TRQ: Definitive estimate of OT project schedule to be provided in Q2 www.zgm.mn

Turquoise Hill Resources Ltd. (TRQ) on Thursday announced the first quarter 2020 production for Oyu Tolgoi and provided an update on underground development, COVID-19, and power. Work continues on the mine design and we still expect this to be completed in the first half of 2020 with the Definitive Estimate of project cost and schedule to be provided in the second half of 2020, the company said in a report. Based on current information, the underground project remains within the range announced in July 2019 of a 16 to 30-month delay in schedule, and an increase of USD 1.2-1.9 billion in development capital, with indications of the preferred technical solution falling in the upper half of the schedule delay range and the development capital overrun trending away from the lower end of the range. On February 14, 2020, Oyu Tolgoi LLC and the Government of Mongolia (GoM) commenced a negotiation process under the PSFA to confirm a mutually acceptable pathway to secure long term domestic power supply for Oyu Tolgoi. Under Phase 1 of this process, the parties had until April 14, 2020, to agree on a way forward for a Tavan Tolgoi-based power plant (TTPP). As the parties have yet to be able to do this, they are now also considering the alternatives specified in the PSFA, an Oyu Tolgoi mine site-based power plant; a primary renewables solution; and grid supply. Under the PSFA, Oyu Tolgoi and GoM currently have until June 14, 2020, to consider these alternatives, failing which Oyu Tolgoi has the right to choose one or a combination of these options to pursue. “The first quarter of 2020 was another notable effort from the Oyu Tolgoi team as we continue to mine through the lower grade material on the periphery of the South West pit. As we progress through 2020, Phase 4b will sink towards the higher gold and copper grades which is expected to result in a significant increase in gold production in 2021,” stated Ulf Quellmann, Chief Executive Officer of Turquoise Hill.

Mongolia-Singapore trade increases fivefold in last 4 years www.montsame.mn

Rio lowers copper target at Oyu Tolgoi www.mining.com

Rio Tinto (ASX, LON, NYSE: RIO) signalled on Friday a recovery in China’s economy as it reported improved shipments of iron ore to the country, but cut its forecast for annual copper output citing coronavirus-related disruptions.

The company, the world’s top iron ore miner, posted higher-than-expected output of the steelmaking ingredient for the first three months of the year. Production stood at 77.8 million tonnes, up 2.4% from the same period last year, despite a cyclone tearing through Rio Tinto’s Western Australian operations in February.

The miner, which makes most of its profits from China, shipped 72.9 million tonnes of iron ore in the three months to March, up 5.5% from a year ago, yet lower than some analysts had expected.

“Demand in China continues to recover,” chief executive, Jean-Sébastien Jacques, said in a statement. He added that the group’s customer order books “remained healthy.”

Just as most global miners, Rio Tinto has been hit by the coronavirus crisis. In March, it suspended operations at its mines in South Africa, and slowed activity at its Canada and Mongolia units to comply with government measures to contain the outbreak.

Copper troubles
Rio Tinto revealed that production of copper, one of its key commodities, would not reach a previous production target of between 530,000 and 570,000 tonnes.

It now expects to churn out between 475,000 and 520,000 tonnes, due to repair works at its Kennecott mine in the US, which was affected by an earthquake in March.

Fears that its 30%-owned Escondida mine in Chile, the world’s biggest copper operation, could soon take a hit, also weighed on the guidance downgrade.

Rio Tinto also flagged copper and gold output drops at its already troubled Oyu Tolgoi mine in Mongolia, where it is carrying out an underground expansion expected to lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, targeted for 2025.

The company confirmed last year that the project was running between 16 months and 30 months late and roughly $1.2 billion to $1.9 billion over budget.

There were fresh signs of delays on Friday, after it said that it would have to bring experts on site to rectify industrial ropes in the largest and most important access shaft to the underground mine, Shaft 2.

Those ropes service a giant elevator that allows workers, equipment and ore to move between the bottom of the mine, 1.3 km underground, and the surface.

Rio Tinto’s subsidiary and Oyu Tolgoi operator, Turquoise Hill Resources (TSX, NYSE:TRQ), said the covid-19 pandemic was making it hard to get experts to the remote Mongolian mine to conduct “rectification work” on the ropes.

”Underground development progress may be impacted by 30% as a result of travel restrictions due to covid-19 preventing experts from travelling to the Oyu Tolgoi site,” Turquoise Hill said on Thursday.

