Overview

Oyu Tolgoi Project website

Oyu Tolgoi is one of the world's largest new copper-gold mines and is located in the South Gobi region of Mongolia, approximately 550 km south of the capital, Ulaanbaatar, and 80 km north of the Mongolia-China border.

The comprehensive Oyu Tolgoi Investment Agreement took effect March 31, 2010, following confirmation by the Government of Mongolia that procedural and administrative conditions contained in the Investment Agreement had been satisfied within the allocated six-month period that has followed the agreement's official signing in October 2009. The comprehensive Investment Agreement now has taken full legal effect.

On October 6, 2009, Turquoise Hill Resources and Rio Tinto signed a long-term, comprehensive Investment Agreement with the Government of Mongolia for the construction and operation of the Oyu Tolgoi copper-gold mining complex. The agreement creates a partnership between the Mongolian Government -- which acquired a 34% interest in the project -- and Turquoise Hill Resources, which retained a controlling 66% interest in Oyu Tolgoi. Global miner Rio Tinto, which joined Turquoise Hill Resources as a strategic partner in October 2006, is managing the development of Oyu Tolgoi.


By the end of Q1'13, construction of the Oyu Tolgoi open-pit mine and concentrator complex was complete and mine infrastructure was substantially complete.

Major highlights for 2013 and Q1'14 include the following:

• Oyu Tolgoi achieved a strong safety performance for 2013 with no fatalities and an All Injury Frequency Rate of 0.43 per 200,000 hours worked.

• In 2013, Oyu Tolgoi produced approximately 290,000 tonnes of concentrate. The mine produced 76,700 tonnes of copper in concentrates for 2013 and met production guidance.

• Throughput and recovery rates improved throughout 2013. During the first half of 2013, commissioning of the concentrator progressed and concentrate production ramped up. By Q3'13, the concentrator had consistently achieved throughput rates above 95% of capacity and by the end of 2013 was operating at just above design capacity.

• On July 9, 2013, Oyu Tolgoi commenced the shipping of concentrate. During Q3'13, Oyu Tolgoi's customers were engaged with Chinese customs officials to receive the necessary approvals to enable them to collect purchased concentrate. Sales commenced on October 19, 2013 when the first customer collected concentrate from the Chinese-border warehouse. Net revenue for 2013 was $51.6 million on 26,400 tonnes of concentrate.

• In Q2'13, open-pit production rates were reduced to preserve cash and better align open-pit production to the needs of the concentrator during the ramp up period. Open-pit mining resumed during Q3'13 and returned to more normal operating levels during Q4'13. During Q4'13, open-pit production increased approximately 81% over Q3'13.

• On September 1, 2013, Oyu Tolgoi achieved the Commencement of Production as defined in the October 2009 Investment Agreement between Turquoise Hill, Rio Tinto and the Government of Mongolia. This resulted in an increase in the Management Services Payment from 3% to 6% of capital costs and operating costs incurred by Oyu Tolgoi. The Company and Rio Tinto have agreed to evenly split the Management Services Payment from Oyu Tolgoi.

• On July 28, 2013, Turquoise Hill announced that funding and all work on the underground development of Oyu Tolgoi would be delayed and on August 13, 2013 development was suspended. All parties are committed to further construction and development of Oyu Tolgoi subject to resolution of shareholder issues.

• Prior to the development suspension in Q3'13, underground lateral development at Hugo North had advanced approximately 16 kilometres and the sinking of Shaft #2 and Shaft #5 had reached approximate depths below surface of 1,200 metres (91% of its final depth) and 200 metres (17% of its final depth), respectively. Development of the main ventilation station was completed during Q3'13.

• The feasibility study for the expansion of operations at the Oyu Tolgoi mine is ongoing and expected to be complete in the first half of 2014. Following completion, the study must be approved by the mine's shareholders as well as the Mongolian Minerals Council.

• Sales contracts have now been signed for 74% and 84% of Oyu Tolgoi's expected 2014 and 2015 concentrate production respectively, while 40% of concentrate production is contracted for eight years (subject to renewals). Discussions are ongoing with potential customers to place the remaining tonnage under long-term agreements at international terms.

• At the beginning of January 2014, annual negotiations were conducted with all Oyu Tolgoi customers and 2014 annual treatment and refining charges were settled at the Far East Benchmark of $92 per tonne of copper concentrate and 9.2 cents per pound of payable copper.

• During Q4'13, negotiations with the Oyu Tolgoi Trade Union were finalized resulting in the signing of a new collective agreement. The new two-year agreement is a departure from Mongolian labor agreements which typically are for 12 months. All parties see the new agreement as a positive step in positioning Oyu Tolgoi for long-term operations.

Final cost for the initial development and construction of Oyu Tolgoi was approximately $6.2 billion.


(Current as of March 26, 2014)

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