Turquoise Hill Resources Oyu Tolgoi Copper-Gold Project in Mongolia is expected to produce 130,000 to 160,000 tonnes of copper and 100,000 to 140,000 ounces of gold during 2017. Sales contracts have been agreed for a significant majority of Oyu Tolgoi’s expected 2017 concentrate production.

Production of 201,000 tonnes of copper and 300,000 ounces of gold in 2016 exceeded the company’s guidance. Compared to 2015 results, material mined for 2016 increased 5.6%, concentrator throughput increased 10.5%, copper production was similar and, as expected, gold production decreased 54.1%.

The lower production when compared to 2016 will primarily be the result of approximately 25% less copper head grade and approximately 50% less gold head grade.

Oyu Tolgoi recorded revenue of $1.2 billion in 2016 on record concentrate sales of 828,600 tonnes. For 2016, the company recorded net income from continuing operations attributable to owners of Turquoise Hill of $210.6 million. Turquoise Hill generated operating cash flow before interest and taxes of $399.2 million in 2016.

For 2016, Oyu Tolgoi’s cost of sales was $2.07 per pound of copper sold, C1 cash costs were $1.02 per pound of copper produced and all-in sustaining costs were $1.48 per pound of copper produced.

The Oyu Tolgoi mine was initially developed as an open-pit operation. The copper concentrator plant, with related facilities and necessary infrastructure, was established at 110,000 tonnes of ore per day with the 2016 Oyu Tolgoi Technical Report.

The concentrator was initially constructed to process ore mined from the Oyut open pit. In August 2013, development of the underground mine was suspended pending resolution of matters with the Government of Mongolia.

Following signing of the Oyu Tolgoi Underground Mine Development and Financing Plan in May 2015 and the signing of a $4.4 billion project finance facility in December 2015, Oyu Tolgoi received the formal notice to proceed approval by the boards of Turquoise Hill, Rio Tinto and Oyu Tolgoi LLC on May 5, 2016, which was the final requirement for the re-start of underground development. Underground construction recommenced in mid-2016.

At peak production, Oyu Tolgoi is expected to be the world’s third-largest copper mine with average annual production between 2025 and 2030 of more than 550,000 tonnes of copper. Copper production is expected to increase more than 300% between 2017 and 2025.

Major underground development programs under way include underground lateral development, sinking of Shafts 2 and 5, support infrastructure and the convey-to-surface system. At the end of 2016, the underground project workforce had grown to more than 2000 with continued growth expected to peak in 2018.

Prior to suspending underground construction in August 2013, underground lateral development at Hugo North Lift 1 had advanced approximately 16km off Shaft 1 with a total of 65km of lateral development expected to be complete by the first draw bell in mid-2020. At the end of 2016, underground lateral development was ahead of schedule with 1.6 equivalent kilometres completed. A further increase in underground lateral development capability is expected in the second half of 2017 due to the installation of a new 3500 tonne per day crusher, which will replace the existing crusher.

In 2016, progress was made on the sinking of Shafts 2 and 5 with final depth for both shafts expected to be reached in 2017. During 2016, Shaft 2 was connected to the underground workings enabling a second independent means of egress, increased materials delivery capacity and additional ventilation.

Shaft 2 activity in 2017 is focused on the fit-out of the 1202 metre level connections to the underground workings before sinking to the final depth of 1284 metres. When completed, Shaft 5 will be dedicated to ventilation thereby increasing the capacity for underground activities.

Infrastructure needed to support underground development progressed during 2016 in areas such as material handling, ventilation and water handling equipment, power distribution and maintenance and storage facilities. Some areas began slower than anticipated but did not impact lateral advancement rates.

During 2016, the bulk excavation component of the convey-to-surface system was completed, followed by the commencement of decline tunnel work in January 2017. The convey-to-surface system is the eventual route of the full 95,000 tonne per day underground ore delivery system to the concentrator; however it is not a critical path item for first drawbell planned in 2020. Expected completion of the convey-to-surface system is 2022, which will facilitate the ramp up to full production by 2027.


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