout Q4, TRQ says.
Oyu Tolgoi was supposed to start shipping copper concentrate to China shortly after the mine opened in July, but instead has been forced to stockpile the material while buyers negotiate with Chinese customs officials over import approvals.
While key issues remain to be resolved, progress was made in last weekend's talks, and the government would be willing to tackle some of its minor concerns after work resumes on the underground mine, the official says.
The expansion is vital to Mongolia as it is expected to boost the economy by a third by 2020 and is key to Rio's effort to ease its dependence on iron ore; Rio's Turquoise Hill (TRQ -0.9%) unit owns a 66% stake in the mine.
The layoff comes after months of disagreement between the government and Rio over how to share revenue from the mine.
On Aug. 12, Rio's Turquoise Hill (TRQ -2%) unit, which owns 66% of the mine, said funding and development of the mine’s underground expansion would be delayed until "matters can be resolved with the Mongolian government and a new timetable has been agreed."