EX-99.1

EX-99.1 2 d39778dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

LOGO

Turquoise Hill Resources Ltd.

Condensed Interim Consolidated Financial Statements

June 30, 2020

(Unaudited)

TURQUOISE HILL RESOURCES LTD.

Consolidated Statements of Income (Loss)

(Stated in thousands of U.S. dollars)

(Unaudited)


			Three Months Ended June 30,						Six Months Ended June 30,
	Note		2020			2019			2020			2019

Revenue		4	$	277,967		$	382,748		$	408,626		$	735,428
Cost of sales		5		(181,956	)		(224,656	)		(327,880	)		(393,790	)
Gross margin				96,011			158,092			80,746			341,638

Operating expenses		6		(49,893	)		(57,897	)		(94,804	)		(128,243	)
Corporate administration expenses				(9,855	)		(5,759	)		(14,572	)		(10,303	)
Other income (expenses)				(1,418	)		1,279			1,800			2,522
Impairment charges		10		-			(596,906	)		-			(596,906	)
Income (loss) before finance items and taxes				34,845			(501,191	)		(26,830	)		(391,292	)

Finance items
Finance income		7		3,212			29,062			14,624			61,891
Finance costs		7		(1,516	)		(1,709	)		(3,325	)		(3,727	)
				1,696			27,353			11,299			58,164
Income (loss) from operations before taxes			$	36,541		$	(473,838	)	$	(15,531	)	$	(333,128	)

Income and other taxes				35,777			(262,844	)		106,805			(298,354	)
Income (loss) for the period			$	72,318		$	(736,682	)	$	91,274		$	(631,482	)

Attributable to owners of Turquoise Hill Resources Ltd.				84,849			(446,515	)		140,254			(335,278	)
Attributable to owner of non-controlling interest				(12,531	)		(290,167	)		(48,980	)		(296,204	)
Income (loss) for the period			$	72,318		$	(736,682	)	$	91,274		$	(631,482	)

Basic and diluted earnings (loss) per share attributable to Turquoise Hill Resources Ltd.			$	0.04		$	(0.22	)	$	0.07		$	(0.17	)

Basic weighted average number of shares outstanding (000’s)				2,012,314			2,012,314			2,012,314			2,012,314

The accompanying notes are an integral part of these consolidated financial statements.

TURQUOISE HILL RESOURCES LTD.

Consolidated Statements of Comprehensive Income (Loss)

(Stated in thousands of U.S. dollars)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019

Income (loss) for the period	$	72,318	$	(736,682)	$	91,274	$	(631,482)

Other comprehensive income (loss):
Items that will not be reclassified to income:
Changes in the fair value of marketable securities at FVOCI		1,502		(74)		127		(609)
Other comprehensive income (loss) for the period (a)	$	1,502	$	(74)	$	127	$	(609)

Total comprehensive income (loss) for the period	$	73,820	$	(736,756)	$	91,401	$	(632,091)

Attributable to owners of Turquoise Hill		86,351		(446,589)		140,381		(335,887)
Attributable to owner of non-controlling interest		(12,531)		(290,167)		(48,980)		(296,204)
Total comprehensive income (loss) for the period	$	73,820	$	(736,756)	$	91,401	$	(632,091)

(a) No tax charges and credits arose on items recognized as other comprehensive income or loss in 2020 (2019: nil).

The accompanying notes are an integral part of these consolidated financial statements.

TURQUOISE HILL RESOURCES LTD.

Consolidated Statements of Cash Flows

(Stated in thousands of U.S. dollars)

(Unaudited)


			Three Months Ended June 30,						Six Months Ended June 30,
	Note		2020			2019			2020			2019

Cash generated from operating activities before interest and tax		16	$	34,698		$	262,568		$	36,193		$	312,406

Interest received				5,367			22,353			17,198			46,110
Interest paid				(118,696	)		(139,751	)		(145,518	)		(218,325	)
Income and other taxes paid				(3,198	)		(3,643	)		(14,149	)		(4,353	)
Net cash generated from (used in) operating activities			$	(81,829	)	$	141,527		$	(106,276	)	$	135,838

Cash flows from investing activities
Receivable from related party: amounts withdrawn		17		204,284			255,000			511,284			530,000
Expenditures on property, plant and equipment				(254,341	)		(334,989	)		(555,437	)		(660,283	)
Other investing cash flows				184			-			247			-
Cash used in investing activities			$	(49,873	)	$	(79,989	)	$	(43,906	)	$	(130,283	)

Cash flows from financing activities
Net proceeds from project finance facility				-			1,511			-			1,511
Repayment of project finance facility				(1,545	)		-			(1,545	)		-
Payment of project finance fees				-			(107	)		-			(107	)
Payment of lease liability				(1,992	)		(1,405	)		(3,899	)		(3,813	)
Cash used in financing activities			$	(3,537	)	$	(1	)	$	(5,444	)	$	(2,409	)

Effects of exchange rates on cash and cash equivalents				420			(111	)		436			8
Net increase (decrease) in cash and cash equivalents			$	(134,819	)	$	61,426		$	(155,190	)	$	3,154

Cash and cash equivalents - beginning of period			$	1,631,614		$	1,544,795		$	1,651,985		$	1,603,067
Cash and cash equivalents - end of period				1,496,795			1,606,221			1,496,795			1,606,221
Cash and cash equivalents as presented on the balance sheets			$	1,496,795		$	1,606,221		$	1,496,795		$	1,606,221

The accompanying notes are an integral part of these consolidated financial statements.

TURQUOISE HILL RESOURCES LTD.

