With its ore-processing circuit now in operation and just weeks away from producing its first concentrate, Turquoise Hill’s (TRQ) Oyu Tolgoi project is attracting significant support as it begins the new year on a countdown to attaining its near-term goal of commercial production. Macquarie Capital Markets, has affirmed its “Outperform” rating on Turquoise Hill and the Mongolian President has reiterated his strong endorsement of the project.
Macquarie says “TRQ announced “impressive progress with mine commissioning” activities. First ore through the concentrator is expected before YE12, with commercial production expected in the April to June 2013 time frame, modestly ahead of expectations. TRQ expects to release 2013 production guidance for OT in mid-March and the results of the underground (UG) feasibility study in 2Q13. TRQ is “evaluating the optimum development plan and various sensitivity cases”, including “optimisation of the production schedule and expansions sequencing”. TRQ continues to target completion of the $3.0 billion to $4.0 billion project finance facility in 2H13.
“We have revised our Oyu Tolgoi model to reflect our expectations of potential revisions to operating and capital costs under the detailed integrated development and operating plan (DIDOP). Phase 1 production (to 100,000 t/d) remains on schedule and on budget. We have revised our near-term production profile from IDOP12 levels, mainly to reflect modestly higher throughput (IDOP12 was ~93,000 t/d), and lower grade variability (particularly gold) in years 1–5. Operating costs are estimated to be 20% above original IDOP12 estimates, mainly due to higher UG mining costs and higher process and SGA costs.
“Phase 2 production (to 160,000 t/d) remains scheduled for 2018 although we assume a more condensed ramp-up schedule given delayed UG ventilation (rectified with Shaft 5). Our estimate of capital costs for the expansion is now $6.9 billion versus the $5.1 billion estimate in IDOP12 representing a 35% overall increase to reflect scope changes (+10%) and capital cost inflation (+25%), mainly in the underground.