Turquoise Hill Resources Limited

TRQ Details

Turquoise Hill Resources Limited (NYSE: TRQ) is a global mining company. It is focused on the operation and further development of its principal and only material mineral resource property - Oyu Tolgoi copper-gold mine in southern Mongolia.

Q3FY21 Results Performance (For the Quarter Ended 30 September 2021)

• The company has reported an increase in its revenue to $622.8 million, up by 135.6% from Q3FY20 revenue with both copper and gold volumes increased by 34.9% and 338.2%, respectively.
• While average copper prices were 43.8% higher, the average gold prices were down by 6.3% compared to Q3FY20.
• Oyu Tolgoi delivered robust operating results with the copper production of 41,935 tonnes, an increase of 16% YoY and 14% over Q2FY21.
• The mine delivered 130,799 ounces of gold, up by 256% YoY and 16% over Q2FY21.
• The company posted an income of $22.9 million in Q3FY21 compared with $161.7 million in Q3FY20, which shows the impact of a $299.9 million deferred tax asset de-recognition in Q3FY21 (Q3FY20: recognition of $131.1 million).

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• The largest minority shareholder of the company - Pentwater Capital Management LP, recently sent a letter to TRQ Director George Burns with respect to the ongoing breaches of fiduciary duty.

Key Risks

The company is exposed to the risk of market fluctuations in the price of metals or increases in the costs to recover metals from the Corporation’s mining projects. Amendments to Mongolian laws and regulations, whether actual or the interpretation thereof, could hurt the Corporation’s activities, as well as its mining rights in Oyu Tolgoi.

Outlook

As per the management, the company is on track to meet its production guidance for 2021. The management has guided Oyu Tolgoi's copper and gold production for 2021 to stay between 150,000 to 180,000 tonnes of copper and 400,000 to 480,000 ounces of gold, respectively. Besides, TRQ has $0.8 billion of available liquidity as of 30 September 2021, which the company claims to be enough to fund its requirements, including funding of underground capital expenditure, into Q3'22. Further, the company forecasts the operating cash costs for 2021 to remain within the range of $800 million to $850 million.

Additionally, the capital expenditure for 2021 on a cash basis has been reduced to $80 million to $100 million for the open-pit and to $0.8 billion to $0.9 billion for the underground, including underground sustaining capital expenditure. C1 cash costs are likely to remain between negative $0.20 to positive $0.20 per pound of copper produced.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Stock Recommendation

Over the last six months and 1-year, the stock was down by ~-11.58% and up by ~40.43%% respectively. The stock is trading near the average price of the 52-week low-high range for the stock at $9.50 - $21.89, respectively.

The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a fall of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average), considering its significantly lower ROE for Q3FY21 that stood at 0.4%, compared to the industry median at 2.5% and lower net margin at 3.7% in Q3FY21 compared to the industry median at 12.9%.

Considering the aforementioned factors, along with the current trading levels, and the associated business risks, we advise the investors to book profits. We give a “Sell” rating on the stock at the current market price of $15.41 per share, as on 9:56am Washington DC, USA Time as on 23^rd November 2021.

Daily Price Chart

Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.