Consolidated Balance Sheets

(Stated in thousands of U.S. dollars)

(Unaudited)


	Note	June 30, 2020		December 31, 2019

Current assets
Cash and cash equivalents	8	$	1,496,795	$	1,651,985
Inventories	9		166,355		175,719
Trade and other receivables			53,339		27,047
Prepaid expenses and other assets			85,533		99,671
Receivable from related party	17		-		511,284
			1,802,022		2,465,706
Non-current assets
Property, plant and equipment	10		10,356,666		9,782,647
Inventories	9		61,271		28,985
Deferred income tax assets	13		663,479		534,078
Other financial assets			11,642		10,978
			11,093,058		10,356,688
Total assets		$	12,895,080	$	12,822,394

Current liabilities
Borrowings and other financial liabilities	12	$	44,164	$	26,547
Trade and other payables	11		416,766		466,206
Deferred revenue			37,511		27,896
			498,441		520,649
Non-current liabilities
Borrowings and other financial liabilities	12		4,171,842		4,187,270
Deferred income tax liabilities	13		96,184		79,180
Decommissioning obligations	14		105,838		104,238
			4,373,864		4,370,688
Total liabilities		$	4,872,305	$	4,891,337

Equity
Share capital		$	11,432,122	$	11,432,122
Contributed surplus			1,559,128		1,558,811
Accumulated other comprehensive income (loss)			(686)		(813)
Deficit			(3,681,635)		(3,821,889)
Equity attributable to owners of Turquoise Hill			9,308,929		9,168,231
Attributable to non-controlling interest	15		(1,286,154)		(1,237,174)
Total equity		$	8,022,775	$	7,931,057

Total liabilities and equity		$	12,895,080	$	12,822,394

The accompanying notes are an integral part of these consolidated financial statements.

The financial statements were approved by the directors on July 28, 2020 and signed on their behalf by:


/s/ P. Gillin		/s/ R. Robertson
P. Gillin, Director		R. Robertson, Director

TURQUOISE HILL RESOURCES LTD.

Consolidated Statements of Equity

(Stated in thousands of U.S. dollars)

(Unaudited)


Six Months Ended June 30, 2020			Attributable to owners of Turquoise Hill
	Share capital		Contributed surplus		Accumulated other comprehensive income (loss)		Deficit		Total		Non-controlling interest (Note 15)		Total equity

Opening balance	$	11,432,122	$	1,558,811	$	(813)	$	(3,821,889)	$	9,168,231	$	(1,237,174)	$	7,931,057
Income for the period		-		-		-		140,254		140,254		(48,980)		91,274
Other comprehensive income for the period		-		-		127		-		127		-		127
Employee share plans		-		317		-		-		317		-		317
Closing balance	$	11,432,122	$	1,559,128	$	(686)	$	(3,681,635)	$	9,308,929	$	(1,286,154)	$	8,022,775

Six Months Ended June 30, 2019			Attributable to owners of Turquoise Hill
	Share capital		Contributed surplus		Accumulated other comprehensive income (loss)		Deficit		Total		Non-controlling interest (Note 15)		Total equity

Opening balance	$	11,432,122	$	1,558,264	$	844	$	(3,670,310)	$	9,320,920	$	(910,135)	$	8,410,785
Impact of change in accounting policy		-		-		-		(1,122)		(1,122)		(579)		(1,701)
Restated opening balance	$	11,432,122	$	1,558,264	$	844	$	(3,671,432)	$	9,319,798	$	(910,714)	$	8,409,084
Loss for the period		-		-		-		(335,278)		(335,278)		(296,204)		(631,482)
Other comprehensive loss for the period		-		-		(609)		-		(609)		-		(609)
Employee share plans		-		(13)		-		-		(13)		-		(13)
Closing balance	$	11,432,122	$	1,558,251	$	235	$	(4,006,710)	$	8,983,898	$	(1,206,918)	$	7,776,980

The accompanying notes are an integral part of these consolidated financial statements.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

1.	Nature of operations and liquidity risk

Rio Tinto plc is the ultimate parent company and indirectly owned a 50.8% majority interest in Turquoise Hill as at June 30, 2020.

Turquoise Hill Resources Ltd. (“Turquoise Hill”), together with its subsidiaries (collectively referred to as “the Company”), is an international mining company focused principally on the operation and further development of the Oyu Tolgoi copper-gold mine in Southern Mongolia. Turquoise Hill’s head office is located at 1 Place Ville Marie, Suite 3680, Montreal, Quebec, Canada, H3B 3P2. Turquoise Hill’s registered office is located at 300-204 Black Street, Whitehorse, Yukon, Canada, Y1A 2M9.

Turquoise Hill has its primary listing in Canada on the Toronto Stock Exchange and a secondary listing in the U.S. on the New York Stock Exchange.

The condensed interim consolidated financial statements of Turquoise Hill were authorized for issue in accordance with a directors’ resolution on July 28, 2020.

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due.

As at June 30, 2020, the Company had $1.5 billion of available liquidity, consisting of consolidated cash and cash equivalents. The Company’s current assets exceeded current liabilities by $1.3 billion at June 30, 2020. Furthermore, in the next 12 months, the Company has non-cancellable obligations related to power commitments of $0.2 billion. The Company expects to fund its current liabilities and current commitments through its liquidity position and from cash flow generated at its existing open pit operations. The Company continues to review its near term operating plans and continues to take steps to reduce costs and maximize cash generated from its existing open pit operations.

The Company manages liquidity risk by the preparation of internally generated short-term cash flow forecasts and taking measures in response to the review of forecasts. These short-term cash flow forecasts consider estimation of future operating costs, financing costs, development capital and cash receipts from sales revenue. In addition, the possible impact of COVID-19 has been incorporated into these short-term cash flow forecasts. Sensitivity analyses are performed over these estimates including the impact of estimated commodity prices on cash receipts.

The Company believes that it has enough liquidity to meet its minimum obligations for a period of at least 12 months from the balance sheet date, to meet requirements of the Company, including its operations and underground development. Taking into consideration the estimated impacts of increases to underground development capital, as well as delays to first sustainable production, the Company expects to need significant incremental financing to sustain its operations and underground development beyond this timeframe.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

2.	Summary of significant accounting policies

(a)

Statement of compliance

These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. These condensed interim consolidated financial statements are compliant with IAS 34 and do not include all of the information required for full annual financial statements.

