 Good day, fellow investors! Over the last few days, there were a lot of comments on my two-year-old video on Turquoise Hill. So the stock is down 70%. It's a copper gold miner with expected production for the next century. So we have copper, a great metal for the electrification and where our world is going with renewables, electric vehicles and everything. If you build all that infrastructure, you need a lot of copper. There is a lot of gold to be mined. So it is a hedge against the inflationary pressures that we have here. So it is a very, very interesting investment, a very interesting proposition. However, the stock is down more than 70% since from its five-year highs and we have to see what's going on. And I really want to answer the comments that have been wondering what's going on and what is the current valuation. So the topics for today are of course Turquoise down 70%, the bargain will give you a quick company overview. The current issues, the four big unknowns that pushed the stock price down, we'll just discuss the financial situation quickly. And then I'll show you my earnings models to make a valuation on Turquoise Hill. And I'll conclude with a copper conclusion how many copper miners are in the same situation and you have to be careful how and what to buy to expose your portfolio to the metal. The last time I made the proper analysis of Turquoise Hill was in 2016 and my conclusion wasn't positive. I said that at 2016 copper prices, earnings per share do not justify the project. Therefore Turquoise was a pure bet on copper. And then also it should be defined as highly risky as a lot of things can happen in seven years. That was the plan from 2016 to build and expand the mine and expect production in 2023. More than three years have passed now since then and actually a lot of bad things happened in the meantime. If we look at the stock price, the five-year high was $4.4 so we are now 70% below that and the risks have materialized so the stock is more than what? More than 50% below the price that was there when I wrote that article and plus copper prices have increased 40% so the stock price should have exploded as it was a bet on copper. But when you have an asset like Turquoise you also have Mongolia, you have the government there and then it's a huge ore body so a lot of things can happen when you plan something and then things might not turn out that way. It's always the same with such long-term huge projects you can always expect delays and there is one little hint that might help you estimate whether those will come or not and I'll show you that in a moment. Just a company overview. By 2025 all you told guys should be the third largest copper mine in the world with extremely low cash flows of around 50 cents per pound which means that if you sell the copper at $3 per pound the profits the gross profit margin should be $2.5 per pound. That would lead to EBITDA of $3 billion and that's not bad when you compare to the current market cap of $2.5 billion. Even if you take only 66% of the EBITDA it's still a great number we get to $2 billion on a market cap of $2.5 billion and that's because Oyutolgoys is jointly owned by the government of Mongolia 34% and Turcoys Hill that owns 66% and Riyatinto owns 51% of Turcoys Hill and is the manager of the project. For those that don't know the story, Oyutolgoys is a mine already producing mine in Mongolia but with huge growth expectations over the next years as they expand the mine. They will invest more than $5 billion in the mine and expect huge cash flows over the long term. As said we are into the renewable electric vehicle revolution, urbanization, electrification etc. There is less and less copper, the mines have to go deeper, the costs are higher. So supply will be challenged let's say to meet demand and the expectations are that copper prices might go up and up and that's a very big positive for Turcoys Hill. Especially as they have enough ore to mine it over the next 100 years and there are various cases, various optionalities for Turcoys Hill to see whether to expand on the current projects. Some projects will require huge capital investments of 8 to even 15 billion but those might be considered in the next 10-20 years. If copper prices go up probably the company will do them as the net presence value are also pretty high at copper prices of $3 and gold at $1,300. Who knows what will be the prices in 10-20 years. Now if I look at the technical report for the oil toll going mine I see that the life of mine is 48 years, the internal rate of return after tax for the investor is 21% at an 8% discount rate and the net present value is $7 billion for the project. However here is something very very interesting. For Rio Tinto the internal rate of return required for a project is 20% and then you have a company that makes the technical report that just barely passes the 20% pushing it to 21% so that the mine gets developed. Three years after the report has been published we see that there are technological issues, the mine body is not as expected which might increase the costs, delay production, lower the cash flows and completely change the internal rate of return also copper prices are lower so the rate of return is lower. If Rio Tinto would have known what it knows now they probably wouldn't have even developed such a mine so congratulations to those who did the optimistic plan back in 2016 you got yourself a lot of money for doing it and Rio Tinto put a lot of money into the project but be very careful when you see those 21% or 20.3% rate of returns because those are usually just above the threshold and everything in the project is made so that all the estimation so that it is just above and that the project goes into construction. Something to keep in mind when you look at other mines and consequently the latest developments showed how the technical report was a little bit too optimistic and the forecasts have been delayed and costs will increase. However, even if there is delay in production if we look at the cash flows, if the cash flows amount free cash flow to 2 billion in 2024 or 2025 there shouldn't be such a big difference for the long-term investor. It is expected to generate 10 billion in free cash flow in five years from 2022 to 2026 on a market cap of 2.4 billion doesn't really matter that much even if costs increase a little bit so long-term investors should really watch this one. Let's go through the current four issues that have really put pressure on the stock price. The first issue is that the government of Mongolia said oh you should not buy power from China you should source it domestically so they practically forced, I call it extortion but when Rio Tinto plows in so much money already they cannot really flex their muscles anymore because they would be crazy to leave the project and say no to Mongolia so the Mongols