Turquoise Hill Resources (TRQ): It’s about what they are NOT saying

(This is not an actionable idea.)

Virtually all of Turquoise Hill’s value lies in its flagship project, Oyu Tolgoi.  The company has poured several billion dollars in it and the mine is currently ramping up to commercial production.  I have serious doubts about the project’s economics.

Normally, before you spend billions of dollars building out a mine, you would perform a feasibility study and release it to your investors who are putting up the billions of dollars needed to finance the mine.  I could not easily find a feasibility study on the company’s website.  (I believe there is a 2009 feasibility study filed on SEDAR somewhere.)  This is a massive red flag.  It suggests to me that the mine’s economics are so awful that the company doesn’t want its shareholders to know the truth.

There is other important information that Turquoise Hill is not very upfront about.  It is standard practice for a mining company to state (A) the size of its reserves and (B) the grade of its reserves.  The company makes it hard for investors to figure out the latter.  It is not stated on Turquoise Hill’s webpage for the Oyu Tolgoi project.  I could not find it in the MD&A either.

Similarly, it is standard for a mining company to state what the head grades are if the mine is producing.  It is also a good idea for the company to compare its head grade versus the grade estimated by its resource model to check how accurate its resource model is.  This information would normally be found in the MD&A.  I could not find it.This company releases investor presentations on a monthly basis and doesn’t bother talking about its most important numbers (e.g. net present value of the project, IRR, grade, etc.).  It is incredibly suspicious.  I wish I had noticed this earlier when the share price was higher.

*Disclosure:  No position in TRQ.  I haven’t done a lot of research into TRQ.  I’m not sure if it’s worth researching as a short because its valuation is not obscene.  The company is trading below the amount of money spent on the mine so far.

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2 thoughts on “Turquoise Hill Resources (TRQ): It’s about what they are NOT saying

  1. Pingback: Mining Shorts Roundup | Glenn Chan's Random Notes on Investing

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