These condensed interim consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended December 31, 2019.

(b)

New standards and interpretations adopted

A number of new standards, and amendments to standards and interpretations, are effective as of January 1, 2020, and have been applied in preparing these consolidated financial statements. None of these standards and amendments to standards and interpretations had a significant effect on the consolidated financial statements of the Company.

(c)

New standards and interpretations not yet adopted

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16): The amendments prohibit an entity from deducting from the cost of an item of property, plant, and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. This amendment is effective for the Company’s annual reporting period beginning January 1, 2022, with early adoption permitted. The Company is in the process of assessing the impact of the adoption of this amendment.

None of the remaining standards and amendments to standards and interpretations which have been issued but are not yet effective are expected to have a significant effect on the consolidated financial statements of the Company.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

3.	Operating segment


	Three Months Ended June 30, 2020
				Corporate
				and other
	Oyu Tolgoi			eliminations			Consolidated

Revenue	$	277,967		$	-		$	277,967
Cost of sales		(181,956	)		-			(181,956	)
Gross margin		96,011			-			96,011

Operating expenses		(60,156	)		10,263			(49,893	)
Corporate administration expenses		-			(9,855	)		(9,855	)
Other income (expenses)		1,152			(2,570	)		(1,418	)
Income (loss) before finance items and taxes		37,007			(2,162	)		34,845

Finance items
Finance income		72			3,140			3,212
Finance costs		(121,881	)		120,365			(1,516	)


Income (loss) from operations before taxes	$	(84,802	)	$	121,343		$	36,541

Income and other taxes		47,949			(12,172	)		35,777

Income (loss) for the period	$	(36,853	)	$	109,171		$	72,318


Depreciation and depletion		53,074			29			53,103
Capital additions		319,710			-			319,710
Total assets		11,431,142			1,463,938			12,895,080

Revenue by geographic destination is based on the ultimate country of destination, if known. If the destination of the concentrate sold through traders is not known, then revenue is allocated to the location of the concentrate at the time when revenue is recognized. During the three months ended June 30, 2020, principally all of Oyu Tolgoi’s revenue arose from concentrate sales to customers in China and revenue from individual customers in excess of 10% of Oyu Tolgoi’s revenue was $68.6 million, $48.5 million, $43.0 million, $23.1 million, and $31.1 million (June 30, 2019—$67.4 million, $63.3 million, and $42.1 million).

All long-lived assets of the Oyu Tolgoi segment, other than financial instruments and deferred tax assets, are located in Mongolia.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

3.	Operating segment (continued)


	Three Months Ended June 30, 2019
				Corporate
				and other
	Oyu Tolgoi			eliminations			Consolidated

Revenue	$	382,748		$	-		$	382,748
Cost of sales		(224,656	)		-			(224,656	)

Gross margin		158,092			-			158,092

Operating income		(69,932	)		12,035			(57,897	)
Corporate administration expenses		-			(5,759	)		(5,759	)
Other income		1,101			178			1,279
Impairment charges		(596,906	)		-			(596,906	)

Income (loss) before finance items and taxes		(507,645	)		6,454			(501,191	)

Finance items
Finance income		7,295			21,767			29,062
Finance costs		(111,229	)		109,520			(1,709	)


Income (loss) from operations before taxes	$	(611,579	)	$	137,741		$	(473,838	)


Income and other taxes		(241,856	)		(20,988	)		(262,844	)


Income (loss) for the period	$	(853,435	)	$	116,753		$	(736,682	)


Depreciation and depletion		57,867			-			57,867
Capital additions		438,090			-			438,090
Total assets		9,751,788			2,953,231			12,705,019

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

3.	Operating segment (continued)


	Six Months Ended June 30, 2020
				Corporate and other
	Oyu Tolgoi			eliminations			Consolidated
Revenue	$	408,626		$	-		$	408,626
Cost of sales		(327,880	)		-			(327,880	)
Gross margin		80,746			-			80,746

Operating (expenses) income		(115,887	)		21,083			(94,804	)
Corporate administration expenses		-			(14,572	)		(14,572	)
Other income (expenses)		3,605			(1,805	)		1,800
Impairment charges		-			-			-
Income (loss) before finance items and taxes		(31,536	)		4,706			(26,830	)

Finance items
Finance income		3,159			11,465			14,624
Finance costs		(246,712	)		243,387			(3,325	)
Income (loss) from operations before taxes	$	(275,089	)	$	259,558		$	(15,531	)

Income and other taxes		131,029			(24,224	)		106,805
Income (loss) for the period	$	(144,060	)	$	235,334		$	91,274

Depreciation and depletion		89,993			29			90,022
Capital additions		674,706			-			674,706
Total assets		11,431,142			1,463,938			12,895,080

Revenue by geographic destination is based on the ultimate country of destination, if known. If the destination of the concentrate sold through traders is not known, then revenue is allocated to the location of the concentrate at the time when revenue is recognized. During the six months ended June 30, 2020, principally all of Oyu Tolgoi’s revenue arose from concentrate sales to customers in China and revenue from individual customers in excess of 10% of Oyu Tolgoi’s revenue was $98.7 million, $80.8 million, $54.2 million, $43.0 million, and $42.4 million (June 30, 2019—$146.1 million, $89.5 million, $82.7 million, $77.5 million, and $71.8 million).

