UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
August 5, 2015
Commission File Number: 001-32403
TURQUOISE
HILL RESOURCES LTD.
(Translation of Registrants Name into English)
Suite 354 200 GRANVILLE STREET, VANCOUVER, BRITISH COLUMBIA V6C 1S4
(Address of Principal Executive Office)
Indicate by check mark whether
the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F- ¨ Form 40-F- x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(7): ¨
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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TURQUOISE HILL RESOURCES LTD. |
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Date: August 5, 2015 |
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By: |
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/s/ Dustin S. Isaacs |
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Dustin S. Isaacs |
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Corporate Secretary |
EXHIBIT INDEX
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99.1 |
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30 June 2015 Quarterly Financial Statements and Notes |
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99.2 |
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Management Discussion and Analysis |
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99.3 |
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CEO and CFO certification |
Exhibit 99.1
Condensed Interim Consolidated Financial Statements
June 30, 2015
(unaudited)
TURQUOISE HILL RESOURCES LTD.
Consolidated Statements of Income (Loss)
(Stated in
thousands of U.S. dollars)
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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Note |
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2015 |
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2014 |
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2015 |
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2014 |
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Continuing operations |
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Revenue |
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4 |
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$ |
421,261 |
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$ |
459,548 |
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$ |
847,418 |
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$ |
573,495 |
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Cost of sales |
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5 |
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(225,662 |
) |
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(383,461 |
) |
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(483,529 |
) |
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(476,943 |
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Gross margin |
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195,599 |
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76,087 |
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363,889 |
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96,552 |
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Operating expenses |
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6 |
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(94,066 |
) |
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(98,572 |
) |
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(187,609 |
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(167,449 |
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Corporate administration expenses |
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(5,797 |
) |
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(8,529 |
) |
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(9,299 |
) |
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(14,961 |
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Other (expenses) income |
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7 |
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(38,628 |
) |
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10,118 |
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(44,549 |
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11,347 |
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Income (loss) before finance items and taxes |
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57,108 |
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(20,896 |
) |
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122,432 |
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(74,511 |
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Finance items |
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Finance income |
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8 |
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613 |
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1,506 |
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1,211 |
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6,620 |
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Finance costs |
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8 |
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(629 |
) |
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(1,939 |
) |
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(2,360 |
) |
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(10,405 |
) |
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(16 |
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(433 |
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(1,149 |
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(3,785 |
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Income (loss) from continuing operations before taxes |
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57,092 |
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(21,329 |
) |
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121,283 |
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(78,296 |
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Provision for income and other taxes |
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(12,888 |
) |
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(12,535 |
) |
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(24,651 |
) |
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(25,919 |
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Income (loss) from continuing operations |
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44,204 |
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(33,864 |
) |
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96,632 |
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(104,215 |
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Discontinued operations |
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Income (loss) after tax from discontinued operations |
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14 |
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(26,954 |
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(22,548 |
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33,650 |
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(43,533 |
) |
Income (loss) for the period |
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$ |
17,250 |
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$ |
(56,412 |
) |
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$ |
130,282 |
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$ |
(147,748 |
) |
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Attributable to owners of Turquoise Hill Resources Ltd. |
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24,875 |
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7,884 |
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121,045 |
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(13,759 |
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Attributable to owners of non-controlling interests |
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(7,625 |
) |
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(64,296 |
) |
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9,237 |
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(133,989 |
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Income (loss) for the period |
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$ |
17,250 |
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$ |
(56,412 |
) |
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$ |
130,282 |
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$ |
(147,748 |
) |
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Income (loss) attributable to owners of Turquoise Hill Resources Ltd. |
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Continuing operations |
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$ |
49,889 |
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$ |
20,136 |
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$ |
117,030 |
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$ |
10,667 |
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Discontinued operations |
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(25,014 |
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(12,252 |
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4,015 |
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(24,426 |
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$ |
24,875 |
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$ |
7,884 |
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$ |
121,045 |
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$ |
(13,759 |
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Basic and diluted earnings (loss) per share attributable to Turquoise Hill Resources Ltd. |
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Continuing operations |
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22 |
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$ |
0.02 |
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$ |
0.01 |
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$ |
0.06 |
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$ |
0.01 |
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Discontinued operations |
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(0.01 |
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(0.01 |
) |
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- |
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(0.01 |
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Income (loss) for the period |
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$ |
0.01 |
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$ |
- |
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$ |
0.06 |
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$ |
- |
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Basic weighted average number of shares outstanding (000s) |
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2,012,309 |
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2,012,249 |
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2,012,306 |
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1,939,982 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
TURQUOISE HILL RESOURCES LTD.
Consolidated Statements of Comprehensive Income (Loss)
(Stated in thousands of U.S. dollars)
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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Income (loss) for the period |
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$ |
17,250 |
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$ |
(56,412 |
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$ |
130,282 |
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$ |
(147,748 |
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Other comprehensive income (loss): |
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Items that have been / may be classified subsequently to income or loss: |
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Fair value movements: |
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Gains (losses) on revaluation of available for sale investments (Note 19) |
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2,152 |
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(7,812 |
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(6,818 |
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(14,779 |
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Losses on revaluation of available for sale investments transferred to the statement of income (Note 19) |
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921 |
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- |
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8,996 |
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1,766 |
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Tax relating to components of other comprehensive income |
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- |
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54 |
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- |
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54 |
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Other comprehensive income (loss) for the period |
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$ |
3,073 |
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$ |
(7,758 |
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$ |
2,178 |
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$ |
(12,959 |
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Total comprehensive income (loss) for the period |
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$ |
20,323 |
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$ |
(64,170 |
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$ |
132,460 |
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$ |
(160,707 |
) |
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Attributable to owners of Turquoise Hill |
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$ |
27,948 |
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$ |
(57 |
) |
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$ |
123,223 |
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$ |
(26,675 |
) |
Attributable to owners of non-controlling interests |
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(7,625 |
) |
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(64,113 |
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9,237 |
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(134,032 |
) |
Total comprehensive income (loss) for the period |
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$ |
20,323 |
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$ |
(64,170 |
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$ |
132,460 |
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$ |
(160,707 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
TURQUOISE HILL RESOURCES LTD.
Consolidated Statements of Cash Flows
(Stated in
thousands of U.S. dollars)
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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Note |
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2015 |
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2014 |
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2015 |
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2014 |
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Cash generated from operating activities before interest and tax |
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21 |
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$ |
239,182 |
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$ |
153,791 |
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$ |
340,653 |
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$ |
41,922 |
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Interest received |
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362 |
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211 |
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645 |
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211 |
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Interest paid |
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- |
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(933 |
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- |
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(19,367 |
) |
Income and other taxes paid |
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(4,995 |
) |
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(366 |
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(9,468 |
) |
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(366 |
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Net cash generated from operating activities |
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234,549 |
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152,703 |
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331,830 |
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22,400 |
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Cash flows from investing activities |
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Proceeds from sale of discontinued operations |
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14 |
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5,353 |
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- |
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5,353 |
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- |
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Proceeds from sale and redemption of financial assets |
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3,907 |
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- |
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16,782 |
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- |
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Expenditures on property, plant and equipment |
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12 |
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(35,164 |
) |
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(68,141 |
) |
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(59,447 |
) |
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(144,979 |
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Proceeds from sales of mineral property rights and other assets |
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- |
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|
3,832 |
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1,237 |
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|
4,000 |
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Other investing cash flows |
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86 |
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168 |
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|
989 |
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|
168 |
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Cash used in investing activities of continuing operations |
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(25,818 |
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(64,141 |
) |
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(35,086 |
) |
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(140,811 |
) |
Cash generated from (used in) investing activities of discontinued operations |
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- |
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1,854 |
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(114 |
) |
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(1,525 |
) |
Cash used in investing activities |
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(25,818 |
) |
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(62,287 |
) |
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(35,200 |
) |
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(142,336 |
) |
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Cash flows from financing activities |
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Issue of share capital |
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18 |
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- |
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25 |
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20 |
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2,288,473 |
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Proceeds from bridge funding facility |
|
15 |
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- |
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- |
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- |
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62,373 |
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Repayment of interim and bridge funding facilities |
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15 |
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- |
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- |
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- |
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(2,191,635 |
) |
Proceeds from credit facilities |
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15 |
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- |
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30,000 |
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- |
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|
143,826 |
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Repayment of credit facilities |
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15 |
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- |
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(60,000 |
) |
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- |
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(60,000 |
) |
Cash from financing activities of continuing operations |
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|
- |
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(29,975 |
) |
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20 |
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|
243,037 |
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Cash from financing activities of discontinued operations |
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- |
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3 |
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3,500 |
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7 |
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Cash from financing activities |
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- |
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(29,972 |
) |
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|
3,520 |
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|
243,044 |
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Effects of exchange rates on cash and cash equivalents |
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|
269 |
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61 |
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|
174 |
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(4 |
) |
Net increase in cash and cash equivalents |
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|
209,000 |
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|
60,505 |
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|
300,324 |
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|
123,104 |
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Cash and cash equivalents - beginning of period |
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$ |
957,867 |
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$ |
140,711 |
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$ |
866,543 |
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$ |
78,112 |
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Cash and cash equivalents - end of period |
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|
1,166,867 |
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|
201,216 |
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|
1,166,867 |
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|
201,216 |
|
Less cash and cash equivalents classified in current assets held for sale |
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|
- |
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|
|
- |
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|
- |
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|
- |
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Cash and cash equivalents as presented on the statement of financial
position |
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$ |
1,166,867 |
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$ |
201,216 |
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|
$ |
1,166,867 |
|
|
$ |
201,216 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
TURQUOISE HILL RESOURCES LTD.
Consolidated Statements of Financial Position
(Stated
in thousands of U.S. dollars)
(Unaudited)
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Note |
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June 30, 2015 |
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|
December 31, 2014 |
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January 1, 2014 |
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Current assets |
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|
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|
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Cash and cash equivalents |
|
9 |
|
$ |
1,166,867 |
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|
$ |
862,755 |
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|
$ |
78,112 |
|
Inventories |
|
10 |
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|
342,889 |
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|
|
396,782 |
|
|
|
844,510 |
|
Trade and other receivables |
|
|
|
|
14,285 |
|
|
|
14,519 |
|
|
|
4,853 |
|
Prepaid expenses and other assets |
|
11 |
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|
59,657 |
|
|
|
76,903 |
|
|
|
105,088 |
|
Due from related parties |
|
23 |
|
|
15,015 |
|
|
|
7,864 |
|
|
|
5,070 |
|
Assets held for sale |
|
14 |
|
|
33,136 |
|
|
|
229,489 |
|
|
|
- |
|
|
|
|
|
|
1,631,849 |
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|
|
1,588,312 |
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|
|
1,037,633 |
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Non-current assets |
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|
|
|
|
|
|
|
|
|
|
|
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|
Property, plant and equipment |
|
12 |
|
|
6,453,229 |
|
|
|
6,597,395 |
|
|
|
7,209,453 |
|
Inventories |
|
10 |
|
|
92,752 |
|
|
|
52,757 |
|
|
|
21,229 |
|
Financial assets |
|
13 |
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|
15,599 |
|
|
|
60,553 |
|
|
|
370,471 |
|
|
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|
6,561,580 |
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|
6,710,705 |
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|
|
7,601,153 |
|
Total assets |
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|
|
$ |
8,193,429 |
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|
$ |
8,299,017 |
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|
$ |
8,638,786 |
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|
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Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
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|
Borrowings and other financial liabilities |
|
15 |
|
|
- |
|
|
|
- |
|
|
|
2,145,093 |
|
Trade and other payables |
|
16 |
|
|
168,542 |
|
|
|
185,852 |
|
|
|
280,395 |
|
Deferred revenue |
|
|
|
|
126,413 |
|
|
|
140,135 |
|
|
|
107,796 |
|
Payable to related parties |
|
23 |
|
|
36,910 |
|
|
|
53,784 |
|
|
|
247,692 |
|
Liabilities held for sale |
|
14 |
|
|
- |
|
|
|
120,871 |
|
|
|
- |
|
|
|
|
|
|
331,865 |
|
|
|
500,642 |
|
|
|
2,780,976 |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings and other financial liabilities |
|
15 |
|
|
13,834 |
|
|
|
14,086 |
|
|
|
108,866 |
|
Deferred income tax liabilities |
|
|
|
|
135,815 |
|
|
|
122,820 |
|
|
|
91,380 |
|
Decommissioning obligations |
|
17 |
|
|
95,462 |
|
|
|
93,004 |
|
|
|
118,562 |
|
|
|
|
|
|
245,111 |
|
|
|
229,910 |
|
|
|
318,808 |
|
Total liabilities |
|
|
|
$ |
576,976 |
|
|
$ |
730,552 |
|
|
$ |
3,099,784 |
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
18 |
|
|
11,432,084 |
|
|
|
11,432,060 |
|
|
|
9,150,621 |
|
Contributed surplus |
|
|
|
|
1,555,773 |
|
|
|
1,555,721 |
|
|
|
1,551,466 |
|
Accumulated other comprehensive (loss) income |
|
19 |
|
|
(2,327 |
) |
|
|
(4,505 |
) |
|
|
22,347 |
|
Deficit |
|
|
|
|
(4,665,618 |
) |
|
|
(4,788,340 |
) |
|
|
(4,815,269 |
) |
Equity attributable to owners of Turquoise Hill |
|
|
|
|
8,319,912 |
|
|
|
8,194,936 |
|
|
|
5,909,165 |
|
Attributable to non-controlling interests |
|
20 |
|
|
(703,459 |
) |
|
|
(626,471 |
) |
|
|
(370,163 |
) |
Total equity |
|
|
|
|
7,616,453 |
|
|
|
7,568,465 |
|
|
|
5,539,002 |
|
Total liabilities and equity |
|
|
|
$ |
8,193,429 |
|
|
$ |
8,299,017 |
|
|
$ |
8,638,786 |
|
The accompanying notes are an integral part of these consolidated financial statements.
The financial statements were approved by the directors on August 5, 2015 and signed on their behalf by:
|
|
|
/s/ J. Gardiner |
|
/s/ R. Robertson |
J. Gardiner, Director |
|
R. Robertson, Director |
5
TURQUOISE HILL RESOURCES LTD.
Consolidated Statements of Equity
(Stated in thousands
of U.S. dollars, except for share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015 |
|
Attributable to owners of Turquoise Hill |
|
|
|
|
|
|
|
|
Share capital (Note 18) |
|
|
Contributed surplus |
|
|
Accumulated other comprehensive income (loss)
(Note 19) |
|
|
Deficit |
|
|
Total |
|
|
|
|
Non-controlling Interests
(Note 20) |
|
|
Total equity |
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
$ |
11,432,060 |
|
|
$ |
1,555,721 |
|
|
$ |
(4,505 |
) |
|
$ |
(4,788,340 |
) |
|
$ |
8,194,936 |
|
|
|
|
$ |
(626,471 |
) |
|
$ |
7,568,465 |
|
|
|
|
|
|
|
|
|
|
Income for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
121,045 |
|
|
|
121,045 |
|
|
|
|
|
9,237 |
|
|
|
130,282 |
|
Comprehensive income for the period |
|
|
- |
|
|
|
- |
|
|
|
2,178 |
|
|
|
- |
|
|
|
2,178 |
|
|
|
|
|
- |
|
|
|
2,178 |
|
Equity issued to holders of non-controlling interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,677 |
|
|
|
1,677 |
|
|
|
|
|
1,823 |
|
|
|
3,500 |
|
Employee share options |
|
|
24 |
|
|
|
52 |
|
|
|
- |
|
|
|
- |
|
|
|
76 |
|
|
|
|
|
- |
|
|
|
76 |
|
Other increase (decrease) in non-controlling interests (Note 20) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
(88,048 |
) |
|
|
(88,048) |
|
Closing balance |
|
$ |
11,432,084 |
|
|
$ |
1,555,773 |
|
|
$ |
(2,327 |
) |
|
$ |
(4,665,618 |
) |
|
$ |
8,319,912 |
|
|
|
|
$ |
(703,459 |
) |
|
$ |
7,616,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014 |
|
Attributable to owners of Turquoise Hill |
|
|
|
|
|
|
|
|
Share capital (Note 18) |
|
|
Contributed surplus |
|
|
Accumulated other comprehensive income (loss)
(Note 19) |
|
|
Deficit |
|
|
Total |
|
|
|
|
Non-controlling Interests
(Note 20) |
|
|
Total equity |
|
Opening balance |
|
$ |
9,150,621 |
|
|
$ |
1,551,466 |
|
|
$ |
22,347 |
|
|
$ |
(4,815,269 |
) |
|
$ |
5,909,165 |
|
|
|
|
$ |
(370,163 |
) |
|
$ |
5,539,002 |
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13,759 |
) |
|
|
(13,759 |
) |
|
|
|
|
(133,989 |
) |
|
|
(147,748) |
|
Comprehensive loss for the period |
|
|
- |
|
|
|
- |
|
|
|
(12,916 |
) |
|
|
- |
|
|
|
(12,916 |
) |
|
|
|
|
(43 |
) |
|
|
(12,959) |
|
Equity issued for rights offering (Note 18), net of share issue costs of $79,875 |
|
|
2,280,984 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,280,984 |
|
|
|
|
|
- |
|
|
|
2,280,984 |
|
Equity issued to holders of non-controlling interests |
|
|
- |
|
|
|
2,165 |
|
|
|
- |
|
|
|
- |
|
|
|
2,165 |
|
|
|
|
|
(2,305 |
) |
|
|
(140) |
|
Employee share options |
|
|
264 |
|
|
|
1,289 |
|
|
|
- |
|
|
|
- |
|
|
|
1,553 |
|
|
|
|
|
147 |
|
|
|
1,700 |
|
Closing balance |
|
$ |
11,431,869 |
|
|
$ |
1,554,920 |
|
|
$ |
9,431 |
|
|
$ |
(4,829,028 |
) |
|
$ |
8,167,192 |
|
|
|
|
$ |
(506,353 |
) |
|
$ |
7,660,839 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
The condensed interim consolidated financial
statements of Turquoise Hill Resources Ltd. (Turquoise Hill) were authorized for issue in accordance with a directors resolution on August 5, 2015. Rio Tinto plc is the ultimate parent company and indirectly owns a 50.8%
majority interest in Turquoise Hill as at June 30, 2015.
Turquoise Hill, together with its subsidiaries
(collectively referred to as the Company), is an international mining company focused principally on the operation and further development of the Oyu Tolgoi copper-gold mine in Southern Mongolia. Turquoise Hills head office is
located at 354-200 Granville Street, Vancouver, British Columbia, Canada, V6C 1S4. Turquoise Hills registered office is located at 300-204 Black Street, Whitehorse, Yukon, Canada, Y1A 2M9.
Turquoise Hill has its primary listing in Canada on the Toronto Stock Exchange and secondary listings in the U.S. on the New
York Stock Exchange and the NASDAQ.
2. |
Summary of significant accounting policies |
|
(a) |
Statement of compliance |
These condensed consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) applicable to the preparation of interim financial
statements, including IAS 34, Interim Financial Reporting (IAS 34). These condensed interim consolidated financial statements are compliant with IAS 34 and do not include all of the information required for full annual financial
statements.
These condensed interim consolidated financial statements follow the same accounting policies and methods of
application as the Companys condensed interim consolidated financial statements for the three months ended March 31, 2015. The accounting policies applied in these condensed interim consolidated financial statements are based on IFRS
issued and applicable as of August 5, 2015, the date the Board of Directors approved the financial statements. An explanation of how the transition to IFRS has affected the reported equity and comprehensive income (loss) of the Company is
provided in Note 26.
