1 Mongolia - Oyu Tolgoi Copper/Gold/Silver Mine Project Trip Report
Annual Oyu Tolgoi Mine Visit October 3-5, 2017 Oyu Tolgoi ... · Oyu Tolgoi: Leading long-term...
Transcript of Annual Oyu Tolgoi Mine Visit October 3-5, 2017 Oyu Tolgoi ... · Oyu Tolgoi: Leading long-term...
Oyu Tolgoi:
Leading long-term
copper growth opportunity
Annual Oyu Tolgoi Mine Visit
October 3-5, 2017
Forward-looking statements 2
This presentation includes certain “forward-looking information” within the meaning of applicableCanadian securities legislation and “forward-looking statements” within the meaning of the “safe harbour”provisions of the United States Private Securities Litigation Reform Act of 1995.
All statements and information, other than statements of historical fact, are forward-looking statementsand information that involve various risks and uncertainties. There can be no assurances that suchstatements or information will prove accurate and actual results and future events could differ materiallyfrom those expressed or implied in such statements. Such statements and information contained herein,which include, but are not limited to, statements respecting anticipated business activities, plannedexpenditures, corporate strategies and other statements that are not historical facts, represent theCompany’s best judgment as of the date hereof based on information currently available. The Companydoes not assume any obligation to update any forward-looking statements or information or to conformthese forward-looking statements or information to actual results, except as required by law.
For a more detailed list of specific forward-looking statements and information applicable to the Company,refer to the Forward-Looking Information and Forward-Looking Statements sections of the AnnualInformation Form dated as of March 23, 2017 in respect to the year ended December 31, 2016.
All amounts are in U.S. dollars, unless otherwise stated.
Cover photo: Sinking of Shaft 2
Oyu Tolgoi Open-Pit OperationsStephen JonesCOO, Oyu TolgoiOctober 2017
2БҮХ ЭРХ ХУУЛИАР ХАМГААЛАГДСАН © 2017, ОЮУ ТОЛГОЙ ХХКCOPYRIGHT © 2017 OYU TOLGOI , ALL RIGHTS RESERVED
The safety journey
0
20
40
60
80
2012 2013 2014 2015 2016 2017
Injury rates have reduced significantly One of the best AIFR in Rio Tinto Robust manual handling reduction program Successful implementation of CRM program Continuing roll-out of Process Safety program Significant incidents continue to occur Complacency risk with maturing workforce
Num
ber o
f Inj
urie
s
Significant Incidents(2016 - 2017)
3БҮХ ЭРХ ХУУЛИАР ХАМГААЛАГДСАН © 2017, ОЮУ ТОЛГОЙ ХХКCOPYRIGHT © 2017 OYU TOLGOI , ALL RIGHTS RESERVED
Production achievements
76,919 91,771 96,938
49,527
2014 2015 2016 1H'17
Total material mined('000 tonnes)
27,872
34,537 38,152
19,724
2014 2015 2016 1H'17
Concentrator throughput('000 tonnes)
148.4
202.2 201.3
75.3
2014 2015 2016 1H'17
Copper production('000 tonnes)
589653
300
49
2014 2015 2016 1H'17
Gold production(‘000 ounces)
Leading Rio Tinto haul truck performance Throughput target of 40 million tonnes for 2017
2017 copper production impacted by composition of Phase 6 ore 2017 gold production impacted by low grade Phase 6 ore
4БҮХ ЭРХ ХУУЛИАР ХАМГААЛАГДСАН © 2017, ОЮУ ТОЛГОЙ ХХКCOPYRIGHT © 2017 OYU TOLGOI , ALL RIGHTS RESERVED
TailingsFacility
WasteDumpsPrimary
Crusher
2016-18 Ore(Phase 6, Stockpiles)
Finished Mining(Phase 1-3)
Final OpenPit 2018-22 Ore
(Phase 4-5)
Managing current ore grade challenges Open pit phases 1-3 now completed
Currently mining lower-grade phase 6 and stockpile ore
Waste movement from phase 4 is on plan (8 benches this year)
Higher grade ore from Q3’18
5БҮХ ЭРХ ХУУЛИАР ХАМГААЛАГДСАН © 2017, ОЮУ ТОЛГОЙ ХХКCOPYRIGHT © 2017 OYU TOLGOI , ALL RIGHTS RESERVED
Focus on reducing cash costs
Source: Oyu Tolgoi
Business improvement programs have been in place since 2014 delivering value across productivity, operating costs, sustaining capex and working capital.
The program values one-off savings, sustaining capital reductions and net working capital (NWC) reductions at 10% of face value.
Program is key platform for ensuring Oyu Tolgoi open-pit operations remain free cash flow positive.