Earlier this month, Rio investor US hedge fund Pentwater Capital said it would push for a management shakeup at the operation, claiming “a massive devaluation” of the asset. The giant deposit, discovered in 2001, is one-third owned by Mongolia’s government and two-thirds held by Turquoise Hill. Rio has a 51% stake in the Canadian miner.

Coal output of MMC rises 1.8 percent in Q1 www.zgm.mn

The HKSE-listed Mongolian Mining Corporation (MMC)’s coal output rose 1.8 percent to 1.8 million tons from a year earlier. However, it is down 38 percent from the previous quarter. Sales of washed coking coal decreased by 39 percent year-on-year and 50 percent down from the previous quarter to 607,700 tons. Coal exports at the Gashuunsukhait-Gantsmod port were suspended from February 10 to March 23 to prevent the spread of COVID-19. During the time, MMC continued to sell coal from its warehouse to China. The company said in a statement that it was taking measures for unforeseen circumstances, including temporary regulation of its coal production. As reported previously, Mongolian Mining Corporation has suspended some operations since April 10 and laid off 60 percent of its employees, according to sources.

China's Inner Mongolia fuels economic growth with huge investment www.xinhuanet.com

HOHHOT, April 19 (Xinhua) -- North China's Inner Mongolia Autonomous Region planned to invest 505.9 billion yuan (about 71.54 billion U.S. dollars) in 3,109 major construction projects this year, according to local authorities.

New residential area under development in Darkhan www.montsame.mn

Spring construction works are commencing one by one in Drakhan-Uul aimag. As part of the aimag's efforts to make its capital Darkhan a smog-free city, infrastructure development works of apartment blocks with 394 homes – the new 31st residential area - began in the city.

Will passenger trains continue to pollute the environment? www.montsame.mn

Ulaanbaatar /MONTSAME/. Passenger trains of Ulaanbaatar Railway JSC continue to pollute the environment, causing danger to the hygiene of surrounding areas.

More specifically, about 90 percent of 276 passenger trains were manufactured around the year of 1962, equipped with restrooms that have been left far behind in development. To put it differently, the restrooms have a technology that immediately discards human waste to the outside area. Alongside polluting the environment, the old technology negatively affects the safety of trains during winter. It also has a disadvantage of passengers not being able to use the restroom near cities, stations, and crossings.

In 2019, the staff of Ulaanbaatar Railway JSC renovated two passenger train cars into outpatient clinics. In order to do this, they used their available resources in making medical waste containers. Currently, they are also renovating a passenger train car into a car for special use. Studies have shown that a total of MNT 90 million is necessary to build an eco restroom. Equipping old train cars this way is an imperfect solution due to high costs. "Thus, it has become important to renew our train cars into vacuum train cars that can provide better passenger comfort, and equipped with eco restrooms," highlighted Deputy Head of the Passenger Train Car Repairs Department of Ulaanbaatar Railway B.Batdelger.

Most train cars of Ulaanbaatar Railway have already gone past its usage period as the maximum number of years recommended for passenger train cars are 28 years. More specifically, there are 46 train cars that have gone over its usage period by 5 years, while there are 57 train cars that have been running for 34-37 years. There are also 35 train cars that have been used for 38-40 years, and 60 train cars that have been used for over 41 years.

MNT 75 million is budgeted for each car in order to ensure the safety of the old train cars. This is spent on ensuring the traffic safety of the train, repairing its parts, electrical equipment, water supply system as well as repairs for interior fittings. The usage period of the train cars have continued to be extended in this manner.

Despite the need to renew them with modern train cars, it is impossible to do so as Ulaanbaatar Railway JSC operates with a deficit. The deficit for passenger transport alone amounts to MNT 25-30 billion annually. This is due to how Ulaanbaatar Railway JSC transports each passenger for MNT 30 per km. The real amount of cost to transport each passenger per km stands at MNT 52 according to a study.

Thus, increasing the tariff not only keeps the balance but also makes it possible to renew passenger train cars, officials note. As Ulaanbaatar Railway is not a private-owned company, the tariff is set by the Government. The non-inclusion of the Joint Venture status in the laws of Mongolia has also become one of the reasons to trail in sector development.