All long-lived assets of the Oyu Tolgoi segment, other than financial instruments and deferred tax assets, are located in Mongolia.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

3.	Operating segment (continued)


	Six Months Ended June 30, 2019
			Corporate and other
	Oyu Tolgoi		eliminations		Consolidated

Revenue	$	735,428	$	-	$	735,428
Cost of sales		(393,790)		-		(393,790)
Gross margin		341,638		-		341,638

Operating (expenses) income		(153,261)		25,018		(128,243)
Corporate administration expenses		-		(10,303)		(10,303)
Other income (expenses)		1,899		623		2,522
Impairment charges		(596,906)		-		(596,906)
Income (loss) before finance items and taxes		(406,630)		15,338		(391,292)

Finance items
Finance income		15,347		46,544		61,891
Finance costs		(219,433)		215,706		(3,727)
Income (loss) from operations before taxes	$	(610,716)	$	277,588	$	(333,128)

Income and other taxes		(260,473)		(37,881)		(298,354)

Income (loss) for the period	$	(871,189)	$	239,707	$	(631,482)

Depreciation and depletion		102,806		-		102,806
Capital additions		880,709		-		880,709
Total assets		9,751,788		2,953,231		12,705,019

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

4.	Revenue


	Three Months Ended June 30, 2020						Six Months Ended June 30, 2020
	Revenue from contracts with customers		Other revenue (a)		Total revenue		Revenue from contracts with customers		Other revenue (a)		Total revenue

Total revenue:
Copper	$	186,282	$	35,420	$	221,702	$	311,633	$	6,903	$	318,536
Gold		50,197		2,418		52,615		79,989		4,215		84,204
Silver		3,312		338		3,650		5,573		313		5,886
	$	239,791	$	38,176	$	277,967	$	397,195	$	11,431	$	408,626


	Three Months Ended June 30, 2019						Six Months Ended June 30, 2019
	Revenue from contracts with customers		Other revenue (a)		Total revenue		Revenue from contracts with customers		Other revenue (a)		Total revenue

Total revenue:
Copper	$	251,999	$	(19,629)	$	232,370	$	462,878	$	(6,574)	$	456,304
Gold		146,223		578		146,801		268,725		3,755		272,480
Silver		3,466		111		3,577		6,390		254		6,644
	$	401,688	$	(18,940)	$	382,748	$	737,993	$	(2,565)	$	735,428

(a) Other revenue relates to gains (losses) on the revaluation of trade receivables.

5.	Cost of sales


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019

Production and delivery	$	137,104	$	170,196	$	241,808	$	296,148
Depreciation and depletion		51,106		54,546		86,072		99,175
Reversal of provision against carrying value of inventories (Note 9)		(6,254)		(86)		-		(1,533)
	$	181,956	$	224,656	$	327,880	$	393,790

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

6.	Operating expenses


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019

Oyu Tolgoi administration expenses	$	31,338		$	34,743		$	63,415		$	65,927
Royalty expenses		14,216			20,722			24,455			40,461
Inventory write downs (reversals) (a)		(1,195	)		(8,126	)		(2,359	)		4,432
Selling expenses		3,192			7,088			5,061			13,643
Depreciation		1,997			3,321			3,950			3,631
Other		345			149			282			149
	$	49,893		$	57,897		$	94,804		$	128,243

(a)

Inventory write downs (reversals) include net adjustments to the carrying value of ore stockpile inventories and materials and supplies; refer to Note 9.

7.	Finance items


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019

Finance income:
Interest income (a)	$	3,212		$	29,062		$	14,624		$	61,891
	$	3,212		$	29,062		$	14,624		$	61,891

Finance costs:
Interest expense and similar charges	$	(90,343	)	$	(102,256	)	$	(183,395	)	$	(204,529	)
Amounts capitalized to property, plant and equipment (b)		89,885			101,882			182,185			203,472
Accretion of decommissioning obligations (Note 14)		(1,058	)		(1,335	)		(2,115	)		(2,670	)
	$	(1,516	)	$	(1,709	)	$	(3,325	)	$	(3,727	)

(a)

Finance income for the three and six months ended June 30, 2020 includes $0.5 million and $4.4 million (June 30, 2019—$18.7 million and $41.0 million) on the related party receivable, which was placed with Rio Tinto under an agreement for cash management services in connection with net proceeds from the project finance facility (refer to Note 17).

(b)

The majority of the finance costs capitalized to property, plant and equipment were capitalized at the weighted average rate of the Company’s general borrowings of 8.5% (refer to Note 10).

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

8.	Cash and cash equivalents


	June 30,		December 31,
	2020		2019

Cash at bank and on hand	$	107,298	$	112,572
Money market funds and other cash equivalents (a)		1,389,497		1,539,413
	$	1,496,795	$	1,651,985

(a)

At June 30, 2020, short-term liquid investments of $210.0 million (December 31, 2019 – $210.0 million) have been placed with Rio Tinto (refer to Note 17).

9.	Inventories


	June 30,			December 31,
	2020			2019

Current
Concentrate	$	34,953		$	26,801
Ore stockpiles		23,131			45,713
Provision against carrying value of ore stockpiles		-			(908	)
Materials and supplies		183,789			179,795
Provision against carrying value of materials and supplies		(75,518	)		(75,682	)
	$	166,355		$	175,719
Non-current
Ore stockpiles	$	61,523		$	30,640
Provision against carrying value of ore stockpiles		(252	)		(1,655	)
	$	61,271		$	28,985

During the three and six months ended June 30, 2020, $182.0 million (2019 – $224.7 million) and $327.9 million (2019 – $393.8 million) of inventory was charged to cost of sales (Note 5).

During the three and six months ended June 30, 2020, net reversals of $7.4 million (2019 – net write down charges of $8.3 million) and net reversals of $2.4 million (2019 – net write down charges of $2.8 million) were recognized in the consolidated statement of income relating to inventory write off and movement in provisions against carrying value. During the three and six months ended June 30, 2020, inventory on which there was a provision against carrying value of nil (2019 – $9.5 million) and $0.1 million (2019 - $12.3 million) was sold and recognized in cost of sales for the period.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

10.