The condensed interim consolidated financial statements should be read in conjunction with the
Companys annual financial statements for the year ended December 31, 2014, prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP), and interim financial statements for
the three months ended March 31, 2015 prepared in accordance with IFRS applicable to interim financial statements.
|
(b) |
New standards and interpretations not yet adopted |
A number of new
standards, and amendments to standards and interpretations, are not yet effective for the year ending December 31, 2015, and have not been applied in preparing these condensed interim consolidated financial statements. The following standards
may have a potential effect on the consolidated financial statements of the Company:
|
(i) |
IFRS 9, Financial Instruments, is mandatorily effective for the Companys consolidated financial statements for the year ending
December 31, 2018 and is expected to impact the classification and measurement of financial assets and financial liabilities. |
7
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. |
Summary of significant accounting policies (continued) |
|
(b) |
New standards and interpretations not yet adopted (continued) |
The Company does not intend to early adopt IFRS 9 in its financial
statements for the annual period ending December 31, 2015. The extent of the impact of adoption has not yet been determined.
|
(ii) |
IFRS 15, Revenue from Contracts with Customers, which will replace IAS 18, Revenue, is effective for fiscal years ending on or
after December 31, 2018 and is available for early adoption. The standard contains a single model that applies to contracts with customers. Revenue is recognized as control is passed to the customer, either at a point in time or over time. New
estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The Company does not intend to early adopt IFRS 15 in its financial statements for the year ending December 31, 2015. The
extent of the impact of adoption of the standard has not yet been determined. |
None of the remaining
standards and amendments to standards and interpretations are expected to have a significant effect on the condensed interim consolidated financial statements of the Company.
3. |
Operating segments - continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015 |
|
|
|
Oyu Tolgoi |
|
|
Corporate and other eliminations |
|
|
Consolidated |
|
|
|
|
|
Revenue |
|
$ |
421,261 |
|
|
$ |
- |
|
|
$ |
421,261 |
|
Cost of sales |
|
|
(225,662 |
) |
|
|
- |
|
|
|
(225,662 |
) |
|
|
Gross margin |
|
|
195,599 |
|
|
|
- |
|
|
|
195,599 |
|
|
|
|
|
Operating expenses |
|
|
(55,769 |
) |
|
|
(38,297 |
) |
|
|
(94,066 |
) |
Corporate administration expenses |
|
|
- |
|
|
|
(5,797 |
) |
|
|
(5,797 |
) |
Other expenses |
|
|
(985 |
) |
|
|
(37,643 |
) |
|
|
(38,628 |
) |
|
|
Income (loss) before finance items and taxes |
|
|
138,845 |
|
|
|
(81,737 |
) |
|
|
57,108 |
|
|
|
|
|
Finance items |
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
257 |
|
|
|
356 |
|
|
|
613 |
|
Finance costs |
|
|
(113,501 |
) |
|
|
112,872 |
|
|
|
(629 |
) |
|
|
Income (loss) from continuing operations before taxes |
|
$ |
25,601 |
|
|
$ |
31,491 |
|
|
$ |
57,092 |
|
|
|
|
|
|
|
Provision for income and other taxes |
|
|
(61 |
) |
|
|
(12,827 |
) |
|
|
(12,888 |
) |
|
|
Income (loss) from continuing operations |
|
$ |
25,540 |
|
|
$ |
18,664 |
|
|
$ |
44,204 |
|
|
|
|
|
|
|
Depreciation and depletion |
|
$ |
81,957 |
|
|
$ |
25 |
|
|
$ |
81,982 |
|
Capital expenditures |
|
$ |
36,397 |
|
|
$ |
- |
|
|
$ |
36,397 |
|
Total assets |
|
$ |
6,723,656 |
|
|
$ |
1,436,637 |
|
|
$ |
8,160,293 |
|
|
|
|
(a) |
During the three months ended June 30, 2015, all of Oyu Tolgois revenue arose from copper-gold concentrate sales to customers in China and
revenue from the three largest customers was $100.3 million, |
8
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
3. |
Operating segments - continuing operations (continued) |
|
$76.6 million and $48.5 million (June 30, 2014$176.8 million, $105.4 million and $45.0 million) respectively. Revenue by geographic destination is based on the ultimate country of
destination, if known. If the destination of the copper concentrate sold through traders is not known then revenue is allocated to the location of the copper concentrate at the time when revenue is recognized. |
All long-lived assets of the Oyu Tolgoi segment, other than financial instruments, are located in Mongolia.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2014 |
|
|
|
Oyu Tolgoi |
|
|
Corporate and other eliminations |
|
|
Consolidated |
|
Revenue |
|
$ |
459,548 |
|
|
$ |
- |
|
|
$ |
459,548 |
|
Cost of sales |
|
|
(383,461 |
) |
|
|
- |
|
|
|
(383,461 |
) |
Gross margin |
|
|
76,087 |
|
|
|
- |
|
|
|
76,087 |
|
|
|
|
|
Operating expenses |
|
|
(114,622 |
) |
|
|
16,050 |
|
|
|
(98,572 |
) |
Corporate administration expenses |
|
|
- |
|
|
|
(8,529 |
) |
|
|
(8,529 |
) |
Other income (expenses) |
|
|
- |
|
|
|
10,118 |
|
|
|
10,118 |
|
Income (loss) before finance items and taxes |
|
|
(38,535 |
) |
|
|
17,639 |
|
|
|
(20,896 |
) |
|
|
|
|
Finance items |
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
584 |
|
|
|
922 |
|
|
|
1,506 |
|
Finance costs |
|
|
(116,219 |
) |
|
|
114,280 |
|
|
|
(1,939 |
) |
Income (loss) from continuing operations before taxes |
|
$ |
(154,170 |
) |
|
$ |
132,841 |
|
|
$ |
(21,329 |
) |
|
|
|
|
Provision for income and other taxes |
|
|
(460 |
) |
|
|
(12,075 |
) |
|
|
(12,535 |
) |
Income (loss) from continuing operations |
|
$ |
(154,630 |
) |
|
$ |
120,766 |
|
|
$ |
(33,864 |
) |
|
|
|
|
Depreciation and depletion |
|
$ |
114,452 |
|
|
$ |
224 |
|
|
$ |
114,676 |
|
Capital expenditures |
|
$ |
42,855 |
|
|
$ |
35 |
|
|
$ |
42,890 |
|
Total assets |
|
$ |
7,817,903 |
|
|
$ |
273,934 |
|
|
$ |
8,091,837 |
|
9
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
3. |
Operating segments - continuing operations (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015 |
|
|
|
Oyu Tolgoi |
|
|
Corporate and other eliminations |
|
|
Consolidated |
|
Revenue |
|
$ |
847,418 |
|
|
$ |
- |
|
|
$ |
847,418 |
|
Cost of sales |
|
|
(483,529 |
) |
|
|
- |
|
|
|
(483,529 |
) |
Gross margin |
|
|
363,889 |
|
|
|
- |
|
|
|
363,889 |
|
|
|
|
|
Operating expenses |
|
|
(164,048 |
) |
|
|
(23,561 |
) |
|
|
(187,609 |
) |
Corporate administration expenses |
|
|
- |
|
|
|
(9,299 |
) |
|
|
(9,299 |
) |
Other income (expenses) |
|
|
1,606 |
|
|
|
(46,155 |
) |
|
|
(44,549 |
) |
Income (loss) before finance items and taxes |
|
|
201,447 |
|
|
|
(79,015 |
) |
|
|
122,432 |
|
|
|
|
|
Finance items |
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
580 |
|
|
|
631 |
|
|
|
1,211 |
|
Finance costs |
|
|
(227,841 |
) |
|
|
225,481 |
|
|
|
(2,360 |
) |
Income (loss) from continuing operations before taxes |
|
$ |
(25,814 |
) |
|
$ |
147,097 |
|
|
$ |
121,283 |
|
|
|
|
|
Provision for income and other taxes |
|
|
(111 |
) |
|
|
(24,540 |
) |
|
|
(24,651 |
) |
Income (loss) from continuing operations |
|
$ |
(25,925 |
) |
|
$ |
122,557 |
|
|
$ |
96,632 |
|
|
|
|
|
Depreciation and depletion |
|
$ |
168,398 |
|
|
$ |
49 |
|
|
$ |
168,447 |
|
Capital expenditures |
|
$ |
66,754 |
|
|
$ |
- |
|
|
$ |
66,754 |
|
Total assets |
|
$ |
6,723,656 |
|
|
$ |
1,436,637 |
|
|
$ |
8,160,293 |
|
|
(b) |
During the six months ended June 30, 2015, all of Oyu Tolgois revenue arose from copper-gold concentrate sales to customers in China and
revenue from the three largest customers was $191.1 million, $166.3 million and $94.7 million (June 30, 2014 $176.8 million, $142.9 million and $102.8 million) respectively. Revenue by geographic destination is based on the ultimate country
of destination, if known. If the destination of the copper concentrate sold through traders is not known then revenue is allocated to the location of the copper concentrate at the time when revenue is recognized. |
10
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
3. |
Operating segments - continuing operations (continued) |
All long-lived assets of the Oyu Tolgoi segment, other than financial
instruments, are located in Mongolia.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014 |
|
|
|
Oyu Tolgoi |
|
|
Corporate and other eliminations |
|
|
Consolidated |
|
|
|
|
|
Revenue |
|
$ |
573,495 |
|
|
$ |
- |
|
|
$ |
573,495 |
|
Cost of sales |
|
|
(476,943 |
) |
|
|
- |
|
|
|
(476,943 |
) |
Gross margin |
|
|
96,552 |
|
|
|
- |
|
|
|
96,552 |
|
|
|
|
|
Operating expenses |
|
|
(191,992 |
) |
|
|
24,543 |
|
|
|
(167,449 |
) |
Corporate administration expenses |
|
|
- |
|
|
|
(14,961 |
) |
|
|
(14,961 |
) |
Other income (expenses) |
|
|
- |
|
|
|
11,347 |
|
|
|
11,347 |
|
Income (loss) before finance items and taxes |
|
|
(95,440 |
) |
|
|
20,929 |
|
|
|
(74,511 |
) |
|
|
|
|
Finance items |
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
1,395 |
|
|
|
5,225 |
|
|
|
6,620 |
|
Finance costs
|
|
|
(231,980 |
) |
|
|
221,575 |
|
|
|
(10,405 |
) |
Income (loss) from continuing operations before taxes |
|
$ |
(326,025 |
) |
|
$ |
247,729 |
|
|
$ |
(78,296 |
) |
|
|
|
|
Provision for income and other taxes
|
|
|
(2,075 |
) |
|
|
(23,844 |
) |
|
|
(25,919 |
) |
Income (loss) from continuing operations |
|
$ |
(328,100 |
) |
|
$ |
223,885 |
|
|
$ |
(104,215 |
) |
Depreciation and depletion |
|
$ |
145,908 |
|
|
$ |
404 |
|
|
$ |
146,312 |
|
Capital expenditures |
|
$ |
86,161 |
|
|
$ |
282 |
|
|
$ |
86,443 |
|
Total assets |
|
$ |
7,817,903 |
|
|
$ |
273,934 |
|
|
$ |
8,091,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
Copper-gold concentrate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper |
|
$ |
220,267 |
|
|
$ |
300,788 |
|
|
$ |
410,504 |
|
|
$ |
379,384 |
|
Gold |
|
|
197,425 |
|
|
|
153,044 |
|
|
|
429,730 |
|
|
|
186,930 |
|
Silver |
|
|
3,569 |
|
|
|
5,716 |
|
|
|
7,184 |
|
|
|
7,181 |
|
|
|
$ |
421,261 |
|
|
$ |
459,548 |
|
|
$ |
847,418 |
|
|
$ |
573,495 |
|
11
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Production and delivery |
|
$ |
147,446 |
|
|
$ |
270,615 |
|
|
$ |
321,390 |
|
|
$ |
335,085 |
|
Depreciation and depletion |
|
|
78,216 |
|
|
|
112,846 |
|
|
|
162,139 |
|
|
|
141,858 |
|
|
|
$ |
225,662 |
|
|
$ |
383,461 |
|
|
$ |
483,529 |
|
|
$ |
476,943 |
|
6. |
Operating expenses by nature |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Operating segment administration (a) |
|
$ |
56,008 |
|
|
$ |
51,307 |
|
|
$ |
98,445 |
|
|
$ |
97,351 |
|
Royalty expenses (b) |
|
|
49,775 |
|
|
|
23,523 |
|
|
|
71,655 |
|
|
|
29,466 |
|
Impairment and write downs (reversals) |
|
|
(25,625 |
) |
|
|
18,620 |
|
|
|
(9,245 |
) |
|
|
27,043 |
|
Selling expenses |
|
|
7,449 |
|
|
|
3,490 |
|
|
|
14,902 |
|
|
|
9,240 |
|
Care and maintenance costs |
|
|
1,401 |
|
|
|
697 |
|
|
|
3,997 |
|
|
|
819 |
|
Depreciation |
|
|
3,766 |
|
|
|
1,830 |
|
|
|
6,308 |
|
|
|
4,454 |
|
Other |
|
|
1,292 |
|
|
|
(895 |
) |
|
|
1,547 |
|
|
|
(924 |
) |
|
|
$ |
94,066 |
|
|
$ |
98,572 |
|
|
$ |
187,609 |
|
|
$ |
167,449 |
|
|
(a) |
Operating segment administration includes a charge of $22.1 million in the three and six month periods ended June 30, 2015 for settlement of
amounts not previously paid or provided for in relation to a Tax Act received by Oyu Tolgoi in June 2014. Settlement followed signature of the Oyu Tolgoi Underground Mine Development and Financing Plan (UDP) on May 18, 2015.
|
|
(b) |
Royalty expenses include an adjustment of $17.1 million made during the three and six month periods ended June 30, 2015 for recalculation of
royalties payable following signature of the UDP on May 18, 2015. |
7. |
Other (expenses) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Gain on sale of mineral property rights |
|
$ |
- |
|
|
$ |
14,019 |
|
|
$ |
- |
|
|
$ |
14,019 |
|
Realized losses on disposal of available for sale investments (Note 19) |
|
|
(921 |
) |
|
|
- |
|
|
|
(8,996 |
) |
|
|
- |
|
Foreign exchange gains (losses) |
|
|
95 |
|
|
|
(1,386 |
) |
|
|
2,582 |
|
|
|
3,036 |
|
Write off of property, plant and equipment (a) |
|
|
(36,794 |
) |
|
|
- |
|
|
|
(36,794 |
) |
|
|
- |
|
Other including exploration and evaluation |
|
|
(1,008 |
) |
|
|
(2,515 |
) |
|
|
(1,341 |
) |
|
|
(5,708 |
) |
|
|
$ |
(38,628 |
) |
|
$ |
10,118 |
|
|
$ |
(44,549 |
) |
|
$ |
11,347 |
|
|
(a) |
Following signature of the UDP, a net smelter royalty, purchased in 2003 from BHP Billiton and included in property, plant and equipment, was
written off as the Company conceded that it has no entitlement to receive payment. |
12
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
8. |
Finance income and finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Finance income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on bank deposits and short-term investments |
|
$ |
613 |
|
|
$ |
1,506 |
|
|
$ |
1,211 |
|
|
$ |
2,984 |
|
Realized gains on foreign currency forward contracts |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,572 |
|
Other finance income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,064 |
|
|
|
$ |
613 |
|
|
$ |
1,506 |
|
|
$ |
1,211 |
|
|
$ |
6,620 |
|
|
|
|
|
|
Finance costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and similar charges |
|
$ |
(236 |
) |
|
$ |
(196 |
) |
|
$ |
(474 |
) |
|
$ |
(6,776 |
) |
Accretion of decommissioning obligations (Note 17) |
|
|
(393 |
) |
|
|
(1,743 |
) |
|
|
(1,886 |
) |
|
|
(3,629 |
) |
|
|
$ |
(629 |
) |
|
$ |
(1,939 |
) |
|
$ |
(2,360 |
) |
|
$ |
(10,405 |
) |
9. |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
|
|
|
|
Cash on hand and demand deposits |
|
$ |
362,226 |
|
|
$ |
141,271 |
|
|
$ |
78,112 |
|
Short-term liquid investments (a) |
|
|
804,641 |
|
|
|
721,484 |
|
|
|
- |
|
|
|
$ |
1,166,867 |
|
|
$ |
862,755 |
|
|
$ |
78,112 |
|
|
(a) |
Certain short-term liquid investments have been placed with wholly owned subsidiaries of Rio Tinto (refer to Note 23). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Copper-gold concentrate |
|
$ |
87,761 |
|
|
$ |
142,242 |
|
|
$ |
533,895 |
|
Copper-gold stockpiles |
|
|
17,237 |
|
|
|
11,596 |
|
|
|
7,529 |
|
Materials and supplies |
|
|
272,646 |
|
|
|
274,320 |
|
|
|
309,620 |
|
Coal stockpiles |
|
|
- |
|
|
|
- |
|
|
|
8,305 |
|
Provision against carrying value of materials and supplies |
|
|
(34,755 |
) |
|
|
(31,376 |
) |
|
|
(14,839 |
) |
|
|
$ |
342,889 |
|
|
$ |
396,782 |
|
|
$ |
844,510 |
|
Non-current |
|
|
|
|
|
|
|
|
|
|
|
|
Copper-gold stockpiles |
|
$ |
186,617 |
|
|
$ |
159,246 |
|
|
$ |
118,497 |
|
Provision against carrying value |
|
|
(93,865 |
) |
|
|
(106,489 |
) |
|
|
(97,268 |
) |
|
|
$ |
92,752 |
|
|
$ |
52,757 |
|
|
$ |
21,229 |
|
During the six month period ended June 30, 2015, net inventory write down reversals
amounting to $9.2 million (June 30, 2014$18.9 million write down) were recognized.
