Turquoise Hill Resources Ltd.
Q2 2018 Earnings Call Transcript

Published: 1 Aug 2018

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Q2, 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to turn the conference over to your host, Mr. Tony Shaffer, Head of Investor Relations and Corporate Communications. Please go ahead.

[Tony Shaffer:]

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.

[Ulf Quellmann:]

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 the 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 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 involves 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 tower. 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 one 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 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 concerned to 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 number one priority, I want to ensure that we have a good, open and constructive dialogue in 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 sales 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 be 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'll then move you top of the Q&A session at the end of the presentation. So Luke, with that, over to you please.

[Luke Colton:]

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 than 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 in 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 within AIFR of 0.19 for 200,000 hours worked. Their safety performance continues to impress and they should be commended for their good work and efforts. Moving to open-pit operations. Overall, second quarter production was on planned as we begin 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. Concentrated performance during the second quarter was strong with average daily rates of approximately 112,000 tones. We’re seeing the benefit of high-intensity blasting, which is resulted in increasing our expected annual throughput guidance to approximately 40 million tons for 2018. Brendan will provide more color on surface operations later on 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 agreement. The working group established with 5 sub working groups. The working group's field work is complete. They are due to report their findings to Parliament before the end of the spring session in June. However, that also lay and they are not expected to present their report in the autumn session or possibly in an extraordinary session before them if one were to be called. Work on a domestic power source for OT continues to be studied. The two options are our power plant built and operated by OT at the mine, or an independent power producer at Tavan Tolgoi. And OT-based plant is currently the most feasible option that could deliver domestic power source within the shortest timeframe. Our 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 reported in two 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 low prices for the quarter increased by 4% from second quarter 2017, concentrate volume sold increased by approximately 21% over the second quarter of 2017, benefiting from improved logistics 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 is driven primarily by the significant increase in sales revenue, offset by a 27% increase in cost of sales. The increased cost of sales reflect higher volumes of concentrate sold and a marginally higher cost of sales per pound of copper sold, reflecting lower average mill head rates for copper in a period. Finance costs of $17 million in the quarter or 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 differed tax assets recognized in the period but also the impact of higher sales revenue. In the quarter, the total differed tax assets recognized increase by $145 million to $651 million. This was the main driver for an income statement credit for income another taxes of $138 million in the quarter. The increase in differed tax assets was the result of additional operating losses and accrued but unpaid interest expenses incurred by OT in the period, combined within overall strengthening of taxable income forecast, driven by updated operating assumptions and mine planning during the period and improved long-term commodity price projections. The net realizable value of comparable 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 stockpiles net realizable value in the quarter was primarily driven by lower copper recovery in the stockpile at period end. And net charge to the income statement of 5 million was consequently included within operating expenses. At 30th of June 2018, Turquoise 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 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 the 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 30 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.

[Brendan Lane:]

Thanks, Luke. Second quarter continued to build on strong safety performance from the first quarter with the AIFR net dropping to 0.19. This was contributed to by all departments and by the surface operations and the underground project. Service operations are performing well with production of gold and copper by premium [indiscernible] plant guidance. In the second half and in particular fourth quarter, we expect this plant to see a stronger gold production rate in the first half 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 concentrated process around 40 million tonnes in 2019 plus our original expectation of around 37 million tonnes. This is partly driven by better throughput when using different plasting techniques with the hard of Phase4 ore combined with good plan of availability and building on the deep bottlenecking projects that have happened over the last couple of years. In the second quarter, the concentrated feed rate rented over 40 million tonnes per annum and we expect to sort of the rates to continue for the rest of the year. There will, however, be another plan maintenance outage on the concentrator that will occur in the third quarter. Moving to the underground, during 2018, silver project entered its 25th month since 90s to proceed. At the end of June over 22 million man hours have been worked on the projects since commencement. The total project workforce is nearing as expected to take at over 7,500 people of which 89% are Mongolian. Taking into account the right sizing shifts the daily average project workforce on-site during the quarter was over 4,000. The Shaft 5 analyzing system was fully commissioned during the quarter, is now operational and adding additional air capacity to the mine. Shaft 5 is now dedicated exhaust ventilation shaft fitted with three surface fans plus two ventilation take-up points, one at the 1,141 meter level and one at the shaft bottom at 1,178 meters. The upper station connects two drives that exhaust all handling system allows station two 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 air fans underground work felt during the quarter and resulted in the slowing of lateral development for the period, mainly in April and May. Consequently, we've recorded the first quarterly drop in development since project reached out. However, the upper trend is expect to be back in the third quarter with June having a record month and July tracking quite well today. We still expect to meet the target for 2018 of approximately 10 kilometers of development. Also during the second quarter a chamber of Primary Crusher 1 or PC 1 completed primary mass excavation. The first phase took over 210 days with 15 people each shift to building. It was a challenging and complex excavation and the team achieved with outstanding safety performance. Being roughly 12,800 cubic meters in size, it will hold the 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 two primary crushers and changes required in the final design. Each production crusher will be able to handle 4,000 tonnes per hour and PC 1 will initially feed 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 projection 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. Equipment is well underway with cable and piping installation initiated during the period. Shaft 2 cages and skips are expected to be delivered onsite right 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 [Indiscernible] awarded. Following completion Shaft 3 will be a 10 meter diameter 1,148 meter deep concrete line down to our shaft reaching air in type to support the losses of mine block cable operations. You will have a single shaft bottom station that will connect three independent groups to the lateral development from the underground operation. Shaft 4 completion will be an 11 meter diameter 1,149 meter deep concrete line exhaust ventilation shaft and also single shaft bottom station that will connect three independent groups to down the ground operations. At the end of the quarter [G9] engineering for the project was near in completion. And as stated in the diagram [Indiscernible] engineering offices stop to one down is now shifting focus to mobilize engineers to start 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 included an underground holding and material handling development as well as surface infrastructure like the new mine draw facilities and the central feeding plant expansion. Finally, we remain on target for the first group one class in mid 2020, and sustainable production in early 2021. That concludes my comments. I will now turn back to Ulf.