Property, plant and equipment


	Oyu Tolgoi
		Mineral						Capital			Other
Six Months Ended		property			Plant and			works in			capital
June 30, 2020		interests			equipment			progress			assets			Total

Net book value:

January 1, 2020	$	723,516		$	3,126,331		$	5,931,750		$	1,050		$	9,782,647
Additions		468			(50	)		492,103			-			492,521
Interest capitalized (Note 7)		-			-			182,185			-			182,185
Depreciation for the period		(27,930	)		(72,199	)		-			(29	)		(100,158	)
Disposals and write offs		-			-			(529	)		-			(529	)
Transfers and other movements		(515	)		17,242			(16,727	)		-			-
June 30, 2020	$	695,539		$	3,071,324		$	6,588,782		$	1,021		$	10,356,666

Cost		1,270,593			4,855,742			6,953,489			1,131			13,080,955

Accumulated depreciation / impairment		(575,054	)		(1,784,418	)		(364,707	)		(110	)		(2,724,289	)
June 30, 2020	$	695,539		$	3,071,324		$	6,588,782		$	1,021		$	10,356,666

	Oyu Tolgoi
		Mineral						Capital			Other
Six Months Ended		property			Plant and			works in			capital
June 30, 2019		interests			equipment			progress			assets			Total

Net book value:

January 1, 2019 as previously reported	$	799,113		$	3,263,447		$	4,775,745		$	-		$	8,838,305
Impact of change in accounting policy		-			14,429			-			-			14,429
January 1, 2019 restated	$	799,113		$	3,277,876		$	4,775,745		$	-		$	8,852,734
Additions		26,241			1,561			649,435			-			677,237
Interest capitalized (Note 7)		-			-			203,472			-			203,472
Depreciation for the period		(26,035	)		(69,977	)		-			-			(96,012	)
Impairment charges (a)		(52,007	)		(180,192	)		(364,707	)		-			(596,906	)
Disposals and write offs		-			-			(148	)		-			(148	)
Transfers and other movements		(581	)		27,821			(27,240	)		-			-
June 30, 2019	$	746,731		$	3,057,089		$	5,236,557		$	-		$	9,040,377

Cost		1,272,906			4,766,150			5,601,264			-			11,640,320
Accumulated depreciation / impairment		(526,175	)		(1,709,061	)		(364,707	)		-			(2,599,943	)
June 30, 2019	$	746,731		$	3,057,089		$	5,236,557		$	-		$	9,040,377

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

10.

Property, plant and equipment (continued)

(a)

Impairment charges at June 30, 2019

On July 15, 2019, the Company provided an update on the Oyu Tolgoi underground project summarizing preliminary estimates for increased capital expenditure for project development and a schedule delay to first sustainable production. These preliminary estimates indicated that first sustainable production could be delayed by 16 to 30 months compared to the original feasibility study guidance in 2016 and that development capital expenditure for the project may increase by $1.2 billion to $1.9 billion over the $5.3 billion previously disclosed. Together, these matters were identified as an indicator of impairment at the Oyu Tolgoi cash generating unit level at June 30, 2019.

The Company’s assessment of FVLCD resulted in a recoverable amount of $8.7 billion compared to a carrying value of $9.3 billion at June 30, 2019, resulting in a $0.6 billion impairment charge in the three month period ended June 30, 2019.

11.

Trade and other payables


	June 30,		December 31,
	2020		2019

Trade payables and accrued liabilities	$	322,924	$	389,476
Interest payable on long-term borrowings		7,180		9,814
Payable to related parties (Note 17)		85,153		65,903
Other		1,509		1,013
	$	416,766	$	466,206

12.

Borrowings and other financial liabilities


	June 30,		December 31,
	2020		2019

Current liabilities:
Project finance facility (a)	$	43,057	$	22,177
Lease liabilities (b)		1,107		4,370
	$	44,164	$	26,547

	June 30,		December 31,
	2020		2019

Non-current liabilities:
Project finance facility (a)	$	4,155,573	$	4,170,058
Lease liabilities (b)		16,269		17,212
	$	4,171,842	$	4,187,270

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

12.

Borrowings and other financial liabilities (continued)

(a) Project finance facility

On December 14, 2015, Oyu Tolgoi signed a $4.4 billion project finance facility. The facility is provided by a syndicate of international financial institutions and export credit agencies representing the governments of Canada, the United States and Australia, along with 15 commercial banks. The project finance lenders have agreed to a debt cap of $6.0 billion. In addition to the funding drawn down to date there is an additional $0.1 billion available, subject to certain conditions, under the Company’s facility with the Export-Import Bank of the United States, and the potential for an additional $1.6 billion of supplemental debt in the future. Under the terms of the project finance facility held by Oyu Tolgoi, there are certain restrictions on the ability of Oyu Tolgoi to make shareholder distributions.

At June 30, 2020, Oyu Tolgoi has drawn down $4.3 billion of the project finance facility:

June 30, 2020

Original

Annual interest rate

Facility

Carrying Value (i)

Fair Value (i)

Term

Pre-completion

Post-completion

International Financial Institutions – A Loan

778,276

859,612

15 years

LIBOR + 3.78%

LIBOR + 4.78%

Export Credit Agencies Loan

875,389

964,235

14 years

LIBOR + 3.65%

LIBOR + 4.65%

276,691

335,818

13 years

2.3%

MIGA Insured Loan

679,937

745,244

12 years

LIBOR + 2.65%

LIBOR + 3.65%

Commercial Banks - B Loan

1,588,337

1,749,871

12 years

LIBOR + 3.4%

Includes $50 million

LIBOR + 4.4%

15-year loan at A Loan rate

4,198,630

4,654,780

(i)

The carrying value of borrowings under the project finance facility differs from fair value due to amortized transaction costs, and changes in the estimate of fair value between the initial recognition date and the balance sheet date. Project finance borrowings were initially recognized at fair value less transaction costs on the relevant draw down dates, with aggregate initial fair value being $4,348.9 million before transaction costs. At June 30, 2020, these borrowings are stated net of $148.7 million amortized transaction costs.

Oyu Tolgoi has notified its project lenders that the COVID-19 pandemic constitutes a force majeure event under its project finance facilities, which will have the effect of extending the June 30, 2028 project longstop date under those facilities for the duration of the force majeure.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

12.

Borrowings and other financial liabilities (continued)

(a) Project finance facility (continued)

(ii)

The project finance facility provides for interest only payments for the first five years followed by minimum repayments according to a stepped amortization schedule for the remaining life of the facility.