6БҮХ ЭРХ ХУУЛИАР ХАМГААЛАГДСАН © 2017, ОЮУ ТОЛГОЙ ХХКCOPYRIGHT © 2017 OYU TOLGOI , ALL RIGHTS RESERVED
The cash journey continues
What to do
How to make it happen
Estimate the opportunitywithin the business using an approach based on investor due diligence
Developing an execution plan (initiatives and financial projections) which is fully owned by the management team
Launching a full-scale effort to drive value to the bottom-line
Bottom-up planning
Top Down Assessment
Execution Phase1 2 3
6-8 weeks4-6 weeks 12-18 months+
Change management
Building the leadership, infrastructure, and mindsets to drive and sustain the transformation4
Performance infrastructure
Tracking the progress of the transformation supported by a cadence to ensure superior execution5
7БҮХ ЭРХ ХУУЛИАР ХАМГААЛАГДСАН © 2017, ОЮУ ТОЛГОЙ ХХКCOPYRIGHT © 2017 OYU TOLGOI , ALL RIGHTS RESERVED
2000 South Gobi residents employed at mine site (including 1100 from Khanbogd)
2016 South Gobi procurement spend of 150B MNT, and on track to exceed this value in 2017
Gobi-Oyu fund has delivering significant benefits (BO hospital, DZ sports hall, herder programs)
Further substantial direct investments from OT (KB water, BO/ML sports halls, KB road)
Additional Gobi-Oyu fund support in 2017 (KB school, KB animal clinic, ML heating plant)
Local herder complaints resolution agreement signed
Khanbogd logistics convoy Khanbogd water plantKhanbogd road construction
Bayan-Ovoo hospital
Dalanzadgad Sports Hall
South Gobi stakeholder engagement success
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Oyu Tolgoi Underground ProjectMarco Pires, Chief Development Officer
Annual Oyu Tolgoi Mine Visit – October, 2017
Shaft #1 development crusher
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017
Project at full steam and targets unchanged
• 1 million man-hours per month currently being performed
• Outstanding safety performance
• Higher than planned Mongolian workforce
• Lateral Development aligned with original schedule
• Current development productivities higher than plan
• First drawbell planned mid-2020
• Full ramp-up planned by 2027
• Average of 560,000 tonnes of copper from open pit and underground expected 2025 – 2030*
2
* This production target was previously reported in a release to the market on 6 May 2016. All material assumptions underpinning the production target continue to apply and have not materially changed.
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017
Complete ramp-up expected by 2027
Concentrator upgrade
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Project re-start
1st drawbell firing*
Sustainable underground production Complete convey to surface
Complete ramp-up
Excavation (lateral / mass / vertical)
Material handling (conveyto surface + crushers + shafts)
Extraction level access
Surface infrastructure
Complete concentrator upgrade
Timeline is illustrative only and subject to change
Expansion capital
Sustaining capital
Undercutting
Excavation (lateral)
Extraction level access
Pre-start
* Oyu Tolgoi is currently undertaking a schedule & cost review
3
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017
Workforce ramp-up
• Workforce ramp-up was particularly high-risk period for project
• 2017 safety management strategy focus on Critical Risk Management, Xamtdaa (working together program), enhanced leadership safety accountability, fatigue management and safety deep dives
• Safety performance through July 2017 significant given challenges of on-boarding more than 4,000 people to Oyu Tolgoi safety culture over a short timeframe
• Mongolian nationals 87% of workforce, higher than planned, on site
4
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017
Summary progress
• Nine million man-hours with 0.45 AIFR* and effective program in place to prevent fatalities (CRM**).
• Energized culture with more than 87% Mongolians in the workforce. Safety has been embraced as key value.
• Engineering and lateral development on plan.
• Key first-stage enabling facilities (crusher and dewatering system) complete.
• Shaft #5 behind plan but higher productivities in lateral development removed this activity from critical path.
• Shaft #2 all major work packages are in the market.
• Convey-to-surface progress impacted by box cut wall remediation; on track to recover.
• Project cost currently forecast on plan.
• Following 12 months of construction, a standard project schedule/cost review underway.
* AIFR upper limit of 0.41 for 2017 target, 0.45 refers project-to-date.** Critical Risk Management
5
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017941855
Upcoming milestones
• Shaft #2 fully commissioned with additional crushing capacity as the next critical milestone to enable increased lateral development.
• Oyut II camp to be completed in 2018.
• Shaft #3 and #4 start sinking in 2018.
• Shaft #5 ventilation delivery in 2018.
6
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017
Shaft #2 key to future lateral development
• Shaft #2 sinking and fit-out, material handling system construction and commissioning key to lateral development activity.
• Shaft #2 commissioning very complex and requires coordinated delivery of a number of integrated packages:
• Surface Facilities Structural Mechanical & Piping (SMP) Construction, Electrical & Instrumentation Construction
• Headframe SMP Fit Out
• Equipment Installation
• Underground SMP Construction
• Underground Bin
• Material Handling System
Shaft 2 on critical path
7
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017
• At the end of Q2’17, cumulative lateral development progress was approximately 4,000 eqm and aligned with 2016 Feasibility Study
• New development crusher and the third development crew mobilized; fourth and fifth development crews in training.
