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Msg  12675 of 12875  at  2/19/2020 11:16:20 AM  by

marpincan


Tinto asking for 1 year delay on power plant.

IMO - Just a negotiating tactic and not as big a deal as some would think. They will come to agreement as both know that the far bigger carrot is the OT underground.
 
 
 

Turquoise Hill: Power Plant Is Expected One Year Later Than Originally Planned

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13 comments
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About: Turquoise Hill Resources Ltd. (TRQ)
Vladimir Zernov
Long/short equity
Summary

Turquoise Hill submits feasibility study for the Tavan Tolgoi power plant in Mongolia.

The Mongolian government wanted the power solution to be ready by June 30, 2023. The study proposes start-up in June 2024, a year later.

The stock is under pressure as the delay signals more headaches for the company.

Turquoise Hill (TRQ) has just announced the submission of a feasibility study for the Tavan Tolgoi power plant in Mongolia. As a reminder, the company has to find a domestic power solution for the Oyu Tolgoi mine by June 30, 2023. Mongolia wants to find a use for the coal from the big Tavan Tolgoi deposit. Putting this coal at work as a source of power for Oyu Tolgoi mine is an obvious solution.

Here’s what Turquoise Hill proposes. The company plans to build a 300MW coal-fired power plant with a total project cost estimate of up to $924 million. The back-up power will be sourced from China (which currently supplies energy to the mine). The proposed schedule targets two units of the Tavan Tolgoi power plant to be operational by June 2024. In short, the plant is currently set to be one year late. The company commented: “The existing PSFA (Power Source Framework Agreement – author) specifies target dates for milestones to be achieved through mutual cooperation between Oyu Tolgoi LLC and the Government of Mongolia, several of which have now passed […] Oyu Tolgoi LLC has given notice and is currently seeking a mutually acceptable alternative basis on which to proceed with securing long term domestic power supply for Oyu Tolgoi."

Not surprisingly, Turquoise Hill's shares are losing ground after the release of the news. Mongolia is not the easiest place to do business, and the difference between the target date set in the PSFA and the date shown in the feasibility study is a problem. Turquoise Hill's statement that it is “seeking a mutually acceptable alternative basis on which to proceed with securing long term domestic power supply” signals another major headache for the project.

Turquoise Hill's shares fared well at the time of the coronavirus panic despite copper’s move from the whereabouts of the $2.90 level to $2.50. However, the new challenge in Mongolia is simply too much for the stock to tolerate. The company does not need another distraction at a time when it has not solved its current problems with mine design and future financing.

The key catalyst for Turquoise Hill this year is the release of a new mine plan. When the plan is released, the company will also provide its view on how it will finance the mine whose development materially lags the original schedule. At this point, it looks like the 2020 capex budget will not grow too much since Turquoise Hill will have to spend time negotiating with Mongolia as its projected start-up of the power plant is one year late compared to the original plan.

At the same time, the news about the power plant pushed the stock back below $0.60, almost erasing its chances to get back above $1.00 in the near term. This means that a reverse stock split may be around the corner as the company's shares have stayed below $1.00 for many months. For companies that have problems but still carry material capitalization, a reverse stock split often leads to more downside as more investors get the chance to short the shares (some funds/personal accounts do not have access to penny stock short-selling or face restrictive margin requirements).

The company’s Q4 2019 production numbers looked positive, but the momentum was hurt by coronavirus problems, while the news on the power plant provided additional pressure. Now, the stock will need some positive commentary in the Q4 2019 financial report to get back on track. Without such a catalyst, it’s hard to expect any near-term upside in Turquoise Hill's shares. The longer-term trajectory of the stock depends on the content of the new mine plan, which is set to be delivered in the second half of 2020. Stay tuned!

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