Ruling political party's conclusion on draft OT Investment Agreement

After discussing how to approve this project in line with the national interest, the Mongolian People’s Revolutionary Party (MPRP) group presents the following suggestions and conclusions. It is concluded that, in addition to considering the need to discuss and approve the investment agreement between the Mongolian Government and “Ivanhoe Mines Mongolia Inc.“, the following issues should be clarified.

1. In accordance with the articles 6.1 and 6.2 of the Constitution of Mongolia and the articles 30.1.1 and 30.1.2 of the Minerals law,
- mineral reserves for the project underground mining sites to be registered in the state reserve
- complete feasibility study on the deposit operation,   
- detail the investment volume
- provide cash flow capital assessment by copper price being at USD 2400-6500
- increase the first 30-year-income, which has been estimated low now, and will finance the State budget and Development Fund of Mongolia

2. Economic justification and reasons should be clarified on to the initial investment capacity which has been changed twice and become five billion US dollars; and it should be determined in details, if the changes in paragraphs 2.29 and 9.8 of the agreement have increased the investment capacity.   

3. In the agreement proposal, the following should be clarified:
- Total cost of the allowances of custom tax, value-added tax and dividends tax, or concession on road and other fares
- Tax allowance cost deductions
- Grand total of payable income to Mongolia
- Benefits to Mongolia from the investment project based on the comparative study of copper and gold prices  

4. According to the clauses 3.5 and 9.6, upon consideration of economic condition and financial issues (including accessibility and condition of financial sources to fund Oyu-tolgoi project) project implementation period and stages will be decided by the investor based on the technical-economical feasibility study. It is stated that, if the investor is to make significant changes to the project implementation stages, it shall inform only the Minister of Mineral Resources and Energy. This could result in the freezing of the project, droop expectations of citizens and the government goal.

5. The following infrastructural issues need to be clarified:

à. The paragraphs 6.9-6.14 of the agreement, which is about water shed and water resources’ capacity and regulations of the water consumption, should be determined in detail by a designated governmental body. It is stated in the paragraph that if investor discovers water resource on his own equity, he will not be obligated to share it with the government, citizens or a third party. Water resources for technology of concentrating plants, including underground and surface water need to be studied;

b. The paragraph 7.2 of agreement states about electricity supply and it should be determined in detail if it can be supplied from the State central energy system based on the technical-economical feasibility study. Its budget should be determined within the investment capacity.  

c. Paragraphs 7.6.1-7.10.5 which is related to road construction also need to be clarified.

6. In the paragraph 15 it should be determined clearly that share holders must not use his shares as collateral and transfer it to the third party or illegal body. Also share holders must not transfer his contractual rights and obligations to others.

7. Change paragraph 4 in the agreement in accordance with the regional development concept of Mongolia; when community and regional socio-economic development projects and activities, follow principles of transparency and accountability and support livelihood of rural citizens, and maintain sustainable development of the regions.

8. Ivanhoe Oyu-tolgoi Ltd., which is registered with the Virginia Island of the Great Britain, is signed investors and share holders contract, on behalf of its head company. Legal capacity of the Ivanhoe Oyu-tolgoi, commitment and obligations of the head company, Rio Tinto Peak, Rio Tinto Ltd., Rio Tinto International Holding, Ivanhoe group, Ivanhoe Mining, Rio Tinto China, China Alco companies need to be clarified relatively.

9. Initially, the contract is stated to be in force for 30 years, which need to be changed by 15 years of validity now. Extension of the validity term should be decided upon discussion of the contract fulfillment.

10. Up-front money from the investor (USD 125.0 million) is low, whereas the interest is significantly high, which needs to be re-considered. Increase the money.

- In accordance with the general principles and guidelines given from the State Ikh Khural (the parliament), the issue of increasing the share of Mongolian ownership from 34% to 50% is considered in line with the break even period for the investment
-to determine precisely the portion of control package within the total shares
-to define the possibility of Mongolian side to own shares from control package and the possibility of Mongolian citizens to own common shares
-to ensure the principles of equal participation of the investors in the Board of Directors,

12. Contract fulfillment should be reviewed. In order to improve efficiency of the contract, change paragraphs, where aspiration is declared, for specific commitment and obligations.

13. “If Mongolian and English versions differ in meaning or translation, then English version is to be adhered” as stated in the agreement proposal. Therefore, precise glossary of specific terminologies in both languages should be prepared. The glossary must be revised and precisely interpreted by an outsider and the translation department of the Ministry of Foreign Affairs.