Turquoise Hill Resources Ltd (TRQ) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Turquoise Hill Resources' Fourth Quarter 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 Mr. Ed Jack of Investor Relations. Sir, please begin.

Thank you, operator. Welcome to our financial results conference call. Yesterday, we released our fourth quarter and full year 2018 results press release and MD&A and financial statements. These items are available on our website and SEDAR.

With me today is our CEO, Ulf Quellmann; and our CFO, Luke Colton; Brendan Lane, our Vice President of Operations and Development is also with us, to help respond to questions at the conclusion of our prepared remarks.

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

Thank you, Ed. And good morning on what is an unseasonably warm and rainy morning in Montréal. Thank you for joining Turquoise Hill's Fourth Quarter and Full Year 2018 Results Conference Call. The presentation includes forward-looking information, and I'd like to remind you to please read the disclaimer on Slide 2.

Today, I will provide you with an update on what we've achieved over 2018. Luke will provide an overview of the financial performance of the company, and then I'll finish by providing an overview of our priorities for 2019 before we then open the line for questions.

Yesterday, we announced a very strong set of results as we continue to build strong foundations that will position the company to deliver value to shareholders for decades to come. We continue to achieve operating excellence at our open-pit mine and continue to make good progress with the development of the underground, all the while remaining focused on safety.

The health and safety of our people is our #1 priority. And over 2018, we achieved an industry-leading All Injury Frequency Rate of 0.16 per 200,000 hours of work exposure, which was also our lowest since commercial production started in 2014.

We achieved some 17% decrease in our C1 cash costs to $1.59 per pound over the year and increased income over 250% to $394 million. Production of copper and gold exceeded both our 2017 production and our 2018 guidance for the year. We made significant process -- progress on the development of the underground with surface infrastructure nearing completion.

We've also completed and commissioned Shaft 5 and achieved a record number of total underground development kilometers over the year. Our working relationship with the Government of Mongolia remains constructive, and we continue to work through and progress a number of important items.

In December of last year, we announced the signing of the Power Sourcing Framework Agreement between Oyu Tolgoi and the Government of Mongolia, which outlines the binding pathway forward for the construction of a Tavan Tolgoi-based power plant. This agreement provides a significant way forward in securing a domestic long-term power solution for Oyu Tolgoi.

The safety and health of our people is our #1 priority. Since commencement of operations, Oyu Tolgoi's All Injury Frequency Rate has decreased by approximately 64%. And in 2018, we achieved our lowest rate yet.

We remain committed to managing our operations in a sustainable, long-term fashion. For example, our water usage practices are amongst the best in the world, which is critically important when one's operations are located in the desert.

At Oyu Tolgoi, we use approximately 0.4 cubic meters of water per tonne of ore processed. This is about 1/3 of the global average of 1.2 cubic meters of water per tonne of ore processed. We are focused on minimizing the impact of operations on the landscape. And to date, we planted approximately 230,000 saplings of Gobi Desert native species and rehabilitated around 1,500 hectares of land. Put that into context, that's an area of approximately 4.5x the size of Central Park in New York.

Finally, we're very proud that our sustainability efforts were recognized with Oyu Tolgoi being awarded the IFC's Volunteer Code of Practice Water Steward Award (sic) [Voluntary Code of Practice Water Stewardship Award] in 2018. We plan to operate Oyu Tolgoi for many decades to come, and as such, we are today investing heavily in the communities that support our operations to ensure a long-term sustainable relationship into the future.

We're not only investing in critical infrastructure for the region, such as the road between Khanbogd and Oyu Tolgoi that you can see in the top right of this chart, but also in the supply chains and people who will continue to support Oyu Tolgoi and ensure its success.

Today, approximately 93% of our total workforce is Mongolian, approximately 78% of the leadership roles at Oyu Tolgoi are held by Mongolians. And we provided close to 1 million hours of training and development over 2018. This includes bringing in internationally recognized experts to train our people and to ensure global-best practices are deployed at Oyu Tolgoi. And then we're also investing heavily to develop supply chains to support Oyu Tolgoi into the future. In 2018, we spent a total of $899 million on national procurement.

We are investing in our leaders of tomorrow, and we recently completed a new school and kindergarten complex. Our vision is to be able to educate and develop future generations in the Gobi region, and to train our future geologists, engineers and managers who'll operate Oyu Tolgoi into the future.

