Mining in Mongolia

Mongolia is one of the richest countries in the world in terms of natural resources and is now making rapid progress with respect to exploiting these resources.

Mongolia is known around the world for its two major mining projects OT (OyuTolgoi) and TT (TavanTolgoi)

OT appears to be on track and close to closure of funding. Latest developments include: Facilities required for first ore production in mid-2012 remain on schedule and commercial production is expected to commence in the first half of 2013. The stringing of power cables is expected to commence in spring 2012. Bilateral agreement is expected in 2012 to ensure that imported power will be available at the OyuTolgoi site by Q3’12. OyuTolgoi LLC is finalizing a study of alternative power-generation arrangements if it became apparent that interim imported power would not be available by Q3’12.

Ivanhoe Mines, Rio Tinto and a core lending group are working together to finalize an approximate USD 4.0 billion project-finance facility for the OyuTolgoi Project, with the objective of signing loan documentation in early Q2’12.

TT ramp up: ETT to export 3Mt in 2012. In 2012 prices to off taker Chalco are to be adjusted according to agreed index.ETT to build parallel 2 lane paved highway beside MMC highway, construction to start in mid-2013. If there is a successful IPO for TT then this will also drive investments in 2012 and 2013 and maintain growth. TT south railroad to be started at the same time as the one to the east to Sainshand Industrial Hub.

With ramp up of South Gobi coal producing region coal exports including value-added (washed) are to be yet again record in 2012. We estimate that 2012 volume would be in a range between 25-30 million tons per annum and value of USD 2.25-2.75 billion. Although there is a lot of progress with coal highways, industry consensus view is that still, infrastructure capacity is increasingly becoming a constraint to export growth. With softening prices the total value of coal exports is unlikely to increase as much as the new tonnage, however, with new volume compensating for price softening.

We expect yet again record iron ore exports and softening commodity prices in 2012. Gold to remain a Tier 2 export commodity despite favorable prices in 2012. We estimate volume of iron ore exports in 2012 to be in a range of 8 million tons and value in a range of 500 million USD. We estimate volume of copper exports to remain virtually the same as well in 2012 and value to be in a range of USD 1 billion.