Early stage lateral development on plan
8
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017
Convey to surface not on critical path to first drawbell
• Material handling system of approximately 9 km of conveyor, 6,500 tph to match upstream capacity of the material handling system for 100% of Hugo North production.
• Parallel service drift used for equipment transport to service conveyors and provide drive-in access to the Hugo North Lift 1.
9
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Project cost estimate unchanged
As of Q2’17, awarded…
• 34 major contracts to 24 different Mongolian companies, totaling over $500 million for major works.
• over 600 orders/contracts to over 200 different national Mongolian companies for materials and minor works.
• over 80 orders/contracts to over 45 different national Mongolian companies for non-engineering services.
Cost remains forecast* at $5.3 billion (2016-2022)
Over $1.5 billion (committed & spent)
-
500
1,000
1,500
2,000
Approximately $1 billion of contracts awarded to Mongolian companies to date
Annual Oyu Tolgoi Mine Visit – October, 2017
* Oyu Tolgoi is currently undertaking a schedule & cost review
10
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017
Preparing for operational integration
11
• Integration of lessons learned from Phase 1
• Involvement of Surface staff in design and
operability reviews
• Common systems extended to UG
• Common approach to asset management
• Utilise OT resources for efficient and
effective knowledge transfer where
possible
• Alignment of Employment Strategy
• Use of existing standards and processes
• Integrated procurement approach
• Mining staff integration and transition plan
(Surface to UG)
• Future staffing requirements for expanded
surface assets
• Review and upgrade of existing
documentation in preparation for surface
asset tie-ins
To leverage from experience To build on what is working Shaping the future
Underground Operation
Underground Construction
Underground Development for Construction
SurfaceConstruction
Operational readiness II
Operational readiness I
Operational readiness III
SurfaceOperation
2016 20182017 2019 2020 2021 2022
Integrated
Op
eration
2023
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017
Current key focus areas
Safety performanceFocus on higher quality for Critical Risk Management, on fatigue management and leadership safety accountability.
Shaft 2 construction packagesMain enabler infrastructure and key priority for construction in 2018.
Mining development activitiesContinued focus on productivity optimization to delivery the necessary development meters.
12
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Questions?
Oyu Tolgoi:Leading long-term
copper growth opportunity
Jeff TygesenChief Executive Officer
Annual Oyu Tolgoi Mine VisitOctober 3-5, 2017
Key site visit takeaways 2
1. Lateral development and engineering on plan
2. Shaft 2 key to increase in future lateral development activity
3. Completion of Shaft 5 expected in Q1’18
4. Phase 4A gold brought forward into 2018
145 142 156 149
175
264
450
583
622 612
120
156
256
397
475
221
369
522
669
521
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Copper ('000 tonnes) Gold ('000 ounces)
Updated production profile 3
Expected copper production growth 2017 – 2025:
Expected gold production growth 2017 – 2025:
Ph
as
e 4
gra
de
s
Ph
as
e 4
gra
de
s
Ph
as
e 4
gra
de
s
Sou
rce
: 2
016
Oyu
Tol
goiT
echn
ical
Rep
ort
Expected first draw
bell
Expected first
sustainable production
Expected peak
production
Midpoint of guidance
ranges
+320%
+450%
Ph
as
e 4
A
Additional gold production from
Phase 4A
156
Phase 4A production
Phase 4A production
Long-term copper fundamentals strong 4
-
1.00
2.00
3.00
4.00
0
5
10
15
20
25
2000 2005 2010 2015 2020 2025
Base Primary Demand Average copper price
Forecast
Copper mine supply/demand outlook
Temporary copper market deficit in 2017 following major supply disruptions
Ongoing attrition at existing mines driven by declining grade
Continued demand growth requires new capacity in the medium-term
Market expected to return to balance/small surplus from 2018 before moving into deficit from 2020
China now largest buyer of gold and continues to be largest consumer of copper
Source: Wood Mackenzie (Q2’17 Long-Term Outlook); base includes highly-probable projects.
Co
pper
min
e su
pply
/dem
and
–m
illio
ns o
f to
nne
s
Ave
rag
e LM
E c
oppe
r pr
ice
(U
S$
/lb)
First quartile producer
Source: Wood Mackenzie (Q4’16 Cost Service), 2016 Oyu Tolgoi Technical Report and Turquoise Hill Resources. Normal C1 cost + sustaining capex, range capped at -100/lb & 400/lb for base, highly probable and probable mines only.