(iii)

The Multilateral Investment Guarantee Agency (“MIGA”) provides political risk insurance for commercial banks. The Company is required to pay an annual insurance premium of 1.4% of the MIGA Insured Loan for the remaining life of the facility.

(b) Lease liabilities are discounted at the weighted average incremental borrowing rate of 7.2%

13.

Deferred income taxes


	June 30, 2020			December 31, 2019

Deferred tax assets
Non-capital losses	$	264,633		$	208,921
Other temporary differences including accrued interest		398,846			325,157
	$	663,479		$	534,078

Deferred tax liabilities
Withholding tax		(96,184	)		(79,180	)
	$	(96,184	)	$	(79,180	)

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

14.

Decommissioning obligations


	Six Months Ended June 30,
	2020			2019

Opening carrying amount	$	104,238		$	131,565
Changes in estimates and new estimated cash flows		(515	)		(579	)
Accretion of present value discount		2,115			2,670
	$	105,838		$	133,656

All decommissioning obligations relate to Oyu Tolgoi. Reclamation and closure costs have been estimated based on the Company’s interpretation of current regulatory requirements and other commitments made to stakeholders, and are measured as the net present value of future cash expenditures upon reclamation and closure.

Estimated future cash expenditures of $213.8 million (December 31, 2019 - $212.6 million) have been discounted from an anticipated closure date of 2055 to their present value at a real rate of 2.0% (December 31, 2019 - 2.0%).

15.

Non-controlling interest


	Non-controlling Interest: Oyu Tolgoi (a) Six Months Ended June 30,
	2020			2019

Balance, January 1	$	(1,237,174	)	$	(910,135	)
Impact of change in accounting policy		-			(579	)
Restated balance, January 1	$	(1,237,174	)	$	(910,714	)
Non-controlling interest’s share of loss		(48,980	)		(296,204	)
Common share investments funded on behalf of non-controlling interest (a)		86,700			102,000
Funded amounts repayable to the Company (a)		(86,700	)		(102,000	)
Balance, June 30	$	(1,286,154	)	$	(1,206,918	)

(a)

Since 2011, the Company has funded common share investments in Oyu Tolgoi on behalf of Erdenes Oyu Tolgoi LLC (“Erdenes”). In accordance with the Amended and Restated Shareholders Agreement dated June 8, 2011, such funded amounts earn interest at an effective annual rate of LIBOR plus 6.5% and are repayable to the Company via a pledge over Erdenes’ share of future Oyu Tolgoi common share dividends. Erdenes also has the right to reduce the outstanding balance by making payments directly to the Company.

Common share investments funded on behalf of Erdenes are recorded as a reduction to the net carrying value of non-controlling interest. As at June 30, 2020, the cumulative amount of such funding was $1,327.4 million (December 31, 2019—$1,240.7 million). Interest of $733.5 million (December 31, 2019—$654.9 million) relating to this funding, has not been recognized in these condensed interim consolidated financial statements, as payment will be triggered on common share dividend distribution by Oyu Tolgoi, the certainty of which cannot currently be reliably determined.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

16.

Cash flow information

(a)

Reconciliation of net income to net cash flow generated from operating activities before interest and tax


	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019

Income (loss) for the period	$	72,318		$	(736,682	)	$	91,274		$	(631,482	)
Adjustments for:
Depreciation and amortization		53,103			57,867			90,022			102,806
Impairment charges		-			596,906			-			596,906
Finance items:
Interest income		(3,212	)		(29,062	)		(14,624	)		(61,891	)
Interest and accretion expense		1,516			1,709			3,325			3,727
Unrealized foreign exchange losses (gains)		(1,103	)		111			(4,753	)		(8	)
Inventory write downs (reversals)		(7,449	)		(8,212	)		(2,359	)		2,899
Write off of property, plant and equipment		345			149			282			149
Income and other taxes		(35,777	)		262,844			(106,805	)		298,354
Other items		1,010			925			666			847

Net change in non-cash operating working capital items:
(Increase) decrease in:
Inventories		12,265			34,275			(19,884	)		27,843
Trade, other receivables and prepaid expenses		(43,896	)		10,891			(32,810	)		(10,563	)
(Decrease) increase in:
Trade and other payables		(17,451	)		46,722			22,244			20,729
Deferred revenue		3,029			24,125			9,615			(37,910	)
Cash generated from operating activities before interest and tax	$	34,698		$	262,568		$	36,193		$	312,406

(b)

Supplementary information regarding other non-cash transactions

The non-cash investing and financing activities not already disclosed in the consolidated statements of cash flows were as follows:


	Three Months Ended June 30						Six Months Ended June 30
	2020			2019			2020			2019

Investing activities
Change in accounts payable and accrued liabilities related to purchase of property, plant and equipment	$	(31,303	)	$	(10,246	)	$	(58,614	)	$	1,623

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

17.

Related parties

As at June 30, 2020, Rio Tinto plc’s indirect equity ownership in the Company was 50.8% (December 31, 2019: 50.8%). The following tables present the condensed interim consolidated financial statements line items within which transactions with a Rio Tinto entity or entities (“Rio Tinto”) are reported. Rio Tinto entities comprise Rio Tinto plc, Rio Tinto Limited and their respective subsidiaries other than Turquoise Hill and its subsidiaries.