To take a few examples, in the framework of the renewal of passenger train cars of Ulaanbaatar Railway, 16 new train cars were bought in 2007, and 15 train cars were bought in 2014. The cars are vacuum, and equipped with eco restrooms. For instance, the picture below shows the modern train car imported in 2014 that currently runs en route Moscow-Ulaanbaatar. The train car has a storage to contain 800 liters of human waste, which can be emptied with a vacuum truck. There is no other country other than ours that continues to repair its old train cars, letting it go over the usage period.

The oil industry’s recovery lacks one important ingredient www.rt.com

The growing global oil and gas glut, partly caused by the coronavirus global lockdown but also due to mismanagement of the US shale sector and the OPEC+ price war fall-out, is causing mayhem in all energy sectors.
Most of the media’s attention goes to upstream oil and gas operators and financial institutions. As US shale companies drown in debt, bankruptcies are expected to pile up within the next months. US shale, offshore oil and gas operators and most non-OPEC producers are going to be struggling to keep some air in the balloon that was filled the last years.

In the next couple of months, due to OPEC+ production cuts and bankruptcies, a vast part of the overproduction will be removed, shrinking the glut to a much more acceptable level. Some analysts are even expecting growth before the end of 2020, based on misconceptions that oil prices could be even hovering around $40 per barrel at that time. Optimism based on simple Excel equations or mathematics are most probably going to be proven wrong.

As long as the impact of the extended Covid-19 crisis on energy and on the global economy is not fully visible, and storage volumes are still building up, oil prices will probably stay low. At the same time, even if all goes back to a ‘pre-corona normal’, the normal will be different if nothing will have been learned from history.

A demand collapse such as we are witnessing at present has never been seen before. Demand destruction to the tune of 20-25 million bpd is a giant shock to the total energy system. Market watchers, however, are focusing too much on E&Ps. The current financial situation of most NOCs, IOCs and large independent producers is not yet dire, while smaller drillers are already on life-support. The industry will, in the end, find the right balance again as much production from smaller producers will be shut in or disappear for good.

The main objective for many producers is to be able to produce significant volumes at the end of the crisis. This is partly misunderstood in the media, as most operators are not the ones directly responsible for the production of hydrocarbons. The main players here are the oilfield services, the companies with the technical know-how and tools to produce a barrel of oil.

Oilfield service companies offer technologies and equipment to oil and natural gas drillers and are crucial in the exploration and completion process, but are also responsible for the manufacturing and mending of equipment. Overall, the fate of all oil service firms is positively correlated to crude prices and also to the capital investment decisions of E&P operators.

The current correlation however is very negative, as low oil prices hit oilfield services exponentially harder. It’s strange to see that non-oil and gas analysts are understanding the threat better for other sectors, than oil and gas does. The threat to the survival and revamp of the automotive sector worldwide is not the cash-flow and debt levels of VW, Mercedes, Toyota or GM, but the survivability of the automotive part suppliers. Without automotive suppliers, no car or vehicle will leave the factory in Stuttgart or Detroit.

The situation is no different for the oil, gas and energy sector. Without oilfield services, production will stall and decline within months. The situation is dire for mainstream independent oilfield services companies, not only in US shale, where giants like Schlumberger, Halliburton or National Oilwell Varco are cutting their investments and workforce, but also in other non-OPEC and OPEC regions.

One Oil & Gas UK (OGUK) report already stated that the financial contagion triggered by historically low oil prices will threaten North Sea jobs, shrink its economic contribution and undermine energy security.

According to Energy and Restructuring law firm Hayes and Boone’s, last year already a grand total of 50 energy companies filed for bankruptcy, including 33 oil and gas producers, 15 oilfield services companies and two midstream companies. The law firm warns that as the crisis in 2020 continues, they fear that the ax could now fall on debt-ridden oilfield services companies. Just in North America, oilfield services companies debt is said to reach $32 billion which is coming due between 2020 and 2024.

The poor financial state of the industry is well represented by the sector’s favorite benchmark, the VanEck Vectors Oil Services ETF (NYSEARCA:OIH), which is down more than 70% YTD, considerably lower than the 30% plunge by the S&P 500. Rystad’s report last month that 20 percent of global oilfield services workers could be laid off this year has been undervalued as a real threat for the future. The firing of 1 million or more experts, drillers, engineers and workers means a possible productivity loss at the end of the year that will constrain a possible upsurge in demand and supply.

