Turquoise Hill Has Good Chances To Get Above $1.00

Summary

• The company has recently provided an update on Oyu Tolgoi feasibility study.
• Some reserves have been transferred to resources. Other than this, there are no material problems.
• The company's liquidity outlook has improved, and it abandoned interim funding negotiations with Rio Tinto.
• These negotiations were a true bomb under the stock. Now that they have been finished, the company's risk profile has materially improved as dilution risks were eliminated.

At the end of June, I wrote an article about Mongolia's decision to build a power plant for Oyu Tolgoi and the impact of this move on Turquoise Hill Resources (TRQ). Since then, the company has published an update regarding the completion of the 2020 Oyu Tolgoi Feasibility Study and the stock gained upside momentum:

It's high time to look at the key parts of this update:

1. Turquoise Hill maintains the previous additional capital estimate of $1.3 billion - $1.8 billion. According to the press release, "more detailed cost and schedule update will be provided in connection with the definitive estimate review, expected to be completed before the end of the year". These numbers have been published before, so there is no surprise for the market.
2. The company noted that its liquidity outlook has improved. It looks like the key factors in the improved outlook were Mongolia's decision to build the power plant on its own and the major rebound of the copper price. In this light, Turquoise Hill will have the liquidity to fund its operations beyond Q3 2021, which was previously indicated as a "liquidity cliff". Even more importantly, talks with Rio Tinto (RIO) have been abandoned for now: "Based on this improved liquidity outlook, Turquoise Hill has, for the time being, decided to defer further discussions with Rio Tinto regarding possible interim funding arrangements". This is a major relief for Turquoise Hill shareholders. Back in March, there was a real possibility that Rio Tinto will demand an increased share in Turquoise Hill in exchange for financial help at dire times.
3. Some reserves have been transferred to resources under the new plan. Previously, mineral reserves at Hugo North were 7.9 million tons of copper and 5.4 million ounces of gold. Now, they have decreased to 6.7 million tons of copper and 4.5

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in TRQ over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I may trade any of the above-mentioned stocks.