Name of the Project
Oyu Tolgoi underground mine project.

Location
Mongolia.

Client
Oyu Tolgoi is jointly owned by the Mongolia government (34%) and Turquoise Hill Resources (66%, of which Rio Tinto owns 51%). Rio Tinto has been managing the project since 2010.

Project Description
The Oyu Tolgoi openpit mine was completed on schedule in less than 24 months and production started in 2013. Since then, more than 440 000 t of copper have been sold.

About $6.4-billion has been invested to develop the openpit mine, concentrator and associated infrastructure, with an additional $500-million of capital costs for initial development of the underground mine.

The underground mine is expected to produce more than 500 000 t/y of copper, compared with current openpit production of 175 000 t/y to 200 000 t/y.

The mine also benefits from significant gold by-products, with an average gold grade of 0.35 g/t.

Underground production will come from the Hugo Dummett North deposit, including the North Extension, which contains probable ore reserves of 499-million tonnes, with an average grade of 1.66% copper and 0.35 g/t of gold.

The material from this brownfield expansion will use the existing concentrator and infrastructure.

The size and quality of this tier-one resource provides additional expansion options, which could sustain production for many decades.

Net Present Value/Internal Rate of Return
The project has an expected internal rate of return of more than 20%.

Value
The project will entail a $5.3-billion investment.

The initial project finance tranche of $4.4-billion was secured in December 2015 and is expected to be drawn during the second quarter of 2016.

The Oyu Tolgoi underground development will be funded by project finance debt and cash flows from the openpit operations, as well as cash held by Turquoise Hill Resources.

Duration
The development of the underground mine started in mid-2016, with first production expected in 2021. The mine is expected to be fully ramped up in 2027.

Latest Developments
Mongolia Prime Minister Jargaltulga Erdenebat has asked Rio Tinto to accelerate construction at the giant Oyu Tolgoi copper/gold mine, which is part of efforts to revive the country's debt-ridden economy.

The Prime Minister has assured Rio Tinto's copper chief Arnaud Soirat that Mongolia will honour its past agreements with Rio Tinto, and has called on the company to do the same.

"For Oyu Tolgoi, the Mongolian policy to work with Rio Tinto is already set," he has been quoted as saying in a statement posted on Mongolia's official government website.

An analyst for research firm Mongolian Metals & Mining Dale Choi has said that the Prime Minister has made it clear that Mongolia will not repeat past mistakes by interfering with the running of Oyu Tolgoi.

"The Prime Minister understands that the more quickly Oyu Tolgoi develops, the more profitable it is for government," he has said.

Elected in a landslide victory in late June, Mongolia's new government has pledged to restore the confidence of foreign investors. It is now grappling with a 20.6% budget deficit, a currency in freefall and a decline in coal and copper demand from its major customer, China.

Key Contracts and Suppliers
Jacobs Engineering (EPCM) and Cimic Group’s Thiess (underground decline contractor).

On Budget and on Time?
The expansion of Oyu Tolgoi was delayed for two years amid concerns about rising costs, and revenues have suffered as a result, with the project still dependent on lower-quality ore dug from its openpit mine, which has been in operation since 2013.

Work on the lucrative underground phase finally got under way this year, and Rio Tinto has received $5.3-billion in project financing from banks, with the option to draw down an additional $1.6-billion.

Contact Details for Project Information
Rio Tinto media relations: Australia/Asia, Ben Mitchell, tel +61 3 9283 3620 or email media.enquiries@riotinto.com.
Turquoise Hill Resources investors and media, Tony Shaffer, tel +1 604 648 3934 or email tony.shaffer@turquoisehill.com.
Jacobs Engineering Group, Mendi Head, tel +62 6 683 6227 or email mendi.head@jacobs.com.
Cimic Group investor relations, Marta Olba, tel +61 2 9925 6134.