5
8,000 14,00012,00010,0000 2,000 4,000 6,000
200
300
16,000
400
0
-100
18,000
100
Other Mines
Oyu Tolgoi
Cumulative production (‘000 tonnes)
C/lb, 2016$
Q1 Q2 Q3 Q4
Normal C1 + Sustaining CAPEX(Oyu Tolgoi’s costs and volumes for 2025 – 2030)
Underground mining sequence 6
Panel 2 Panel 1Panel 0
Average grade 2.5% cu
Initial production –three to five drawbells per month
North
South North
Initial underground production begins with Panel 0
Highest copper grades occur during ramp up exceeding 2.5% in several years
2024-2026: Oyu Tolgoi peak copper production during period expected to average > 600,000 tonnes annually due to high grades
2024-2036: Total mine copper production over period expected to average > 500,000 tonnes annually
Following Panel 0, production will move outward with Panels 1 and 2
Five draw bells per month Four draw bells per month
Sources and uses of development capital 7
Sources of development capital (2016 – 2022)
Sources Amount ($B) Note
Oyu Tolgoi operating cash flow ~$2.0 Dependent on commodity prices
Project finance $4.4 + up to $1.6 $4.3 drawn down; remaining remitted by US Ex-Im
Turquoise Hill cash $1.4
Total $9.4
Uses of development capital (2016 – 2022)
Uses Amount ($B) Note
Underground development $5.3 Includes concentrator upgrade
Debt service $3.3 Debt repayment, interest and financing fees
Total $8.6
Estimated long-term cash flow data 8
($ in millions) 2018 2019 2020 2021 2022 2023 2024 2025 2026Indicative net cash flow after tax at Oyu Tolgoi
level1 (1,375) (1,075) (975) (290) 250 1,500 2,350 2,825 2,600
Net finance costs2 150 270 315 350 365 325 260 160 60
Net cash flow after finance costs (1,525) (1,345) (1,290) (640) (115) 1,175 2,090 2,665 2,540
Principal repayments3- - 30 60 510 925 1,230 1,330 1,380
Net cash flow after finance costs and princial repayments (1,525) (1,345) (1,320) (700) (625) 250 860 1,335 1,160
Price assumptions
Copper 2.36 2.58 2.79 3.00 3.00 3.00 3.00 3.00 3.00
Gold 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300
1. Per reserve case cash flow table (22.11) in 2016 technical report; includes all CAPEX.
2. Finance costs less interest income and Turquoise Hill management services payment.
3. Assumes $1.6 billion supplemental debt facility secured in January 2019.
Technical report CAPEX profile
2016e 2016a 2017e 2017g 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e
Underground capital spend profile1
($ billion)
Expansion capital Sustaining capital
Source: 2016 Oyu Tolgoi Technical Report | 1. Expansion and sustaining capital includes VAT and escalation | e = expected, a = actual, g = midpoint of 2017 underground CAPEX guidance
9
$0.5
$0.2
$1.0
$0.9
$1.2 $1.2
$1.3
$0.8
$0.5
$0.3 $0.4$0.3
$0.4 $0.4
Expansion capital of $5.3 billion and sustaining capital of $2.8 billion to full ramp-up expected in 2027
1. Oyu Tolgoi expected to be world’s third-largest copper mine
2. Significant cash flow expected from underground development
3. Hugo North Lift 1 financing in place1
4. Turquoise Hill should benefit from expected drop in copper supply (~2020)
5. Oyu Tolgoi’s resources provide long-term development optionality
Leading long-term copper growth opportunity
1. Financing sources includes project finance facility, supplemental debt (in progress), operating cash flow from Oyu Tolgoi and Turquoise Hill’s cash; excludes power plant CAPEX.
10
Appendix
2016 Resources Case: ~3.4 billion tonnes 12
Oyut Open Pit~900Mt (reserve)
0.44% copper; 0.28 g/t gold
Hugo North Lift 2~700Mt (resource)
1.13% copper; 0.36 g/t gold
Hugo South~300Mt (resource)
1.07% copper0.06 g/t gold
Heruga~700Mt (resource)
0.42% copper0.43 g/t gold; >100Mlb moly
Hugo North Lift 1, panels 0,1,2~500Mt (reserve)
1.66% copper; 0.35 g/t gold
Hugo North Lift 1, panels 3,4,5~250Mt (resource)
0.70% copper; 0.20 g/t gold
Alternative production cases 13
2016 Reserves Case• Concentrator capacity ~40mtpa• NPV8% $6.9 billion1
• Expansion capex $4.6 billion2
2016 Reserves Case• Concentrator capacity ~40mtpa• NPV8% $6.9 billion1
• Expansion capex $4.6 billion2
2016 Resources Case• Concentrator capacity ~40mtpa • Base Case NPV8% $8.4 billion1
• Expansion capex ~ $9.7 billion3
2016 Resources Case• Concentrator capacity ~40mtpa • Base Case NPV8% $8.4 billion1
• Expansion capex ~ $9.7 billion3
Resources 50 Case• Assumes concentrator creep from 40mtpa to 50mtpa with little capital
• NPV8% $9.3 billion1
• Expansion capex ~$9.7 billion3
Resources 100 Case• ~Year 20, concentrator capacity ~100mtpa
• NPV8% $8.9 billion1
• Expansion capex ~$13.5 billion3
Resources 100 Case• ~Year 20, concentrator capacity ~100mtpa
• NPV8% $8.9 billion1
• Expansion capex ~$13.5 billion3
Resources 120 Case• ~Year 20, concentrator capacity ~120mtpa
• NPV8% $8.8 billion1
• Expansion capex ~$14.9 billion3
Resources 120 Case• ~Year 20, concentrator capacity ~120mtpa
• NPV8% $8.8 billion1
• Expansion capex ~$14.9 billion3
1. NPV8% assumes $3.00/lb copper and $1,300/oz gold2. Expansion capital costs include only direct project costs and exclude interest expense, capitalized interest, debt repayments, tax pre-payments and forex
adjustments. In all cases, total capital cost excludes capital costs for the year 2016. Expansion capital for 2016 excluded is $0.46 billion.3. Expansion capital costs inclusive of 2016 Reserves Case expansion capital. Expansion capital costs include only direct project costs and exclude interest
expense, capitalized interest, debt repayments, tax pre-payments and forex adjustments. In all cases, total capital cost excludes capital costs for the year 2016.