Not only is this approach good for the long-term success of Oyu Tolgoi, but it will help ensure the economic development and success of the broader region, which is a key component of our original investment agreement commitment with the Government of Mongolia.

We turn to operational performance. We delivered another year of operational excellence at our open-pit operation. And our productivity rate was recently recognized by Jakob Stausholm, the CFO of Rio Tinto, as the pacesetter relative to Rio Tinto's own mining operations. When you consider the breadth of high-quality operations in their portfolio, this is a very strong endorsement indeed. We achieved production of 159,000 tonnes of copper and 285,000 ounces of gold in 2018, meeting guidance for the sixth consecutive year and an increase over 2017 of 1.1% and 150%, respectively.

Oyu Tolgoi has consistently processed ore 5% to 10% above nameplate capacity since 2016. And copper recoveries improved over 2018, while grade has remained relatively constant.

And finally, our C1 cash costs reduced 17% over 2018 and are expected to be significantly lower once our underground operations begin production.

We've also made significant progress on the underground project over 2018 with the construction of critical above and below ground infrastructure.

Underground development advanced 10.3 equivalent kilometers, a 69% increase over 2017 due to the commissioning of the new 3,500 tonnes per day crusher in second half 2017 and increased development capability with increased ventilation following the completion of Shaft 5.

Our main focus for 2018 was the fit-out of Shaft 2, completion and commissioning of Shaft 5, support infrastructure and the convey-to-surface decline. Shaft 2-connected underground infrastructure progressed well in the fourth quarter, with the completion of the lining installations and handover of Ore Bin 11 as well as advancement of the new 6,000 tonne per day jaw crusher under construction. And we also completed construction of our 5,000-person permanent camp that will cater for our workforce going forward.

Going forward into 2019, as we complete the majority of surface infrastructure, we will move past peak workforce and see a reduction of people on site as we concentrate our efforts on the development of the underground. Our primary focus in 2019 will be progressing lateral underground development, which is expected to accelerate once we complete the fit-out and commissioning of Shaft 2.

Shaft 2 is 10 meters in diameter and will be our primary production shaft, capable of transporting 30,000 tonnes of material per day as well as people and equipment. It will be a game changer once completed.

Work's underway to excavate the chamber that'll house the Primary Crusher 1, and we've started sinking Shafts 3 and 4.

As announced on February 27, we were recently advised by Rio Tinto as our project manager that as the lateral development continues, there is more data than was previously available. And as a consequence, the understanding of the ore body has improved. As such, the location of some of the underground infrastructure may need to change. Essentially, what that means is that we need to revisit the location of some of the ore passes on the footprint contemplated in the 2016 technical report with the benefit of this later stage and understanding.

The intention of the 2016 feasibility study was to initiate the cave in panel 0, and then move north and south into panels 1 and 2. The intention is still to start within panel 0, but these studies may ultimately result in a modification of the initiation sequence within panel 0. To date, we've identified a number of alternative locations for these ore passes, and we're currently working through alternative scenarios for the initiation sequence.

Once we've identified and refined the analysis of the various scenarios, we'll focus on completing feasibility estimates, which will then, ultimately, form the basis of the definitive estimate report, which is expected to be finished by year-end.

In December of 2018, Oyu Tolgoi and the Government of Mongolia signed the Power Source Framework Agreement, which provides a binding framework for the construction of a 300-megawatt power project near Tavan Tolgoi. It also extends the timetable for Oyu Tolgoi to source power domestically to now -- to mid-2023 and remain in compliance with the 2009 investment agreement commitment.

Studies are underway to confirm the technical design of the project, which is envisaged to include a renewables component. Government of Mongolia has signed up to the Power Source Framework Agreement, and we anticipate the government's continued support in securing all the required approvals. Construction is targeted to start in 2020 with commissioning in mid-2023.

As you can see on Slide 10, we've already built a lot with the majority of the surface infrastructure, which will ultimately support the underground development nearing completion. The top left picture you can see the 5,000-person permanent camp, which was recently completed. In the top right picture, you can see mine dry complex, which is going through final stages of completion. This is the main complex where the workforce will enter and exit the underground and house offices and control facilities. And in the bottom right picture, you can see the central heating plant. The bottom left, you can see the completed and commissioned Shaft 5, which is one of our ventilation shafts.

