Turquoise Hill Resources Ltd (TRQ) 2018 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Q2 2018 financial results conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Tony Shaffer, Head of Investor Relation and Corporate Communication, please go ahead.

Thank you, operator. Welcome to our financial results conference call. Yesterday, we released our second quarter results press release, MD&A and financial statements. These items are available on our website and SEDAR.

With me today is our new CEO Ulf Quellmann, Luke Colton our CFO, who also served as interim CEO for the last month and Brendan Lane, Vice President of operations and development.

We'll take your questions at the conclusion of our prepared remarks. Please refer to the forward-looking language included in our press release and MD&A.

I'd now like to turn the call over to Ulf.

Thank you, Tony. And good morning to all of you. It's a real pleasure to be here this morning. It's my first day in the role CEO of Turquoise Hill today, and I wanted to take the opportunity to lead off the call with a few introductory remarks before we'll get into the business of the quarter and I'll hand over to Luke and Brendan.

First of all, let me say, I'm thrilled to join the TRQ management team. It's a terrific company with fantastic people, it's got a world-class asset in Mongolia that is well placed to compete in an attractive marketplace with some very strong and robust fundamentals.

And while I'm new to the CEO role at Turquoise Hill, I'm not new to the company. I have served on the board for the last year. And prior to that, I've led the arrangement of the $4.3 billion project finance facility for OT, which involved the large syndicate of international financial institutions, export credit agencies representing Canada, the U.S., Australia and a group of 15 commercial banks.

Most recently, I've been part of the Turquoise Hill, Rio Tinto negotiating team working with the Government of Mongolia, primarily, but not limited to, concluding the sourcing of domestic power. Clearly that continues to be a priority for the business and for me and as such I'll remain a member of that negotiating team working with the Government of Mongolia and Rio Tinto.

Now as I said at the beginning, today is day 1 for me in the job and I'll be getting up to speed very quickly, but it is too early for me on this call today to lay out what I think the priorities for the business and for me should be.

Before doing that, I do want to take the opportunity to meet and talk to many of Turquoise Hill's stakeholders including people on this call, and to hear from them what they see as some of the challenges and opportunities.

Having said that, it's clear that we do need to make sure that we operate the open pit and the existing operations efficiently and effectively and most importantly safely; that we progress the construction of the underground on time and on budget; that we put in place a domestic power solution in Mongolia; and that we work with our partners at Erdenes Oyu Tolgoi and within the government of Mongolia to resolve the issues that are of concern to the broader Mongolian public, and its elected representatives.

I feel confident that my long-standing understanding of and engagement with both OT as well as Turquoise Hill in various capacities, and some of the relationships that I've been able to build over the years will help me to be an effective CEO. I'm also mindful though that I haven't had the opportunity to meet many of our shareholders yet.

Since creating long-term value for our shareholders is our #1 priority, I want to ensure that we have a good open and constructive dialogue and relationship with all of our shareholders. I've had the opportunity to speak to some of them already but I'm going to work with Tony going forward to arrange meetings and discussions with the investment community including those from the sell side who follow our company.

I do value building strong long-term relationships and I believe that they are key for this company to reach its full potential and to generate superior returns for all of our shareholders.

So again, I'm absolutely delighted to join Turquoise Hill as CEO today. I look forward to working with our management team and the board to unlock and deliver the tremendous value-creating potential the business undoubtedly has.

Let me now turn things over to my colleagues, to Luke and Brendan, to report on what was a very good quarter. And I then will be part of the Q&A session at the end of the presentations.

So, Luke, with that over to you please.

Thanks, Ulf, and welcome to the team. During the second quarter, underground progress continued and we completed a major milestone, with Shaft 5 ventilation system becoming fully operational. Lateral development continued to advance during the quarter, albeit at a slightly slower rate in the first quarter due to the completion of the Shaft 5 ventilation system. That said, June development rates were at record levels. Brendan will provide more detail on underground development later in the call. We do maintain our expectation of first draw bell in mid-2020 and sustainable first production in 2021.

