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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Oyu Tolgoi Budget and Issues Settlement Update

By Elena Fehrbach

Jan. 13 – According to the announcement by Mr. D. Ganbold, Director at Erdenes Oyu Tolgoi, a state-owned enterprise that holds state’s share in Oyu Tolgoi project, the financing of the second stage of Oyu Tolgoi development could be resolved by the end of January. The estimating financing of the second and the main stage is approximately 6.6 billion USD. The negotiations of the financing stopped in October 2013 when the Government of Mongolia and Rio Tinto entered into a dispute over a number of financial and operational issues.

As noted by Mr. D. Ganbold, currently the majority of issues have been already resolved, but still some issues remain unsolved. The remaining issues include the water usage and fees payable, disagreement about royalties, justification of 2 billion USD overspent in 2013 and the submission of the pre-feasibility study. The result of ongoing negotiations is very positive for both sides, the only issue is the time both parties need to settle the dispute finally. Over 30 issues have been raised jointly by both sides since the start of the dispute case, the majority of which were from the Government’s side.

In the meantime, as the dispute is expected to be resolved in the nearest future, Oyu Tolgoi’s Board of Directors has approved the 2014 budget. The budget of the project is expected to be 1.28 billion USD with an estimated revenue level at 2.65 billion USD in 2014. 2014 will be a very important year for Oyu Tolgoi, as this year will be the first full scale production year for the copper giant. About 80 million USD of the budget are planned as sustaining capital for the established operations.

The company plans to draw down the inventory and return to a sustainable level of 4-6 weeks of production. To remind, by the end of December 2013, Oyu Tolgoi has produced 252,200 tonnes of copper concentrate out of 300,000 tonnes planned. 10,000 tonnes of copper concentrate has been sold to Chinese buyers. In metal terms, Oyu Tolgoi is planning to produce 175,600 tonnes of copper and 23.9 tonnes of gold in 2014.

Important point mentioned by Mr. Craig Kinnell, the President and CEO of Oyu Tolgoi is that the voting for the new budget was unanimous, which is an encouraging sign of confidence in the entire 8,000-strong Oyu Tolgoi team.

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