[Ulf Quellmann:]

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 a concentrator across this processor increasing amounts of Phase 4. All we expect gold production to increase throughout the year. We've hit several underground milestones thus fine 2018 included the completion of Shaft 5. And finally, we continue to expect production from the first draw bell in 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:]

[Operator Instructions] Your first question is from Ralph Profiti with Eight Capital. Please go ahead.

[Ralph Profiti:]

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?

[Luke Colton:]

Let's have a crack at that Brendan. And then, it sounds like, maybe Ralph, we have to come back to you maybe with some of the answers on specific questions. But you made a comment maybe just on the general commenting process Brendan.

[Brendan Lane:]

Yes, I think, as part of the study was still out preferred options as OT. And somewhat has already been done in the past on that. And so we’re in a fairly good position for progressing that. And but it still part of the study that's ongoing and still part of the study that we need to do as we go forward. But, yes, we will have to get back to you one some of the more specific answers. And I'll get Tony to get back to you.

[Ralph Profiti:]

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?

[Luke Colton:]

The EPC results will be in accordance with Rio Tinto standards. So there won't be evolution of the Rio Tinto standards in my understanding. We’ve -- you’ve seen it in the release a while ago, I think, that RPs have been send out and the specifications ,obviously, are very clear to make sure that the requirements meet the various specification standards. And that is a clear threshold to be a conforming bid by the EPC bidders.

[Operator:]

Your next question is from Orest Wowkodaw with Scotiabank. Please go ahead.

[Orest Wowkodaw:]

I wanted to get a little bit more detail on the changes in the structure with the new appointment here. It sounds like there have 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're still on, I believe, Rio Tinto, employment contracts versus content from Rio Tinto.

[Luke Colton:]

Yes, thanks for the question 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 shareholders value for TRQ and therefore fully aligned with what our sales as expect cost 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 and paid by TRQ. And that's really true to achieve what I've just outlined. What is it mean for the rest of the team going forward? I think overtime, the intention is to continue that process and have the contracts of the TRQ team of the senior management team reflects the same kind of setup. That's not going to happen overnight or going to happen tomorrow, but overtime that's clearly the intention.

[Orest Wowkodaw:]

And Ulf, as your contract now solely with the TRQ or like have you actually resigned from Rio Tinto?

[Ulf Quellmann:]

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

[Orest Wowkodaw:]

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

[Luke Colton:]

Well, let me take a little bit of a step back just to address that question, Orest. So I think, so if we look at what have we got today in terms of setup, 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 index. 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 that’s really run and managed by Brendan. He then, obviously, have a QP and we we've also said that we would, in addition to all of that, avail ourselves of the services off some additional external resource really to help us with the assessment with the review all the technical progress if you like. That's where we are today. We think that, if we do that, we have 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 just described is nothing that prevents us from doing so. But where we are today? I think, we think that the steps that we've outlined adequate and should put us in a position where effectively we can do our job and we discharge our obligations.

[Orest Wowkodaw:]

Okay. Because, I mean, I would argue, that in the past TRQ's 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.

[Luke Colton:]

Yes, I mean, look, in my current role, new to the role. So I may not necessarily want to comment on the costs. 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 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 as a progression of the underground construction, but also the dialogue and discussions we're having with various counterparts in Mongolia, the various work streams 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 what I'm 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 however, if there are things that we think we can do better and improve, then we'll do that and we will 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. We'll be open minded.

[Operator:]

Your next question is from Craig Hutchison with TD Securities. Please go ahead.