Before I move to open-pit operations, I want to start with safety. OT had a very strong safety performance for the first half of the year. With an AIFR 0.19 for 200,000 hours worked. Their safety performance continues to impress, and they should be commended for their good working efforts.

Moving to open pit operations. Overall, second quarter production was on plan as we began to see the early positive impact of Phase 4 on gold grades, recovery and production.

We expect to see improving gold trends in the third quarter. The real impact of Phase 4 on gold is expected to materialize during the fourth quarter. And we expect copper production to be steady state in the second half of the year.

Concentrator performance during the second quarter was strong with average daily rates of approximately 112,000 tonnes. We are seeing the benefit of high-intensity blasting, which has resulted in us increasing are expected annual throughput guidance to approximately 40 million tonnes for 2018. Brendan will provide more color on surface operations later in the call.

In March, this year the speaker of parliament appointed a parliamentary working group, which consists of 13 MPs to review implementation of the investment agreements. The working group established 5 subworking groups. The working groups' field work is complete. They are due to report their findings to parliament before the end of the spring session in June. However, that was delayed and they are now expected to present their report in the autumn session or possibly in an extraordinary session before then if one were to be called.

Work on a domestic power source for OT continues to be studied. The 2 options are a power plant built and operated by OT at the mine or an independent power producer at Tavan Tolgoi. An OT-based plant is currently the most feasible option that could deliver a domestic power source within the shortest time frame. And Tavan Tolgoi-based plant remains an important option. Turquoise Hill, Rio Tinto and OT are actively engaged with the government of Mongolia in an effort to reach a final outcome.

Moving to second quarter financial performance, which is our best quarterly revenue recorded in 2 years. Revenue for the quarter was $342 million, an increase of approximately 68% over the second quarter of 2017.

This reflects significantly higher copper prices and increased concentrate sales volumes. Copper prices in the quarter averaged $3.12 a pound. An increase of 21% compared to the second quarter of 2017.

Average gold prices for the quarter increased by 4% from second quarter 2017. Concentrate volumes sold increased by approximately 21% over the second quarter of 2017 benefiting from improved logistics as inventory accumulated during the Q1 force majeure worked its way through the system.

Gross margin for the quarter was 30%, up 7% in the second quarter of 2017. This was driven primarily by the significant increase in sales revenue offset by a 27% increase in cost of sales. The increased cost of sales reflects higher volumes of concentrate sold and a marginally higher cost of sales per pound of copper sold reflecting lower average mill head grades for copper in the period.

Finance costs of $17 million in the quarter are net of amounts capitalized on underground construction of $76 million.

Income attributable to TRQ shareholders in the quarter was $171 million compared with just $24 million in the second quarter of 2017, the increase driven primarily by additional deferred tax assets recognized in the period, but also the impact of higher sales revenue.

In the quarter the total to deferred tax assets recognized increased by $145 million to $651 million. This was the main driver for an income statement credit for income and other taxes of $138 million in the quarter. The increase in deferred tax assets was the result of additional operating losses and accrued but unpaid interest expense incurred by OT in the period, combined with an overall strengthening of taxable income forecasts driven by updated operating assumptions in mine planning during the period and improved long-term commodity price projections.

The net realizable value of copper gold stockpiles at the end of the quarter was $97 million, that's a decrease of $13 million compared to the end of the prior period. The decrease in the stockpile net realizable value in the quarter was primarily driven by lower copper recovery in the stockpile at period-end. A net charge to the income statement of $5 million was consequently included within operating expenses.

At 30th of June 2018, Turquoise Hill's cash balance was $1.5 billion, which is consistent with the balance at the end of Q1 2018. Cash generated from operating activities in the quarter was $48 million and this compared -- this compares to cash used in operating activities of $44 million in the second quarter of 2017. The increase was primarily driven by the higher sales revenue in the period.

Capital expenditure on a cash basis was $318 million in the quarter compared to $205 million in the second quarter of 2017, and includes $291 million for the underground project.

