Oyu Tolgoi announces Q2 2020 performance results

• Globally competitive safety performance continues
• On track to achieve 2020 copper production guidance, while increasing guidance for gold production
• US$134 million taxes, fees and other payments were paid to the Government of Mongolia in H1 2020
• US$180 million was spent on national procurement in H1 2020
• Marked the fifth anniversaries of the Cooperation Agreement and Tripartite Council

Oyu Tolgoi released the latest edition of its Scorecard, highlighting key performance metrics for the second quarter of 2020, and provided an update on underground development, and its continued prevention measures on COVID-19.

The second quarter of 2020 has continued to be challenging due to the COVID-19 global pandemic. Oyu Tolgoi chief executive officer, Armando Torres, said, “Despite unprecedented challenges, I am proud of the team for maintaining business continuity while prioritising the health and safety of our people and communities during this period. Work is progressing well at Oyu Tolgoi”.

The company is closely monitoring the COVID-19 situation with its Business Resilience Team and taking risk-based preventative measures throughout our operations. All our preventive protocols are in full compliance with the guidance and decrees issued by the Government of Mongolia, State Emergency Committee, and the local authorities in Umnugovi province and Khanbogd soum.

Partnership Highlights and Other Updates

• Oyu Tolgoi, National Police Agency and Mobicom extended its joint road safety partnership for the second year to implement evidence-based interventions that have proven to reduce road traffic fatalities and injuries, with a focus on rural intercity roads. After last year’s campaign, we saw a year-on-year 14.2 per cent reduction in the number of traffic accidents across the country, according to the National Police Agency statistics. This year, the campaign focuses on passengers, specifically on the role passengers must play in reinforcing safe driving.
• We have observed the fifth anniversary of our “Cooperation Agreement” with the Umnugovi province, Khanbogd soum and other partner soums. In the past five years, we have provided a total of US$27 million funding to 187 projects and programmes addressing various socio-economic challenges of the local community, including the much-needed social infrastructure facilities such as medical centres, schools, kindergartens, meat processing plant, museum and heating plants. Throughout these five years, nearly 390,000 community members benefitted from the projects.
• Oyu Tolgoi completed an updated feasibility study (OTFS20), subject to the Government of Mongolia’s review and acceptance. The OTFS20 has been prepared in accordance with Mongolian regulations which require mining companies to update their feasibility studies every five years. The updated study incorporates a new mine design for Panel 0 of the Hugo North underground mine at Oyu Tolgoi. The new design also confirms the caving method of mining remains valid and that the underground schedule and costs remain within the ranges previously disclosed. These estimates are subject to any scheduling delays or increases in capital costs arising from the impacts of the ongoing COVID-19 pandemic. Please find the full release here.
• On 29 June 2020, Oyu Tolgoi shareholders (Rio Tinto, Turquoise Hill) announced that the Government of Mongolia and Oyu Tolgoi LLC reached an agreement to prioritise a state-owned power plant (SOPP) as a domestic power solution for the Oyu Tolgoi mine. The agreement envisages the Government of Mongolia will fund and construct a SOPP at Tavan Tolgoi. The existing Power Source Framework Agreement (PSFA), between Oyu Tolgoi and the Government of Mongolia, has been amended to reflect joint prioritisation and progression of SOPP in accordance with agreed milestones. Please find the full release here.

Operational Update

• Achieved an All Injury Frequency Rate (AIFR) of 0.22 per 200,000 people/hours worked.
• Oyu Tolgoi open pit continued its operation uninterrupted.
• Sales recovered in the second quarter with the easing of COVID-19 restrictions within China and improved border access.
• Performed within the water usage target, using 0.37 cubic metres of raw water per tonne of ore processed, and achieving an average water-recycling rate of 87 per cent in the first half of the year.

• Ninety-four per cent of Oyu Tolgoi’s workforce remained Mongolian.
• Paid US$134 million in the form of taxes, fees and other payments in the second quarter to the Government of Mongolia. Since 2010, Oyu Tolgoi has paid US$2.7 billion in taxes, fees and other payments including VAT to Mongolian suppliers.
• Collaborated with 615 suppliers in the first half of 2020, of which 417 are national businesses, which accounts for 72 per cent of total operations procurement spend.
• The updated 2020 Performance Scorecard can be viewed here.

Production Update

• Copper production of 36,495 tonnes was seven per cent lower than the same quarter of 2019, primarily due to a scheduled maintenance shutdown in the mill.
• Gold production decreased by 57 per cent compared to the same quarter in 2019 to 31,150 ounces due to processing of lower head grade ore and lower milled tonnes.
• Mine development and production phasing have successfully accelerated, with access to higher copper and gold grades now expected in the second half of 2020, instead of the originally planned first half of 2021.
• Gold production guidance for 2020 has increased to a range of 155,000 – 180,000 ounces from 120,000 – 150,000 ounces, while Copper production remains on track to achieve guidance of 140,000 to 170,000 tonnes.

Oyu Tolgoi Production Data

All data represents full production and sales on a 100% basis

Underground Development Update

• Work continues to progress despite international travel restrictions issued by the Government of Mongolia to manage the risk of COVID-19 transmission.
• Underground lateral development continues to achieve high productivity with average monthly rates above 1,800 equivalent metres (eqm) in April, May and June.
• Shafts 3 and 4 remain on care and maintenance with no effective progress for the quarter. Non-critical surface construction work areas have also been placed on care and maintenance. Limited night shift work has recommenced on critical underground handling infrastructure, with the material handling system currently progressing at approximately 40 per cent of planned rates.
• The updated feasibility study (OTFS20) confirms the caving method of mining remains valid and that the underground schedule and costs currently remain within the ranges previously disclosed. We are targeting first sustainable production between October 2022 to June 2023, with development capital of $6.6 to $7.1 billion based on the updated mine design of Panel 0. These estimates are also subject to any additional scheduling delays or increases in capital costs arising from the impacts of the ongoing COVID-19 pandemic.
• Material contained in pillars retained on either side of Panel 0 have been reclassified from Ore Reserves to Mineral Resources. Part of the material contained in these pillars is expected to be recoverable at a later stage following additional studies, which are currently underway.
• The definitive estimate of cost and schedule for Panel 0 is still expected in the second half of 2020.