On Slide 11, you can see that we've also made significant progress with the underground development at Oyu Tolgoi. Top left picture, you can see tunneling or the conveyer surface.

Top right shows the view looking into the top of Ore Bin 11. In the lower right, you can see the bottom of Ore Bin 11. Finally, the lower left, photo. You can see the part of the PC 1 chamber.

So with that, let me now hand over to Luke to walk through the financial highlights.

Thanks, Ulf. And hello, to everyone on the call. Thanks for tuning in. If I could get you to please turn to Slide 13 for a summary of our key financial metrics for the fourth quarter and also for the full year 2018.

Focusing on the full year results. Revenue in 2018 was $1.2 billion, which is an increase of 26% compared to $0.9 billion in 2017. This is partially due to the significant increase in gold revenue from $131 million in 2017 to $300 million in 2018. This is driven by a 150% increase in gold production, as OT benefited from the processing of Phase 4 ore that contained higher gold content. The remaining increase in revenue was driven by an increase in copper revenue due to a 5% increase in volumes of copper and concentrate and a 6% increase in average copper price from 2017 to 2018.

The increase in revenue was the primary driver behind the increase in our income per share from $0.09 per share in 2017 to $0.20 per share in 2018. Cash generated from operating activities before interest and tax was $363 million in 2018 compared to $326 million in 2017. And that's primarily reflecting the impact of the significant higher sales revenue, which is partially offset by higher cash operating cost.

This was more than enough to fund sustaining CapEx for open pits. And actually, it helped to fund a portion of the underground development as well. The increase in operating costs was primarily due to higher freight and royalty costs associated with the increased sales revenue and the reduction in the amount of costs capitalized as deferred stripping. This results from a decrease in the proportion of waste removed, as mining resources prioritized movement of ore during the year.

Other contributors included higher input prices for key items such as fuel and power.

Capital expenditure was $1.3 billion in 2018 compared to $0.9 billion in 2017. And this includes $1.2 billion in underground development. Since January 1, 2016, the total amount spent on underground development is approximately $2.3 billion. In addition, OT had further capital commitments of $1.2 billion, as of the 31st of December, 2018.

Turquoise Hill's liquidity balance at the end of 2018 was $3.5 billion, and this includes $1.6 billion of cash and cash equivalents as well as $1.9 billion of undrawn funds under the project finance facility.

The decrease of $1 billion during 2018 was due to additional drawdowns of project finance funds readvanced to OT to fund the underground development during the year.

Turning to Slide 14. C1 cash cost of $1.59 per pound of copper produced for the full year 2018. These were 17% lower than 2017, and that's primarily due to higher by-product credits due to the 150% increase in gold production during the year. And also due to lower TCs and RCs and freight differential, which were negotiated for 2018.

These savings were partly offset by higher direct costs, principally driven by an increase in sales volume related costs, such as freight and selling costs, together with higher input prices for fuel and power and a reduction in cost capitalized as deferred stripping.

Now looking at the right-hand side of Slide 15, you can see that by the end of 2018, we have spent $2.3 billion on our underground expansion, representing just over 40% of the total $5.3 billion estimated cost. As noted on the chart, the total underground development CapEx of $5.3 billion excludes our share of power plant development costs, debt service costs, and that includes both principal repayment and interest as well as sustaining capital. The $5.3 billion is under review as part of the definitive estimate review process.

To finance our growth, TRQ has access to significant liquidity. We have $1.9 billion remaining net proceeds from our project finance facility and $1.6 billion of cash and cash equivalents at the end of 2018 for a total of $3.5 billion available committed liquidity. We also have access to free cash flow generated from our operations, which in 2018 was approximately $300 million. In addition to these committed sources, we have other potential future sources of funding, which we continue to advance. These options include the potential for an additional $1.6 billion of supplemental debt under the terms of our existing project finance facility, which will be subject to factors such as market appetite, general execution risk, and of course, the approval of the OT Board.

I will now hand back to Ulf to discuss priorities for 2019.