Since 1st of January 2016, the total amount spent on underground development is approximately $1.6 billion. In addition, OT had further capital commitments of $1.2 billion as of 30th of June 2018. Total operating cash costs at OT was $202 million in Q2 2018 compared to $164 million in Q2 '17. Mainly due to higher royalty and freight costs as well as increased open-pit costs.

C1 costs in the quarter were $1.72 per pound of copper produced, a decrease from $1.92 per pound in the second quarter of 2017 primarily due to higher gold sales.

Overall, second quarter was strong. Underground development is progressing and the open-pit is running at full steam. Second quarter sales were strong with the benefit of good copper prices.

That concludes my comments and I'll turn it over to Brendan.

Thanks, Luke. Second quarter continued to build on the strong safety performance from the first quarter with the AIFR now dropping to 0.19. This was contributed to by all departments in both the surface operations and the underground project.

Surface operations are performing well with production of gold and copper, both firmly on plan to meet guidance. I would note in the second half, and in particular the fourth quarter, we expect as planned to see a stronger gold production rate in the first half of 2018.

Increased amounts of Phase 4 ore were treated in the quarter with a smaller contribution from Phase 6. The reduced Phase 6 content, compared to recent quarters, is expected to continue for the rest of the year as we mine towards the gold core of Phase 4 in the second half as planned.

We've already mentioned we now expect the concentrator to process around 40 million tonnes in 2018 versus our original expectation of around 37 million tonnes. This was partly driven by better throughput when using different blasting techniques for the harder Phase 4 ore, combined with good plant availability and building on the deep bottlenecking projects that have happened over the last couple of years.

In the second quarter the concentrator feed rate ran at over 40 million tonnes per annum, and we expect this sort of rate to continue for the rest of the year. There will, however, be another planned maintenance outage on the concentrator that will occur in the third quarter.

Moving to the underground. June 2018 saw the project under its 25 month since notice to proceed. At the end of June over 22 million man hours have been worked on the project since commencement. The total project workforce is nearing its expected peak at over 7,500 people of which 89% are Mongolian.

Taking into account the rotating shifts, the daily average project workforce on-site during the quarter was over 4,000. The Shaft 5 ventilation system was fully commissioned during the quarter and is now operational and adding additional air capacity to the mine.

Shaft 5 is now a dedicated exhaust ventilation shaft fitted with 3 surface fans. It has 2 ventilation take-off points, one at the 1,141 meter level and one at the shaft bottom at 1,178 meters.

The up station connects 2 drives that exhaust the ore handling system. The lower station contains 2 more exhaust drives that take air from facilities such as the workshops and the mine footprint.

Impacts from the fan commissioning and the transition of airflows underground were felt during the quarter and resulted in the slowing of lateral development for the period, namely in April and May. Consequently, we recorded the first quarterly drop in development since project restart. However, the upward trend is expected to be back in the third quarter with June having a record month and July tracking quite well to date. We still expect to meet the target of 2018 of approximately 10 kilometers of development.

Also during the second quarter a chamber for Primary Crusher 1, or PC 1, completed its primary mass escalation. The first stage took over 210 days with 15 people each shift to build it. It was a challenging and complex excavation and the team achieved it with outstanding safety performance.

Being roughly 12,800 cubic meters in size it will hold a production crusher that will weigh approximately 300 tonnes and be one of the largest pieces of equipment in the Oyu Tolgoi underground. PC 1 will be the first of 2 primary crushers and chambers required in the final design. Each production crusher will be able to handle 4,000 tonnes or ore per hour. And TC 1 will initially see the Shaft 2 production system that is capable of up to 30,000 tonnes per day.

The Shaft 2 production will be only the first step of the underground ramp up before production transitions to the convey-to-surface system around 2022. The production of the convey-to-surface system also continued -- the progress of the convey-to-surface system also continued during the quarter. And although having faced challenging ground conditions it is expected to be ready for the continued ramp up in 2022.

Shaft 2 and associated work will continue throughout the year following the completion of shaft stripping and bracket installation in the last quarter. Equipping is well underway with the cable and piping installation initiated during the period.

Shaft 2 cages and skips are expected to be delivered on-site late in the third quarter for installation during the fourth quarter.