Hugo North Lift 1 production schedule 14
Figure: 2016 Oyu Tolgoi Technical Report.
Reserves Case cash flow model 15
Cash Flow Statement (US$M) Year Total
Year Number 1 2 3 4 5 6 7 8 9 10 11 21 31
Year To 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 20 30 40
Gross Revenue 954 923 1,189 1,402 1,735 1,993 3,380 4,434 4,879 4,622 35,422 13,698 8,175 82,806
Realization Costs 263 237 222 212 246 311 513 664 728 709 5,955 2,502 1,206 13,770
Net Sales Revenue 691 686 967 1,190 1,489 1,682 2,867 3,770 4,151 3,912 29,467 11,196 6,969 69,036
Site Operating Costs
Mining 191 182 177 188 188 221 220 250 287 254 3,072 2,158 1,038 8,427
Processing and Tailings 285 295 297 279 266 292 326 328 329 327 3,248 3,193 2,445 11,911
G&A and Operations Support 100 93 94 96 97 96 96 96 92 88 851 586 387 2,771
Infrastructure and Other 65 84 91 41 69 57 69 83 69 30 373 359 371 1,761
Total Site Operating Costs 641 655 659 604 620 665 710 756 776 700 7,544 6,297 4,241 24,869
Operating Surplus / (Deficit) 51 31 307 585 869 1,016 2,157 3,013 3,375 3,213 21,923 4,899 2,728 44,167
Indirect Costs 171 182 180 187 182 178 182 188 178 164 1,746 1,190 848 5,576
Net Profit Before Income Tax –121 –151 128 398 688 838 1,974 2,825 3,197 3,049 20,177 3,708 1,880 38,591
Income Tax – – – – – – – – – – 1,496 557 254 2,307
Net Profit After Income Tax –121 –151 128 398 688 838 1,974 2,825 3,197 3,049 18,681 3,151 1,627 36,284
Capital Expenditure
Expansion Capital 874 1,071 1,080 831 387 92 – – – – – – – 4,336
Sustaining Capital 82 101 58 351 424 373 397 430 320 350 1,912 866 424 6,088
VAT & Duties 79 82 66 102 75 44 43 47 35 38 209 99 47 967
Subtotal 1,035 1,254 1,205 1,285 886 509 440 477 354 388 2,121 964 472 11,391
Working Capital, Capitalized Operating Costs and Closure
–47 –34 –2 80 87 76 37 6 18 49 411 187 937 1,805
VAT & Duties (Capex) 3 1 – 5 2 3 1 – 1 5 44 21 – 86
Total Capital Expenditure 992 1,221 1,203 1,369 975 588 479 483 374 442 2,576 1,172 1,408 13,282
Net Cash Flow After Tax –1,112 –1,372 –1,075 –971 –287 250 1,496 2,342 2,823 2,607 16,105 1,979 218 23,003
Source: Oyu Tolgoi 2016 Technical Report.
Metal Price Assumptions
Unit 2017 2018 2019 20202021
Onwards
Copper $/lb 2.15 2.36 2.58 2.79 3.00
Gold $/oz 1,300 1,300 1,300 1,300 1,300
Silver $/oz 19.00 19.00 19.00 19.00 19.00
Production highlights 16
0.47
0.33
0.22 0.27
2014 2015 2016 1H'17
All Injury Frequency Rate(per 200,000 hours worked)
Industry-leading safety performance Throughput target of 40 million tonnes for 2017
148
202 201
75.3
2014 2015 2016 1H'17
Copper in concentrates('000 tonnes)
2017 guidance of 130,000–160,000 tonnes of cooperand 100,000 – 140,000 ounces of gold
2017 gold production impacted by low grade Phase 6 ore
589 653
300
49
2014 2015 2016 1H'17
Gold in concentrates('000 ounces)
27,872
34,537 38,152
19,724
2014 2015 2016 1H'17
Concentrator throughput('000 tonnes)
Financial highlights 17
$863
$1,344 $1,418 $1,379
2014 2015 2016 1H'17
Cash position($'000,000)
Strong cash position Consecutive periods of positive operating cash flowSource: Average quarterly Comex copper price and average quarterly LBMA gold price.