Thank you, Luke. So whilst we made significant progress over 2018, there's still much to do as we will focus on our key priorities for 2019. As I said earlier, health and safety of our people is our #1 priority, both at our existing open-pit operations and at the underground development. We must continue to perform in our open pit, continue to achieve our production targets, maximize ore throughput through the mill and focus on operating cost discipline.

Our primary focus for the underground in 2019 will be progressing lateral underground development, which is expected to accelerate once we complete the fit-out and commission Shaft 2. We will also complete the excavation for the Primary Crusher 1 chamber and commence sinking Shafts 3 and 4. In addition to the underground development, there are a number of outstanding items with our partners, the Government of Mongolia, that we look to progress. We'll continue to engage constructively and remain consistent with the rights and obligations of the key principle agreement such as the 2009 investment agreement as we work through these outstanding items.

In relation to power, work is underway to confirm the technical configuration of the plant, costs, commercial arrangement and funding structure with October of this year being a key milestone, by which we expect to sign a number of key agreements to allow us to progress to the next stage. And lastly, we will work with our project manager, Rio Tinto to complete the definitive estimate for Oyu Tolgoi, which will include any relocation of the ore passes on the footprint and any modification to the initiation sequence within panel 0. This study will form the final cost and development schedule as we work to complete and commission the underground mine.

Now to summarize, Turquoise Hill presents a tremendous opportunity to invest in a copper and gold producer with direct participation in the world's next Tier 1 copper asset. Upon completion of the underground project, Oyu Tolgoi will be a top 3 copper mine by production with first decile cash costs and the potential to support a 100-year life of mine. These unique characteristics are expected to result in the generation of significant and long dated free cash flow. The project is already well advanced with almost half of the CapEx already having been spent. We have an agreed framework to secure a long-term power solution for the mine.

Compared to other copper projects of similar scope, Oyu Tolgoi is significantly lower risk due to its level of development, current infrastructure being in place, proximity to the end market, a supportive local jurisdiction and an experienced operator. We are well on the path of transforming Oyu Tolgoi into a true Tier 1 asset. This is a significant growth story, and as the CEO of Turquoise Hill, I'm looking forward to my team and I working hard to advance and deliver on this exciting prospect.

And with that, I'd like to conclude our prepared remarks, and we'll now move over to taking questions. I think operator, with that, we'd like to hand the call back to you.

(Operator Instructions) Our first question comes from the line of Oscar Cabrera from CIBC.

Ulf, I was wondering if you listed a number of key risks that are developing in the underground. I was wondering if you can provide a qualitative view at this point on what the trade-offs in cost and speed of development that you're seeing now?

Thanks for the question. So just to make sure, the quality of the line wasn't that great. So what you're asking I think, was can we give a qualitative update on cost and schedule of the mine? Was that the question, Oscar?

Yes, that's correct. Just how you're seeing the trade-off between delaying the sustainable first production versus the ability to ramp-up the underground faster?

Look, we'll -- good question, Oscar, thank you for that. So I think maybe just take a step back for one second. So there was a sequence of events, I think, which we went through. October last year, Rio had conducted its cost and schedule review last year, we advised the markets of that. That was an announcement at the time of a 9-month delay to sustainable -- first sustainable production whilst confirming costs. We then conducted our own independent review, which we -- the results of which are included in our disclosure to the market, which effectively said that we confirmed the cost at the time, but had identified some higher level of risks to the schedule, but not enough to warrant to change the indication to the market. Since then, if we fast forward to February of this year, it became obvious that Shaft 2 was delayed more than expected. The -- we had expected it to be completed by the end of Q1. It's now clear that it's no longer completed by the end of Q1, but there'll be a delay by several months. And as we briefly described in our presentation, Oscar, and as you know it well, Shaft 2 is absolutely critical. It's a -- on the critical path because it's critical for us to, obviously, get infrastructure down to the shaft. So several months of delay, really driven by issues in relation to Shaft 2. And what that means in terms of cost and schedule will be incorporated in the definitive estimate. Now the definitive estimate was scheduled initially to be completed by midyear, June, July. We've now said that it'll move to the end of the year. And that is because in that definitive estimate, we need to make sure we incorporate the findings, the learnings and, ultimately, the action we need to take in terms of the ore pass relocations i.e. the change in caving initiation sequence of panel 0, right? So that's a piece of work, which needs to be done, which wasn't expected before. And that's why it'll take us to the end of the year now to provide that definitive estimate, if you like. The one thing I would say, Oscar, in relation to that latter point, so the extra -- the data, but also importantly the learning, understanding I think of the ore body and stability in relation there too. This is not uncommon, not unusual in especially a large and complex mine such as Oyu Tolgoi. You will have seen other people have similar issues. From our perspective, it is critically important that we identify these issues early. And then we take mitigating action, if you like. As you well know, the whole value proposition of this mine is predicated upon stability of the tunnels and excavation, right? We need to make sure we put the infrastructure into the right place where we have stability. That's what we need to do, that's what we're doing now. And so we now need to go, together with Rio, go through the process of understanding the stability, understanding where fault lines are running, identifying different locations, modeling it and then include that in the definitive estimate. What we will be able to do, Oscar -- I know I'm giving you a very long answer for a very short question, but what we will be doing is ultimately schedule and cost will only be known by the year end, but clearly, there are milestones along the way to allow us to provide you and the market with update throughout. So let me stop there. That was a longer answer than you were looking for, but I -- it was important I think for -- I wanted to put it into the broader context. Does that help answer the question?