Additionally during the quarter site preparations continued for both Shafts 3 and 4 and the sinking packages for them have now been awarded.

Following completion Shaft 3 will be a 10-meter 1,148 meter deep concrete line downcast shaft boosting air intake to support the life of mine block cave operations. It will have a single shaft bottom station that will connect 3 independent drifts to the lateral development from the underground operation.

Shaft 4 at completion will be an 11 meter diameter, 1,149 meter deep concrete line exhaust ventilation shaft and will also only have a single shaft bottom station that will connect 3 independent drifts to the underground operation.

At the end of the quarter detailed engineering for the project was nearing completion and as the Santiago and Brisbane engineering offices start to wind down there's now a shift in focus to mobilize engineers to site to be available for final engineering requirements.

Overall, the main focus areas for the project continue to be critical headings development, Shaft 2 infrastructure work, that also includes an underground ore bin and materials handling development, as well as surface infrastructure like the new mine drive facilities and essential heating plant expansion.

Finally, we will remain on target for the first drill point blast in mid-2020 and sustainable production in early 2021.

That concludes my comments. I'll now turn back to Ulf.

Thanks very much, Brendan. So just to summarize, second quarter performance was very strong operationally, sales were robust and the open pit continues to generate operating cash flow as the concentrator processes -- processor increasing amounts of Phase 4 ore, we expect gold production to increase throughout the year. We've hit several underground milestones thus far in 2018, including the completion of Shaft 5. And finally, we continue to expect production from the first draw bell mid-2020 and sustainable first production in 2021.

So that really concludes our prepared remarks . Operator, with that, we are ready to take questions.

(Operator Instructions) Your first question is from Ralph Profiti with Eight Capital.

Good morning, thank you for taking my questions and congratulations to you, Ulf. If possible I would like to get a better understanding of the permitting process for the power plant. Specifically will this be along the lines of a full EIS, is this going to be an expedited process? And maybe a little bit more, which Mongolian agency will be conducting the review and is it your view that they are fully staffed for this process?

Are you able to have a crack at that, Brendan and then we -- it sounds like maybe Ralph we have to come back to you maybe with some of the answers on the specific questions. But do you want to comment maybe just on the general permitting process, Brendan?

Yes, I think as part of the study what's still our preferred option is the [OT Bu] and some work has already been done in the past on that and so we're in a fairly good position for progressing that and -- but it's still part of the study that's ongoing and still part of the stage that we need to do as we go forward. But yes we'll have to get back to you on some of the more specific answers, but then I'll get Tony to get back to you.

Sure, I do appreciate that. As a follow up, with respect to the EPC contracting process and qualifications for a conforming bid, how should we think about the quality standards to which the power plant will be built, right? And the potential differences between the Rio Tinto construction standards and, say, local standards. Is that going to be addressed in the EPC review?

I mean, the EPC result will be in accordance with Rio Tinto standards, so there won't be any devolution of the Rio Tinto standards from my understanding.

We've -- you've seen in the release a while ago, I think, that our fees have been sent out and the specifications obviously are fairly clear to make sure that the requirements meet the various specifications standards and that is a clear threshold to be a conforming bid by the EPC bidders.

Your next question is from Orest Wowkodaw with Scotiabank.

I wanted to get a little bit more detail on the changes in the structure with appoint -- of the new appointment here, Ulf. It sounds like there's been some changes made with respect to compensation now linked to TRQ rather than Rio Tinto. But I was wondering if we could get a bit more detail in terms of what the rest of the team looks like and whether the other senior management is now changing over to a similar structure, like you've been set up, or whether they are still on, I believe, Rio Tinto employment contracts or seconded from Rio Tinto.