13
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
11. |
Prepaid expenses and other deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
|
|
|
|
Mongolian tax prepayments (Note 13) |
|
$ |
50,449 |
|
|
$ |
60,000 |
|
|
$ |
- |
|
Prepaid expenses and other deposits |
|
|
9,208 |
|
|
|
16,903 |
|
|
|
33,378 |
|
Standby purchaser fee prepayment (Note 18 (c)) |
|
|
- |
|
|
|
- |
|
|
|
71,710 |
|
|
|
$ |
59,657 |
|
|
$ |
76,903 |
|
|
$ |
105,088 |
|
12. |
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oyu Tolgoi |
|
|
|
|
|
|
Six Months Ended
June 30, 2015 |
|
Mineral property interests |
|
|
Plant and equipment |
|
|
Capital works in progress |
|
|
|
|
Other
capital assets |
|
|
Total |
|
|
|
|
|
|
|
|
Net book value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2015 |
|
$ |
948,372 |
|
|
$ |
3,695,939 |
|
|
$ |
1,952,772 |
|
|
|
|
$ |
312 |
|
|
$ |
6,597,395 |
|
Additions |
|
|
30,128 |
|
|
|
78 |
|
|
|
36,548 |
|
|
|
|
|
- |
|
|
|
66,754 |
|
Depreciation for the period |
|
|
(44,397 |
) |
|
|
(128,363 |
) |
|
|
- |
|
|
|
|
|
(46 |
) |
|
|
(172,806 |
) |
Disposals and write offs |
|
|
(36,794 |
) |
|
|
(1,318 |
) |
|
|
- |
|
|
|
|
|
- |
|
|
|
(38,112 |
) |
Transfers and other movements |
|
|
- |
|
|
|
1,410 |
|
|
|
(1,410 |
) |
|
|
|
|
(2 |
) |
|
|
(2 |
) |
June 30, 2015 |
|
$ |
897,309 |
|
|
$ |
3,567,746 |
|
|
$ |
1,987,910 |
|
|
|
|
$ |
264 |
|
|
$ |
6,453,229 |
|
|
|
|
|
|
|
|
Cost |
|
|
1,060,126 |
|
|
|
4,216,516 |
|
|
|
1,987,910 |
|
|
|
|
|
3,783 |
|
|
|
7,268,335 |
|
Accumulated depreciation / impairment |
|
|
(162,817 |
) |
|
|
(648,770 |
) |
|
|
- |
|
|
|
|
|
(3,519 |
) |
|
|
(815,106 |
) |
June 30, 2015 |
|
$ |
897,309 |
|
|
$ |
3,567,746 |
|
|
$ |
1,987,910 |
|
|
|
|
$ |
264 |
|
|
$ |
6,453,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oyu Tolgoi |
|
|
|
|
|
|
Six Months Ended
June 30, 2014 |
|
Mineral property interests |
|
|
Plant and equipment |
|
|
Capital works in progress |
|
|
|
|
Other
capital assets |
|
|
Total |
|
|
|
|
|
|
|
|
Net book value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2014 |
|
$ |
984,017 |
|
|
$ |
3,856,856 |
|
|
$ |
1,961,714 |
|
|
|
|
$ |
406,866 |
|
|
$ |
7,209,453 |
|
Additions |
|
|
34,018 |
|
|
|
4,482 |
|
|
|
47,582 |
|
|
|
|
|
8,579 |
|
|
|
94,661 |
|
Depreciation for the period |
|
|
(24,679 |
) |
|
|
(104,917 |
) |
|
|
- |
|
|
|
|
|
(26,046 |
) |
|
|
(155,642 |
) |
Impairments charges |
|
|
- |
|
|
|
- |
|
|
|
(8,170 |
) |
|
|
|
|
(277 |
) |
|
|
(8,447 |
) |
Disposals and write offs |
|
|
- |
|
|
|
(973 |
) |
|
|
- |
|
|
|
|
|
(178 |
) |
|
|
(1,151 |
) |
Transfers and other movements |
|
|
- |
|
|
|
3,059 |
|
|
|
(3,059 |
) |
|
|
|
|
- |
|
|
|
- |
|
June 30, 2014 |
|
$ |
993,356 |
|
|
$ |
3,758,507 |
|
|
$ |
1,998,067 |
|
|
|
|
$ |
388,944 |
|
|
$ |
7,138,874 |
|
|
|
|
|
|
|
|
Cost |
|
|
1,076,228 |
|
|
|
4,131,855 |
|
|
|
1,998,067 |
|
|
|
|
|
579,448 |
|
|
|
7,785,598 |
|
Accumulated depreciation / impairment |
|
|
(82,872 |
) |
|
|
(373,348 |
) |
|
|
- |
|
|
|
|
|
(190,504 |
) |
|
|
(646,724 |
) |
June 30, 2014 |
|
$ |
993,356 |
|
|
$ |
3,758,507 |
|
|
$ |
1,998,067 |
|
|
|
|
$ |
388,944 |
|
|
$ |
7,138,874 |
|
14
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
|
|
|
Mongolian tax prepayments (a) |
|
$ |
- |
|
|
$ |
19,886 |
|
|
$ |
157,983 |
|
Available for sale investments (b) |
|
|
10,725 |
|
|
|
34,325 |
|
|
|
70,254 |
|
Mongolian treasury bill (c) |
|
|
- |
|
|
|
- |
|
|
|
109,294 |
|
Interests in joint ventures (d) |
|
|
- |
|
|
|
- |
|
|
|
24,205 |
|
Other |
|
|
4,874 |
|
|
|
6,342 |
|
|
|
8,735 |
|
|
|
$ |
15,599 |
|
|
$ |
60,553 |
|
|
$ |
370,471 |
|
|
(a) |
Mongolian tax prepayments |
The Company made tax prepayments to the
Mongolian Government of $50.0 million and $100.0 million on April 7, 2010 and June 7, 2011, respectively. The after-tax rate of interest on the tax prepayments is 1.59% compounding annually. Tax payments are offset at a rate of $5.0
million per month since September 2013. Unless already off-set fully against Mongolian taxes, the Mongolian Government is required to repay any remaining tax prepayment balance, including accrued interest, on the fifth anniversary of the date the
tax prepayment was made. The Company initially recognized the tax prepayments at their fair value ($125.4 million) and subsequently carried them at amortized cost with interest income recognized in income using the effective interest method.
During 2014, the Company reached an agreement with the Government of Mongolia to apply up to $5.0 million per month of the tax
prepayments against Mongolian taxes owing. During the three and six month periods ended June 30, 2015, the Company offset $15.0 million (2014 - $21.1 million) and $30.0 million (2014 - $50.0 million) of tax prepayments against Mongolian taxes
and recognized $0.3 million (2014 - $0.5 million) and $0.6 million (2014 - $1.1 million) of interest income. The expected application against Mongolian taxes for the next 12 months of $50.4 million is recorded as current in Prepaid expenses and
other deposits (Note 11).
The total prepayment outstanding at June 30, 2015 was $50.4 million and is recorded in the
financial statements at amortized cost. The fair value of the outstanding prepayment at June 30, 2015 was $48.3 million (December 31, 2014: $75.4 million; January 1, 2014: $145.0 million). The fair value of the tax prepayments was
estimated based on available public information regarding what market participants would consider paying for such investments.
15
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
13. |
Financial assets (continued) |
|
(b) |
Available for sale equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
|
|
December 31, 2014 |
|
|
|
|
January 1, 2014 |
|
|
|
Equity Interest |
|
|
Cost Basis |
|
|
Unrealized Loss |
|
|
Fair Value |
|
|
|
|
Equity Interest |
|
|
Cost Basis |
|
|
Unrealized Loss |
|
|
Fair Value |
|
|
|
|
Equity Interest |
|
|
Cost Basis |
|
|
Unrealized Gain (Loss) |
|
|
Fair Value |
Ivanhoe Mines Ltd. (i) |
|
|
1.3% |
|
|
$ |
8,279 |
|
|
$ |
(1,936 |
) |
|
$ |
6,343 |
|
|
|
|
|
5.4% |
|
|
$ |
34,057 |
|
|
$ |
(2,206 |
) |
|
$ |
31,851 |
|
|
|
|
|
6.4% |
|
|
$ |
34,057 |
|
|
$ |
25,953 |
|
|
$ |
60,010 |
|
Entrée Gold Inc. |
|
|
9.4% |
|
|
|
4,723 |
|
|
|
(380 |
) |
|
|
4,343 |
|
|
|
|
|
9.4% |
|
|
|
4,723 |
|
|
|
(2,283 |
) |
|
|
2,440 |
|
|
|
|
|
9.4% |
|
|
|
4,723 |
|
|
|
(696 |
) |
|
|
4,027 |
|
Other |
|
|
- |
|
|
|
50 |
|
|
|
(11 |
) |
|
|
39 |
|
|
|
|
|
- |
|
|
|
50 |
|
|
|
(16 |
) |
|
|
34 |
|
|
|
|
|
- |
|
|
|
5,710 |
|
|
|
507 |
|
|
|
6,217 |
|
|
|
|
|
|
|
$ |
13,052 |
|
|
$ |
(2,327 |
) |
|
$ |
10,725 |
|
|
|
|
|
|
|
|
$ |
38,830 |
|
|
$ |
(4,505 |
) |
|
$ |
34,325 |
|
|
|
|
|
|
|
|
$ |
44,490 |
|
|
$ |
25,764 |
|
|
$ |
70,254 |
|
|
(i) |
At June 30, 2015, the Company held no freely tradable Class A common shares (December 31, 2014 22.4 million, January 1,
2014 11.7 million) of Ivanhoe Mines Ltd. (Ivanhoe) and 9.0 million Class A common shares (December 31, 2014 14.7 million, January 1, 2014 25.4 million) that are subject to certain trading
restrictions that are lifted on a portion every three months, with all the common shares becoming freely tradable by January 23, 2016. |
|
|
During June 2015, Turquoise Hill disposed of 5.3 million shares in Ivanhoe at a weighted average price of Cdn$0.93 per share resulting in a
realized loss on disposal of $0.9 million. During February 2015, Turquoise Hill had disposed of 22.9 million shares in Ivanhoe at a weighted average price of Cdn$0.71 per share resulting in a realized loss on disposal of $8.1 million.
|
|
(c) |
Mongolian treasury bill |
On October 20, 2009, Turquoise Hill
purchased a Treasury Bill (T-Bill) from the Mongolian Government, having a face value of $115.0 million, for $100.0 million. The annual rate of interest on the T-Bill was set at 3.0%. The maturity date of the T-Bill was
October 20, 2014 and the $115.0 million face value was repaid by the Mongolian Government on October 17, 2014.
|
(d) |
Interests in joint ventures |
SouthGobi has a 40% interest in RDCC LLC,
a joint venture. The investment in joint venture was classified as held for sale within the SouthGobi disposal group from July 29, 2014 to April 23, 2015, when SouthGobi ceased to be a consolidated subsidiary.
14. |
Assets held for sale and discontinued operations |
2014 sale and
purchase agreement and impairment charge
Following signature of a sale and purchase agreement with National United
Resources Holdings Limited (NUR) on July 29, 2014, the reporting segment for SouthGobi was considered to be a disposal group held for sale and a discontinued operation.
On May 1, 2015, the Company announced that the sale and purchase agreement with NUR had expired on April 30, 2015
without the transaction contemplated thereunder having being completed.
Upon classification of SouthGobi as held for sale
during the three month period ended September 30, 2014, the Company remeasured SouthGobi at the lower of its carrying value and fair value less cost to sell
16
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
14. |
Assets held for sale and discontinued operations (continued) |
(FVLCS), with subsequent adjustment to an updated FVLCS at December 31, 2014. As a result, the Company recorded an impairment charge of $216.2 million ($122.0 million after
non-controlling interests) against property, plant and equipment (including deferred stripping balances recognized on transition to IFRS) within the disposal group in its financial statements for the year ended December 31, 2014.
2015 impairment reversal
As a result of an increase in SouthGobis quoted share price during the three month period ended March 31, 2015, the
Company recorded an impairment reversal of $73.6 million ($35.2 million after non-controlling interests) against property, plant and equipment. The estimate of FVLCS giving rise to the reversal of impairment was based upon a quoted share price of
Cdn$0.90 at March 31, 2015 and included adjustments for amounts receivable from SouthGobi which eliminated on consolidation prior to divestment.
Divestment to Novel Sunrise Investments Limited
On April 23, 2015, the Company completed the sale of 48.7 million shares in SouthGobi to Novel Sunrise Investments
Limited (NSI) at a price of Cdn$0.35 per common share. Cash proceeds of Cdn$8.5 million were received on completion, with a balance of Cdn$8.5 million payable to the Company on the first anniversary of closing. A further 1.7 million
shares were sold to NSI on June 3, 2015 2015 at a price of Cdn$0.35 per common share.
A loss on sale of $20.2
million was recorded within discontinued operations for the three months ended June 30, 2015, as a result of the price per share divested being below the quoted share price on which the estimate of FVLCS was based.
Following completion of the transactions with NSI, Turquoise Hills ownership of SouthGobi fell to 22.6%. On completion
of the April 23 transaction, SouthGobi ceased to be a subsidiary company of Turquoise Hill and became an investment in an associate.
Subsequent re-measurement and presentation
Immediately after the divestment to NSI, the Companys remaining investment in SouthGobi was recorded within current
assets held for sale at an initial carrying value of $36.2 million, being an estimate of FVLCS based on the quoted share price at April 23, 2015. Subsequent to initial recognition, the investment is measured at the lower of original carrying
amount and FVLCS, in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Charges and credits relating to changes in the FVLCS of the investment, based on the quoted stock price, are classified as other income
(expenses) within discontinued operations.
Income and cash flows of SouthGobi up to April 23, 2015 are presented as
discontinued operations in the consolidated statements of income (loss) and the consolidated statements of cash flows, respectively.
17
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
14. |
Assets held for sale and discontinued operations (continued) |
The carrying amounts of assets and liabilities included in the disposal group
are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
Cash and cash equivalents |
|
$ |
- |
|
|
$ |
3,788 |
|
Inventories |
|
|
- |
|
|
|
31,256 |
|
Trade and other receivables |
|
|
- |
|
|
|
461 |
|
Prepaid expenses and other assets |
|
|
- |
|
|
|
4,194 |
|
Property, plant and equipment |
|
|
- |
|
|
|
163,216 |
|
Investment in associated company |
|
|
33,136 |
|
|
|
- |
|
Financial assets |
|
|
- |
|
|
|
26,574 |
|
Assets of disposal groups held for sale |
|
$ |
33,136 |
|
|
$ |
229,489 |
|
|
|
|
Borrowings and other financial liabilities |
|
|
- |
|
|
|
2,301 |
|
Trade and other payables |
|
|
- |
|
|
|
10,324 |
|
Deferred revenue |
|
|
- |
|
|
|
11,898 |
|
Payable to related parties |
|
|
- |
|
|
|
771 |
|
Convertible credit facility |
|
|
- |
|
|
|
92,873 |
|
Decomissioning obligations |
|
|
- |
|
|
|
2,704 |
|
Liabilities of disposal groups held for sale |
|
$ |
- |
|
|
$ |
120,871 |
|
The net loss reported in discontinued operations for all periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
Revenue |
|
$ |
130 |
|
|
$ |
7,474 |
|
|
$ |
2,392 |
|
|
$ |
14,649 |
|
Cost of sales |
|
|
(1,294) |
|
|
|
(19,713) |
|
|
|
(8,364) |
|
|
|
(38,079) |
|
Reversal of write down of property, plant and equipment |
|
|
- |
|
|
|
- |
|
|
|
73,638 |
|
|
|
- |
|
Loss on sale of discontinued operations |
|
|
(20,167) |
|
|
|
- |
|
|
|
(20,167) |
|
|
|
- |
|
Other income (expenses) |
|
|
(5,623) |
|
|
|
(10,309) |
|
|
|
(13,849) |
|
|
|
(20,103) |
|
Income (loss) after tax from discontinued operations |
|
$ |
(26,954) |
|
|
$ |
(22,548) |
|
|
$ |
33,650 |
|
|
$ |
(43,533) |
|
18
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
15. |
Borrowings and other financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Interim funding facilities (a) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,789,787 |
|
Bridge funding facilities (a) |
|
|
- |
|
|
|
- |
|
|
|
339,475 |
|
Interest payable |
|
|
- |
|
|
|
- |
|
|
|
15,831 |
|
Credit facilities (b) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,145,093 |
|
|
|
|
|
Non-current |
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease payable |
|
$ |
13,834 |
|
|
$ |
14,086 |
|
|
$ |
14,564 |
|
Convertible debenture (c) |
|
|
- |
|
|
|
- |
|
|
|
94,302 |
|
|
|
$ |
13,834 |
|
|
$ |
14,086 |
|
|
$ |
108,866 |
|
|
(a) |
Interim and bridge funding facilities |
All amounts owing under the
Interim and Bridge funding facilities provided by Rio Tinto to the Company were repaid by January 14, 2014 with proceeds from the 2013 rights offering. The facilities were then cancelled.
|
(b) |
Revolving credit facility |
On March 19, 2015, Oyu Tolgoi signed a
secured $200.0 million revolving credit facility with five banks, replacing an unsecured $200.0 million facility signed on February 24, 2014 which matured on February 24, 2015. Amounts drawn under the credit facility are required to be
used by Oyu Tolgoi for working capital purposes. The credit facility bears interest at a fixed margin over LIBOR on any drawn amounts together with a utilization fee, which varies according to the utilized portion of the facility, and a commitment
fee on undrawn amounts. The credit facility matures on March 19, 2016. At June 30, 2015, no amounts had been drawn down on the facility.
|
(c) |
Convertible debenture |
On November 19, 2009, SouthGobi issued a
convertible debenture to a wholly owned subsidiary of China Investment Corporation (CIC) for $500.0 million. The convertible debenture bears interest at 8.0% (6.4% payable semi-annually in cash and 1.6% payable annually in shares of
SouthGobi) and has a term of 30 years. A first charge over SouthGobis assets, including the shares of its material subsidiaries, is pledged as collateral against the convertible debenture. An event of default on the convertible debenture can
be triggered as a result of certain encumbrances on SouthGobis assets. Pursuant to the convertible debentures terms, on March 29, 2010, SouthGobi exercised its right to call for conversion of $250 million of the convertible
debenture into 21.5 million shares.
19
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
15. |
Borrowings and other financial liabilities (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
Principal amount of convertible debenture |
|
$ |
- |
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
|
|
|
(Deduct) add: |
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs |
|
|
- |
|
|
|
(2,801 |
) |
|
|
(2,801 |
) |
Bifurcation of embedded derivative liability |
|
|
- |
|
|
|
(156,646 |
) |
|
|
(156,646 |
) |
Accretion of discount |
|
|
- |
|
|
|
486 |
|
|
|
354 |
|
Carrying amount of debt host contract |
|
$ |
- |
|
|
$ |
91,039 |
|
|
$ |
90,907 |
|
|
|
|
|
Embedded derivative liability |
|
|
- |
|
|
|
1,834 |
|
|
|
3,395 |
|
Convertible credit facility |
|
$ |
- |
|
|
$ |
92,873 |
|
|
$ |
94,302 |
|
|
|
|
|
Less amount classified as liabilities held for sale
|
|
|
- |
|
|
|
(92,873 |
) |
|
|
- |
|
Net carrying amount of convertible credit facility |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
94,302 |
|
CIC has the right to convert the debenture, in whole or in part, into common shares of
SouthGobi from November 19, 2010 onwards. After November 19, 2014, SouthGobi is entitled to convert the debenture, in whole or in part, into its common shares at the conversion price if the conversion price is at least Cdn$10.66. The
conversion price is the lower of Cdn$11.88 or the 50-day volume-weighted average price at the date of conversion, subject to a floor price of Cdn$8.88 per share.
The debenture was classified as held for sale within the SouthGobi disposal group from July 29, 2014.
16. |
Trade and other payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
|
|
|
|
Trade payables and accrued liabilities |
|
$ |
163,408 |
|
|
$ |
184,750 |
|
|
$ |
278,902 |
|
Other |
|
|
5,135 |
|
|
|
1,102 |
|
|
|
1,493 |
|
|
|
$ |
168,543 |
|
|
$ |
185,852 |
|
|
$ |
280,395 |
|
17. |
Decommissioning obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
Oyu Tolgoi |
|
$ |
95,462 |
|
|
$ |
93,004 |
|
|
$ |
116,254 |
|
SouthGobi |
|
|
- |
|
|
|
- |
|
|
|
2,308 |
|
|
|
$ |
95,462 |
|
|
$ |
93,004 |
|
|
$ |
118,562 |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
Opening carrying amount |
|
$ |
93,004 |
|
|
$ |
118,562 |
|
Changes in estimates |
|
|
572 |
|
|
|
2,596 |
|
Accretion of present value discount |
|
|
1,886 |
|
|
|
3,629 |
|
|
|
$ |
95,462 |
|
|
$ |
124,787 |
|
20
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
17. |
Decommissioning obligations (continued) |
Reclamation and closure costs have been estimated based on the Companys interpretation
of current regulatory requirements and other commitments made to stakeholders, and are measured as the net present value of future cash expenditures upon reclamation and closure.
Estimated future cash expenditures have been discounted to their present value at a real rate of 2.0% (December 31, 2014
2.0%, January 1, 2014 2.0 %).
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015 |
|
|
|
Number of Common Shares |
|
|
Amount |
|
Balances, January 1, 2015 |
|
|
2,012,298,797 |
|
|
$ |
11,432,060 |
|
Shares issued for: |
|
|
|
|
|
|
|
|
Exercise of stock options (b) |
|
|
10,222 |
|
|
|
24 |
|
Balances, June 30, 2015 |
|
|
2,012,309,019 |
|
|
$ |
11,432,084 |
|
|
|
|
|
Six Months Ended June 30, 2014 |
|
|
|
Number of Common Shares |
|
|
Amount |
|
Balances, January 1, 2014 |
|
|
1,006,116,602 |
|
|
$ |
9,150,621 |
|
Shares issued for: |
|
|
|
|
|
|
|
|
Rights offering net of issue costs of $79,875 ( c) |
|
|
1,006,116,602 |
|
|
|
2,280,934 |
|
Exercise of stock options (b) |
|
|
59,840 |
|
|
|
398 |
|
Share purchase plan |
|
|
5,753 |
|
|
|
19 |
|
Balances, June 30, 2014 |
|
|
2,012,298,797 |
|
|
$ |
11,431,972 |
|
As at June 30, 2015, Rio Tintos equity
ownership in the Company was 50.8% (December 31, 2014 50.8%, June 30, 2014 - 50.8%, January 1, 2014 50.8%). The Companys Series D and Anti-Dilution Series D Warrants (the Warrants) expired on May 22, 2015
unexercised. The Warrants were acquired by Rio Tinto in conjunction with the 2012 Memorandum of Agreement. The Series D Warrants were exercisable to purchase 74,247,460 common shares of the Company at a price of $8.20 per common share. The
Anti-Dilution Series D Warrants were exercisable to purchase 74,247,460 common shares of the Company at a price of $4.31 per common share.