Former oil and gas crises in the 1980s or 2010s have shown that knowledge destruction because of layoffs can significantly slow down a recovery in the sector. Taking into account that the average oil and gas worker is above 45 years of age, a large part of those becoming unemployed will never come back again. Additionally, the possible bankruptcy of small specialized oilfield services also will destroy specific knowledge not easy to be regained if demand is growing again. Former oil price collapses have led to a strategy change at IOCs, removing part of their inside capabilities in engineering and operations, cutting costs meant handing over project implementation to independent oilfield services. IOCs and NOCs are now doing the same again, putting most of the current crisis fall-out on oilfield services companies that will have no other option than to cut their workforce. Oilfield servicing margins, even in good times, have been under pressure.

Oil & gas’ future faces several threats and lack of human capital is a very underestimated one that threatens profitability of the sector going forward. Without human capital, which in most cases is being provided by oilfield services, less oil and gas will be able to be produced, refined, stored or processed.

This article was originally published on Oilprice.com

Asia shares off to cautious start, U.S. crude slides www.reuters.com

SYDNEY (Reuters) - Caution gripped Asian share markets on Monday on expectations a busy week of corporate earnings reports and economic data will drive home the damage done by the global virus lockdown, while U.S. crude prices took an early spill.

Japan reported its exports fell almost 12% in March from a year earlier, with shipments to the U.S. down over 16%. Early readings on April manufacturing globally are due on Thursday and are expected to show recession-like readings.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.2% in slow early trade, with a pause needed after five straight weeks of gains. Japan's Nikkei .N225 fell 1.3% and South Korea .KS11 0.1%.

E-Mini futures for the S&P 500 ESc1 slipped 0.7%, having jumped last week on hopes some U.S. states would soon start to re-open their economies.

U.S. President Donald Trump said Sunday that Republicans were “close” to getting a deal with Democrats on a support package for small business.

But the U.S. Centers for Disease Control and Prevention reported an increase of 29,916 in new infections and said the number of deaths had risen by 1,759 to 37,202.

The S&P 500 .SPX has still rallied 30% from its March low, thanks in part to the extreme easing steps taken by the Federal Reserve. The Fed has bought nearly $1.3 trillion of Treasuries alone, and many billions of non-sovereign debt it would historically have never gone near.

“The Fed will be a major buyer of risky assets in the coming months, and has displayed its willingness to backstop virtually any part of the domestic financial system in trouble,” said Oliver Jones, a senior markets economist at Capital Economics.

Yet the particular composition of the S&P 500 was also a major factor, he added, as three sectors relatively resilient to a virus-induced lockdown — IT, communications services and healthcare — make up around 50% of the index.

Indeed, Microsoft, Apple, Amazon, Alphabet and Facebook account for more than a fifth of the index.

“What’s more, the S&P 500 is skewed towards a few ultra-large firms, some of which are also in those sectors. Their sheer size might make them better able to weather a few months of dramatically-low revenues than most.”

The rebound in the S&P 500 therefore likely overstated optimism on the economy, Jones argued, noting European benchmark equities indices and U.S. small cap indices were still in bear market territory.

Bond markets suggested investors expected tough economic times ahead with yields on U.S. 10-year Treasuries US10YT=RR steady at 0.65%, from 1.91% at the start of the year.

That decline has shrunk the U.S. dollar’s yield advantage over its peers and left it rangebound in recent weeks. So far in April, the dollar index =USD has wandered between 98.813 and 100.940 and was last at 99.791.

The dollar was a fraction firmer on the yen on Monday at 107.63 JPY= but again well within recent ranges, while the euro idled at $1.0868 EUR=.

Gold had recoiled to $1,676 per ounce XAU=, having touched a 7-1/2 peak of $1,746.50 last week.

Oil prices remained under pressure as the global lockdown saw fuel demand evaporate, leaving so much extra supply countries were finding it hard to find space to store it.

So great was the near-term glut that the May futures contract for U.S. crude was trading down 7% at $16.96 a barrel CLc1, while June was standing at $24.28 CLc2.

Brent crude LCOc1 futures have already rolled over into June and that contract was off 32 cents at $27.75 a barrel.

Exequatur granted to Honorary Consul of the Islamic Republic of Pakistan www.mfa.gov.mn

Ulaanbaatar/MONTSAME/. D.Davaasuren, State Secretary of the Ministry of Foreign Affairs, presented an exequatur to I.Ser-Od, an Honorary Consul of the Islamic Republic of Pakistan to Mongolia, yesterday.