Yes, thanks for the questions, Orest. So, I mean, I would -- I think I would characterize the overall approach that the board has taken really that this is a process, right? So the intention underlying the change of my contractual arrangements have really been to make sure that the contractual arrangements, the incentive structures are as much as possible aligned with TRQ's success with the creation of shareholder value for TRQ and therefore fully aligned with what our shareholders expect us, as a management team, to do. And that's been reflected in some of my contractual arrangements. I've been hired by the TRQ board, I report to the TRQ board, I'm paid by TRQ, and that's really to achieve what I've just outlined. What does it mean for the rest of the team going forward? I think over time the intention is to continue that process and have the contracts of the TRQ team, of the senior management team, reflect the same kind of set up. That's not going to happen overnight, it's not going to happen tomorrow, but over time that's clearly the intention.

Okay. And, Ulf, is your contract now solely with TRQ or like have you actually resigned from Rio Tinto?

I've got a TRQ contract, Orest, as I said I've got a TRQ contract, I report to the TRQ Board, I serve at its pleasure, if you like. My rewards, my performance assessment, all of that's done by the TRQ board. And so all intents and purposes I am a TRQ employee.

Okay, and do you plan to move forward with the suggestion that you would hire an independent technical team at the TRQ level, in terms of dealing with OT?

Well, let me take a little bit of a step back just to address the question, Orest. So I think -- so if we look at what have we got today in terms of set up, in terms of expertise and capability within the team, and I would start by saying I'll include the team at OT and the Rio project team in that. So we've got strong technical capability at OT and through the Rio projects team. We then have our own in-house technical capability and resources and that's really run and managed by Brendan. We then, obviously, have a QP, and we've also said that we would, in addition to all of that, avail ourselves of the services of some additional external resource really to help us with the assessment with the review of the technical progress, if you like. That's where we are today, we think that if we do that and we have a set-up capability that's adequate for where we are today. I think, if we find that we require more, the board requires more above and beyond what we've just described, there's nothing that prevents us from doing so. But where we are today, I think, we think that the steps that we've outlined are adequate and should put us in a position where effectively we can do our job and we discharge our obligations.

Okay. Because, I mean, I would argue that in the past TRQ has been kind of on the outside looking in as Rio has conducted kind of project reviews of OT. I would like to see TRQ-specific representation included in those project reviews moving forward.

Yes, Orest, I mean, I -- look it's -- I'm, in my current role, new to the role, right? So I may not necessarily want to comment on the past, but I would say where we are today we've got a very good dialogue with the OT team and with the Rio team. We have good visibility. We are well plugged-in, if you like, into the various processes, cost reviews and the like, that are going on. And that's reflected, not just when it comes to say the operational performance of the open pit, the progression of the underground construction, but also the dialogue and the discussions we're having with the various counterparts in Mongolia, right? The various work streams that are going on there. It's a joint undertaking, TRQ has full representation, good visibility as to what's going on and, therefore, is able to make its voice heard. So I think, certainly, where I am today, what I see, I think we're in a good place. We'll continue to monitor that, we'll make sure that we are set -- well set up to provide good visibility to the board and to our shareholders. But as ever, if there are things that we think we can do better and improve, then we'll do that and we'll take that under consideration. And some of that is what I'm sure I'll hear and learn from meeting many of you over the next month. So we'll be open-minded.

Your next question is from Craig Hutchison with TD Securities.

I got a question on operating costs, they seem to be quite high in the quarter, I know a part of it was driven by the higher sales, but even so, it was particularly high in Q2. Can you provide some more context in terms of what those higher costs were in the open pit?

Sure, happy to do that, thanks for the question. So if you are looking at your total cash operating cost, the big driver, as you note, is actually the increased costs associated with the additional sales revenues, so you've got your selling costs, your freight costs. You've also got the higher royalty costs, obviously if you sell more, you're going to pay a higher royalty, so you need to make sure to factor that in. In addition to that there were some changes in mine sequencing which resulted in some deferred stripping being expensed that was initially planned to be capitalized, not just changing in mine sequencing. So kind of timing-related. In addition to that there were some additional maintenance costs, both in the open pit and at the concentrator kind of during the year so far.

And in terms of the financing -- or potential financing of the power plant, have you guys had any or are having any ongoing discussions in terms of securing the remaining $1.5 billion on the, I guess, the initial $6 billion commitment for funding for Oyu Tolgoi?