During the six month period ended June 30, 2015,
10,222 options were exercised, 1,630,780 options were cancelled, no options expired, no options were granted and $0.1 million was charged to operations.
In November 2013, the Company filed a final short
form prospectus for a rights offering open to all shareholders on a dilution-free, equal participation basis. In accordance with the terms of the rights
21
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
18. |
Share capital (continued) |
|
(c) |
2013 Rights Offering (continued) |
offering, each shareholder of record as at December 6, 2013 received one right for each common share held. Every right held entitled the holder thereof to purchase one common share of the
Company at $2.40 per share or Cdn$2.53 per share, at the election of the holder. The rights traded on the TSX, NYSE and NASDAQ and expired on January 7, 2014.
Under the 2013 Memorandum of Agreement (MOA) and the November 14, 2013 amendment thereto, Rio Tinto agreed,
subject to certain terms, conditions and limitations, to exercise its basic subscription privilege in full and to provide a standby commitment to acquire all common shares not otherwise taken up under the 2013 Rights Offering in exchange for a
standby purchaser fee equal to 3% of the gross rights offering proceeds. Because the rights offering was oversubscribed, Rio Tinto did not purchase any shares under its standby commitment.
The pro rata distribution of rights to the Companys shareholders was accounted for as an equity instrument. Upon the
closing of the rights offering in January 2014, the Company issued a total of 1,006,116,602 common shares for gross proceeds of $2.4 billion. Expenses and fees relating to the rights offering totalled approximately $79.8 million, including the $70.8
million standby purchaser fee paid to Rio Tinto, and reduced the gross proceeds recorded as share capital.
The standby
purchaser fee liability contained an embedded derivative as it was equal to 3% of the Canadian and U.S. dollar proceeds received upon the rights offering close. Therefore, the embedded derivative was measured at fair value, which was estimated using
the optimal currency of exercise for a right at each measurement date. On December 3, 2013, the Company recognized a standby purchaser fee liability of $71.7 million and a deferred charge for the same amount, which was classified as a prepaid
expense in the consolidated balance sheet. Upon closing the rights offering in January 2014, the deferred charge was reclassified from other assets to share capital to reflect a cost of the rights offering. During the six month period ended
June 30, 2014, the Company recognized a derivative gain of $1.1 million associated with the remeasurement of the standby purchaser fee liability.
19. |
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on Available For Sale Equity Securities |
|
Unrealized (Loss) Gain on Available For Sale Debt Securities |
|
|
Noncontrolling Interests |
|
|
Total Attributable to the Company |
|
|
|
|
|
|
Balance, January 1, 2015 |
|
$ |
(4,505 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(4,505 |
) |
|
|
|
|
|
Change in other comprehensive loss before reclassifications |
|
|
(6,818 |
) |
|
|
- |
|
|
|
- |
|
|
|
(6,818 |
) |
Reclassifications from accumulated other comprehensive income (Note 13 (b)) |
|
|
8,996 |
|
|
|
- |
|
|
|
- |
|
|
|
8,996 |
|
Net other comprehensive income |
|
|
2,178 |
|
|
|
- |
|
|
|
- |
|
|
|
2,178 |
|
Balance, June 30, 2015 |
|
$ |
(2,327 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(2,327 |
) |
22
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
19. |
Accumulated other comprehensive income (loss) (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on Available For Sale Equity Securities |
|
Unrealized (Loss) Gain on Available For Sale Debt Securities |
|
|
Noncontrolling Interests |
|
|
Total Attributable to the Company |
|
|
|
|
|
|
Balance, January 1, 2014 |
|
$ |
25,764 |
|
|
$ |
(3,171 |
) |
|
$ |
(246 |
) |
|
$ |
22,347 |
|
Change in other comprehensive (loss) income before reclassifications |
|
|
(16,857 |
) |
|
|
2,089 |
|
|
|
43 |
|
|
|
(14,725 |
) |
Reclassifications from accumulated other comprehensive income |
|
|
1,766 |
|
|
|
- |
|
|
|
- |
|
|
|
1,766 |
|
Net other comprehensive (loss) income |
|
|
(15,091 |
) |
|
|
2,089 |
|
|
|
43 |
|
|
|
(12,959 |
) |
Balance, June 30, 2014 |
|
$ |
10,673 |
|
|
$ |
(1,082 |
) |
|
$ |
(203 |
) |
|
$ |
9,388 |
|
20. |
Non-controlling interests |
At June 30, 2015, there were
non-controlling interests in subsidiaries as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling Interests |
|
|
|
SouthGobi |
|
|
Oyu Tolgoi (a) |
|
|
Total |
|
Balance, January 1, 2015 |
|
$ |
56,590 |
|
|
$ |
(683,061 |
) |
|
$ |
(626,471 |
) |
Non-controlling interests share of income (loss) |
|
|
29,635 |
|
|
|
(20,398 |
) |
|
|
9,237 |
|
Changes in equity interests held by Turquoise Hill |
|
|
1,823 |
|
|
|
- |
|
|
|
1,823 |
|
Disposal of subsidiary |
|
|
(88,048 |
) |
|
|
- |
|
|
|
(88,048 |
) |
Balance, June 30, 2015 |
|
$ |
- |
|
|
$ |
(703,459 |
) |
|
$ |
(703,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling Interests |
|
|
|
SouthGobi |
|
|
Oyu Tolgoi (a) |
|
|
Total |
|
Balance, January 1, 2014 |
|
$ |
171,348 |
|
|
$ |
(541,511 |
) |
|
$ |
(370,163 |
) |
Non-controlling interests share of loss |
|
|
(19,107 |
) |
|
|
(114,882 |
) |
|
|
(133,989 |
) |
Non-controlling interests share of other comprehensive loss |
|
|
(43 |
) |
|
|
- |
|
|
|
(43 |
) |
Changes in equity interests held by Turquoise Hill |
|
|
(2,158 |
) |
|
|
- |
|
|
|
(2,158 |
) |
Balance, June 30, 2014 |
|
$ |
150,040 |
|
|
$ |
(656,393 |
) |
|
$ |
(506,353 |
) |
|
(a) |
Common share investments funded on behalf of non-controlling interests |
Since 2011, Turquoise Hill has funded common share investments in Oyu Tolgoi on behalf of Erdenes Oyu Tolgoi LLC
(Erdenes). In accordance with the Amended and Restated Shareholders Agreement dated June 8, 2011, such funded amounts earn interest at an effective annual rate of LIBOR plus 6.5% and are repayable to Turquoise Hill via a pledge
over Erdenes share of future Oyu Tolgoi common share dividends. Erdenes also has the right to reduce the outstanding balance by making payments directly to Turquoise Hill.
Common share investments funded on behalf of Erdenes are recorded as a reduction to the net carrying value of non-controlling
interest. As at June 30, 2015, the cumulative amounts of such funding and accrued interest were $751.1 million (December 31, 2014 - $751.1 million; June 30, 2014 - $751.1 million; and January 1, 2014 - $751.1 million) and
$199.1 million (December 31, 2014 - $168.6 million; June 30, 2014 - $139.0 million; and January 1, 2014 - $110.5 million), respectively.
23
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
21. |
Cash flow information |
|
(a) |
Reconciliation of net income (loss) to net cash flow generated from (used in) operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Income (loss) from continuing operations |
|
$ |
44,204 |
|
|
$ |
(33,864 |
) |
|
$ |
96,632 |
|
|
$ |
(104,215 |
) |
|
|
|
|
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrate prepayment facility offsets |
|
|
- |
|
|
|
(26,913 |
) |
|
|
- |
|
|
|
(26,913 |
) |
Depreciation and amortization |
|
|
81,982 |
|
|
|
114,884 |
|
|
|
168,447 |
|
|
|
146,520 |
|
Finance items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(613 |
) |
|
|
(1,506 |
) |
|
|
(1,211 |
) |
|
|
(2,984 |
) |
Interest and accretion expense |
|
|
629 |
|
|
|
1,939 |
|
|
|
2,360 |
|
|
|
10,405 |
|
Realized and unrealized losses on financial instruments |
|
|
921 |
|
|
|
- |
|
|
|
8,996 |
|
|
|
- |
|
Unrealized foreign exchange (gains) losses |
|
|
(261 |
) |
|
|
(141 |
) |
|
|
(130 |
) |
|
|
166 |
|
Inventory write downs (reversals) |
|
|
(25,625 |
) |
|
|
10,450 |
|
|
|
(9,245 |
) |
|
|
18,873 |
|
Write down of carrying value of property, plant and equipment |
|
|
38,087 |
|
|
|
8,170 |
|
|
|
38,341 |
|
|
|
8,170 |
|
Tax prepayment offset |
|
|
15,000 |
|
|
|
21,080 |
|
|
|
30,000 |
|
|
|
49,965 |
|
Gains on sale of mineral property rights and other assets |
|
|
- |
|
|
|
(14,019 |
) |
|
|
- |
|
|
|
(14,019 |
) |
Income and other taxes |
|
|
12,888 |
|
|
|
11,622 |
|
|
|
24,651 |
|
|
|
23,053 |
|
Other items |
|
|
627 |
|
|
|
1,355 |
|
|
|
790 |
|
|
|
1,045 |
|
Net change in non-cash operating working capital items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
(17,276 |
) |
|
|
110,342 |
|
|
|
19,551 |
|
|
|
38,873 |
|
Trade and other receivables and Prepaid expenses and other assets |
|
|
14,587 |
|
|
|
(11,441 |
) |
|
|
15,661 |
|
|
|
(19,102 |
) |
Due from related parties |
|
|
(144 |
) |
|
|
1,200 |
|
|
|
3,275 |
|
|
|
1,384 |
|
(Decrease) increase in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
27,649 |
|
|
|
(7,950 |
) |
|
|
(20,958 |
) |
|
|
(65,662 |
) |
Deferred revenue |
|
|
54,531 |
|
|
|
(15,164 |
) |
|
|
(13,722 |
) |
|
|
7,263 |
|
Payable to related parties |
|
|
(5,908 |
) |
|
|
(1,407 |
) |
|
|
(16,874 |
) |
|
|
(8,322 |
) |
Cash generated from operating activities of continuing operations before interest and tax |
|
|
241,278 |
|
|
|
168,637 |
|
|
|
346,564 |
|
|
|
64,500 |
|
|
|
|
|
|
Cash used in operating activities of discontinued operations before interest and
tax |
|
|
(2,096 |
) |
|
|
(14,846 |
) |
|
|
(5,911 |
) |
|
|
(22,578 |
) |
|
|
|
|
|
Cash generated from operating activities before interest and tax |
|
$ |
239,182 |
|
|
$ |
153,791 |
|
|
$ |
340,653 |
|
|
$ |
41,922 |
|
24
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
21. |
Cash flow information (continued) |
|
(b) |
Supplementary information regarding other non-cash transactions |
The
non-cash investing and financing activities relating to continuing operations not already disclosed in the consolidated statements of cash flows were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax prepayment (Note 13) |
|
$ |
15,000 |
|
|
$ |
21,080 |
|
|
$ |
30,000 |
|
|
$ |
49,965 |
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of credit facility |
|
|
- |
|
|
|
(26,760 |
) |
|
|
- |
|
|
|
(35,884 |
) |
22. |
Earnings (loss) per share |
The basic earnings (loss) per share is
computed by dividing the net income (loss) attributable to common stock by the weighted average number of common shares outstanding during the year. All stock options and share purchase warrants outstanding at each period end have been excluded from
the weighted average share calculation.
The potentially dilutive shares excluded from the earnings (loss) per share
calculation due to antidilution are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Options |
|
|
1,701,733 |
|
|
|
3,695,563 |
|
|
|
1,701,733 |
|
|
|
3,695,563 |
|
Series D warrants |
|
|
- |
|
|
|
74,247,460 |
|
|
|
- |
|
|
|
74,247,460 |
|
Anti-diultive Series D warrants |
|
|
- |
|
|
|
74,247,460 |
|
|
|
- |
|
|
|
74,247,460 |
|
|
|
|
1,701,733 |
|
|
|
152,190,483 |
|
|
|
1,701,733 |
|
|
|
152,190,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
Due from related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
Rio Tinto (a) |
|
$ |
4,588 |
|
|
$ |
7,864 |
|
|
$ |
5,070 |
|
SouthGobi (b) |
|
|
10,427 |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
15,015 |
|
|
$ |
7,864 |
|
|
$ |
5,070 |
|
|
|
|
|
Payable to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
Rio Tinto (a) |
|
$ |
(36,910 |
) |
|
$ |
(53,784 |
) |
|
$ |
(247,692 |
) |
SouthGobi (b) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
(36,910 |
) |
|
$ |
(53,784 |
) |
|
$ |
(247,692 |
) |
25
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
23. |
Related parties (continued) |
|
(a) |
Related party transactions with Rio Tinto |
As at June 30, 2015,
Rio Tintos equity ownership in the Company was 50.8% (December 31, 2014 and January 1, 2014: 50.8%).
The
following table presents the consolidated balance sheet line items which include deposits with Rio Tinto, amounts due from Rio Tinto and amounts payable to Rio Tinto:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
Cash and cash equivalents (i) |
|
$ |
739,758 |
|
|
$ |
711,468 |
|
|
$ |
- |
|
Due from related parties |
|
|
4,588 |
|
|
|
7,864 |
|
|
|
5,070 |
|
Payable to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
Management service payments (ii) |
|
|
(6,682 |
) |
|
|
(7,729 |
) |
|
|
(100,569 |
) |
Cost recoveries (iii) |
|
|
(30,228 |
) |
|
|
(46,055 |
) |
|
|
(75,237 |
) |
Standby purchaser fee |
|
|
- |
|
|
|
- |
|
|
|
(71,886 |
) |
Interest payable on long-term debt |
|
|
- |
|
|
|
- |
|
|
|
(13,530 |
) |
Interim funding facility (Note 15) |
|
|
- |
|
|
|
- |
|
|
|
(1,789,787 |
) |
New bridge facility (Note 15) |
|
|
- |
|
|
|
- |
|
|
|
(339,475 |
) |
|
|
$ |
707,436 |
|
|
$ |
665,548 |
|
|
$ |
(2,385,414 |
) |
The following table summarizes transactions with Rio Tinto by their nature:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Interest income on demand deposits |
|
$ |
309 |
|
|
$ |
- |
|
|
$ |
555 |
|
|
$ |
- |
|
Cost recoveries - Turquoise Hill |
|
|
1,281 |
|
|
|
305 |
|
|
|
2,381 |
|
|
|
882 |
|
|
|
|
|
|
Financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment fees (iv) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(224 |
) |
Interest expense (iv) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,903 |
) |
Management services payment (ii) |
|
|
(3,964 |
) |
|
|
(7,143 |
) |
|
|
(11,155 |
) |
|
|
(13,508 |
) |
Cost recoveries - Rio Tinto (iii) |
|
|
(16,074 |
) |
|
|
(24,235 |
) |
|
|
(24,727 |
) |
|
|
(40,541 |
) |
|
|
$ |
(18,448 |
) |
|
$ |
(31,073 |
) |
|
$ |
(32,946 |
) |
|
$ |
(58,294 |
) |
|
(i) |
|
In addition to placing cash and cash equivalents on deposit with banks or investing funds with other financial institutions, Turquoise Hill
may, from time to time, deposit cash and cash equivalents or invest funds with Rio Tinto in accordance with an agreed upon policy and strategy for the management of liquid resources. Cash and cash equivalents at June 30, 2015 included deposits
with wholly owned subsidiaries of Rio Tinto totalling $739.8 million and are repayable, in whole or in part, to the Company on demand. The deposits earned interest at an average market rate equivalent. The rate was determined with reference to
commercially available returns, on similar investments, offered by a representative group of banks. |
|
(ii) |
|
In accordance with the Amended and Restated Shareholders Agreement, which was signed on June 8, 2011, and other related agreements,
Turquoise Hill is required to pay a management services payment to Rio Tinto equal to a percentage of all capital costs and operating costs incurred by Oyu Tolgoi from |
26
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
23. |
Related parties (continued) |
|
(a) |
Related party transactions with Rio Tinto (continued) |
|
March 31, 2010 onwards. Until the Oyu Tolgoi open pit mine achieved Commencement of Production, as defined in the Investment Agreement, on September 1, 2013, the percentage of costs
used to calculate the management services payment was 1.5%. Thereafter, the percentage increased to 3.0% for open pit operations and, in accordance with the UDP signed on May 18, 2015, will be 1.5% for Underground capital construction costs.
|
|
(iii) |
|
Rio Tinto recovers the costs of providing general corporate support services and mine management services to Turquoise Hill. Mine management
services are provided by Rio Tinto in its capacity as the manager of the Oyu Tolgoi mine. |
|
(iv) |
|
The Rio Tinto credit facilities included gross-up provisions for withholding taxes. Accordingly, front end fees, commitment fees and
interest expense include gross-ups for withholding taxes where applicable. |
The above noted transactions were carried out
in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
|
(b) |
|
Related party transactions with SouthGobi |
The following table
summarizes transactions with SouthGobi which were primarily incurred on a cost-recovery basis with companies related by way of directors, officers or shareholders in common:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
SouthGobi - from April 23, 2015 (i) |
|
$ |
198 |
|
|
$ |
- |
|
|
$ |
198 |
|
|
$ |
- |
|
|
|
$ |
198 |
|
|
$ |
- |
|
|
$ |
198 |
|
|
$ |
- |
|
The above noted transactions were in the normal course of operations and measured at the
exchange amount, which is the amount of consideration established and agreed to by the related parties.
At June 30,
2015, $10.4 million was due from SouthGobi. There were no amounts payable to companies related to Turquoise Hill by way of directors, officers or shareholders in common.
|
(i) |
SouthGobi became an investment in a company subject to significant influence on April 23, 2015 (see Note 14 for further information);
prior to this SouthGobi was a consolidated subsidiary of Turquoise Hill and transactions between the Company and SouthGobi were eliminated upon consolidation. Amounts owing from SouthGobi at June 30, 2015 are classified as receivable from
related parties; transactions occurring after April 23, 2015 between the Company and SouthGobi are disclosed as related party transactions. |
Due to the size, complexity and nature of Turquoise
Hills operations, various legal and tax matters arise in the ordinary course of business. Turquoise Hill recognizes a liability with respect to such matters when an outflow of economic resources is assessed as probable and the amount can be
reliably estimated. In the opinion of management, these matters will not have a material effect on the consolidated financial statements of the Company.
27
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
25. |
|
Financial instruments and fair value measurements |
Certain of the
Companys financial assets and liabilities are measured at fair value on a recurring basis and classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Certain non-financial assets and
liabilities may also be measured at fair value on a non-recurring basis.
The fair value of financial assets and financial
liabilities measured at amortized cost is determined in accordance with generally accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions. Except as otherwise specified, the Company
considers that the carrying amount of all its financial assets and financial liabilities measured at amortized cost approximates their fair value because of the demand nature or short-term maturity of these instruments.
The following tables provide an analysis of the Companys financial assets that are measured subsequent to initial
recognition at fair value on a recurring basis, grouped into Level 1 to 3 based on the degree to which the inputs used to determine the fair value are observable.
|
|
|
Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities. |
|
|
|
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1, that are observable either directly
or indirectly. |
|
|
|
Level 3 fair value measurements are those derived from valuation techniques that include inputs that are not based on observable market data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at June 30, 2015 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investments |
|
$ |
10,725 |
|
|
$ |
4,382 |
|
|
$ |
6,343 |
|
|
$ |
- |
|
|
|
$ |
10,725 |
|
|
$ |
4,382 |
|
|
$ |
6,343 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2014 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investments |
|
$ |
34,325 |
|
|
$ |
22,215 |
|
|
$ |
12,110 |
|
|
$ |
- |
|
|
|
$ |
34,325 |
|
|
$ |
22,215 |
|
|
$ |
12,110 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at January 1, 2014 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investments |
|
$ |
70,254 |
|
|
$ |
30,899 |
|
|
$ |
39,355 |
|
|
$ |
- |
|
Mongolian treasury bill |
|
|
109,294 |
|
|
|
- |
|
|
|
- |
|
|
|
109,294 |
|
|
|
$ |
179,548 |
|
|
$ |
30,899 |
|
|
$ |
39,355 |
|
|
$ |
109,294 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to related parties |
|
$ |
71,886 |
|
|
$ |
- |
|
|
$ |
71,886 |
|
|
$ |
- |
|
|
|
$ |
71,886 |
|
|
$ |
- |
|
|
$ |
71,886 |
|
|
$ |
- |
|
28
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
25. |
|
Financial instruments and fair value measurements (continued) |
The Companys freely tradable available for sale investments are
classified within level 1 of the fair value hierarchy as they are valued using quoted market prices. Available for sale investments with trading restrictions are classified within level 2 as they are valued by applying a liquidity discount to quoted
market prices.