Yes so -- and I -- yes, I think it's important to provide context to people that are somewhat new to the story. Now couple of follow-ups. So it is my understanding that Rio plans to provide an update to the market when they report results in July or August of 2019. Do you expect to provide something at that point? And I know that you said that definitive visibility will be ready by the end of the year, but is -- are we getting more information before that?

Yes. So as I was alluding to in my previous answer, Oscar, so the ultimate cost and schedule will only be known by year-end with the completion of the definitive estimate, but we will be in a position, like Rio, to provide updates on sort of some of the key milestones in that process throughout. And the half year will be one point of that.

Great. And then if I may, one last thing from my side. In terms of the funding, there has been market speculation that you might be looking at rights issue. From what I can see here in your press release, you have ample liquidity to increase the project finance debt, and not having to dilute shareholders. Can you comment on that, please?

Happy to do. I might ask Luke to do it, Oscar, if that okay, given that he is the CFO.

Yes, no. Thanks, Oscar, I'm happy to address that question for you. And thank you for it. I do think it's an important question, and I'm sure it's on the minds of many of the people on the call. I think the first thing to say, obviously, is that we are doing the work because we realize the importance of the question. It's also important to realize as we've said in our results presentation today that we do have existing -- significant existing current liquidity. We've got $1.6 billion in cash. And in addition to that, we still have the remaining undrawn funds on the project finance facility of $1.9 billion. So that's for a total of $3.5 billion, which will certainly keep us operating for a while to come, certainly through 2019 and into 2020 -- to the end of 2020 as well. And then as you alluded to, I think, in your question, we do have other potential means of funding above and beyond that. So as everyone knows, we've drawn down $4.4 billion on the existing project finance facility. And there's the potential to draw down another $1.6 billion, of course, that's subject to market liquidity, OT Board approval and all of the rest, but it's a definite option and a good option that we have at our disposal. I think everyone would be broadly aware as well that we need to start constructing a power plant in 2020. And there is provision in the existing facilities to actually increase the existing debt cap of $6 billion, for what's called expansion facilities. And a power plant would be -- it would meet the definition of an expansion facility. So we can and will look to increase the existing debt cap as a possible means of funding any power plant. And there may be options above and beyond that, and you can trust that we are looking at those. This is a long-term business, and I think it's management's responsibility to make sure the fundings available at the appropriate time based on the needs of the business at that point in time. I do think we're good for the next few years, but of course, we're looking at the other options, and we'll continue to look at the other options. It definitely a continuous process that we're very focused on.

Our next question or comment comes from the line of Paul Gait from Bernstein.

I just wanted to -- a couple points, if I could ask. The first is the financing agreement with respect to the power plant. As I understood it, that was supposed to be signed or completed by March 1, and I was just wondering if you can give some guidance on whether or not that has actually been completed or what the sort of timing is expected to be around that? And first -- so that was the first question. And then the second was really just -- and I think you touched on a large number of the points in your comments to the previous question, but just again sort of trying to quantify the magnitude of the financing that's available. As I understand it, I mean, what you're is saying you've got $3.5 billion of available liquidity against the capital spend as it stands at the moment of $3 billion, with then the further option to raise potentially another $1.6 billion if you expand the project financing capacity. Against that, then we've got the CapEx of a power plant, and let's call that a $1 billion. So does that essentially mean to say that we've got $1 billion of headroom available before you have to look at alternative financing measures?