$10
$227
$321
2015 2016 1H'17
Underground capital expenditure($'000,000)
2017 underground CAPEX guidance of $825 million - $925 million Competitive unit costsNote: C1 and AISC not meaningful in 2013.
$719 $651
$399
$140
2014 2015 2016 1H'17
Operating cash flow($'000,000)
Cu:$2.21Au:$1,251
Cu:$2.49Au:$1,160
Cu:$3.10Au:$1,266
Cu:$2.61Au:$1,238
$1.14
$0.57
$1.02
$1.89
$1.95
$1.37 $1.48
$2.21
2014 2015 2016 1H'17
C1 and All-in sustaining costs (AISC)
C1 AISC
Production and financial guidance 18
2016 2017
Copper in concentrates 201,300 tonnes (actual)175,000 – 195,000 tonnes
130,000 – 160,000 tonnes
Gold in concentrates ~300,000 ounces (actual)255,000 – 285,000 ounces
100,000 – 140,000 ounces
Operating cash costs $775 million (actual)$840 million
$720 million
Capital expenditures $100 million (open pit actual)$200 million
$100 million (open pit)$825 million - $925 million (underground)
2017 production impacted by ~25% less copper head grade and ~50% less gold head grade
2017 operating cash costs reflects cost improvements and impact of lower logistics costs from decreased production
2017 open-pit CAPEX reflects lower maintenance costs, reduced deferred stripping cost due to optimization and improved tailings storage costs
Managing near-term ore grade challenges
Source: 2016 Oyu Tolgoi Technical Report
19
Phases 6 and 4a as well as low-grade stockpile ore processed in 2017
Phase 4 stripping provides access to higher ore grades in 2018
Open-pitplan view
Phase 5
Phase 10
Phase 9
Phase 6
Phase 8
Phase 7
Phase 4B
Phase 4A
Project finance flow of funds 20
Shareholder loan
Receivable from Oyu Tolgoi*
Shareholder loan Q2’17: $3.4 billion
Payable to Turquoise Hill*
Shareholder loan Q1’16: $7.0 billion
Drawdown Q2’16: $4.3 billion
Shareholder loan Q2’17: $3.4 billion
1. In accordance with the ARSHA, Turquoise Hill funded the common share investments in Oyu Tolgoion behalf of Erdenes Oyu Tolgoi LLC; at June 3, 2017 the balance was approximately $1.1 billion
* Interest rate LIBOR + 6.5%
At project finance drawdown
Proceeds: $4.3 billion2 $4.3 billion3 $4.2 billion
Payable to Turquoise Hill*
Shareholder loan: $3.4 billion
2. Project finance facility made directly with Oyu Tolgoi3. Amount received net of bank fees* Interest rate LIBOR + 6.5%** When guarantee fee paid, Oyu Tolgoi pays 1.9% and Turquoise Hill pays 0.6%
Receivable from Oyu Tolgoi*
Shareholder loan: $3.4 billion
Deposit from Turquoise Hill
Deposit: $4.2 billionWaive 2.5%** guarantee fee with amount on deposit
Priority of funding used for development
Oyu Tolgoi operating cash flow
Oyu Tolgoi cash call
Funding
* Indicative, does not show the withholding tax implications | original shareholder loan interest rate LIBOR + 6.5% | Oyu Tolgoi’s all-in project finance interest rate, including upfront and ongoing fees as well as the guarantee fee, is LIBOR + 6.0%** Guarantee fee - Oyu Tolgoi pays 1.9% and Turquoise Hill pays 0.6%
Funding
Receivable from Oyu Tolgoi*
Shareholder loan: ↑Equity loan: ↑
Funding
Payable to Turquoise Hill (2.5%** guarantee fee on funds used)
Shareholder loan: ↑Equity loan: ↑
Project finance funds
Turquoise Hill cash
#1
#2
#3
Oyu Tolgoi at China’s doorstep 21
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
HSES Update
September 2017
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Injury and Incident Overview
0.25
0.13
0.41
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
DecNovOctSepAugJulJunMayAprMarFebJan
All Injury Frequency Rate YTD
OT UGOT OpsOne OT
2 2
8
3 1 3
211111111 1
0.260.270.290.290.28
0.260.26
0.180.18
0.27
0
2
4
6
8
10
0.00
0.05
0.10
0.15
0.20
0.25
0.30
Freq
uenc
y
17-Apr17-Mar17-Feb17-Jan
Inju
ry
16-Sep 17-Aug17-Jul17-Jun17-May16-Dec
0.22
16-Nov
0.15
16-Oct
LTIMTCIOne OT AIFR 12 month rolling
All Injury Frequency Rate 12 month rolling – One OT
1 32
2
41
4
5
32
112
1110
1
2
3
4
5
6
7
8
17-Apr17-Mar17-Feb17-Jan16-Dec16-Nov16-Oct16-Sep 17-Aug17-Jul17-Jun17-May
SI PFI
SI and PFI count 12 month rolling – One OT
5.9
3.82.7
1.7 1.42.4
0
1
2
3
4
5
6
2012 2013 2014 2015 2016 2017
Injury per month rate
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved 2017.06.06
CRM Performance - Key metrics (August YTD)
Leaders at target
Finding red 1+ Finding red 2+ Overdue action rate