26. |
|
First time adoption of IFRS |
The Companys first condensed
consolidated interim financial statements prepared in accordance with IFRS were published on May 8, 2015 for the three months ended March 31, 2015.
The accounting policies set out in Note 2 and in the Companys condensed interim consolidated financial statements for
the three months ended March 31, 2015, have been consistently applied in preparing interim financial statements for the periods ended June 30, 2015, the comparative information presented in these interim financial statements for both
periods ended June 30, 2014 and year ended December 31, 2014, and in the preparation of an opening IFRS statement of financial position at January 1, 2014 (Transition Date).
In preparing its opening IFRS statement of financial position, Turquoise Hill has adjusted amounts reported previously in
financial statements prepared in accordance with US GAAP (its previous GAAP). Explanations of how the transition from its previous GAAP to IFRS has affected the Companys equity and its comprehensive income (loss) are set out in the
following reconciliations and the notes that accompany them.
Changes made to the consolidated statements of income
(loss), comprehensive income (loss) and the consolidated statements of financial position have resulted in reclassification of various amounts on the statements of cash flows; however as there have been no changes to the net cash flows, no
reconciliations have been prepared.
Pursuant to IFRS 1 First-time Adoption of International Financial Reporting
Standards, Turquoise Hill has applied IFRS on a retrospective basis, subject to relevant mandatory exceptions and voluntary exemptions to retrospective application of IFRS. These exceptions and exemptions are described in the notes to the
condensed interim consolidated financial statements for the three months ended March 31, 2015, and the reconciliations below should be read in conjunction with that information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of equity |
|
Note |
|
|
December 31, 2014 |
|
|
June 30, 2014 |
|
|
January 1, 2014 |
|
|
|
|
|
|
Equity under U.S. GAAP |
|
|
|
|
|
$ |
7,576,725 |
|
|
$ |
7,650,544 |
|
|
$ |
4,578,086 |
|
IFRS adjustments to equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current inventories |
|
|
a |
|
|
|
(110,330 |
) |
|
|
(118,162 |
) |
|
|
(103,892 |
) |
Deferred stripping costs (Oyu Tolgoi) |
|
|
b |
|
|
|
42,395 |
|
|
|
16,314 |
|
|
|
9,442 |
|
Deferred stripping costs (SouthGobi) |
|
|
b |
|
|
|
- |
|
|
|
101,132 |
|
|
|
96,063 |
|
Available for sale equity investments |
|
|
c |
|
|
|
873 |
|
|
|
5,452 |
|
|
|
14,331 |
|
Loans receivable |
|
|
d |
|
|
|
4,509 |
|
|
|
6,541 |
|
|
|
13,024 |
|
Decommissioning obligations |
|
|
e |
|
|
|
(1,703 |
) |
|
|
(1,990 |
) |
|
|
(1,614 |
) |
Income taxes |
|
|
f |
|
|
|
- |
|
|
|
1,464 |
|
|
|
4,547 |
|
Rights offering |
|
|
g |
|
|
|
- |
|
|
|
- |
|
|
|
928,280 |
|
Consolidation and classification of SouthGobi |
|
|
h |
|
|
|
55,986 |
|
|
|
- |
|
|
|
- |
|
Other |
|
|
|
|
|
|
10 |
|
|
|
(455 |
) |
|
|
735 |
|
Total IFRS adjustments to equity |
|
|
|
|
|
$ |
(8,260 |
) |
|
$ |
10,296 |
|
|
$ |
960,916 |
|
Total equity under IFRS |
|
|
|
|
|
$ |
7,568,465 |
|
|
$ |
7,660,840 |
|
|
$ |
5,539,002 |
|
29
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
26. |
|
First time adoption of IFRS (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of total comprehensive income (loss) |
|
Note |
|
|
Three Months Ended June 30, 2014 |
|
|
Six Months Ended June 30, 2014 |
|
|
|
|
|
Comprehensive loss under U.S. GAAP |
|
|
|
|
|
$ |
(53,636 |
) |
|
$ |
(173,934 |
) |
IFRS adjustments to income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current inventories |
|
|
a |
|
|
|
(8,628 |
) |
|
|
(14,269 |
) |
Deferred stripping costs |
|
|
b |
|
|
|
7,032 |
|
|
|
11,940 |
|
Decommissioning obligations |
|
|
e |
|
|
|
(134 |
) |
|
|
(376 |
) |
Loans receivable |
|
|
d |
|
|
|
122 |
|
|
|
- |
|
Income taxes |
|
|
f |
|
|
|
(1,408 |
) |
|
|
(8,676 |
) |
Rights offering |
|
|
g |
|
|
|
- |
|
|
|
34,034 |
|
Other |
|
|
|
|
|
|
308 |
|
|
|
343 |
|
IFRS adjustments to comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Investments in securities available for sale |
|
|
c |
|
|
|
(4,392 |
) |
|
|
(8,879 |
) |
Loans receivable |
|
|
d |
|
|
|
(3,488 |
) |
|
|
(6,483 |
) |
Income taxes |
|
|
f |
|
|
|
54 |
|
|
|
5,593 |
|
Total IFRS adjustments to comprehensive loss |
|
|
|
|
|
$ |
(10,534 |
) |
|
$ |
13,227 |
|
Comprehensive loss under IFRS |
|
|
|
|
|
$ |
(64,170 |
) |
|
$ |
(160,707 |
) |
Notes to the reconciliations
The following notes should be read in conjunction with the accounting policies contained in Note 2 and detailed further in the condensed
interim consolidated financial statements for the three months ended March 31, 2015.
|
(a) |
|
Non-current inventories |
Under US GAAP, the Company valued
copper-gold stockpiles expected to be processed and sold in greater than one year at the lower of weighted average cost and undiscounted net realizable value. Under IFRS, the Company has elected to value inventory at the lower of cost and net
realizable value, calculated on a discounted cash flow basis when the inventory is expected to be sold in greater than one year.
|
(b) |
|
Deferred stripping costs |
Under US GAAP, production phase
stripping costs for open pit mines are treated as current production costs. Under IFRS, stripping costs in the production phase are capitalized to mineral properties if the stripping activities provide a probable future economic benefit.
|
(c) |
|
Available for sale equity investmentIvanhoe Mines Ltd. |
Under
US GAAP, the Companys investment in Class A common shares of Ivanhoe Mines Ltd., including those which were restricted from trading for less than a year, were accounted for as an available for sale investment. Class A common
shares restricted for over a year were accounted for using the cost method. Under IFRS, all Class A common shares of Ivanhoe Mines Ltd. are accounted for as available for sale investments.
|
(d) |
|
Loans and receivables - Mongolian Tax Prepayments |
Under US GAAP,
the Company treated the tax prepayments as available for sale financial assets. Under IFRS, the Company has classified these prepayments as loan receivables and carries them at amortized cost, reduced by amounts applied to tax prepayments.
30
TURQUOISE HILL RESOURCES LTD.
Notes to the Condensed Interim Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
26. |
|
First time adoption of IFRS (continued) |
|
(e) |
|
Decommissioning Obligations |
Under US GAAP, provisions for
decommissioning obligations are discounted using a credit-adjusted risk-free rate for the entity and the liability is remeasured only for changes to the estimated cash flows. Under IFRS, provisions for decommissioning obligations are discounted
using a discount rate that reflects the specific risks of the liability but excludes the entitys own credit risk. The entire provision is remeasured each reporting period, reflecting changes in risk-free discount rates and estimated cash
flows.
Under IFRS, deferred taxes are not recognized upon the
initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transition, affects neither accounting profit nor taxable profit. This exception to the recognition of deferred taxes does not
exist under US GAAP. Accordingly, deferred taxes arising from such items have been derecognized upon the adoption of IFRS.
Under US GAAP, the Company recognized a
derivative financial liability for the 2013 rights offering because the rights included a foreign currency option, as each holder was able to elect to exercise its rights in US or Canadian dollars. Under US GAAP, changes in the fair value of
the derivative financial liability were recorded in the statement of operations. Under IFRS, the Company has recorded these rights as an equity instrument and therefore no derivative has been recorded.
|
(h) |
|
Consolidation and classification of SouthGobi |
Under US GAAP, the
Company classified SouthGobi as held for sale and a discontinued operation during the three months ended September 30, 2014 and as a result restated previous periods presented to reflect the classification as held for sale and a discontinued
operation. Following completion of a private placement by SouthGobi on December 3, 2014, Turquoise Hills ownership fell to 47.9% and the Company classified SouthGobi as an investment subject to significant influence and no longer
consolidated. The Companys investment in SouthGobi at December 31, 2014 was recognized at fair value as an investment within non-current assets held for sale in the Companys consolidated balance sheet.
Under IFRS, the Company determined that at the time of the private placement on December 3, 2014 and at December 31,
2014, it had the power to control the activities of SouthGobi and has consolidated SouthGobi in the Companys consolidated financial statements as held for sale and discontinued operations. Under IFRS, the assets and liabilities of SouthGobi
are not reclassified as held for sale in comparative information for periods ending before the classification as held for sale during the three months ended September 30, 2014.
31
Exhibit 99.2
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
June 30, 2015
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
INTRODUCTION
This management discussion and analysis of the
financial condition and results of operations (MD&A) of Turquoise Hill Resources Ltd. should be read in conjunction with the unaudited condensed interim consolidated financial statements of Turquoise Hill Resources Ltd. and the notes thereto for
the six month period ended June 30, 2015. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. In this MD&A, unless
the context otherwise dictates, a reference to the Company refers to Turquoise Hill Resources Ltd. and a reference to Turquoise Hill refers to Turquoise Hill Resources Ltd. together with its subsidiaries. Additional information about the Company,
including its Annual Information Form, is available under the Companys profile on SEDAR at www.sedar.com.
References to C$ refer
to Canadian dollars and $ to United States dollars.
This MD&A contains certain forward-looking statements and certain
forward-looking information. Please refer to the cautionary language commencing on page 22.
All readers of this MD&A are advised to review
and consider the risk factors discussed under the heading Risk and Uncertainties in this MD&A commencing on page 17.
The
effective date of this MD&A is August 5, 2015.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
TABLE OF CONTENTS
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
Financial Results and Review of Operations for the Second Quarter of 2015
|
|
On May 18, 2015, the Oyu Tolgoi Underground Mine Development and Financing Plan was signed addressing key outstanding shareholder matters and setting
out long-term funding of the project. |
|
|
Following signing of the Underground Mine Development and Financing Plan, Turquoise Hill and Rio Tinto are advancing project financing and updating the
underground feasibility study. |
|
|
Oyu Tolgoi achieved a solid safety performance with an All Injury Frequency Rate of 0.22 per 200,000 hours worked for the first half of 2015.
|
|
|
Oyu Tolgoi recorded revenue of $421.3 million in Q215 on sales of 189,800 tonnes of concentrate, a 1.2% reduction over Q115 reflecting lower gold
prices partially offset by higher concentrate sales. |
|
|
Turquoise Hill reported income from continuing operations attributable to shareholders of $49.9 million. |
|
|
Turquoise Hill generated operating cash flow of $239.2 million during Q215. |
|
|
Concentrate production for Q215 increased 64.6% over Q115 due to a 20.1% increase in concentrator throughput and higher head grades.
|
|
|
In Q215, Oyu Tolgoi delivered record-setting concentrate production and throughput. |
|
|
Copper and gold in concentrates for Q215 increased 64.6% and 176.7% respectively over Q115. |
|
|
Oyu Tolgoi began accessing higher-grade material in Q215 and mining and processing of higher-grade ore is expected to continue into the second half of
2015. |
|
|
Turquoise Hill continues to expect Oyu Tolgoi to produce 175,000 to 195,000 tonnes of copper and 600,000 to 700,000 ounces of gold in concentrates in 2015.
|
|
|
On July 9, 2015, Oyu Tolgoi marked the second anniversary of its first shipment of concentrate. |
|
|
Turquoise Hills cash and cash equivalents at June 30, 2015 were $1.2 billion. |
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
2. |
SELECTED QUARTERLY DATA |
The following table sets forth selected unaudited quarterly financial
information for each of the eight most recent quarters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions of dollars, except per share information) |
|
Quarter Ended |
|
|
|
Jun-30 2015 |
|
|
Mar-31 2015 |
|
|
Dec-31 2014 |
|
|
Sep-30 2014 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper-gold concentrate |
|
$ |
421.3 |
|
|
$ |
426.2 |
|
|
$ |
670.6 |
|
|
$ |
491.6 |
|
Total revenue |
|
$ |
421.3 |
|
|
$ |
426.2 |
|
|
$ |
670.6 |
|
|
$ |
491.6 |
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to the Company |
|
$ |
49.9 |
|
|
$ |
67.1 |
|
|
$ |
143.2 |
|
|
$ |
45.0 |
|
Income (loss) from discontinued operations attributable to the Company |
|
|
(25.0 |
) |
|
|
29.1 |
|
|
|
(9.6 |
) |
|
|
(137.9 |
) |
Net income (loss) attributable to the Company |
|
$ |
24.9 |
|
|
$ |
96.2 |
|
|
$ |
133.6 |
|
|
$ |
(92.9 |
) |
|
|
|
|
|
Basic income (loss) per share attributable to the Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.02 |
|
|
$ |
0.03 |
|
|
$ |
0.07 |
|
|
$ |
0.02 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
- |
|
|
|
(0.07 |
) |
Total |
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
0.07 |
|
|
$ |
(0.05 |
) |
Diluted income (loss) per share attributable to the Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.02 |
|
|
$ |
0.03 |
|
|
$ |
0.07 |
|
|
$ |
0.02 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
- |
|
|
|
(0.07 |
) |
Total |
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
0.07 |
|
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun-30 2014 |
|
|
Mar-31 2014 |
|
|
Dec-31 2013(a) |
|
|
Sep-30 2013(a) |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper-gold concentrate |
|
$ |
459.5 |
|
|
$ |
113.9 |
|
|
$ |
51.5 |
|
|
$ |
- |
|
Total revenue |
|
$ |
459.5 |
|
|
$ |
113.9 |
|
|
$ |
51.5 |
|
|
$ |
- |
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to the Company |
|
$ |
20.1 |
|
|
$ |
(9.4 |
) |
|
$ |
242.2 |
|
|
$ |
(65.3 |
) |
Loss from discontinued operations attributable to the Company |
|
|
(12.2 |
) |
|
|
(12.2 |
) |
|
|
(103.8 |
) |
|
|
(28.8 |
) |
Net income (loss) attributable to the Company |
|
$ |
7.9 |
|
|
$ |
(21.6 |
) |
|
$ |
138.4 |
|
|
$ |
(94.1 |
) |
|
|
|
|
|
Basic income (loss) per share attributable to the Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
$ |
0.19 |
|
|
$ |
(0.06 |
) |
Discontinued operations |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.08 |
) |
|
|
(0.02 |
) |
Total |
|
$ |
- |
|
|
$ |
(0.02 |
) |
|
$ |
0.11 |
|
|
$ |
(0.08 |
) |
|
|
|
|
|
Diluted income (loss) per share attributable to the Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
$ |
0.19 |
|
|
$ |
(0.06 |
) |
Discontinued operations |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.08 |
) |
|
|
(0.02 |
) |
Total |
|
$ |
- |
|
|
$ |
(0.02 |
) |
|
$ |
0.11 |
|
|
$ |
(0.08 |
) |
(a) Financial information for 2015 and 2014 has been prepared under
IFRS; financial information for 2013 was prepared under U.S. GAAP and has not been restated in the above table. Please refer to Section 11 INTERNATIONAL FINANCIAL REPORTING STANDARDS on page 15 on this MD&A.
Turquoise Hill is an international mining company focused on the operation
and further development of the Oyu Tolgoi copper-gold mine in southern Mongolia, which is the Companys principal and only material mineral resource property. The Oyu Tolgoi mine is held through a 66% interest in Oyu Tolgoi LLC (Oyu Tolgoi);
the remaining 34% interest is held by Erdenes Oyu Tolgoi LLC (Erdenes).
As at June 30, 2015, Turquoise Hill held a 22.6% interest in SouthGobi
Resources Ltd. (SouthGobi), which owns the Ovoot Tolgoi coal mine in southern Mongolia.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
In Q215, the Company recorded net income attributable to owners of Turquoise Hill of $24.9
million ($0.01 per share) compared with net income of $7.9 million ($nil per share) in Q214, an increase of $17.0 million. Results for Q215 reflect the impact of lower production costs, partly offset by one-time charges and adjustments
relating to agreements made as part of the Oyu Tolgoi Underground Mine Development and Financing Plan signed on May 18, 2015, and loss on partial divestment of SouthGobi on April 23, 2015.
Operating cash flows in Q215 were $239.2 million compared with $153.8 million in Q214, reflecting production and delivery cost improvements,
effective working capital management, and receipts relating to sales shipments not collected from the warehouse by customers at the period end. These benefits contributed to a $133.9 million increase compared with Q115.
Additions to property, plant and equipment were $36.4 million in Q215, including approximately $33.9 million for sustaining capital activities
including the tailing storage facility.
Turquoise Hills cash and cash equivalents at June 30, 2015 were $1.2 billion.
The Oyu Tolgoi mine
is approximately 550 kilometres south of Ulaanbaatar, Mongolias capital city, and 80 kilometres north of the Mongolia-China border. Mineralization on the property consists of porphyry-style copper, gold, silver and molybdenum contained in a
linear structural trend (the Oyu Tolgoi Trend) that has a strike length extending over 26 kilometres. Mineral resources have been identified in a series of deposits throughout this trend. They include, from south to north, the Heruga Deposit, the
Southern Oyu deposits (Southwest Oyu, South Oyu, Wedge and Central Oyu) and the Hugo Dummett deposits (Hugo South, Hugo North and Hugo North Extension). Mining of ore commenced in May 2012 and first concentrate was produced in January 2013.
The Oyu Tolgoi mine has initially been developed as an open-pit operation. A copper concentrator plant, with related facilities and necessary
infrastructure to support a nominal throughput of 100,000 tonnes of ore per day, has been constructed to process ore mined from the Southern Oyu open pit. Long term development plans for Oyu Tolgoi are based on a 95,000-tonne-per-day underground
block-cave mine. In August 2013, development of the underground mine was delayed pending resolution of matters with the Government of Mongolia, which was reached on May 18, 2015.
Oyu Tolgoi Underground Mine Development and Financing Plan
On May 18, 2015, Turquoise Hill, the Government of Mongolia and Rio Tinto announced the signing of the Oyu Tolgoi Underground Mine Development and
Financing Plan (the Underground Plan), which addressed key outstanding shareholder matters and set out an agreed basis for the funding of the project. The Underground Plan confirmed the project cost for Oyu Tolgois initial construction and
development and reinforced the principles set out in the Investment Agreement and the Amended and Restated Shareholders Agreement (ARSHA).
The
agreements addressed key outstanding matters including the following specific items: tax matters, the 2% net smelter royalty, sales royalty calculation and management services payments. The agreements also addressed the sourcing of power for Oyu
Tolgoi from within Mongolia. The overall value impact for the Company in connection with the agreements is less than 2% of the value of the reserve case of $7.4 billion presented in the 2014 Oyu Tolgoi Technical Report.
In 2003, Turquoise Hill acquired a 2% net smelter royalty from BHP Billiton. The enforceability of the royalty was challenged by the Assistant General
Prosecutor of Mongolia under Mongolian law. The Company determined, as part of the Underground Plan negotiated, that it would not contest its right to receive payment and consequently recognized a charge of $36.8 million in Q215 for write-off
of the original royalty acquisition cost.
