Mongolia's troubled copper-gold mine Oyu Tolgoi has suffered another setback, as operator Turquoise Hill Resources cut production estimates for 2014.
As a result of “the delayed mine advancement” in the third quarter of 2014, the Rio Tinto-controlled company now expects Oyu Tolgoi to produce between 550,000 ounces and 600,000 ounces of gold in concentrates for 2014, it said in a statement on October 14. The company forecast 2014 gold production to reach between 600,000 ounces and 700,000 ounces back in August. “Previously anticipated Q4 2014 gold in concentrates production is expected to shift to Q1 2015,” the company said.
Copper production was ticked down too, with total 2014 output now expected at 135,000 tonnes to 150,000 tonnes of copper concentrate, from the previous 135,00 tonnes to 160,000 tonnes guidance. Production in the third quarter of 2014 was 36,000 tonnes of copper - in line with production in the previous quarter - and 132,000 ounces of gold in concentrates, up 16.8% from the previous quarter.
Oyu Tolgoi is by far the largest ongoing development in Mongolia and it is generally perceived as a barometer for Mongolia's business climate. Turquoise Hill owns 66% of Oyu Tolgoi, the remainder being in the hands of Mongolia's government. The company invested as much as $6.2bn to kick off the mine's open pit in July 2013, but the development of a $4.9bn underground expansion have been help up for more than 18 months as company and government have yet to strike an agreement over a number of pending issues such as cost overruns and a tax dispute.
Mongolia's government pins hope on Oyu Tolgoi's expansion to revive sinking foreign direct investments - total inflows plunged to $873.2mn in the first half of 2014, down 70% from a year earlier, according to figures from the country's central bank - and shore up the Mongolian tugrik, which has lost 11% against the US dollar in the year to date. Yet a deadline imposed by lenders for an agreement between the government and Turquoise Hill expired on September 30, and so far neither party has announced the intention to seek a new deadline, “although there is continuous engagement with the financial institutions”, Turquoise Hill said in a statement on October 2.
Waiting for an agreement to come through, Turquoise Hill is focusing on cost reduction and productivity initiatives to improve the mine's financial performance. Operating cash costs for full 2014 are now expected to be $130m lower than the $1bn previously forecast and capital expenditure is also coming down to $110m from $160m, the company said in its latest statement.
Turquoise Hill stock lost 3.46% in Toronto trading on October 14, though production forecasts were released after the closing bell.
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