	Three Months Ended June 30,						Six Months Ended June 30,
Statements of Income	2020			2019			2020			2019

Operating and corporate administration expenses:
Cost recoveries - Turquoise Hill	$	2,222		$	2		$	2,280		$	69
Management services payment (i)		(6,872	)		(8,105	)		(13,954	)		(16,295	)
Cost recoveries - Rio Tinto (ii)		(8,915	)		(11,793	)		(17,073	)		(20,776	)

Finance income:
Cash and cash equivalents (iii)		935			5,069			1,932			10,935
Receivable from Rio Tinto (iv)		527			18,722			4,391			40,994

Finance costs:
Completion support fee (v)		(27,177	)		(27,170	)		(54,358	)		(54,340	)
	$	(39,280	)	$	(23,275	)	$	(76,782	)	$	(39,413	)

	Three Months Ended June 30,						Six Months Ended June 30,
Statements of Cash Flows	2020			2019			2020			2019
Cash generated from operating activities
Interest received (iii, iv)	$	2,742		$	17,002		$	8,293		$	35,495
Interest paid (v)		-			-			(25,972	)		(78,395	)

Cash flows from investing activities
Receivable from related party: amounts withdrawn (iv)		204,284			255,000			511,284			530,000
Expenditures on property, plant and equipment:
Management services payment and cost recoveries - Rio Tinto (i), (ii)		(29,624	)		(13,743	)		(40,579	)		(30,335	)

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

17.

Related parties (continued)


	June 30,			December 31,
Balance Sheets	2020			2019
Cash and cash equivalents (iii)	$	210,000		$	210,000
Trade and other receivables		2,655			5,763
Prepaid expenses and other assets		56,690			82,808
Receivable from related party and other non-current financial assets (iv)		-			511,284
Trade and other payables (Note 11)
Management services payment - Rio Tinto (i)		(12,669	)		(14,156	)
Cost recoveries - Rio Tinto (ii)		(72,483	)		(51,747	)

	$	184,193		$	743,952

(i)

In accordance with the Amended and Restated Shareholders’ Agreement, which was signed on June 8, 2011, and other related agreements, Turquoise Hill is required to make a management services payment to Rio Tinto equal to a percentage of all capital costs and operating costs incurred by Oyu Tolgoi from March 31, 2010 onwards. After signing the Underground Mine Development and Financing Plan on May 18, 2015, the management services payment to Rio Tinto is calculated as 1.5% applied to underground development capital costs, and 3% applied to operating costs and capital related to current operations.

(ii)

Rio Tinto recovers the costs of providing general corporate support services and mine management services to Turquoise Hill. Mine management services are provided by Rio Tinto in its capacity as the manager of Oyu Tolgoi.

(iii)

In addition to placing cash and cash equivalents on deposit with banks or investing funds with other financial institutions, Turquoise Hill may deposit cash and cash equivalents with Rio Tinto in accordance with an agreed upon policy and strategy for the management of liquid resources. At June 30, 2020, cash equivalents deposited with wholly owned subsidiaries of Rio Tinto totalled $210.0 million (December 31, 2019 - $210.0 million), earning interest at rates equivalent to those offered by financial institutions or short-term corporate debt.

(iv)

As part of project finance (Note 12), Turquoise Hill appointed 9539549 Canada Inc., a wholly owned subsidiary of Rio Tinto, as service provider to provide post-drawdown cash management services in connection with net proceeds from the project finance facility, which were placed with 9539549 Canada Inc. and shall be returned to Turquoise Hill as required for purposes of Oyu Tolgoi underground mine development and funding. Rio Tinto International Holdings Limited, a wholly owned subsidiary of Rio Tinto, agreed to guarantee the obligations of the service provider under this agreement. At June 30, 2020, there were no amounts due from 9539549 Canada Inc. (December 31, 2019 - $511.3 million). Amounts due had been earning interest at an effective annual rate of LIBOR plus 2.45%. The interest rate reflected: interest receivable at LIBOR minus 0.05%; plus a benefit of 2.5% arising on amounts receivable from 9539549 Canada Inc. under the Cash Management Services Agreement, which are net settled with the 2.5% completion support fee described in (v) below.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

17.

Related parties (continued)

(v)

As part of the project finance agreements (Note 12), Rio Tinto agreed to provide a guarantee, known as the completion support undertaking (“CSU”) in favour of the Commercial Banks and the Export Credit Agencies. In consideration for providing the CSU, the Company is required to pay Rio Tinto a fee equal to 2.5% of the amounts drawn under the facility. The annual completion support fee of 2.5% on amounts drawn under the facility is accounted for as a borrowing cost and included within interest expense and similar charges (refer to Note 7). The fee is settled net of a benefit arising on amounts receivable from 9539549 Canada Inc. under the Cash Management Services Agreement described in (iv) above. The fee payment obligation will terminate on the date Rio Tinto’s CSU obligations to the project lenders terminate.

The above noted transactions were carried out in the normal course of operations and were measured at the transaction amount, which is the amount of consideration established and agreed to by the related parties.

18.

Commitments and contingencies

(a)

Capital commitments

At June 30, 2020, the Company had capital expenditure commitments of $39.6 million. These commitments represent minimum non-cancellable obligations and exit costs for cancellable obligations.

During 2018, Oyu Tolgoi signed a new power purchase agreement with the National Power Transmission Grid (“NPTG”) of Mongolia. The power purchase agreement was executed in connection with the power import arrangement between NPTG and the Inner Mongolia Power International Corporation (“IMPIC”).

The new arrangement took effect on July 4, 2018, subsequent to the expiry of the previous IMPIC agreement, for a term of up to six years, with possibility of early cancelation after the fourth year, if a domestic power plant is commissioned earlier.

At June 30, 2020, the Company had power purchase commitments of $179.0 million. These commitments represent minimum non-cancellable obligations.

(b)

Mongolian Tax Assessment

On January 16, 2018, the Company announced that Oyu Tolgoi received a tax assessment for approximately $155 million (which was converted from Mongolian Tugrik to U.S. dollars at the exchange rate on that date) from the Mongolian Tax Authority (the “MTA”) as a result of a general tax audit for the period covering 2013 through 2015. In January 2018 Oyu Tolgoi paid an amount of $4.8 million to settle unpaid taxes, fines and penalties for accepted items.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

18.

Commitments and contingencies (continued)

(b)

Mongolian Tax Assessment (continued)

The Company was of the opinion that Oyu Tolgoi had paid all taxes and charges required under the 2009 Oyu Tolgoi Investment Agreement (“Investment Agreement”), the Amended and Restated Shareholder Agreement (“ARSHA”), the Underground Mine Development and Financing Plan and Mongolian Law. Following engagement with the MTA, Oyu Tolgoi was advised that the MTA could not resolve Oyu Tolgoi’s objections to the tax assessment.