In June 2014, Oyu Tolgoi LLC received a Tax Act (Tax Assessment) from the Mongolian Tax Authority as a
result of a general tax audit for the period 2010 through 2012. Oyu Tolgoi appealed the assessment and in September
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
2014 received a response reducing the amount of tax, interest and penalties claimed to be payable, from approximately $127.0 million to approximately $30.0 million. In a separate
agreement with the Government of Mongolia, Oyu Tolgoi agreed, without accepting liability and without creating a precedent, to pay the amount of the determination by way of settlement to resolve the tax matter. A final charge of $22.1 million has
been recognized in Q215 for settlement of amounts not previously paid or provided for in relation to the Tax Assessment.
The parties agreed
that Oyu Tolgois 5% sales royalty paid to the Government of Mongolia will be calculated on gross revenues by not allowing deductions for the costs of processing, freight differentials, penalties or payables. Oyu Tolgoi has recalculated
royalties payable accordingly since the commencement of sales and submitted an additional amount payable in Q215 of approximately $17.1 million to the Government, which includes approximately $14.5 million on previous years sales.
Notwithstanding the terms of the ARSHA, the parties agreed that in calculating the Management Services Payment (MSP), the rate applied to capital costs
of the underground development will be 3% instead of 6%, as provided by the ARSHA. The MSP rate on operating cost and capital related to current operations remains at 6%. In accordance with the ARSHA, 50% of the MSP is payable to Turquoise Hill and
50% to Rio Tinto.
Oyu Tolgoi LLC and Turquoise Hill agreed to prepare and submit working assumptions for possible support of Oyu Tolgoi LLCs
obligations under a potential power purchase arrangement from the Tavan Tolgoi power plant project.
Next steps toward the underground development
include updating and receiving approval of the underground feasibility study and completing the approximate $4.0 billion in project financing.
Turquoise Hill continues to expect signing of project financing by the end of 2015. The 2015 Oyu Tolgoi Feasibility Study, which was submitted to the
Mongolian Minerals Council (the MMC) in March 2015, has been tentatively accepted pending an update of schedules and alignment with the Underground Plan. This update is due to be resubmitted to the MMC in September 2015. Ahead of final approval of
the project by the Turquoise Hill, Rio Tinto and Oyu Tolgoi boards, an update to the capital estimate will be completed in parallel with other pre-start activities. The preferred engineering, procurement and construction management contractor has
been engaged to complete this work along with some critical path detailed engineering.
Underground development prior to August 2013 suspension
Prior to the suspension in August 2013, underground lateral development at Hugo North had advanced approximately 16 kilometres off Shaft #1. Sinking of
Shaft #2, the primary operations access and initial production hoisting shaft, had reached a depth of 1,168 metres below surface, 91% of its final depth of 1,284 metres. The 96 metre-high Shaft #2 concrete headframe has been
constructed. Sinking of Shaft #5, a dedicated exhaust ventilation shaft, had reached a depth of 208 metres, 17% of its final depth of 1,174 metres. Surface facilities, including offices, mine dry, and workshop, are in place to support
initial pre-production development and construction.
Care and maintenance activities have continued for Shaft #1, facilities and mobile
equipment. Ground remediation work is underway and execution readiness activities have commenced in preparation for restarting underground development.
Q215 performance
Safety continues to be a major focus
throughout Oyu Tolgois operations and the mines management is committed to reducing risk and injury. Oyu Tolgoi achieved a solid safety performance with an All Injury Frequency Rate of 0.22 per 200,000 hours worked for the first
half of 2015.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
Key financial metrics for Q215 are as follows:
Oyu Tolgoi Key Financial Metrics*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q
2014 |
|
|
2Q
2014 |
|
|
3Q
2014 |
|
|
4Q
2014 |
|
|
1Q
2015 |
|
|
2Q
2015 |
|
|
1H
2014 |
|
|
1H
2015 |
|
|
Full Year
2014 |
|
|
|
|
|
|
|
|
|
|
|
Revenue ($000,000) |
|
|
113.9 |
|
|
|
459.5 |
|
|
|
491.6 |
|
|
|
670.6 |
|
|
|
426.2 |
|
|
|
421.3 |
|
|
|
573.4 |
|
|
|
847.5 |
|
|
|
1,735.6 |
|
Concentrates sold (000 tonnes) |
|
|
48.2 |
|
|
|
202.5 |
|
|
|
220.3 |
|
|
|
262.7 |
|
|
|
167.7 |
|
|
|
189.8 |
|
|
|
250.7 |
|
|
|
357.5 |
|
|
|
733.7 |
|
Revenue by metals in concentrates ($000,000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper |
|
|
78.6 |
|
|
|
300.8 |
|
|
|
319.1 |
|
|
|
368.5 |
|
|
|
190.2 |
|
|
|
220.3 |
|
|
|
379.4 |
|
|
|
410.5 |
|
|
|
1,066.9 |
|
Gold |
|
|
33.9 |
|
|
|
153.0 |
|
|
|
167.2 |
|
|
|
296.4 |
|
|
|
232.3 |
|
|
|
197.4 |
|
|
|
186.9 |
|
|
|
429.7 |
|
|
|
650.5 |
|
Silver |
|
|
1.4 |
|
|
|
5.7 |
|
|
|
5.3 |
|
|
|
5.7 |
|
|
|
3.6 |
|
|
|
3.6 |
|
|
|
7.1 |
|
|
|
7.2 |
|
|
|
18.2 |
|
Cost of sales ($000,000) |
|
|
93.5 |
|
|
|
375.0 |
|
|
|
363.8 |
|
|
|
402.8 |
|
|
|
257.9 |
|
|
|
225.7 |
|
|
|
468.5 |
|
|
|
483.6 |
|
|
|
1,235.1 |
|
Production and delivery costs |
|
|
64.5 |
|
|
|
262.2 |
|
|
|
243.6 |
|
|
|
279.5 |
|
|
|
173.9 |
|
|
|
147.4 |
|
|
|
326.7 |
|
|
|
321.3 |
|
|
|
849.8 |
|
Depreciation and depletion |
|
|
29.0 |
|
|
|
112.8 |
|
|
|
120.2 |
|
|
|
123.3 |
|
|
|
83.9 |
|
|
|
78.2 |
|
|
|
141.8 |
|
|
|
162.1 |
|
|
|
385.3 |
|
Capitalized property, plant and equipment ($000,000) |
|
|
49.9 |
|
|
|
44.8 |
|
|
|
38.3 |
|
|
|
25.7 |
|
|
|
30.4 |
|
|
|
36.4 |
|
|
|
94.7 |
|
|
|
66.8 |
|
|
|
158.7 |
|
Underground evaluation costs capitalized |
|
|
8.4 |
|
|
|
9.4 |
|
|
|
5.1 |
|
|
|
4.2 |
|
|
|
3.4 |
|
|
|
2.5 |
|
|
|
17.8 |
|
|
|
5.9 |
|
|
|
27.1 |
|
Royalties |
|
|
5.9 |
|
|
|
23.5 |
|
|
|
25.4 |
|
|
|
36.6 |
|
|
|
21.9 |
|
|
|
49.8 |
|
|
|
29.4 |
|
|
|
71.7 |
|
|
|
91.5 |
|
Unit costs ($ per pound of copper)** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.09 |
|
|
|
0.73 |
|
|
|
|
|
|
|
|
|
|
|
1.14 |
|
All-in sustaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.96 |
|
|
|
1.26 |
|
|
|
|
|
|
|
|
|
|
|
1.95 |
|
* Beginning on January 1, 2015, Turquoise Hill began preparing its financial statements in accordance with IFRS;
all financial metrics included in the above table are prepared on the newly adopted IFRS basis. Any financial information in this MD&A should be reviewed in consultation with the Companys condensed interim consolidated financial
statements.
** Please refer to Section 14 NON-GAAP MEASURES on page 19 of this MD&A for reconciliation of these
metrics, including total cash operating costs, to the financial statements.
Revenue in Q215 decreased by 1.2% over Q115. Lower
revenues reflect a fall in gold prices, partially offset by higher volumes of copper-gold concentrate sales. The Q215 mix of revenue by metals is the result of inventory with lower contained gold drawn down during the quarter from
concentrate produced in Q115. Gross margin at 46.4% for the quarter increased from 39.5% in Q115, due to the combined effect of higher overall volumes sold and cost improvements as Oyu Tolgoi continued to optimize operations, which
offset the impact of lower gold sales.
Production and delivery costs include primarily the cash costs in inventory sold as well as allocated mine
administration costs. Depreciation and depletion includes the depreciation and depletion in inventory sold as well as any depreciation of assets used in the selling and delivery process, including the depreciation of capitalized production phase
stripping costs.
Total additions capitalized to property, plant and equipment, on an accruals basis, for Q215 were $36.4 million (Q214:
$44.8 million) and comprised approximately $33.9 million for sustaining activities, including the tailings storage facility and deferred stripping.
Total cash operating costs at Oyu Tolgoi in Q215 were $284.6 million. Following transition to IFRS, the 5% royalty payable to the Government of
Mongolia, previously deducted from revenue, is reflected as a cash operating expense, and production phase stripping costs, previously included within cash operating expense, are capitalized and depreciated. Please refer to Section 11
INTERNATIONAL FINANCIAL REPORTING STANDARDS on page 15 of this MD&A. During Q215, Oyu Tolgoi continued to improve and optimize operations in order to reduce costs across the mines operation.
Oyu Tolgois C1 costs in Q215 were $0.73 per pound, compared with $0.09 per pound in Q115. The increase is driven by reduced by-product
credits compared with Q115 as inventory with lower contained gold content was sold during the quarter, combined with the impact of certain adjustments relating to the signing of the Underground Plan on May 18, 2015. The adverse impact on
C1 costs of reduced by-product revenue and
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
Underground Plan adjustments was partly offset by the impact of higher production volumes. Oyu Tolgois open-pit mine has a high-grade zone containing a large proportion of gold in addition
to copper; Turquoise Hill anticipates quarterly fluctuation of C1 costs as the quantity of gold in concentrates sold varies after ore from this zone is fed through the mill.
Income from continuing operations attributable to owners of Turquoise Hill in Q215 has been reduced by a charge of $36.8 million for write-off of
the net smelter royalty purchased from BHP Billiton in 2003, and by owners share of adjustments to Oyu Tolgoi segment income following signing of the Oyu Tolgoi Underground Mine Development and Financing Plan on May 18. Adjustments to the
Oyu Tolgoi segment income mainly relate to: recalculation of prior periods sales royalties to the Government of Mongolia ($17.1 million); and payment agreed for settlement of the June 2014 Tax Assessment ($22.1 million).
Key operational metrics for Q215 are as follows:
Oyu
Tolgoi Production Data
All data represents full production and sales on a 100% basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q
2014 |
|
|
2Q
2014 |
|
|
3Q
2014 |
|
|
4Q
2014 |
|
|
1Q
2015 |
|
|
2Q
2015 |
|
|
1H
2014 |
|
|
1H
2015 |
|
|
Full Year
2014 |
|
|
|
|
|
|
|
|
|
|
|
Open pit material mined (000 tonnes) |
|
|
21,621 |
|
|
|
16,861 |
|
|
|
19,493 |
|
|
|
18,944 |
|
|
|
21,999 |
|
|
|
22,094 |
|
|
|
38,482 |
|
|
|
44,093 |
|
|
|
76,919 |
|
Ore treated (000 tonnes) |
|
|
5,560 |
|
|
|
7,778 |
|
|
|
7,029 |
|
|
|
7,505 |
|
|
|
7,512 |
|
|
|
9,025 |
|
|
|
13,338 |
|
|
|
16,536 |
|
|
|
27,872 |
|
Average mill head grades: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper (%) |
|
|
0.52 |
|
|
|
0.53 |
|
|
|
0.59 |
|
|
|
0.74 |
|
|
|
0.52 |
|
|
|
0.69 |
|
|
|
0.52 |
|
|
|
0.61 |
|
|
|
0.60 |
|
Gold (g/t) |
|
|
0.49 |
|
|
|
0.60 |
|
|
|
0.80 |
|
|
|
1.46 |
|
|
|
0.48 |
|
|
|
1.09 |
|
|
|
0.55 |
|
|
|
0.82 |
|
|
|
0.86 |
|
Silver (g/t) |
|
|
1.52 |
|
|
|
1.57 |
|
|
|
1.64 |
|
|
|
1.65 |
|
|
|
1.16 |
|
|
|
1.46 |
|
|
|
1.55 |
|
|
|
1.33 |
|
|
|
1.60 |
|
Concentrates produced (000 tonnes) |
|
|
102.9 |
|
|
|
140.0 |
|
|
|
134.1 |
|
|
|
186.7 |
|
|
|
130.9 |
|
|
|
215.5 |
|
|
|
242.9 |
|
|
|
346.4 |
|
|
|
563.6 |
|
Average concentrate grade (% Cu) |
|
|
24.6 |
|
|
|
25.8 |
|
|
|
27.3 |
|
|
|
26.9 |
|
|
|
25.7 |
|
|
|
25.6 |
|
|
|
25.3 |
|
|
|
25.7 |
|
|
|
26.3 |
|
Production of metals in concentrates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper (000 tonnes) |
|
|
25.3 |
|
|
|
36.2 |
|
|
|
36.6 |
|
|
|
50.3 |
|
|
|
33.6 |
|
|
|
55.3 |
|
|
|
61.5 |
|
|
|
88.9 |
|
|
|
148.4 |
|
Gold (000 ounces) |
|
|
66 |
|
|
|
113 |
|
|
|
132 |
|
|
|
278 |
|
|
|
86 |
|
|
|
238 |
|
|
|
179 |
|
|
|
324 |
|
|
|
589 |
|
Silver (000 ounces) |
|
|
163 |
|
|
|
229 |
|
|
|
216 |
|
|
|
286 |
|
|
|
184 |
|
|
|
297 |
|
|
|
391 |
|
|
|
481 |
|
|
|
893 |
|
Sales of metals in concentrates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper (000 tonnes) |
|
|
13.1 |
|
|
|
51.6 |
|
|
|
53.6 |
|
|
|
67.6 |
|
|
|
42.1 |
|
|
|
46.3 |
|
|
|
64.7 |
|
|
|
88.4 |
|
|
|
185.8 |
|
Gold (000 ounces) |
|
|
28 |
|
|
|
126 |
|
|
|
144 |
|
|
|
263 |
|
|
|
200 |
|
|
|
177 |
|
|
|
154 |
|
|
|
377 |
|
|
|
561 |
|
Silver (000 ounces) |
|
|
78 |
|
|
|
309 |
|
|
|
323 |
|
|
|
383 |
|
|
|
219 |
|
|
|
245 |
|
|
|
387 |
|
|
|
464 |
|
|
|
1,093 |
|
Metal recovery (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper |
|
|
87.9 |
|
|
|
87.6 |
|
|
|
89.3 |
|
|
|
90.7 |
|
|
|
86.8 |
|
|
|
88.6 |
|
|
|
87.7 |
|
|
|
87.9 |
|
|
|
89.1 |
|
Gold |
|
|
75.5 |
|
|
|
74.8 |
|
|
|
74.8 |
|
|
|
78.6 |
|
|
|
71.6 |
|
|
|
75.6 |
|
|
|
75.1 |
|
|
|
74.6 |
|
|
|
76.6 |
|
Silver |
|
|
59.3 |
|
|
|
58.6 |
|
|
|
58.6 |
|
|
|
71.6 |
|
|
|
65.4 |
|
|
|
70.6 |
|
|
|
58.7 |
|
|
|
68.5 |
|
|
|
62.3 |
|
Oyu Tolgoi began accessing higher-grade material in Q215. Record-setting concentrate production for Q215
increased 64.6% over Q115 due to a 20.1% increase in concentrator throughput and higher head grades. Throughput for Q215 also set records for Oyu Tolgoi. Copper and gold in concentrates increased 64.6% and 176.7% respectively over
Q115.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
Funding of Oyu Tolgoi by Turquoise Hill
In accordance with the ARSHA dated June 8, 2011, Turquoise Hill has funded Oyu Tolgois cash requirements beyond internally generated cash
flows by a combination of equity investment and shareholder debt.
For amounts funded by debt, Oyu Tolgoi must repay such amounts, including accrued
interest, before it can pay common share dividends. At June 30, 2015, the aggregate outstanding balance of shareholder loans extended by subsidiaries of the Company to Oyu Tolgoi was $6.8 billion, including accrued interest of $1.4 billion.
These loans bear interest at an effective annual rate of LIBOR plus 6.5%. Subsidiaries of the Company have accrued $135.8 million in deferred tax liabilities for the withholding taxes due upon payment of the accrued interest by Oyu Tolgoi. In
Q215, Oyu Tolgoi repaid a total amount of $152.0 million with respect to these loans, including accrued interest of $47.7 million.
In
accordance with the ARSHA, a subsidiary of the Company has funded the common share investments in Oyu Tolgoi on behalf of Erdenes. These funded amounts earn interest at an effective annual rate of LIBOR plus 6.5% and are repayable, by Erdenes to a
subsidiary of the Company, via a pledge over Erdenes share of Oyu Tolgoi common share dividends. Erdenes also has the right to reduce the outstanding balance by making cash payments at any time. As at June 30, 2015, the cumulative amount
of such funding was $751.1 million, representing approximately 34% of invested common share equity; unrecognized interest on the funding amounted to $199.1 million.
Operational outlook
A planned concentrator shutdown at Oyu
Tolgoi was successfully completed in July 2015. Initial assessment of the improvement projects completed appears positive.
Production of
higher-grade ore is expected to continue into the second half of 2015. Oyu Tolgois metal production, especially gold, is strongly dependent on the proportion of ore treated from the high-grade zone. During the second half of the year, copper
production is expected to be higher than the first half while gold production is expected to moderate as grades begin to decline in the later part of Q315. Turquoise Hill continues to expect Oyu Tolgoi to produce 175,000 to 195,000 tonnes of
copper and 600,000 to 700,000 ounces of gold in concentrates in 2015.
Sales contracts have been signed for 100% of Oyu Tolgois expected 2015
concentrate production.
Q215 exploration
Oyu
Tolgois exploration strategy is focused on developing a project pipeline prioritized in areas that can impact the current development of the Oyu Tolgoi orebodies, seeking low-cost development options; in particular looking for shallower
targets. Historical datasets are added to and reinterpreted to enable future discovery.
B. |
SOUTHGOBI HELD FOR SALE |
On April 23, 2015, the Company completed sale of
48.7 million shares in SouthGobi to Novel Sunrise Investments Limited (NSI) at a price of C$0.35 per common share payable in cash, and on June 3, 2015 a further 1.7 million shares were sold to NSI at a price of C$0.35 per share. Half
of the aggregate cash proceeds, representing C$8.5 million in total, was received at closing and the balance of approximately C$8.5 million will be payable on the first anniversary of closing. A loss on divestment of $20.2 million has been recorded
in Q215; the loss arose as a result of the price per share divested being below the quoted share price on which the carrying value was based. The carrying value of the Companys remaining interest in SouthGobi at June 30, 2015 was
$33.1 million based on the quoted share price at that date.
At June 30, 2015, Turquoise Hill owned 54.4 million SouthGobi common shares,
representing approximately 22.6% of the issued and outstanding SouthGobi shares at that date.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
On May 1, 2015, Turquoise Hill announced that a previously announced share purchase agreement with
National United Resources Holdings Limited (NUR), which provided for the sale to NUR of 56.1 million shares in the capital of SouthGobi, had expired on April 30, 2015 without the transaction contemplated thereunder having been completed.
At June 30, 2015, SouthGobi is classified as an investment in associate in the Companys financial statements. Following completion of
the sale to NSI, and consequent loss of control such that Turquoise Hill is no longer the largest single shareholder, the Companys exposures in relation to its investment in SouthGobi include, but are not wholly limited to: factors having an
impact on fair value, and ability to complete divestment of its remaining interest in the future; and possible recognition of a proportionate share of losses and liabilities of SouthGobi. Please refer to Section 12 RISKS AND
UNCERTAINTIES on page 17 of this MD&A.