Action closure rate
Planned verification rate
Adherence to plan rate
OT Surface Ops 95% 89% 82% 3% 73% 30% 68%
OT UG 91% 93% 86% 31% 79% 49% 58%
Total CCV/CCFV count
20%
80%
40%
0
60%
100%
JMJ J O DNF A S
45%
A M
OT UG Target
OT UG YTDOT Ops YTD
OT Ops
CRM Leaders partic.- finding Red 2+
60%
100%
0
40%
20%
80%
DJ OSAJ
85%
NMMJ F A
CRM Leaders partic.- finding Red 1+
OT UG YTD
OT UG TargetOT Ops
OT Ops YTD
CRM Action closure rate
6.000
2.000
0
4.000
10.000
8.000
OF DSJ AMJ NM A J
40%
60%
20%
100%
0
80%80%
NOJF DM J SA AJ M
OT Ops OT UG TargetOT Ops OT UG
80%
100%
20%
60%
0
40%
N DOSM J AJJ AMF
OT Ops
OT UG
OT Ops YTD
OT UG YTD
CRM Leaders participation rate
40%
100%
80%
60%
20%
0SF NM JAMJ J O
20%
DA
OT UG TargetOT Ops
Overdue action rate
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved 2017.06.06
Fatigue study update
Completed phase 1 of the fatigue study. Worker sleep data assessed by Fatigue Science with initial draft report provided for review.
Phase 2 preparation:
Fatigue specialist to be onsite for nine days reviewing fatigue management practices, meeting with managers, supervisors and workers.
Outcome of visit will be recommendations for improvements of fatigue management and to identify options for mitigating fatigue risks.
Mental health awareness:
Awareness topics on stress, depression and anxiety were distributed to all supervisors for discussion with crews. The objective is for workers to understand and discuss mental health challenges
Heat stress and hydration
Working in the heat and preventing heat stress were training topics in June.
Hydration monitoring of workers is conducted during the summer months to reinforce the need for drinking water frequently during the shift and to identify those who are significantly dehydrated.
Health initiatives
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Environment Compliance & Assurance
• National audits and inspections• Total 4 inspections and audits
(Government Agency of Specialized Inspection, Environment Protection Agency etc.) in 2016
• Independent Environment for every two years
• Independent Water audit for every 5 years
• Lender audit• 2 Lenders audit
• Rio Tinto audits• HSE Business Conformance Audit• Rio Tinto HSE review
• Local community engagement and agreement
• Tri-Partite council visit and inspections• Independent expert review on the OT
impact• Other external audits
• ISO 14001 Environmental certificate audit
• Independent PwC financial audit
2013• April-Field Visit • October-Field Visit
2014
• April-Field Visit• July-Desk Based Audit• November-Field Visit
2015• April-Desk Based Audit• September-Field Visit (4 auditors, 12 Lenders)
2016• April-Desk Based Audit• August-Field Visit (5 auditors, 8 Lenders)
Lender auditsAudits in 2016
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Water management & monitoring
GH
OT
GalbiinGobi
Undai
• Biggest risk – Water access, impact on the local water resource
• Comprehensive water monitoring• Hydrogeological modeling and prediction
of water drawdown in Gunii Hooloi (GH) aquifer
• Close national stakeholder engagement:• Environment Minister meeting with
Oyu Tolgoi CEO• Environment ministry official visit in
OT• Relationship Committee meeting
with local government• Tri-Partite Council meeting
Area2016
Bores Herder wells Springs
OT-Undai 169 25 7
Gunii Hooloi (GH) 117 54 4
Galbiin Gobi & GSK road 6 7 -
Total 292 86 11
Grand total 389
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Highly efficient water usage
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Water recycling efficiency
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Air quality monitoring station• Compliance to the National and Project ambient air
standards;• Continuous and real-time ambient air quality
monitoring;• Accurate assessment of the risk to the
environment and human health from the current emissions sources as received by the “receptor” rather than at the point of emission;
• Internationally advanced technology;• The continuous monitoring results are going to
allow OT to adequately assess potential impact;• Existing onsite monitoring program will be
rationalized and optimized based on the new monitoring stations.