Paul, thank you for the question, it's Ulf. I'll start with the last one first, if you like. It's not quite as -- I mean, essentially, directionally, you're correct, Paul. So the strong liquidity Luke mentioned, the -- we obviously, have operating cash flow as well which we haven't explicitly mentioned, which is a key -- and additional source of funding as well of course. And then the $1.6 billion of supplemental debt is, obviously, well identified as the next step to fund the underground. On the power, we have in the PSFA a milestone as you rightly point out where we sought to agree the funding principles with the government and Oyu Tolgoi. We've had, in January and February, a number of discussions and workshops to progress that. There is certainly lots of engagement. One thing that's important, Paul, to agree on the funding principles is the commercial structure, if you like, and the equity participation. You might recall that in the agreement, it is said that Oyu Tolgoi would be at least a 51% shareholder or more. And of course, whoever the shareholder is -- or shareholders are, everyone would be expected to make a contribution in relation to their own equity. What, certainly, we can say, Paul, is that the intent for the power plant would be irrespective of the exact makeup of the equity participation of various entities. We would seek to raise third-party debt against the power plant as a tool to raise financing. That's a very well-trodden path. Very obviously, in the power industry, but really, the agreement amongst the shareholders is relatively important to progress that, but it would form part of awarding some of the key contracts. And therefore, and all of what that means really, Paul, I would say is in relation to funding CapEx for the underground, lots of sources of funding that Luke pointed to, power plant funding still needs to be refined, but the principles are being developed as we speak. And then we just need to make sure when we look at funding, of course, we have to fund the growth CapEx, but we also need to make sure that we fund sustaining CapEx, we fund debt service payments and so forth. And so that's why Luke is saying when we are looking at plans, we always look long ahead to make sure that we can make sure that the business has a funding plan in place to make sure we can execute on our agenda. And therefore, we look ahead not just 12 months or 18 months, we look a long way ahead to make sure we are in a strong position as we are today. Does that answer your question?

Yes, very helpful. If I could maybe just ask one sort of supplementary question that you touched on there. And it was about the sort of commencement to principal repayments. And in the presentation, you mentioned those starting in about 2020. And apologies if this is sort of well-known outside, I was just wondering if you could update me on what exactly that sort of principal repayment structure looks like from here?

No problem, Luke is very happy to do that for you, Paul.

No, I can give you a high-level look into that. So the principal repayments in 2020 and 2021 are fairly small, but then as the underground begins to come online and OT begins to generate more cash, as you go into 2022, that payment profile increases quite a bit. And then into 2023, as well. And then it kind of levels off from 2023 until the full $4.4 billion is repaid.

Paul, it might just be worth highlighting that these payment schedules at the time were developed in a sort of sculpted fashion to really match the cash flow generating profile of the business. That's why it's not an even profile or kind of (inaudible) that's why they are the way they are and Luke described. And so to the extent that there's any changes going forward at some stage, you could see that this may be an area that one could look at if that ever arose.

Our next question or comment comes from the line of Daniel McConvey from Rossport Investment.

On the estimate at the end of the year and it sounds like maybe the question is going to be -- will it be disclosed to the market? And the answer is yes -- previous questions. How does this tie in or does it tie into the next technical report, which I think is due in 2020?

We're having a slight problem understanding your question.

(inaudible)

Yes, we are (inaudible) a little bit for quality of the line.

Okay, I'll try one more time. Is the estimate on the underground due at the end of this year, does that tie in at all to the next technical report, which I believe is due in 2020?

Okay, yes, thank you. Brendan, do you want to?

Yes. So we have an expectation of producing a new technical report in early 2020. And the fundamental basis of that will be the definitive estimate that leads into a new, overall updated feasibility study for the project combined with open-pit optimization. And our technical report will be sitting over the top of that effectively. And we expect that to come out in early 2020.

Our next question or comment comes from the line of Tony Robson from Global Mining.