Desk top studies, data compilation and detailed satellite imagery
interpretation are in progress for an orbit area approximately surrounding Oyu Tolgoi. An induced polarization survey on Turquoise Hills Teregt licence (bordering the south of the Oyu Tolgoi licences) was conducted. While the results have not
yet been fully analyzed, initial interpretation did not yield further exploration targets. A service agreement is in place with Rio Tinto Holdings (Exploration), under which they provide exploration services to the Company. This agreement benefits
Turquoise Hill by allowing access to Rio Tintos global expertise, knowledge base and skills.
Election of directors
The nominees set forth in the Companys management proxy circular dated March 20, 2015 were elected as directors of Turquoise Hill at
the Annual Meeting of Shareholders, which took place on May 8, 2015.
Series D Warrants expire unexercised
The Companys Series D and Anti-Dilution Series D Warrants (the Warrants) expired on May 22, 2015 unexercised. The Warrants were acquired by
Rio Tinto in conjunction with the 2012 Memorandum of Agreement. The Series D Warrants were exercisable to purchase 74,247,460 common shares of the Company at a price of $8.20 per common share. The Anti-Dilution Series D Warrants were exercisable to
purchase 74,247,460 common shares of the Company at a price of $4.31 per common share.
E. |
CORPORATE ADMINISTRATIVE EXPENSES AND OTHER |
Corporate operating
expenses. Corporate operating expenses in Q215 were $38.3 million, compared with net operating income of $16.1 million in Q214, as prior periods net smelter royalty receivables of $42.3 million were written off
following agreement reached on the Underground Mine Development and Financing Plan on May 18, 2015. This adjustment is eliminated on consolidation within total operating expenses reported in the Companys consolidated income statement.
Corporate administrative expenses. Corporate administrative costs in Q215 were $5.8 million, a decrease of $2.7 million
from Q214 ($8.5 million), mainly due to lower employee and consulting costs as the Company continued to focus on core operations.
Other
income (expense). Other expenses in Q215 include a charge of $36.8 million for the write-off of net smelter royalty acquired from BHP Billiton in 2003, following agreement reached on the Underground Mine Development and
Financing Plan on May 18. In June 2015, Turquoise Hill divested a total of 5.3 million shares of Ivanhoe Mines Ltd (Ivanhoe) resulting in a loss of $0.9 million during Q215. This follows divestment in February 2015 of
22.9 million Ivanhoe shares which resulted in a loss of $8.1 million recorded during Q115.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
4. |
LIQUIDITY AND CAPITAL RESOURCES |
As at June 30, 2015, Turquoise Hill held consolidated cash
and cash equivalents of $1.2 billion, consolidated working capital (inclusive of cash and cash equivalents) of $1.3 billion and an accumulated deficit of $4.7 billion.
Cash flow
Operating activities. A
total of $239.2 million of cash was generated from operating activities in Q215, reflecting: cost improvements as Oyu Tolgoi continued to optimize operations; working capital efficiencies; and increased deferred revenue arising from receipts
relating to sales shipments not yet collected from the warehouse by customers.
Investing activities. Cash used in
investing activities totalled $25.8 million in Q215. Property, plant and equipment purchases of $35.2 million related mainly to Oyu Tolgoi sustaining activities (including deferred stripping and construction of tailings storage facility).
Capital expenditure was partly offset by proceeds from divestment of shares in SouthGobi and Ivanhoe Mines Ltd.
Financing
activities. There was no significant financing activity during Q215.
Liquidity and capital resources
On March 19, 2015, Oyu Tolgoi signed a secured $200.0 million revolving credit facility with five banks, replacing an unsecured $200.0 million
revolving facility signed on February 24, 2014, which matured on February 24, 2015. Amounts drawn under the facility are required to be used by Oyu Tolgoi for working capital purposes. The credit facility bears interest at a fixed margin
over LIBOR on any drawn amounts together with a utilization fee which varies according to the utilized portion of the facility, and a commitment fee on undrawn amounts. The revolving credit facility matures on March 19, 2016. At June 30,
2015, no amounts had been drawn down on the facility.
Turquoise Hill believes that, based on its current cash position, cash generated from
operation of the Oyu Tolgoi mine, and the $200.0 million revolving credit facility, it will have sufficient funds to meet its minimum obligations, including general corporate activities, for at least the next 12 months. Carrying out the underground
development and further exploration of the Oyu Tolgoi mine and other mineral properties depends upon the Companys ability to obtain financing.
In late February 2013, the boards of the European Bank of Reconstruction and Development (EBRD) and the International Finance Corporation (IFC) approved
their respective participation in project financing of the Underground Development. On April 17, 2013, Rio Tinto signed commitment letters with 15 global commercial banks that locked in pricing and terms. In addition to the approval of the EBRD
and the IFC, the Oyu Tolgoi project financing has been conditionally approved by the boards of Export Development Canada, Australian Export Finance and Insurance Corporation, and Export-Import Bank of the United States. Following agreement reached
on the Underground Mine Development and Financing Plan on May 18, 2015, efforts are underway to re-engage members of the original syndicate for arrangement of project financing.
Project financing is subject to the unanimous approval of the Oyu Tolgoi Board of Directors, which includes representatives from the Government of
Mongolia.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
Financial instruments
The carrying value of Turquoise Hills financial instruments was as follows:
|
|
|
|
|
|
|
|
|
(Stated in $000s of dollars) |
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,166,867 |
|
|
$ |
862,755 |
|
Available-for-sale: |
|
|
|
|
|
|
|
|
Long-term investments |
|
|
10,725 |
|
|
|
34,325 |
|
Cost method: |
|
|
|
|
|
|
|
|
Long-term investments |
|
|
115 |
|
|
|
115 |
|
Loans and receivables: |
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
14,285 |
|
|
|
14,519 |
|
Due from related parties |
|
|
15,015 |
|
|
|
7,864 |
|
|
|
|
Financial Liabilities |
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
168,542 |
|
|
|
185,852 |
|
Payable to related parties |
|
|
36,910 |
|
|
|
53,784 |
|
Certain of the above financial instruments are carried at fair value. Their fair values were determined as follows:
|
|
|
Long-term investments Fair values of freely tradable long-term investments were determined by reference to published market quotations, which may not
be reflective of future values. Fair values of long-term investments with trading restrictions have been determined by applying a liquidity discount to published market quotations, which may not be reflective of future values. |
Turquoise Hill is exposed to credit risk with respect to its accounts receivable, other long-term investments and cash and cash equivalents. The
significant concentrations of credit risk are with counterparties situated in Mongolia, China, the United Kingdom and Canada.
Turquoise Hill is
exposed to United States interest-rate risk with respect to the variable rates of interest receivable on cash and cash equivalents
As at August 5, 2015, the Company had a total of:
|
|
|
2,012,309,019 common shares outstanding; |
|
|
|
2,573,076 incentive stock options outstanding, with a weighted average exercise price of C$12.29 per share. Each option is exercisable to purchase a common
share of the Company at prices ranging from C$2.41 to C$23.75 per share. |
The information below is in addition to disclosures already contained in this report
regarding the Companys operations and activities.
Turquoise Hills financial performance and its ability to advance its future
operations and development plans are heavily dependent on the availability of funding, base and precious metal prices and foreign-exchange rates. Volatility in these markets continues to be high.
For further details on the Companys financing plans, please refer to Section 4 LIQUIDITY AND CAPITAL RESOURCES on page 12 of
this MD&A.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
Copper market
Commodity prices are a key driver of Turquoise Hills future earnings. Copper prices fell sharply in July 2015, dropping to as low as $2.34 per
pound late in the month following the selloff in Chinese equity markets and concerns of slowing demand, combined with increased expectations that the US Federal Reserve will start monetary tightening. Market dynamics are expected to remain volatile
in the second half of the 2015; however underlying demand could improve as the Chinese property market stabilizes and government policy becomes more supportive.
Spot treatment and refining charges were stable at $80/8 as Chinese smelters are well-supplied by long contract cargoes. In July 2015, gold prices
decreased approximately 7.0%, reaching a five-year low of $1,092 per ounce by the end of the month due to heightened expectations of an increase in US interest rates.
It is difficult to reliably forecast commodity prices and customer demand for Turquoise Hills products; however, Iong-term sales contracts based
on international terms have been signed on a substantial portion of the Oyu Tolgoi mines concentrate production.
Exchange Rates
Oyu Tolgois sales are settled in U.S. dollars, while a significant portion of its expenses are incurred in local currencies. Foreign exchange
fluctuations can have a significant effect on Turquoise Hills operating margins, unless such fluctuations are offset by related changes to commodity prices.
7. |
OFF-BALANCE SHEET ARRANGEMENTS |
During the three months ended June 30, 2015, Turquoise Hill
was not a party to any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations, financial condition, revenues or expenses, liquidity, capital expenditures or capital
resources of the Company.
8. |
CONTRACTUAL OBLIGATIONS |
As at June 30, 2015, there were no significant changes in Turquoise
Hills contractual obligations and commercial commitments from those disclosed in its MD&A for the year ended December 31, 2014.
9. |
CRITICAL ACCOUNTING ESTIMATES |
The preparation of financial statements in conformity with
International Financial Reporting Standards (IFRS) requires Turquoise Hill to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these
estimates require judgments about matters that are inherently uncertain.
A detailed summary of all of the Companys significant accounting
policies and the estimates derived therefrom is included in Note 2 to the condensed interim consolidated financial statements for the three months ended March 31, 2015. The Companys significant accounting policies and the estimates
derived therefrom identified as being critical under IFRS are substantially unchanged from those identified as being critical under U.S. GAAP and disclosed in the Companys MD&A for the year ended December 31, 2014, and elaborated upon
in Section 9 of the MD&A for the three months ended March 31, 2015.
10. |
RECENT ACCOUNTING PRONOUNCEMENTS |
A number of new standards, amendments to standards and
interpretations are not yet effective, or are not mandatory for adoption, for the year ending December 31, 2015 and have therefore not been applied in preparing the condensed interim consolidated financial statements.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
11. |
INTERNATIONAL FINANCIAL REPORTING STANDARDS |
The condensed interim consolidated financial
statements for the three months ended March 31, 2015 were the Companys first consolidated interim financial statements prepared in accordance with IFRS. Due to the requirement to present comparative financial information, the effective
transition date is January 1, 2014 (Transition Date).
The following outlines the key IFRS transitional impacts on the Companys financial
statements and the impact of the IFRS transition on systems, process, business activities and controls.
Note 26 to the condensed interim
consolidated financial statements for the three months ended June 30, 2015 provides more detail on the key U.S. GAAP to IFRS differences, the accounting policy decisions and the application of IFRS 1 First Time Adoption of
International Financial Reporting Standards.
Transitional financial impact
On adoption of IFRS, the Company has adjusted amounts reported previously in financial statements prepared in accordance with U.S. GAAP.
The impact of the transition to IFRS on total equity is outlined in the table below for the comparative period end dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of equity |
|
December 31, 2014 |
|
|
June 30, 2014 |
|
|
January 1, 2014 |
|
|
|
|
|
Equity under U.S. GAAP |
|
$ |
7,576,725 |
|
|
$ |
7,650,544 |
|
|
$ |
4,578,086 |
|
IFRS adjustments to equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current inventories |
|
|
(110,330 |
) |
|
|
(118,162 |
) |
|
|
(103,892 |
) |
Deferred stripping costs (Oyu Tolgoi) |
|
|
42,395 |
|
|
|
16,314 |
|
|
|
9,442 |
|
Deferred stripping costs (SouthGobi) |
|
|
- |
|
|
|
101,132 |
|
|
|
96,063 |
|
Available for sale equity investments |
|
|
873 |
|
|
|
5,452 |
|
|
|
14,331 |
|
Loans receivable |
|
|
4,509 |
|
|
|
6,541 |
|
|
|
13,024 |
|
Decommissioning obligations |
|
|
(1,703 |
) |
|
|
(1,990 |
) |
|
|
(1,614 |
) |
Income taxes |
|
|
- |
|
|
|
1,464 |
|
|
|
4,547 |
|
Rights offering |
|
|
- |
|
|
|
- |
|
|
|
928,280 |
|
Consolidation and classification of SouthGobi |
|
|
55,986 |
|
|
|
- |
|
|
|
- |
|
Other |
|
|
10 |
|
|
|
(455 |
) |
|
|
735 |
|
Total IFRS adjustments to equity |
|
$ |
(8,260 |
) |
|
$ |
10,296 |
|
|
$ |
960,916 |
|
Total equity under IFRS |
|
$ |
7,568,465 |
|
|
$ |
7,660,840 |
|
|
$ |
5,539,002 |
|
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
The impact of the transition on comprehensive income is outlined in the table below for the comparative
periods presented:
|
|
|
|
|
|
|
|
|
Reconciliation of total comprehensive income (loss) |
|
Six months ended June 30, 2014 |
|
|
Three months ended June 30, 2014 |
|
|
|
|
Comprehensive loss under U.S. GAAP |
|
$ |
(173,934 |
) |
|
$ |
(53,636 |
) |
IFRS adjustments to income (loss): |
|
|
|
|
|
|
|
|
Non-current inventories |
|
|
(14,269 |
) |
|
|
(8,628 |
) |
Deferred stripping costs |
|
|
11,940 |
|
|
|
7,032 |
|
Decommissioning obligations |
|
|
(376 |
) |
|
|
(134 |
) |
Available for sale equity investments |
|
|
- |
|
|
|
- |
|
Loans receivable |
|
|
- |
|
|
|
122 |
|
Income taxes |
|
|
(8,676 |
) |
|
|
(1,408 |
) |
Rights offering |
|
|
34,034 |
|
|
|
- |
|
Consolidation and classification of SouthGobi |
|
|
- |
|
|
|
- |
|
Other |
|
|
343 |
|
|
|
308 |
|
IFRS adjustments to comprehensive income (loss) |
|
|
|
|
|
|
|
|
Investments in securities available for sale |
|
|
(8,879 |
) |
|
|
(4,392 |
) |
Loans receivable |
|
|
(6,483 |
) |
|
|
(3,488 |
) |
Income taxes |
|
|
5,593 |
|
|
|
54 |
|
Total IFRS adjustments to comprehensive loss |
|
$ |
13,227 |
|
|
$ |
(10,534 |
) |
Comprehensive loss under IFRS |
|
$ |
(160,707 |
) |
|
$ |
(64,170 |
) |
As there has been no change in the net cash flows, no reconciliations have been prepared. The changes made to the
consolidated statements of income (loss), comprehensive income (loss) and the consolidated statements of financial position have resulted in reclassification of various amounts on the statements of cash flows.
Financial statement presentation changes
The Company has
also changed the presentation of certain items in its condensed interim consolidated financial statements for June 30, 2015 as compared to its financial statements previously published in accordance with U.S. GAAP.
|
|
|
Mining royalties are now included within operating expenses where previously they were netted against revenues. |
|
|
|
Accretion expense for decommissioning obligations is included within finance costs where previously it was shown separately on the face of the statement of
operations; and |
|
|
|
Deferred income tax liabilities for withholding taxes on intercompany interest payments is now classified as non-current deferred income taxes where
previously they were included in accounts payable and accrued liabilities as withholding tax payable. |
Systems, processes and business
activities
The Company has assessed the impact of the IFRS transition on systems and processes, including an assessment on information
technology systems and internal controls and implemented changes required as a result. These changes were not significant.
The Company applied its
existing control framework to the IFRS changeover process. All accounting policy changes and transitional financial position impacts were subject to review by senior management and the Companys Audit Committee.
Post-implementation
During post-implementation, the Company
will continue to monitor the changes to IFRS in future periods. The Company notes that the standard-setting bodies that determine IFRS have significant ongoing projects that could
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
impact the IFRS accounting policies that Turquoise Hill has selected. The Company has processes in place to ensure that potential changes are monitored and evaluated. The impact of any new IFRSs
and IFRIC Interpretations will be evaluated as they are drafted and published.
12. |
RISK AND UNCERTAINTIES |
Turquoise Hill is subject to a number of risks due to the nature of the
industry in which it operates and the present state of development of its business and the foreign jurisdictions in which it carries on business. The material risks and uncertainties affecting Turquoise Hill, their potential impact, and the
Companys principal risk-management strategies are substantially unchanged, other than that which is described below, from those disclosed in its MD&A for the year ended December 31, 2014 ( 2014 MD&A) and in its Annual Information
Form (AIF) dated March 20, 2015 in respect of such period.
Following partial divestment of SouthGobi to NSI on April 23, 2015, the
Company no longer consolidates its interest in SouthGobi. Crystallization of the risks described below and in the 2014 MD&A and AIF could nevertheless result in the Company recognizing a proportionate share of additional liabilities and losses,
or disclosure of contingent liabilities and commitments with respect to its remaining ownership of SouthGobi.
If SouthGobi fails to generate
sufficient operating cash flows, secure additional capital or otherwise restructure or refinance its business in order to address its cash requirements through June 30, 2016, SouthGobi will not have adequate liquidity to fund its operations and
meet its obligations (including its debt payment obligations); it may therefore not be able to continue as a going concern and may be forced to seek relief under applicable legislation (or an involuntary petition for bankruptcy relief or similar
creditor action may be filed or taken against it). Similarly, if appeals by or litigation against SouthGobi are not concluded in its favour, SouthGobis ability to continue as a going concern would likely be impaired and additional liabilities
could arise. Therefore, SouthGobi has sought, and continues to actively seek, additional sources of financing to continue operating and meet its objectives.
At June 30, 2015 the Company recorded its investment in SouthGobi at a carrying value of $33.1 million, being the lower of cost and Fair Value less
Cost to Sell (FVLCS) in accordance with the measurement requirements of IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, and IAS 39, Financial Instruments: Recognition and Measurement, and based upon a quoted share
price of C$0.80. As the quoted price per share fluctuates, the Company will record charges or credits in its income statement for the future reporting periods in which it continues to classify SouthGobi as an associated company within assets held
for sale. The Company may also be required in the future to record further income statement adjustments with respect to its remaining holding in SouthGobi.
13. |
RELATED-PARTY TRANSACTIONS |
Transactions with Rio Tinto
As at June 30, 2015, Rio Tintos equity ownership in the Company was 50.8% (December 31, 2014: 50.8%).