really take advantage of what they can do so we need a 300 megawatt power plant should cost around an additional 300 million that increases the costs of course but then if you produce your own power perhaps long-term power costs would be lower so I would say okay an increasing costs not so important there there are other things second thing, tax issue the government of Mongolia said that from 2015 to 2012 to 2015 they have to pay another $155 million in taxes so that's another rule change after the game already started then there is number three the mine or body or stability isn't as planned they have to change the mine plan which usually means higher costs and lower future cash flows that changes again what is going on and plus in number four the government is thinking about renegotiating the agreement that they have with the company as they are joint owners which means everything nobody knows what will happen even if the company received the preliminary report from the government they didn't want to comment anything in the last conference call they're just saying we can't comment on that we are working on that and we'll let you know by the end of the year there are four huge uncertainties and Wall Street hates uncertainties because you cannot put those into a model and when there are issues like that an investor asks always okay will there be issues in the future too will Mongolia increase taxes on mining so that it gets even more money from Oyutogoi etc. so it is a highly highly risky situation in a risky jurisdiction and now as the project is already developing we see what is the actual risk of the jurisdictions which means that there could be more trouble that there couldn't could be less they could reach an agreement but those things indicate that there will be long-term pains for the company in dealing with the government that's a given nevertheless let's look at the financial situation they are generating 50 million dollars in free cash flows in operating cash flows per quarter as of now they have 1.5 billion dollars in cash 1.6 billion dollars in available liquidity from more debt so they have 3.2 billion dollars in liquidity that should be enough to complete their mine project and put it to production even if they will give you an updated view on the underground schedule and budget now let's make evaluation let's put all the numbers Turcois is giving us and see whether we come up this is the technical report cash flow after tax plan and you can see that the cumulative after tax cash flows are 23 billion the cash flows are really skewed towards the first years and then the last 20 years the cash flows are 2 billion so practically not relevant I have included them into the calculation but when you discount to the present value it doesn't amount too much so the present value at 10% discount rate of the future cash flows comes to 7.5 billion when taking these cash flows into account let's now assume that the new mine plan increases the capital required for 2 billion the future cash flows remain the same so the present value drops to 6 billion so the calculations are made at assumptions of gold prices of 1300 at copper at 3 that could be a little bit conservative I think copper prices might be at 3.5, 3.2 so the net present value in that case would really jump to even 10 billion for Turcois Hill so Turcois Hill remains a bet on copper but when you do these calculations the technical report doesn't include debt the company already has 4 billion in debt they pay about 260 million on interest of debt so the interest rate is about 6% when they take all the debt they can take they will be around 6 billion so 360 million per year will go into interest rate plus in order to advance the future projects they will need to lower their debt so I estimated the payments of 360 million on the total debt of 6 billion and then I lowered the cash flows to shareholders by 1 billion per year from 2023 as I expect Turcois will start repaying the debt by 1 billion a year over those years when I deduct 344% owned by the Mongolian government the received present value of 2.8 billion Oyutogoy for Turcois Hill falls to 1.8 billion the current market cap of 2.4 billion is still higher than that and implies that Turcois Hill is a speculative bet on higher copper and gold prices that's not yet an investment so even after a 70% drop Turcois Hill is not an investment it is still a speculation on higher gold prices and higher copper prices it is much cheaper than what it was when I said that it is highly risky there are a lot of uncertainties and we don't know what the Mongolian government will do how will Oyutogoy deal with that or Turcois Hill so a lot of unknowns but still even with the unknowns if those would be certainties from the current point of view it is still a little bit overvalued and you pay a premium for that bet on copper and gold I prefer to invest in copper and gold miners without that premium so that I buy value as of now and then if there is upside I want to get that upside for free it's really remarkable 100 years of production expected huge ore body, huge potential but 100 years ago Mongolia was still under China it was a Soviet run communist country then it changed so who knows what will happen over the next 100 years if I look at my copper miners list many copper miners are in the same situation and overvalued in relation to what they offer in the long term based on the premise that copper prices will go up don't get confused by the colors that's just something I put in I was researching the whole sector a few months ago if you want to see all my research reports on the copper sector please check my stock market research platform there is a 28-day money-back guarantee so you can check everything see how that fits your portfolio and investment style and then make a decision at no cost so a very good investment so Turku's hill to conclude is okay great investment but with a lot of issues you have to really see whether you want to make a speculative bet for the very long term so if you buy, you put your money in and simply forget about it for the next 10-20 years if you can do that I think the risk reward is skewed into the positive because it's simply the asset is great and if the Mongolian government doesn't make any trouble copper prices go up probably due to inflation gold is a good hedge then you will do well and this short-term volatility can be used for short-term trading but on a value absolute return it still has to go down 40% to hit that okay now it becomes a value investment then you discount it for the issues so still a lot of room to go down from an investment perspective there will always be a premium on the value of the investment because of the huge assets, huge potential and high leverage to metal prices thank you for watching look forward to your comments and I'll see you in the next video