Turquoise Hill (TRQ) has just announced its fourth-quarter production numbers and provided guidance for 2020. The stock has recently had material upside after the Mongolian parliament approved the resolution that instructed the government to improve investment agreements for Oyu Tolgoi (I wrote about it here). Now, it’s time to look at what happened on the operational front.
The company reported full-year copper production of 146,346 tons (most recent guidance was 125,000 – 155,000 tons) and gold production of 241,840 ounces (most recent guidance was “up to 230,000 ounces”). This is a strong performance with no negative surprises which is good for the shares that still try to leave the penny stock zone.
More importantly, the company provided its 2020 guidance and outlook for 2021. This year, Turquoise Hill expects to produce 140,000 – 170,000 tons of copper and 120,000 – 150,000 ounces of gold. The decrease in gold production is due to the need to mine through lower grade material. At current prices for gold and copper, the revenue hit will be about $100 million as the increase in copper production will mitigate the negative effect from lower gold production but will not be able to fully replace the “missing ounces”. In 2021, gold production will increase to as much as 450,000 – 500,000 ounces, while copper production will increase to 170,000 – 200,000 tons.
Meanwhile, Turquoise Hill will continue to spend heavily on the underground development of the mine. The capex budget for underground development in 2020 is $1.2 billion - $1.3 billion. At the end of the third quarter, Turquoise Hill had $1.6 billion of cash on the balance sheet, so company will likely add more debt to the balance sheet sometime this year as this is not the last year of heavy spending. Importantly, this is a capex budget presented “exclusive of