Right. So when you think about our funding requirements, and you think about the -- what we currently have at our disposal, we've got about $2.6 billion left of project financing. And we've got about $1.5 billion in TRQ cash. So that gets you to around $4 billion , $4.1 billion just in cash that's available now. We'll obviously use that to continue to fund the underground. If you look at the additional $1.6 billion in supplemental debt that we can raise to -- before we hit our debt cap at an OT level, that is something that is continued to be looked at and will be progressed as necessary in order to complete the underground expansion. If you look at any requirements above and beyond that in terms of a power plant and what that might potentially cost, just worth noting that those studies are underway at the moment and there are a range of scenarios being looked at. As part of those studies, we are looking into the financing of the power plant as well. So that is something that is very much under consideration and will be progressed and finalized as the studies are finalized over the remainder of the year.

Look, if I may, just one extra point, Craig, in response to that and to the earlier question about EPC bid requirements. So one of the requirements for the EPC bidders is to highlight their ability to mobilize financing in association with that EPC contract. And that's fairly important and critical for the power plant construction, right, to utilize the award of EPC contracts as a tool to raise financing.

And maybe just one last question. You mentioned earlier the Mongolian parliamentary working group, the 13 members that are looking at the -- your view of the implementation on the investment agreement, during the field work that they've conducted, can you discuss what they're specifically looking at? Are they looking at concessions from Turquoise Hill, in terms of the management service fees? Any kind of context you can provide will be helpful.

Right. So listen when it comes to that parliamentary working group, and some of this will be a repeat of what I've already said, but it has been appointed and it consists of kind of 13 members of parliament. There are 5 different subworking groups. If you look at -- sorry just 1 second. If you look at the composition of those 5 working groups, there's 1 for power, tax, community, shareholder funding arrangements, they're looking at the implementation of the IA, et cetera. The working group field work is -- it's been completed, but we haven't seen any results yet. The reporting isn't really expected at this stage until the autumn parliament -- parliamentary session. So that will be sometime in October, it'd be sort of inappropriate at this stage to speculate on what the results or outcomes of that would be.

So they're looking to make sure you guys are following investment agreement or is there...

They're looking at very -- various different aspects of the implementation of the investment agreement. From a legal perspective, a finance perspective, a community's perspective and operationals -- operational perspective, et cetera.

(Operator Instructions) Your next question is from Oscar Cabrera with CIBC.

If I may just follow up on the last question please. My understanding is that, after reviewing the investment agreement or after reviewing the expenditures on what's considered Phase 1 and then Phase 2, the government was agreeing to continue the project. So does this review provide the government an avenue to try and extract dividends, ahead of paying back their investment in the project?

Not to my knowledge, Oscar, I mean, again it's a little bit premature to act -- to speculate on what the results or recommendations coming out of the parliamentary working group, what they might be. But I haven't heard anything to suggest that this is the method for rent sinking or anything like that.

Maybe I can add to that, Luke. Oscar, it's Ulf. I think -- so clearly what Luke said is right, we don't want to speculate. And we're waiting -- awaiting the final report. I think, in the meantime there's clearly been a lot of dialogue between TRQ, between Rio, or the government, to certainly make it clear from the investors' perspective, i.e. TRQ, that the sanctity of the IA, of the UDP, of the various other agreements like the ARSHA, things like that are critical for us and they really form the basis -- form the backbone for the investment in OT. And it's clearly critical for us for that to remain the case for that to be protected. That doesn't mean that there couldn't be areas within that framework that could be discussed and debated. But the principle of the sanctity of those key agreements is of utmost importance to us and that's been communicated at various levels throughout that process.

And then, if I may, on a question on the power plant. You've mentioned that there's still 2 alternatives being considered, one of them an independent power producer. I was under the impression that, that had been written-off because of the time schedule or the sensitivity of finishing this before 2022.

