Turquoise Hill Provides Additional Details on Oyu Tolgoi Underground Mine Development and Financing Plan

UNITED STATES May 19 2015 3:40 AM

VANCOUVER, BC--(Marketwired - May 18, 2015) - Further to today's joint announcement by Turquoise Hill Resources, the Government of Mongolia and Rio Tinto, the Company is providing additional details in connection with the Oyu Tolgoi Underground Mine Development and Financing Plan (the Mine Plan), which provides a pathway forward in addressing outstanding shareholder matters to restart underground development. Next steps include approval of the underground feasibility study and project financing as well as obtaining all necessary permits. The Mine Plan confirms the project cost for Oyu Tolgoi's initial construction and development and reinforces the principles set out in the Investment Agreement and the Amended and Restated Shareholders Agreement (ARSHA).

Jeff Tygesen, Turquoise Hill's Chief Executive Officer, said, "Today's announcement is a major milestone in Turquoise Hill's history. The Mine Plan outlines a pathway to restarting underground development at Oyu Tolgoi, where approximately 80% of the mine's value resides. The agreement will supplement the benefits of open-pit operations, which is providing jobs in Mongolia, additional economic contributions and best practices in mining. I am confident today's announcement will allow the value of Oyu Tolgoi to be more fully realized by all Turquoise Hill shareholders."

The Company will host a conference call and webcast to discuss the Mine Plan tomorrow at 10:00 am EDT/7:00 am PDT.

Next steps toward the underground development include on-going discussions with the Government of Mongolia in relation to the 2014 Feasibility Study and engagement with international financial institutions, export credit agencies and commercial banks to secure approximately $4 billion in project financing. When all steps and approvals on the path forward have been reached, the underground workforce will be remobilized.

The agreements address key outstanding matters including the following specific items: tax matters, the 2% net smelter royalty, sales royalty calculation and management services payments. The agreements also address the sourcing of power for Oyu Tolgoi from within Mongolia. The overall value impact for the Company in connection with the agreements is less than 2% of the value of the reserve case of $7.4 billion.

In 2003, Turquoise Hill acquired a 2% net smelter royalty from BHP Billiton. The enforceability of the royalty has been challenged by the Assistant General Prosecutor of Mongolia under Mongolian law. The Company has conceded that it has no entitlement to receive payment.

In June 2014, Oyu Tolgoi LLC received a Tax Act (Tax Assessment) from the Mongolian Tax Authority as a result of a general tax audit for the period 2010 through 2012. Oyu Tolgoi appealed the assessment and in September 2014 received a response reducing the amount of tax, interest and penalties claimed to be payable, from approximately $127 million to approximately $30 million. In a separate agreement with the Government of Mongolia, Oyu Tolgoi has agreed, without accepting liability and without creating a precedent to pay the amount of the determination by way of settlement to resolve the tax matter.

The parties have agreed that Oyu Tolgoi's 5% sales royalty paid to the Government of Mongolia will be calculated on gross revenues by not allowing deductions for the costs of processing, freight differentials, penalties or payables. Oyu Tolgoi will recalculate royalties payable accordingly since the commencement of sales and submit any additional amount payable to the Government within 30 days.

Notwithstanding the terms of the ARSHA, the parties have agreed that in calculating the Management Services Payment (MSP), the rate applied to capital costs of the underground development will be 3% instead of 6%, as provided by the ARSHA. The MSP rate on operating cost and capital related to current operations remains at 6%.

Within 30 days of execution of the Mine Plan, Oyu Tolgoi LLC and Turquoise Hill have agreed to prepare and submit working assumptions for a possible credit enhancement mechanism to support Oyu Tolgoi LLC's obligations under a potential power purchase arrangement from the Tavan Tolgoi power plant project.

Today's announcement is a significant first step towards restarting underground development. The Mine Plan is available on SEDAR and the Company's website.

About Turquoise Hill Resources

Turquoise Hill Resources (NYSE: TRQ) (NASDAQ: TRQ) (TSX: TRQ) is an international mining company whose primary operation is its 66% interest in the Oyu Tolgoi copper-gold-silver mine in southern Mongolia.