[Craig Hutchison:]

Hi guys, I have a question on our operating costs. It seems quite high in the quarter. I know that the part that was driven by 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?

[Luke Colton:]

Sure. Happy to do that. Thanks for the question. So if you are looking at your total cash operating costs, the big driver, as you know, 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 the factor that in. In addition to that, there were some changes in mine sequencing, which resulted in some deferred stripping being expense that was initially planned to be capitalized. That's 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.

[Craig Hutchison:]

And in terms of the financing or potential financing of a power plant, have you guys had any or 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?

[Luke Colton:]

Right. So when you think about our funding requirements and you think about 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 out 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 plants 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?

[Unidentified Company Representative:]

Look, maybe 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. And we utilize the award of EPC contract as a tool to raise financing.

[Craig Hutchison:]

And maybe just one last question, you mentioned earlier, the Mongolian Parliamentary Working Group, the 13 members that are looking at the review of the implementation of the investment agreement. During the fieldwork that they've conducted, can you discuss what they're specifically looking at? Are they looking at concessions from Turquoise Hill in terms of management service fees? Any kind of context you can provide would be helpful.

[Luke Colton:]

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 five different sub working groups. If you look at, sorry, just one second, if you look at the composition of those five working groups, there's one for power, tax, community, shareholder funding arrangements. They're looking at the implementation of the IA, etc. The working group field work has been completed. But we haven't seen any results yet. The reporting isn't really expected at this stage until the autumn parliamentary session, so that will be some time in October. It would be sort of inappropriate at this stage to speculate on what the results or outcomes of that would be.

[Craig Hutchison:]

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

[Luke Colton:]

They're looking at various different aspects of the implementation of the investment agreement from a legal perspective or finance perspective or community's perspective and operational perspective etc.

[Operator:]

[Operator Instructions] Your next question is from Oscar Cabrera with CIBC. Please go ahead.

[Oscar Cabrera:]

If I may just follow-up on the last question please. My understanding is that after reviewing investment -- 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 avenue to try and extract dividends ahead of paying back their other investment in the project?

[Luke Colton:]

Not to my knowledge, Oscar. I mean, again it’s a little bit premature 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 a method for rent seeking or anything like that.

[Ulf Quellmann:]

Maybe I can ask that Luke advice. I think, so clearly what Luke said is right. We don't want to speculate. And we're awaiting the final report. I think, in the meantime, there's clearly been a lot of dialogue between TFU, between Rio, the government, to certainly make it clear from the investors' perspective that TFU 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 protective. That doesn't mean that there are 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 being communicated at various levels throughout that process.

[Oscar Cabrera:]

Thank you Ulf, that's very helpful. And then if I may on a question on the power plant, you've mentioned that there's still two 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 the report 2022.

[Unidentified Company Representative:]

I'm happy to take it. So where we are in the process, Oscar is we haven't yet finalized the pre-feasibility 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 four 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 boom, so the power plant at the OT site, is the one 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 timeline that we have. We need to narrow down that option and progress down one part relatively soon unless there is a willingness in the context of other options to extend timelines, for example. But that we don't know yet. And that will be speculative at this stage. But all to say in response to your question, we haven't disregarded that option, but we are keenly focus on making sure we focus on the one that we can control and execute and implement in the timeline that we need to. Does that answer your question?

[Oscar Cabrera:]

Yes. Thank you, gentlemen, and also looking forward to meet you in person.

[Unidentified Company Representative:]

Thank you, Oscar, likewise.

[Operator:]

Your next question is from Anita Soni with Credit Suisse. Please go ahead.

[Anita Soni:]

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

[Luke Colton:]

Thank you for that question. So, listen, you are correct 60-day time -- the 60-day initial timeframe 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 I'm successful, 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 can’t resolve it within a good faith, then the hope is that they would jointly agree to take the dispute to arbitration. So that's kind of the position that has been at the moment.

[Anita Soni:]

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

[Luke Colton:]

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. 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.

[Operator:]

Your next question is from Dalton Baretto with Canaccord. Please go ahead.

[Dalton Baretto:]

Hey, good morning everybody, and Ulf, congrats and all the best to your new role. I just have a couple of very quick questions. First of all, I know, you said, you weren't going to comment on the past. But going forward, can I ask when the next scheduling cost review by Rio is going to be? And part B to that is, is it your intention to actually make public the results this time?

[Ulf Quellmann:]

So preparations are currently underway to form that next review. And we expect that's going to happen as soon as 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 preparation. But we would certainly release the findings certainly at a material level of those findings of that review.

[Dalton Baretto:]

And then, if I can just ask one more follow-up to one of Orest's earlier questions that you know, 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?

[Luke Colton:]

So just want 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 am 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 the more strategic issues as well.

[Operator:]

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

[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, 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.

[Operator:]

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