I think all the analysts are focusing on the same message So I will follow-on with -- from Oscar and to Paul's question. Two questions, please. Firstly on the timing for the delay to sustainable first production. The language you're using on the bottom of Page 3 of your release hints that you're looking at a -- you're taking a more conservative attitude than Rio Tinto and when you quote additional delays to sustainable first production, that's post the mention of the end of the quarter 3, '21? So that would be the first question. Second question that is purely on the debt, the $1.6 billion of supplemental debt, what wiggle room do the banks or the international lending organizations have to get out of that? And to what extent is it locked in under the existing agreements?

Thanks, Tony, for the question. What we might do is, I'll do the second question first, and then we'll come back to your first question afterwards, if that's okay. So on the -- what you referred to the wiggle room under the $1.6 billion supplemental debt, it's always hard to make sure we get the technical terms correct here. So we sometimes refer to as a facility. It's not really a facility, as such, if you like. What we have done is we've signed, really, a common terms agreements with a syndicate of banks at the time, and we raised $4.3 billion, $4.4 billion, and we drew that down. In that agreement, it simply stipulates that the lenders agree that the Oyu Tolgoi as an asset has debt capacity of $6 billion. And that therefore, preauthorized, if you like, Oyu Tolgoi to go out and raise an additional $1.6 billion either with the same lenders or with other lenders without having to ask specific approval for the existing lenders to do that because they would then share effectively the same security package. So it's a prebaked, if you like, authorization for Oyu Tolgoi to raise more money, but it's not a drawdown, if you like. Sometimes people think of this as some kind of accordion feature, it's not what it is. It simply allows Oyu Tolgoi to go out and raise more money from, as I said, the same or a different group of lenders. And they would simply share into the same security package and (inaudible) pursue alongside existing lenders. So hopefully that provides clarity on question 2. I've, I think, I forgotten question 1. I'm just looking at my colleagues if they want to have a go at question one.

Sorry. Question one was -- is TRQ from your internal reviews, taking a more conservative status than Rio Tinto because some of the language you've used, bottom half of Page 3, hints to a more conservative view.

Yes, thanks for repeating the question. Look, I mean, we can't speak for Rio Tinto, but I mean effectively, I don't think we're taking a more conservative view, we're simply saying that the initial review that was done was a 9-month delay to first sustainable production, and then simply what we're saying is with the now better knowledge really of Shaft 2, and the delay of Shaft 2 and given the critical role it plays in being on the critical path, it is clear that it's more than a 9-month delay, but we haven't specified how much that is. And look, I haven't got Rio's disclosure in front of me, but that's what we said. And it's -- we certainly didn't mean to take any more conservative view than Rio did, but that's what we've said.

Our next question or comment comes from the line of Ralph Profiti from Eight Capital.

This is Yasir Siddiqi on behalf of Ralph. My question is surrounding the tax assessment dispute with the Government of Mongolia. Is there any update on that situation? And at what point would you say that this would go into international arbitration?

Yes, thanks. Well Luke, do you want to take the tax question?

Yes. No, I'm happy to take that. Thank you, thank you very much for the question. Listen, it's a very important issue for Turquoise Hill, it's a very important issue for OT. It is something that is maybe taking a little bit longer than certain or some people might like, but it's because we absolutely want to get it right. And we want to make sure that we are actively -- and we are actively engaging with the Government of Mongolia on a regular basis. Those engagements definitely have continued since the last time we discussed as part of our Q3 earnings release. The discussions have been proactive and positive. And international arbitration isn't off the table at this stage. If we can't come to an agreement, then that is still an option, and it's an option that Turquoise Hill, OT and the Government of Mongolia would consider, but we're not quite yet at a stage where we think that's the route that we need to go down, and we are definitely still working very actively together. In fact, I was in Mongolia last week and one of the things that I did while I was in Mongolia was meet, as part of that particular work stream with government. So I can tell you those engagements are still positive and they're ongoing. And I'll probably stop there.

Our next question or comment comes from the line of Terence Ortslan from TSO.

Thank you for the details and the exemplary low Injury Frequency Rate for 2018. The issue on the power plant, and I have the one -- I have just one question and another question after that, is that have the terms of the power rate been discussed and negotiated? Or is going to be indexed and subject to some variance? And how much of the power that the plant is going to produce you are capable of drawing from?