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Non-mineral waste
• Challenges:• Remote location• No national facility is available
• Underground mine legacy waste solutions – residual/expired waste material from shut down of the UG operations 4 years ago
• Waste segregation and handling campaign• Maximizing recycling or reuse: plastics, waste oil, metal, timber, kitchen oil, battery, tires;• Improvements:
• Recycling 100% waste water• Dewatering the sludge and disposal in the landfill (closed the sludge pond)• Closed the community waste yard• Closed the old waste facility• Tyre storage area established and recycling opportunity• Incinerator decommissioning and autoclave operation
• Non-mineral waste strategy including future forecast and planning
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Biodiversity & NPI
• Commitment to net positive gain (NPI) to biodiversity and ecosystem services
• NPI to be achieved through:• Offset projects that include:
• Powerline insulation• Contribute to the development of a national powerline
standard for reducing bird mortalities• Sustainable Cashmere• Anti-poaching• Railroad fence removal
• Rehabilitation of disturbed areas
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Biodiversity & NPI
• Powerline insulation pilot project successfully reduce mortality of raptors by 85%
• Two projects intended to offset impacts to bird populations• Expanding powerline insulation to non-OT powerlines• Continuing to work with national powerline committee
Short-toed snake eagle
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Biodiversity & NPI
• Three projects (Sustainable Cashmere Project (SCP), anti-poaching, railroad fence) intended to offset impacts to rangeland, khulan, and goitered gazelles (and other species)
• Anti-poaching patrols and community engagement appear to be changing poaching rates
• SCP had first cashmere sale in 2017, with more interest from herders than expected
• Recently received approval from the national railroad authority to implement pilot trial of removing or modifying short sections of fence
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Biodiversity & NPI
• Monitoring of biodiversity projects is on-going• Comprehensive biodiversity monitoring annually• Ecosystem service monitoring annually• Review and updating of NPI forecast schedule for 2018
Collecting snake eagle pellets & feathers
Video documenting snake eagle nests in KB soum
Saxaul
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Rehabilitation process
15 15
Completed 99% of the rehab required offsite area;Onsite area have active disturbance expansion
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Acid Rock Drainage (ARD) risk minimization
To confirm ARD characteristic– ARD sampling and analyzing– Open pit and Tailings Storage Facility seepage
monitoring
To simulate mine closure rehabilitation– Waste Rock Dump rehabilitation trial test
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
17
Ongoing focus areas
BiodiversityEnvironment
• Full compliance of the environment
management
• Sealing old water exploration bores
to maintain full compliance
• Non-mineral waste strategy and
improvement
• ARD & future rehabilitation
• Review and rationalization of the air
quality and water monitoring
program
• Rehabilitation strategy
stakeholder engagement
• Biodiversity commitments and
mitigation strategy rationalization
• Priority plant protection
• Offset projects
• Rangeland monitoring in
cooperation with NASA and
Stanford University
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
KHANBOGD SOUM WATER SUPPLY
• Oyu Tolgoi LLC financing the water exploration of the KB soum water supply system during the 2013-2014.
• During the exploration total of 41 boreholes were drilled and 12 of them have been monitored actively.
• As result of the exploration KB soum water supply reserve approved as 37 l/s or 3200m3 per/day for 20 years by Ministry of Environment and Tourism (MET).
• The US$6.9 million bulk water facility will provide safe, clean drinking water to Khanbogd, with a 6.6km network of pipeline distributing water across the town. The facility will support the future development of Khanbogd, with a capacity to supply water to over 13,000 residents and has the potential to be further expanded
OYU TOLGOI FULLY FUNDED THE WATER EXPLORATION ACTIVITIES AND THE CONSTRUCTION OF KHANBOGD BULK WATER FACILITY.
THE FACILITY INCLUDES:• Four boreholes• Raw water tank (1,500m3)• Water purification plant• Water transmission pipeline (6.6km) • Treated water reservoir (2000m3)• 10kV Electrical substation, lines (8.8km)
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Undai River diversion project completion
• Physical works carried out in 2013• Comprehensive water monitoring (as well as
hydrogeological assessment) has demonstrated surface and alluvial groundwater diversions are working
• Stakeholder engagement and approvals• Local community approval in Tri-Partite Council• National government approval: official water point registry• Lenders approval (June 2017)
Bor Ovoo Spring, 29 Aug 2017
Copyright © 2017 Oyu Tolgoi LLC, All rights reserved
Thank you.
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Turquoise Hill Resources Ltd.Suite 354 - 200 Granville StreetVancouver, BC, Canada V6C 1S4
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Turquoise Hill is an internationalmining company focused on theoperation and development of theOyu Tolgoi copper-gold mine insouthern Mongolia.