Turquoise Hill Copper Prices, Financials and Analysts Target Price

Company Overview

Turquoise Hill Resources Ltd (NYSE: TRQ) is a Canadian mining and development company. The company’s primary asset is a 66 percent interest in Oyu Tolgoi LLC, which owns a copper-gold-silver mine located in southern Mongolia. The remaining 34 percent the entity is held by the Mongolian government.

Approximately 51 percent of the outstanding shares of Turquoise Hill are held by Rio Tinto plc, the London based mining conglomerate, which also serves as the manager of the Oyu Tolgoi project. Rio Tinto originally invested in Ivanhoe Mines Ltd. (the predecessor of the company) in 2006, and became the company’s controlling shareholder in 2012. Turquoise Hill is headquartered in Vancouver, British Columbia (Canada).

Oyu Tolgoi

The Oyu Tolgoi mine is located 550 kilometers south of Ulaanbaatar, the capital of Mongolia. Oyu Tolgoi is also approximately 80 kilometers north of the Chinese border. The property’s mineralization consists of porphyry-style copper, gold, silver, and molybdenum in a series of linear deposits. These deposits include the Heruga Deposit, the Oyut Deposit, and the Hugo Dummett deposits.

Oyu Tolgoi was initially established as an open-pit mine, but is currently being developed for underground extraction. Below is a summary of the mine’s various deposits.


Source: Company Presentation

After a series of delays, the company resumed underground construction in May 2016. Turquoise Hill expects to complete two mine shafts by the end of 2017, with three additional shafts being completed between 2018 and 2021. Full production ramp-up is projected to be completed by 2027.

Between 2017 and 2025, Turquoise Hill expects significant production growth according to the following schedule:


Source: Company Presentation

Once Oyu Tolgoi attains peak production, it is expected to be the third-largest copper mine in the world. Turquoise hill estimates that between 2024 and 2036, annual copper production at Oyu Tolgoi will average 500,000 tonnes per year.

Market Outlook

The long-term outlook for copper supports the company’s development plan for Oyu Tolgoi. In the short-term, Turquoise Hill is projecting a temporary copper deficit, driven by attrition at existing mines. The market is expected to balance by 2018, but increasing demand and attrition (due to declining grade) could produce a shortfall by early 2020.


Source: Company Presentation

China is now the largest buyer of gold, and continues to be the largest consumer of copper. Due to its geographical proximity, Oyu Tolgoi is well-positioned to service the Chinese market.

Recent Developments

  • On May 18, 2017, it was reported that Rio Tinto had increased its stake in Turquoise Hill by six million shares, signaling a potential acquisition of the 49 percent of the company it does not already own. However, a Rio Tinto spokesman stated that the company had not increased its shareholding in Turquoise Hill since 2012, and it appears that the six million shares were connected to a transaction of another subsidiary, Entree Gold (now Entrée Resources).


  • In May 2017, Oyu Tolgoi announced the appointment of Armando Torres as Chief Executive Officer of Oyu Tolgoi LLC. Mr. Torres was previously a managing director at Rio Tinto and will continue to serve as a board member of Oyu Tolgoi LLC.

First Quarter Earnings Review

The company’s revenue for the quarter ended March 31, 2017, totaled $238 million, nearly six percent more than the prior quarter. The company attributed stronger results to higher average selling prices for copper and higher volumes of copper in concentrates sold. Increased volume also led to a corresponding increase in cost of sales to $194 million. Operating cash costs[1] at Oyu Tolgoi totaled $168 million, down slightly from $175 million reported in the fourth quarter of 2016. Net income was $30 million, or $0.02 per share, as compared to $122 million, or $0.06 per share, in the first quarter of 2016.

Net cash provided by operations in the first quarter was $86 million, less than half of the $196 million generated in the same period one year ago. Cash used in investing activities increased significantly, including $148 million of capital expenditures.

At March 31, 2017, the company had approximately $1.4 billion in cash and equivalents, and net working capital of $2.5 billion. Turquoise Hill listed long-term debt of approximately $4.1 billion, yielding a debt-to-equity ratio of 0.5.

Full-Year Earnings Guidance

After a better than expected 2016, Turquoise Hill offered muted guidance for 2017 due to weaker copper and gold head grades. Guidance for copper production is between 130,000 and 160,000 tonnes, down from 201,300 in 2016. Gold production is expected to fall between 100,000 and 140,000 ounces, down from approximately 300,000 ounces in the prior year. Accordingly, Turquoise Hill expects a slight decrease in cash operating costs to $720 million.

Capital expenditures related to the underground expansion are expected to increase significantly, from $200 million to between $825 million and $925 million. The company expects open pit capital expenditures of $100 million to remain unchanged.

Stock Influences

  • Changes in production estimates;
  • Changes in commodity prices;
  • Changes to the company’s development timeline; and
  • Takeover activity by Rio Tinto.

Risk Factors.

  • The company is subject to the volatility of the commodities market;
  • The company may be unable to enforce its agreements with the Mongolian government;
  • The company’s agreements with the Mongolian government contain several covenants with respect to its workforce and local development which it may be unable to meet; and
  • Rio Tinto has the ability to exert significant control over both Turquoise Hill and Oyu Tolgoi LLC, and its interests may not be aligned with the company’s other shareholders.


Stock Performance


As of May 19, 2017, shares of Turquoise Hill closed at $2.76, up nearly eight percent on the day, yielding a market capitalization of $5.5 billion. As noted above this spike was driven by takeover rumors that were ultimately dispelled. The stock price is roughly the same as it was a year ago, but is down nearly 15 percent year-to-date.

Following are selected analyst ratings and price targets:

Firm Rating Price Target (C$) Price Target ($) Date
RBC Capital Markets Sector Perform N/A 4.00 5/12/2017
TD Securities Buy 6.00 4.44 4/20/2017
Credit Suisse Neutral 6.00 4.44 4/19/2017
Scotiabank Sector Outperform 6.00 4.44 4/19/2017




Turquoise Hill’s primary asset, the Oyu Tolgoi mine, has value due to its expected production and proximity to China. If the underground development plan is implemented as expected, the company should generate strong cash flows for 10 years or more. However, there is political risk associated with the Mongolian government who is a partner on the project. Further, the company is subject to uncertainty regarding future commodity prices and production yields. Therefore, the consensus price target of C$6.00 ($4.44), based on the company’s net asset value, seems attainable in the next 12 to 18 months.



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[1] This measure excludes depreciation and depletion, exploration and evaluation, and asset charges. This figure does include management fees paid to Turquoise Hill and Rio Tinto which are eliminated in the company’s consolidated financial statements.