TRQ - Turquoise Hill Resources

[sleepydragon]

anyone is following or invested in this company?

the ticker was IVN, now is TRQ.

 

I think there is a good chance that RIO will buy them sooner or later, and the stock is trading at extremely low level with no debt after the recent rights offering.

[ItsAValueTrap]

Robert Friedland has his various Ivanhoe companies (e.g. Ivanhoe energy, mines, etc.).  They got rid of him, which I kind of agree with.  Friedland is a stock promoter and he has done a lot of things to destroy shareholder value.  He also happened to finance the Voisey's Bay mega-discovery.  So they got of him and got rid of the Ivanhoe name.

 

Their flagship project is the Oyu Tolgoi project, which is a copper and gold mine in Mongolia.  There is political risk as the Mongolian politicians want to go back on the original deal and have Mongolia get a bigger piece of the pie.  (The politicians don't want to be seen as selling out to foreign interests.)  There are a number of political issues that seem to have affected the project in a negative way.

 

2a- I don't get this company.  I can't easily find a feasibility study on their website.  They've already poured billions of dollars into this thing.

 

Similarly, their presentations don't make a lot of sense.  What is the estimated net present value of Oyu Tolgoi????????  That number might be BS but it is THE most important number for this stock.

 

2b- They've also had to restate their financials, which is a little weird.

[sleepydragon]

thanks for sharing you thoughts.

When I invested in this company, I googled Friedland. According to the wiki, he was the  friend of Steve jobs and influenced Jobs to go India.  I thought that's interesting of him..

the mine doesn't have a feasibility study yet. that's basically what everyone is waiting for. RIO suppose to get it done by 3/31 and then they can get loan processed and start digging.

there is some information about the mine in RIO annual report, such as the value RIO is carrying it on its book. I think it's 8 billion, but rio only on 51% of the company.

I thought it's cheap because it's trading at the mktcap that's roughly equal to the total capex they have put in this company so far. those capex return can't be zero...

the Mongolia government had an election. the new people there want this deal, because it is the country 30% GDP once it get rolling. it seems the problem now is RIO is not anxious anymore to start investing, perhaps due to the copper price weakness.

I am not surprised RIO doesn't want to post too much information on TRQ's website because this mine is so important to them and they are widely expected to buy the entire company one day.

how low can this stock go? I think there is a good margin of safety.

[alertmeipp]

Are you sure? My understanding is feasibility study has been done long time ago. Financing is lined up but will be expired end of March. What we are waiting for its yet another agreement with Mongolia government.

 

 

[ItsAValueTrap]

Friedland is an ex-convict (?for selling LSD to a law enforcement agent?) and Steve Jobs' ex-friend.  It's clear in Isaacson's biography that Steve Jobs hates Friedland because Friedland manipulates other people for his self-serving needs.  Friedland is also responsible for an environmental disaster.  He was also a stock promoter who put people into stocks which had really dumb business plans.  The guy has a colorful background.

 

2- Internally, they sure as hell did a feasibility study before investing billions of dollars.  At least I hope they did, because anything else would be crazy.  By training, all of the mine engineers know that they need to do a feasibility study and engineering studies before building the mine.

 

There may be something fishy going on.  It is highly, highly unusual that there is no feasibility study.  There is a 2009 feasibility study, but a real mining company would have updated that feasibility study by now.  They may have discovered more ore so the mine plan might change.

 

3- Umm... insiders in mining do crazy things just to collect a paycheque.  Friedland has financed a lot of dumb projects with negative expected return (e.g. underwater mining).  Galactic Resources was involved in an environmental disaster... that stock went bankrupt.

 

Rio really might be crazy.  I don't know.  I haven't done enough research into them to figure it out.

 

those capex return can't be zero...

Many mining projects go to 0... you really gotta be careful.

 

The way senior miners perform due diligence is by (A) bringing in a team of engineers and (B) having access to technical data.  Investors like myself have neither.  Due diligence is why Freeport McMoran didn't get burned by Bre-X.

[alertmeipp]

Are you sure? My understanding is feasibility study has been done long time ago. Financing is lined up but will be expired end of March. What we are waiting for its yet another agreement with Mongolia government.

 

I see now that the government wants an updated one.

[sleepydragon]

yes, it's for the second phase.