Oscar -- sorry, I'm happy to take it. So where we are in the process, Oscar, is we haven't yet finalized the prefeasibility study and we haven't yet landed on a final and firm decision as to which way we would like to go. What is clear is that we have a firm commitment to source power domestically from within Mongolia within the next 4 years to make sure we are meeting our side of the bargain of the IA -- of the investment agreement. It's also clear that the -- what people refer to as the [OT Bu], so the power plant at the OT site, is the 1 avenue for which we have the most visibility and for which we can say, we can deliver that in time, because we are effectively in control of the construction process. And in that respect it is, in many respects, a base case assumption. That doesn't mean at this stage that other options have been entirely disregarded. And so options like TT are still a possibility, but we're also clear that, that window is closing relatively soon in order for us to be able to meet our commitment, under the time line that we have, we need to narrow down that option and progress down one path relatively soon, unless there are -- there is a willingness in the context of other options to extend time lines, for example. But that we don't know yet and that would be speculative at this stage. But all to say in response to your question, we haven't disregarded that option but we have keenly focused on making sure we focus on the one that we can control and execute and implement in the time line that we need to.

Your next question is from Anita Soni with Crédit Suisse .

My question is with regards to the tax assessment dispute and I was just wondering at what point -- where is that in the process now, I think you're -- it's past the 60-day threshold. I guess you're continuing negotiations and at what point would you take it to international arbitration if needed.

So you -- listen you are correct, the 60-day time -- the 60-day initial time frame has passed, it ended on the 8th of June. But post that, the parties have continued to discuss and it's really an attempt to resolve the dispute in good faith. Those discussions are ongoing. If unsuccessful, the next step would be the dispute resolution mechanism through international arbitration. I don't think we're quite to that stage yet, but I think it's -- the parties continue to discuss in good faith. And if they cannot resolve it in good faith then the hope is that, that they would jointly agree to take the dispute to arbitration. So that's kind of the position that it's in at the moment.

All right. And the $155 million tax assessment, what like -- what are they -- what is the government basically basing that on at this stage?

So the $150 million hasn't changed I mean it's a combination of different interpretations. From our perspective, we believe that certain aspects of the assessment were agreed as part of the IA process and as such we've continued to put forth our arguments. And the government has continued to put forth their technical arguments as well and the discussion is ongoing -- very much ongoing. And if we do -- again if we do hit that point where we feel it makes sense to hopefully jointly take it to international arbitration and get an independent view, then we will do that.

Your next question is from Dalton Baretto with Canaccord.

I just have a couple of very quick questions. First of all, Ulf, I know you said you weren't going to comment on the past, but going forward can I ask when the next schedule and cost review by Rio, is going to be? And part B to that is, will -- is it your intention to actually make public the results this time?

So preparations are currently underway to form that next review. And we expect that's going to happen, so no timing has been actually set yet for the TRQ participation, but we expect that to be in the second half of the year. And so we're still at the early stages of that preparations. But we would certainly release the findings at -- certainly at a material level of those findings, of that review.

Okay great. And then if I can just ask one more follow up to one of Orest's earlier questions, that you said that you're very plugged into the discussions that are going on at the OT level, but given that you don't actually have representation, can I ask what form that takes? What are the communication mechanisms?

So just wanted to make sure, I may have misunderstood the question. But we -- at an OT level we -- there are definitely members of the TRQ senior leadership team that are directors on the OT board. So we definitely have visibility through our board representation. If you're talking specifically about the various items that are being negotiated with the government of Mongolia, we actually do have representation in the majority of those working groups. I, for example, am a member of the joint working committee. I also participate on the working group for shareholder loan. Brendan's been involved in power and Ulf has been involved throughout as well and I'm sure he will continue to be very involved in those discussions going forward. So we do have representation and we do get good visibility from OT, not just in relation to the sort of day-to-day stuff but some of these more strategic issues as well.

I am showing no further questions at this time. I would now like to turn the conference back to Mr. Ulf Quellmann.

Thank you, very much, operator. So let me just thank all of you for joining us on the call today. Thank you also to Luke and Brendan and Tony. For me, I'm -- personally I look forward to meeting all of you -- many of you in the next coming days and weeks. And in the meantime thank you for your interest and for your support. Thank you, very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.