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
The following table presents the consolidated balance sheet line items which include amounts due from
or payable to Rio Tinto:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in $000s of dollars) |
|
June 30 2015 |
|
|
December 31, 2014 |
|
|
January 1, 2014 |
|
|
|
|
|
Cash and cash equivalents (i) |
|
$ |
739,758 |
|
|
$ |
711,468 |
|
|
$ |
- |
|
Due from related parties |
|
|
4,588 |
|
|
|
7,864 |
|
|
|
5,070 |
|
Payable to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
Management services payment (ii) |
|
|
(6,682 |
) |
|
|
(7,729 |
) |
|
|
(100,569 |
) |
Cost recoveries (iii) |
|
|
(30,228 |
) |
|
|
(46,055 |
) |
|
|
(75,237 |
) |
Standy purchaser fee (iv) |
|
|
- |
|
|
|
- |
|
|
|
(71,886 |
) |
Interest payable on long-term debt (v) |
|
|
- |
|
|
|
- |
|
|
|
(13,530 |
) |
Interim funding facility (v) |
|
|
- |
|
|
|
- |
|
|
|
(1,789,787 |
) |
New bridge facility (v) |
|
|
- |
|
|
|
- |
|
|
|
(339,475 |
) |
|
|
|
707,436 |
|
|
|
665,548 |
|
|
|
(2,385,414 |
) |
The following table summarizes transactions with Rio Tinto by their nature:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Stated in $000s of dollars) |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
Interest income on demand deposits (i) |
|
$ |
309 |
|
|
$ |
- |
|
|
$ |
555 |
|
|
$ |
- |
|
Costs recoveries - Turquoise Hill |
|
|
1,281 |
|
|
|
305 |
|
|
|
2,381 |
|
|
|
882 |
|
Financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(224 |
) |
Interest expense (vi) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,903 |
) |
Management services payment (ii) |
|
|
(3,964 |
) |
|
|
(7,143 |
) |
|
|
(11,155 |
) |
|
|
(13,508 |
) |
Costs recoveries - Rio Tinto (iii) |
|
|
(16,074 |
) |
|
|
(24,235 |
) |
|
|
(24,727 |
) |
|
|
(40,541 |
) |
|
|
$ |
(18,448 |
) |
|
$ |
(31,073 |
) |
|
$ |
(32,946 |
) |
|
$ |
(58,294 |
) |
(i) |
In addition to placing cash and cash equivalents on deposit with banks or investing funds with other financial institutions, Turquoise Hill may, from time to
time, deposit cash and cash equivalents or invest funds with Rio Tinto in accordance with an agreed upon policy and strategy for the management of liquid resources. Cash and cash equivalents at June 30, 2015 included short term deposits, net of
withdrawals, made between December 2014 and June 2015 with wholly owned subsidiaries of Rio Tinto totalling $739.8 million. The deposits earned interest at an average market rate equivalent and were required to be repaid, in whole or in part, to the
Company on demand. |
(ii) |
In accordance with the ARSHA, which was signed on June 8, 2011, and other related agreements, Turquoise Hill is required to pay a management services
payment (MSP) to Rio Tinto equal to a percentage of all capital costs and operating costs incurred by Oyu Tolgoi from March 31, 2010 onwards. After signing of the Underground Mine Development and Financing Plan on May 18, 2015, the
percentage applied to capital costs of the underground development is 1.5%, and the percentage applied to operating costs and capital related to current operations is 3%. Adjustments for the impact of these percentages to MSPs made in previous
periods are included in the amount for the three months ended June 30. |
(iii) |
Rio Tinto recovers the costs of providing general corporate support services and mine management services to Turquoise Hill. Mine management services are
provided by Rio Tinto in its capacity as the manager of the Oyu Tolgoi mine. |
(iv) |
In Q114, the Company recognized a derivative gain of $1.1 million associated with re-measuring the standby purchaser fee liability.
|
(v) |
In Q114, the Company used $2.2 billion of the net proceeds from the rights offering that closed in January 2014 to repay all amounts outstanding on the
Interim Funding Facility ($1.8 billion) and the New Bridge Facility ($402.6 million). |
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
(vi) |
The terms of the Rio Tinto credit facilities include gross-up provisions for withholding taxes. Accordingly, commitment fees and interest expense include
gross-ups for withholding taxes where applicable. |
Transactions with SouthGobi
As at June 30, 2015, Turquoise Hills equity ownership in South Gobi was 22.6%. Prior to the sale of 48.7 million shares on
April 23, 2015, SouthGobi was classified as a consolidated subsidiary, and transactions between the Company and SouthGobi were eliminated on consolidation and were therefore not reported as related party transactions. At June 30, 2015,
$10.4 million was due from SouthGobi.
There were no amounts payable to companies related to Turquoise Hill by way of directors, officers or
shareholders in common.
The above noted transaction was in the normal course of operations and was measured at the exchange amount, which is the
amount of consideration established and agreed to by the related parties.
The Companys financial results are prepared in accordance with IFRS. In
addition, the Company presents and refers to the following measures (non-GAAP measures) which are not defined in IFRS. A description and calculation of these measures is given below, and may differ in some aspects from equivalent measures provided
by other issuers.
Cash operating costs
This measure
comprises Oyu Tolgoi cash operating costs, and is presented in order to provide investors and other stakeholders in the Company with a greater understanding of performance and operations at Oyu Tolgoi. The measure of cash operating costs excludes:
depreciation and depletion; exploration and evaluation; charges for asset write-down (including write-down of materials and supplies inventory), and includes management services payments to Rio Tinto, and management services payments to Turquoise
Hill which are eliminated in the consolidated financial statements of the Company.
C1 cash costs
C1 cash costs is a metric representing the cash cost per unit of extracting and processing the Companys principal metal product to a condition in
which it may be delivered to customers, net of by-product credits. It is provided in order to support peer group comparability and to provide investors and other stakeholders useful information about the underlying cash costs of Oyu Tolgoi and the
impact of by-product credits on the operations cost structure. C1 cash costs is relevant to understanding the Companys operating profitability and ability to generate cash flow. When calculating costs associated with producing a pound of
copper, the Company includes gold and silver revenue credits as the production cost is reduced as a result of selling these by-products.
Turquoise
Hills principal metal product is copper, and C1 cash costs are reported for Oyu Tolgoi only.
All-in sustaining costs
All-in sustaining costs (AISC) is an extended cash based cost metric, providing further information on the aggregate cash, capital and overhead outlay
per unit, and is intended to reflect the costs of producing the Companys principal metal product over the life-cycle of its operations. The measure seeks to reflect the full cost of copper production from current operations and as a result
development project capital is not included. AISC allows Turquoise Hill to assess the ability of Oyu Tolgoi to support sustaining capital expenditures for future production from the generation of operating cash flows
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
A reconciliation of total cash operating costs, C1 cash costs and all-in sustaining costs, is provided
below.
|
|
|
|
|
|
|
|
|
Oyu Tolgoi C1 Costs |
|
|
|
|
|
|
June 30, 2015 |
|
March 31, 2015 |
|
June 30, 2015 |
C1 costs (US$000) |
|
(Three months) |
|
(Three months) |
|
(Six months) |
Production and delivery |
|
147,446 |
|
173,944 |
|
321,390 |
Change in inventory |
|
17,276 |
|
(36,827) |
|
(19,551) |
Other operating expenses |
|
94,066 |
|
93,543 |
|
187,609 |
Less: |
|
|
|
|
|
|
- Impairment / write-down of inventory |
|
25,625 |
|
(16,381) |
|
9,245 |
- Depreciation |
|
(3,766) |
|
(2,542) |
|
(6,308) |
Management services payment to Turquoise Hill |
|
3,964 |
|
7,191 |
|
11,155 |
|
|
|
|
|
Cash operating costs1. |
|
284,612 |
|
218,928 |
|
503,540 |
|
|
|
|
Cash operating costs: $/lb of copper produced |
|
2.33 |
|
2.96 |
|
2.57 |
Adjustments to cash operating costs2. |
|
5,120 |
|
23,760 |
|
28,879 |
Less: Gold and silver revenues |
|
(200,994) |
|
(235,920) |
|
(436,914) |
|
|
|
|
|
C1 costs (US$000) |
|
88,738 |
|
6,768 |
|
95,505 |
|
|
|
|
|
C1 costs: $/lb of copper produced1. |
|
0.73 |
|
0.09 |
|
0.49 |
|
|
|
|
All-in sustaining costs (US$000) |
|
|
|
|
|
|
Corporate administration |
|
5,797 |
|
3,502 |
|
9,299 |
Asset retirement expense |
|
513 |
|
1,943 |
|
2,457 |
Royalty expenses |
|
49,775 |
|
21,880 |
|
71,655 |
Non current stockpile and stores write-down reversal |
|
(25,625) |
|
16,381 |
|
(9,245) |
Other expenses |
|
2,300 |
|
588 |
|
2,887 |
Sustaining cash capital including deferred stripping |
|
32,498 |
|
20,283 |
|
52,781 |
|
|
|
|
|
All-in sustaining costs (US$000) |
|
153,995 |
|
71,345 |
|
225,340 |
|
|
|
|
|
All-in sustaining costs: $/lb of copper produced |
|
1.26 |
|
0.96 |
|
1.15 |
1. |
C1 costs for the three months ended June 30, 2015 include applicable one-time charges and adjustments of $16.7 million, as a result of signing the Underground
Plan on May 18, 2015. Before recording these items, C1 costs were $72.0 million and $78.8 million respectively for the three and six month periods ended June 30. C1 costs were $0.59 and $0.40 per lb of copper produced. Please refer to
Section 3 REVIEW OF OPERATIONS on page 6 of this MD&A for discussion of the Underground Plan. |
2. |
Adjustments to cash operating costs include: treatment, refining and freight differential charges less the 5% Government of Mongolia royalty and other expenses not applicable to the definition of C1 cost.
|
15. |
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING |
During the six months ended June 30,
2015, there were no changes in the Companys internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
The Companys CEO and CFO assessed the effectiveness of the Companys internal controls over financial reporting as at December 31, 2014
in accordance with Internal Control Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys CEO and CFO plan to assess the effectiveness of internal controls
over financial reporting at December 31, 2015 in accordance with the revised framework issued by the COSO in 2013.
Disclosure of a scientific or technical nature in this MD&A in respect of
the Oyu Tolgoi mine was prepared under the supervision of Bernard Peters (responsibility for overall preparation and mineral reserves), B. Eng. (Mining), FAusIMM (201743), employed by OreWin as Technical Director Mining and Kendall Cole-Rae
(responsibility for mineral resources, geology and exploration), B.Sc. (Geology), SME (4138633), employed by Rio Tinto as Chief Adviser, Geology and Resource Estimation. Each of these individuals is a qualified person as that term is
defined in NI 43-101.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
17. |
CAUTIONARY STATEMENTS |
Language Regarding Reserves and Resources
Readers are advised that NI 43-101 requires that each category of mineral reserves and mineral resources be reported separately. For detailed
information related to Company resources and reserves, readers should refer to the Annual Information Form of the Company for the year ended December 31, 2014, and other continuous disclosure documents filed by the Company since January 1,
2014 under Turquoise Hills profile on SEDAR at www.sedar.com.
Note to United States Investors Concerning Estimates of Measured, Indicated and
Inferred Resources
This document has been prepared in accordance with the requirements of Canadian securities laws, which differ from the
requirements of United States (U.S.) securities laws. Unless otherwise indicated, all reserve and resource estimates included in this document have been prepared in accordance with 43-101, and the Canadian Institute of Mining, Metallurgy and
Petroleum (CIM) Definition Standards for mineral resources and mineral reserves (CIM Standards). NI 43-101 is a rule developed by the Canadian Securities Authorities that establishes standards for all public disclosure an issuer makes of scientific
and technical information concerning mineral projects.
Canadian standards, including NI 43-101, differ significantly from the requirements of the
U.S. Securities and Exchange Commission (the SEC), and reserve and resource information contained in this document may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the
foregoing, the term resource does not equate to the term reserve. Under U.S. standards, mineralization may not be classified as a reserve unless the determination has been made that the mineralization could be
economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under
the SEC standards. Mineral reserves estimates included herein may not qualify as reserves under SEC standards. The SECs disclosure standards normally do not permit the inclusion of information concerning Measured mineral
resources, Indicated mineral resources or Inferred mineral resources or other descriptions of the amount of mineralization in mineral deposits that do not constitute reserves by U.S. standards in documents
filed with the SEC. U.S. investors should also understand that Inferred mineral resources have an even greater amount of uncertainty as to their existence and an even greater uncertainty as to their economic and legal feasibility. It
cannot be assumed that all or any part of an Inferred mineral resource will ever be upgraded to a higher category. Under NI 43-101, estimated Inferred mineral resources generally may not form the basis of feasibility or
pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of an Inferred mineral resource exists or is economically or legally mineable. Disclosure of contained pounds or
contained ounces of metal in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute reserves by SEC standards as
in-place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of reserves are also not the same as those of the SEC, and reserves reported by the Company in compliance with NI 43-101 may
not qualify as reserves under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with U.S. standards.
18. |
FORWARD-LOOKING STATEMENTS AND FORWARD-LOOKING INFORMATION |
Certain statements made herein,
including statements relating to matters that are not historical facts and statements of the Companys beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute
forward-looking information within the meaning of applicable Canadian securities legislation and forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995. Forward-looking information and statements relate to future events or future performance, reflect current expectations or beliefs regarding future events and are typically identified by words such as
anticipate, could, should, expect, seek, may, intend, likely, plan,
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
estimate, will, believe and similar expressions suggesting future outcomes or statements regarding an outlook. These include, but are not limited to,
statements respecting anticipated business activities; planned expenditures; corporate strategies; discussions with the Government of Mongolia; and other statements that are not historical facts.
Forward-looking statements and information are made based upon certain assumptions and other important factors that, if untrue, could cause the actual
results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such statements or information. Such statements and information are based on numerous assumptions
regarding present and future business strategies and the environment in which the Company will operate in the future, including the price of copper, gold and silver, anticipated capital and operating costs, anticipated future production and cash
flows, the ability to complete the disposition of certain of its non-core assets, the completion of the Tavan Tolgoi power plant project and the availability of a long-term power source at a reasonable cost, the ability and timing to complete
project financing and/or secure other financing on acceptable terms, and the adherence to and implementation of the terms of the Underground Plan. Certain important factors that could cause actual results, performance or achievements to differ
materially from those in the forward-looking statements and information include, among others, copper, gold and silver price volatility, discrepancies between actual and estimated production, mineral reserves and resources and metallurgical
recoveries, mining operational and development risks, litigation risks, regulatory restrictions (including environmental regulatory restrictions and liability), activities or assessments by governmental authorities, currency fluctuations, the
speculative nature of mineral exploration, the global economic climate, dilution, share price volatility, competition, loss of key employees, additional funding requirements, capital and operating costs for the construction and operation of the Oyu
Tolgoi mine and defective title to mineral claims or property. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking
statements and information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. All such forward-looking information and statements are based on certain assumptions and analyses made by
the Companys management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements,
however, are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information or statements.
With respect to specific forward-looking information concerning the construction and development of the Oyu Tolgoi mine, the Company has based its
assumptions and analyses on certain factors which are inherently uncertain. Uncertainties and assumptions include, among others: the timing and cost of the construction and expansion of mining and processing facilities; the impact of the delay in
the funding and development of the Oyu Tolgoi underground mine pending resolution of outstanding matters with the Government of Mongolia associated with the development and operation of the Oyu Tolgoi mine; adherence to and implementation of the
terms of the Underground Plan; the approval of the underground feasibility study by Oyu Tolgoi LLCs shareholders, the impact of changes in interpretation to or changes in enforcement of, laws, regulations and government practices in Mongolia;
the availability and cost of skilled labour and transportation; the availability and cost of appropriate smelting and refining arrangements; the obtaining of (and the terms and timing of obtaining) necessary environmental and other government
approvals, consents and permits; the availability of funding on reasonable terms; the timing and availability of a long-term power source for the Oyu Tolgoi mine; delays, and the costs which result from delays, in the development of the underground
mine (which could significantly exceed the costs projected in the underground feasibility study and in the 2014 Oyu Tolgoi Technical Report); projected copper, gold and silver prices and demand; and production estimates and the anticipated yearly
production of copper, gold and silver at the Oyu Tolgoi mine.
The cost, timing and complexities of mine construction and development are increased
by the remote location of a property such as the Oyu Tolgoi mine. It is common in new mining operations and in the development or expansion of existing facilities to experience unexpected problems and delays during development, construction and mine
start-up. Additionally, although the Oyu Tolgoi mine has achieved commercial production, there is no assurance that future development activities will result in profitable mining operations. In addition, funding and
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
development of the underground component of the Oyu Tolgoi mine have been delayed to allow matters with the Government of Mongolia to be resolved and a new timetable agreed. These delays can
impact project economics.
This MD&A also contains references to estimates of mineral reserves and mineral resources. The estimation of reserves
and resources is inherently uncertain and involves subjective judgments about many relevant factors. The mineral resource estimates contained in this MD&A are inclusive of mineral reserves. Further, mineral resources that are not mineral
reserves do not have demonstrated economic viability. The accuracy of any such estimates is a function of the quantity and quality of available data, and of the assumptions made and judgments used in engineering and geological interpretation
(including future production from the Oyu Tolgoi mine, the anticipated tonnages and grades that will be achieved or the indicated level of recovery that will be realized), which may prove to be unreliable. There can be no assurance that these
estimates will be accurate or that such mineral reserves and mineral resources can be mined or processed profitably. See the discussion under the headings Language Regarding Reserves and Resources and Note to United States
Investors Concerning Estimates of Measured, Indicated and Inferred Resources in Section 17 of this MD&A. Such estimates and statements are, in large part, based on the following:
|
|
|
Interpretations of geological data obtained from drill holes and other sampling techniques. Large scale continuity and character of the deposits will only be
determined once significant additional drilling and sampling has been completed and analyzed. Actual mineralization or formations may be different from those predicted. It may also take many years from the initial phase of drilling before production
is possible, and during that time the economic feasibility of exploiting a deposit may change. Reserve and resource estimates are materially dependent on prevailing metal prices and the cost of recovering and processing minerals at the individual
mine sites. Market fluctuations in the price of metals or increases in the costs to recover metals from the Companys mining projects may render mining of ore reserves uneconomic and affect the Companys operations in a materially adverse
manner. Moreover, various short-term operating factors may cause a mining operation to be unprofitable in any particular accounting period; |
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Assumptions relating to commodity prices and exchange rates during the expected life of production, mineralization of the area to be mined, the projected
cost of mining, and the results of additional planned development work. Actual future production rates and amounts, revenues, taxes, operating expenses, environmental and regulatory compliance expenditures, development expenditures, and recovery
rates may vary substantially from those assumed in the estimates. Any significant change in these assumptions, including changes that result from variances between projected and actual results, could result in material downward revision to current
estimates; |
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Assumptions relating to projected future metal prices. The prices used reflect organizational consensus pricing views and opinions in the financial modeling
for the Oyu Tolgoi Mine and are subjective in nature. It should be expected that actual prices will be different than the prices used for such modeling (either higher or lower), and the differences could be significant; and |
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Assumptions relating to the costs and availability of treatment and refining services for the metals mined from the Oyu Tolgoi Mine, which require
arrangements with third parties and involve the potential for fluctuating costs to transport the metals and fluctuating costs and availability of refining services. These costs can be significantly impacted by a variety of industry-specific and also
regional and global economic factors (including, among others, those which affect commodity prices). Many of these factors are beyond the Companys control. |
Readers are cautioned not to place undue reliance on forward-looking information or statements. By their nature, forward-looking statements involve
numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. Events or circumstances could cause the Companys actual results to differ
materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements are included in the Risk
Factors section of the AIF.
Turquoise Hill Resources Ltd.
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Stated in U.S. dollars, except where noted)
Readers are further cautioned that the list of factors enumerated in the Risk Factors
section of the AIF that may affect future results is not exhaustive. When relying on the Companys forward-looking information and statements to make decisions with respect to the Company, investors and others should carefully consider the
foregoing factors and other uncertainties and potential events. Furthermore, the forward-looking information and statements contained in this MD&A are made as of the date of this document and the Company does not undertake any obligation to
update or to revise any of the included forward-looking information or statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The forward-looking information and statements contained in
this MD&A are expressly qualified by this cautionary statement.
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Jeff Tygesen, Chief
Executive Officer of Turquoise Hill Resources Ltd., certify the following:
1. Review: I have reviewed the interim financial report and
interim MD&A (together, the interim filings) of Turquoise Hill Resources Ltd. (the issuer) for the interim period ended June 30, 2015.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other
financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer and I have, as at
the end of the period covered by the interim filings
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A. |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
|
I. |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
|
II. |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the
time periods specified in securities legislation; and |
|
B. |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with the issuers GAAP. |
5.1 Control framework: The control framework the issuers other certifying
officer and I used to design the issuers ICFR is the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
1
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the
issuers ICFR that occurred during the period beginning on April 1, 2015 and ended on June 30, 2015 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR.
Date: August 5, 2015
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/s/ Jeff Tygesen |
Jeff Tygesen |
Chief Executive Officer |
Turquoise Hill Resources Ltd. |
2
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Steeve Thibeault,
Chief Financial Officer of Turquoise Hill Resources Ltd., certify the following:
1. Review: I have reviewed the interim financial report
and interim MD&A (together, the interim filings) of Turquoise Hill Resources Ltd. (the issuer) for the interim period ended June 30, 2015.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other
financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer and I have, as at
the end of the period covered by the interim filings
|
A. |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
|
I. |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
|
II. |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the
time periods specified in securities legislation; and |
|
B. |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with the issuers GAAP. |
5.1 Control framework: The control framework the issuers other certifying
officer and I used to design the issuers ICFR is the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
3
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the
issuers ICFR that occurred during the period beginning on April 1, 2015 and ended on June 30, 2015 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR.
Date: August 5, 2015
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/s/ Steeve Thibeault |
Steeve Thibeault |
Chief Financial Officer |
Turquoise Hill Resources Ltd. |
4
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