"So why hasn’t Rio done anything? The truth is that it is stuck. The second phase cannot start until it is authorised by the government and the government says it won’t do that without a feasibility study that Turquoise Hill says won’t be ready until the summer. Meanwhile, the project’s $4 billion syndicated financing expires on March 31 and cannot be released until the authorisation comes through."

http://www.financeasia.com/News/375481,rio-tinto-rumours-boost-value-of-oyu-tolgoi.aspx

 

you can also check the institutional holdings. I noticed one of the top holder has a lot of this. I think that fund specialize in special events. so they must think rio will eventually make an offer

[sleepydragon]

NPV can be found on its website:

http://www.turquoisehill.com/i/pdf/2013-Oyu-Tolgoi-Technical-Report-March-25-2013.pdf

 

Page 23, table 1.1

NPV at 8% discount rate is $9.9bn

 

On Page 285, table 15.10,

The NPV using 3-year average price of copper, gold, and silver, instead of the long-term price used in Table 1.1 is $15.bn

 

TRQ owns 66% of the mine. So

66% x 9.9 bn / 2.01bn shares outstanding =  $3.25 share

66% x 15 /2.01bn = $4.92

 

I am not an expert in mining company. Am I doing it correctly?

 

 

[ItsAValueTrap]

Thanks for linking to that feasibility study.

 

It shows that the mine will be cash flow negative in the first 6/7 years... this is unusual.  Mines usually have very strong cash flow in the very few years because you try to mine the most economic ore first.

 

Around year 7, the copper grade is supposed to rise dramatically.  This might have something to do with the Hugo North underground mine/deposit ramping up into full commercial production.

[sleepydragon]

sigh, looks like I am the lonely investor of this company. nobody here are on the same boat. it's a liitle surprising because this is one of the largest copper and gold mine in the world.

 

trq announced earning today. For 2014, they expect to produce up to 160k tonne copper and 700k oz gold. That is close to 2bn revenue. it likely will exceed that as stated in the release below ("sales will accelerate ... will start drawing from inventory in q4 2014"

 

http://www.sec.gov/Archives/edgar/data/1158041/000119312514115576/d699891dex992.htm

 

that is just from the open pit mine. the underground mine has npv value of 6.5 billion (9.9x 66% TRQ owns). they need to get a new 2014 feasibly study done (first half of the year), have it approved with Mongolia government, and get bank financing at the second half of the year.

 

Rio itself is trading at 2x revenue.

 

I think it's conservative to value the company to at least 8 billion. once the company starts full production, it could worth a lot more, maybe up to 20 billion based on the productions. But most likely RIo would have bought the entire company by then.

 

suggestions / opinions welcomed

[ItsAValueTrap]

It seems to me that the mine might be uneconomic.

 

According to the feasibility study, the mine will have negative cash flow (it will lose money) in the first several years.  Then it is supposed to make money when the underground mining at Hugo North ramps up.

 

However, this might be a messed up plan.  If Hugo North has high margins and is massively profitable, then they should have mined that first.

[libor.plus1]

TRQ gives me the same vibe as InterOil. Both seem to be companies with sketchy/promotional finders, who claim to have the largest finds in the world. Yet when it comes time to execute, there's delay after delay. In both cases, the boogie man seems to be the government... the Mongolia government with TRQ and the PNG government with InterOil.

 

I would love more color on this company, and in particular to hear more thoughts from ValueTrap.

[ItsAValueTrap]

With TRQ, the mine is built and producing.  They should report what the head grades are.  Normally a mining company would report:

- How much waste rock moved

- How much ore moved, how much of that was stockpiled

- How much ore processed

- Grade of ore before processing (head grade)

- Recovery rate for copper and gold

- Concentrate grade

- How much concentrate was produced, how much metal was produced

 

I would really like to know what the head grades are and how their resource model stacks up against the head grade.

 

2- If you skim through the feasibility study, you'll see that the mine is anticipated to have *negative* cash flow for the first several years.

The financial statements seem to agree with this, though I haven't lined up the numbers against each other.

 

3- On top of the mine being (possibly) uneconomic, there are also political problems...

 

They have political problems with China too, because apparently the concentrate can't get across the border???

 

4- Um... they may have spent billions of dollars on an uneconomic mine.  Hugo North is supposed to make this project economic.  But you gotta wonder why they didn't just exploit Hugo North first... which suggests to me that Hugo North might be BS.

 

5- Their presentations strike me as misleading.  They should be talking about what their current production is.

 

The talk about expanding their mine strikes me as a hail mary.  If they raise capital then they can keep their charade going longer (insiders stay employed longer).

 

6- I'm not sure about the comparison to InterOil.  Both mining and oil and gas are sketchy to begin with.

With TRQ, Friedland has been kicked out.

There's sketchy stuff about both companies.  TRQ was engaged in some sort of bribery or something.

 

And Voisey's Bay did turn out to be a real thing.  Just because they're sketchy doesn't mean that they won't get lucky.

 

As far as delays go, there hasn't been a delay with TRQ.  The mine is here and it is... losing money as anticipated.

 

7- Rio Tinto is a real mining company.  The CEO may have surrounded himself with yes men and done something really, really stupid.  I don't know.  I haven't really researched Rio Tinto.