Yes. No, look the terms, all of that, is still -- needs to be discussed with various partners. And so at this stage, it -- I mean, it's -- there are -- you may have looked at this, there are -- the agreement itself is on the website. It does lay out in the agreement itself some of the key milestones that we expect. We talked about some of them, so the funding principle was -- Paul, was asking the question earlier on March 1. What we see some of the key milestones coming up, one is really in October this year, where we expect to sign a number of key project documents that would really allow the shareholders of TT to go ahead and start with limited notice to proceed and then breaking ground start of construction would be Q1, Q2 next year -- March next year actually with commissioning mid-2023. Those would be, I would say, the key milestones that capture, when -- which pieces of work are going to be done. And so as we go -- as we progress throughout the year, we will be in a position to provide you with updates on, I would say, meaningful or relevant milestones certainly, by October and to the extent that there are meaningful agreements being signed beforehand, we'll certainly provide an update too, but at this stage, in relation to in terms of funding or PPA, that still needs to be done.

Okay. And the other question is that, I think in your press release, you referred to a recent parliamentary committee that prepared a report, but you don't seem to know what that report or the mandate was, addressed in your press release. And is there any subsequent information about what the Government of Mongolia or the parliamentary committee is trying to achieve with that written report?

So to be clear, we haven't seen the report. And the process is -- it's a relatively long process. You might be familiar with it initially, it was meant to be published, I believe, in the first half of last year. It's going through a series of steps, where you have the parliamentary workgroup itself, that has to complete the report, the chair has to then review and sign off, then it goes to the economic standing committee of parliament, then it goes to Parliament, then parliament will have to review or debate it, opine on it and decide what if anything it wants to do with it pass a resolution to the executive. And so there's a series of steps that ultimately one needs to go through. We are still at a very early stage in that process, where, for example, the report as far as we know has not reached full parliament yet. And so that's where we are. It's relatively fluid. We obviously engage with various stakeholders in country to make sure that we work as partners as I said before. We want to make a contribution to Mongolia, of course we do. We've given some examples in the presentations of some of the measures that we are taking. We are absolutely committed to work with the government to increase the prosperity of Mongolians and of Mongolia, but at the same time, it's important to us, it's important to our shareholders, important to our lenders as well that we do that with the full respect of the key agreement that all of us has signed, and which really, provide the cornerstone of all of us investing money in Mongolia. So that dialogue is ongoing, has been ongoing for a long time. And we hope and we're confident that, that will be taken into account by the parliamentary workgroup and by the parliament as they reach their ultimate conclusion.

Then one very short, brief question. Have you announced or concluded your TC/RCs for 2019?

Not to my knowledge, no.

And when do you expect that? And what do you expect the rates will be varying from 2018?

So that's a process that is definitely ongoing. And it's a process that, obviously, gets the time and attention of key individuals within the relevant commercial team. And obviously, they're in close engagement with customers and all of the relevant stakeholders in relation to that. I'm not sure I'm at a stage where I'd be able to say much more than that at this time.

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Quellmann for any closing remarks.

Thank you very much, operator. Thank you, everyone, for joining the call. Thank you for your questions. Just to summarize the call, I hope that you've been able to take away from the call that we feel we delivered a strong 2018 performance. We've made some very good progress on what really are some of the key priorities and strategic issues for us, notably power as well as the underground. I think the question that Oscar asked on the underground, we hope to be able to have drawn out that we are doing the right thing, Rio Tinto's doing the right thing. It's important for us that we identify problems early, and we make sure that we protect really the business case by putting the ore passes, putting the infrastructure where it's protected, where it's stable, so that we can generate strong cash flows. I think the last few questions allowed us also to highlight that we have a continued constructive dialogue with our partners and Government of Mongolia on the various issues. And last but not least, I would say I hope we were able to demonstrate as well that in relation to financing, we've got strong cash, strong liquidity, a well-mapped out, defined plan in terms of what the next sources of third-party debt financings are that we would access, just to make sure that we can ensure that the business is in a position where it's funded in order to be able to pursue its operating and its strategic agenda. So that's hopefully something that came across. Thank you for joining again for the call. Very much appreciate the questions. And with that, operator, we'd like to end the call. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.