Oyu Tolgoi copper and gold project partners reach comprehensive agreement

Rio Tinto, turquoise Mountain Resources (hereinafter referred to as TRQ) and the Mongolian government have reached an agreement to advance the development of the (Oyu Tolgoi) copper and gold project in Oyu Tolgoi, restart the relationship between partners and enhance the value the project brings to Mongolia.

As a result, Oyu Tolgoi's board of directors, composed of representatives of Rio Tinto, TRQ and Erdene Oyu Tolgoi (hereinafter referred to as EOT, which is wholly owned by the Mongolian government), has unanimously approved underground operations. After the launch of the underground operation plan, the maximum value of the orebody will be released, and the project is expected to achieve the first sustainable production in the first half of 2023.

As part of the agreement, TRQ will cancel $2.4 billion of EOT's book debt in full, including the amount of common stock investment and accrued interest on Oyu Tolgoi LLC contributed by TRQ on behalf of EOT in the project construction funds.

The Parliament of Mongolia approved a resolution (resolution 103) resolving the remaining issues left over from negotiations with the Government of Mongolia on Parliamentary Resolution 92 (December 2019) over the past two years.

Rio Tinto and TRQ revised the framework agreement signed in April 2021 to ensure proper financing for the Oyu Tolgoi project. Capital expenditure on the project is expected to be US $6.925 billion, including US $175 million currently known to address the impact of the COVID-19 epidemic (by the end of 2021). The remaining capital expenditure of the project is expected to be $1.8 billion. A re-estimation will be carried out in the first half of 2022 and the following will be taken into account in the revised cost and duration estimates: any further impact of the COVID-19 epidemic; any additional time impact and market price impact due to budget constraints in 2021 (because Oyu Tolgoi's board of directors did not approve an increase in the capital expenditure budget when determining the final estimate); the risk scope will be updated to reflect the latest project implementation risks.

According to reports, the main contents of the revised framework agreement include: strive to reschedule the principal repayment time for the existing Oyu Tolgoi project, which has the potential to reduce Oyu Tolgoi's funding requirements by 1.7 billion US dollars; seek to finance the Oyu Tolgoi project in the form of supplementary high-level debt from selected international financial institutions, which may be implemented after sustainable underground production is realized. Rio Tinto will provide a $750 million joint loan to Oyu Tolgoi as the project financing mechanism after sustainable underground production is realized (if the joint loan facility takes effect, $300m will come from a short-term guaranteed loan directly provided by Rio Tinto to TRQ). TRQ agrees to issue $1.5 billion of shares or sell the corresponding equity (with an initial value of not less than $650 million, to be completed by August 31st, 2022).

It is understood that Oyu Tolgoi's board of directors also approved the signing of a power supply agreement that will provide the Oyu Tolgoi project with a long-term power source from Mongolia's Electroweb in accordance with terms reached with the Mongolian government. In order to fulfill Oyu Tolgoi's commitment to purchase electricity in China, Rio Tinto will work with the government to support long-term renewable energy power generation and promote the development of Electroweb in Mongolia. The Mongolian government and Oyu Tolgoi are in constructive discussions with Inner Mongolia Guohe Power Co., Ltd., thus extending the current agreement to import electricity until July 2023. Inner Mongolia Guohe Power Co., Ltd. has supported the extension, and commercial terms are being agreed.

Mongolian Prime Minister Oyun Erden said: "the launch of underground mining operations in Oyu Tolgoi shows the world that Mongolia can work with investors in a sustainable manner and become a trusted partner. As part of our 'new revival policy', Mongolia is willing to actively cooperate with global investors and partners to achieve mutual benefit. "

Shi Daocheng (Jakob Stausholm), chief executive of Rio Tinto, said: "We would like to thank the Mongolian government for the fruitful cooperation with Rio Tinto and TRQ, which enabled us to reach this key agreement. This will continue to advance one of the world's largest copper and gold mine growth projects and consolidate Mongolia's position as a global investment destination. This agreement represents the resumption of our partnership and solves the historical problems between the partners of the Oyu Tolgoi project. We have full confidence in the future of Mongolia, and I am committed to ensuring that the Mongolian people, together with our shareholders, benefit from the Oyu Tolgoi project. "

He said copper would play an important role in decarbonization and electrification in the race to achieve net zero emissions. With the increasing demand for copper, the Oyu Tolgoi underground mining project will consolidate Rio Tinto's position as the world's leading copper supplier. In addition, more opportunities will be explored to achieve decarbonization of Oyu Tolgoi operations, including the procurement of renewable energy.

Steve Thibeault, interim CEO of TRQ, said: "this is critical to unlocking the great potential of this world-class high-quality deposit and creating value for all stakeholders. After reaching an agreement with the Mongolian government and a revised framework agreement with Rio Tinto, it greatly improves the certainty of completing this project and gives us confidence. When completed, the project will become one of the largest copper mines in the world, create huge economic value and employment opportunities in Mongolia, and bring returns to our shareholders in the next few years. I would like to thank the Government of Mongolia for its commitment to reaching a balanced agreement to help advance the project while ensuring that all stakeholders, including the people of Mongolia, truly benefit from the development of this resource. To a large extent, this agreement illustrates the positive environment of foreign investment in Mongolia. "

According to reports, by 2030, Oyu Tolgoi is expected to become the fourth largest copper mine in the world. This is a complex green space project, consisting of an underground mine, a copper concentrator, and an open-pit mine that has been operating successfully for nearly 10 years. It is also one of the most modern, safe, sustainable and water-saving mines in the world, with more than 96% of its employees being Mongolian. Since 2010, Oyu Tolgoi has spent a total of $13.4 billion in Mongolia, including $3.6 billion in taxes and other fees paid to the state. Oyu Tolgoi project as a world-class asset, its scale and resource quality provide a variety of options for the expansion of the project, with the potential to maintain decades of production.