On February 20, 2020, the Company announced that Oyu Tolgoi will be proceeding with the initiation of a formal international arbitration proceeding in accordance with the dispute resolution provisions within Chapter 14 of the Investment Agreement, entered into with the Government of Mongolia in 2009 and Chapter 8 of the Oyu Tolgoi Underground Mine Development and Financing Plan, entered into with the Government of Mongolia in 2015. The dispute resolution provisions call for arbitration under the United Nations Commission on International Trade Law (UNCITRAL) seated in London before a panel of three arbitrators.

By agreeing to resolve the dispute under UNCITRAL Arbitration Rules, both parties have agreed that the arbitral award shall be final and binding on both parties and the parties shall carry out the award without delay.

Management remains of the opinion that Oyu Tolgoi has paid all taxes and charges as required under the Investment Agreement, ARSHA, the Underground Mine Development and Financing Plan and Mongolian law; and in the opinion of the Company, at June 30, 2020, a provision is not required for the amount of approximately $150 million, disputed by the Company relating to the years 2013 through 2015 or any additional amounts related to 2016 through June 30, 2020. The amounts that could arise related to 2016 through June 30, 2020 would be material. The final amount of taxes to be paid depends on a number of factors including the outcome of discussions with the government and the outcome of the international arbitration proceedings. Changes in management’s assessment of the outcome of this matter could result in material adjustments to the Company’s statements of income and financial position.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

18.

Commitments and contingencies (continued)

(c)

Power Source Framework Agreement

Oyu Tolgoi is obliged under the 2009 Oyu Tolgoi Investment Agreement to secure a long-term domestic source of power for the Oyu Tolgoi mine. The Power Source Framework Agreement (PSFA) entered into between Oyu Tolgoi and the Government of Mongolia on December 31, 2018 provides a binding framework and pathway for long-term power supply to the Oyu Tolgoi mine. The PSFA originally contemplated the construction of a power plant at Tavan Tolgoi (TTPP), which would be majority-owned by Oyu Tolgoi and situated close to the Tavan Tolgoi coal mining district located approximately 150 kilometres from the Oyu Tolgoi mine. In April 2020, the Government of Mongolia advised that it was unwilling to support Oyu Tolgoi’s proposal to develop TTPP and announced its intention to fund and construct a State Owned Power Plant (SOPP) at Tavan Tolgoi.

On June 26, 2020, Oyu Tolgoi and the Government of Mongolia amended the PSFA (PSFA Amendment) to reflect their agreement to jointly prioritise and progress SOPP, in accordance with and subject to agreed milestones, as the domestic source of power for the Oyu Tolgoi mine. The milestones include: signing a Power Purchase Agreement for the supply of power to the Oyu Tolgoi mine by March 31, 2021, commencing construction of SOPP by no later than July 1, 2021, commissioning SOPP within four years thereafter, and reaching agreement with the Inner Mongolia Power Investment Corp on an extension to the existing power import arrangements by March 1, 2021 in order to ensure there is no disruption to the power supply required to safeguard the Oyu Tolgoi mine’s ongoing operations and development. The PSFA Amendment provides that if certain agreed milestones are not met in a timely manner (subject to extension for Delay Events as defined) then Oyu Tolgoi will be entitled to select from, and implement, the alternative power solutions specified in the PSFA (as amended), including an Oyu Tolgoi-led coal fired power plant and a primary renewables solution, and the Government of Mongolia would be obliged to support such decision.

As at June 30, 2020, the Company has no capital commitments related to the PSFA, TTPP, or SOPP.

Due to the size, complexity and nature of Turquoise Hill’s operations, various legal and tax matters arise in the ordinary course of business. Turquoise Hill recognizes a liability with respect to such matters when an outflow of economic resources is assessed as probable and the amount can be reliably estimated. In the opinion of management, these matters will not have a material effect on the condensed interim consolidated financial statements of the Company.

TURQUOISE HILL RESOURCES LTD.

Notes to the condensed interim consolidated financial statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

(Unaudited)

19.

Financial instruments and fair value measurements

Certain of the Company’s financial assets and liabilities are measured at fair value on a recurring basis and classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Certain non-financial assets and liabilities may also be measured at fair value on a non-recurring basis.

The fair value of financial assets and financial liabilities measured at amortized cost is determined in accordance with accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions. Except as otherwise specified, the Company considers that the carrying amount of other receivables, trade payables and other financial assets measured at amortized cost approximates their fair value because of the demand nature or short-term maturity of these instruments.

The following tables provide an analysis of the Company’s financial assets that are measured subsequent to initial recognition at fair value on a recurring basis, grouped into Level 1 to 3 based on the degree to which the significant inputs used to determine the fair value are observable.

•

Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities.

•

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1, that are observable either directly or indirectly.

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Level 3 fair value measurements are those derived from valuation techniques that include significant inputs that are not based on observable market data.


	Fair Value at June 30, 2020
	Total		Level 1		Level 2		Level 3

Money market funds (a)	$	721,638	$	721,638	$	-	$	-
Marketable securities (a)		4,036		4,036		-		-
Trade receivables (b)		46,606		-		46,606		-
	$	772,280	$	725,674	$	46,606	$	-

	Fair Value at December 31, 2019
	Total		Level 1		Level 2		Level 3

Money market funds (a)	$	876,126	$	876,126	$	-	$	-
Marketable securities (a)		3,909		3,909		-		-
Trade receivables (b)		16,881		-		16,881		-
	$	896,916	$	880,035	$	16,881	$	-

(a)

The Company’s money market funds and marketable securities are classified within level 1 of the fair value hierarchy as they are valued using quoted market prices in active markets.

(b)

Trade receivables from provisionally priced concentrate sales are included in level 2 of the fair value hierarchy as the basis of valuation uses quoted commodity prices.