Annual Report (foreign Private Issuer) (40-f)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

¨	Registration Statement pursuant to Section 12 of the Securities Exchange Act of 1934

x	Annual Report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2015

Commission File Number: 001-32403

TURQUOISE HILL RESOURCES LTD.

(Exact name of Registrant as specified in its charter)

Yukon, Canada

1000

Not Applicable

(Province or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

Suite 354 – 200 Granville Street, Vancouver, British Columbia, Canada, V6C 1S4, (604) 688-5755

(Address and telephone number of registrant’s principal executive offices)

CT Corporation System

111 Eighth Avenue

New York, New York

10011

(212) 894-8700

(Name, address and telephone number of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Common Shares without par value

New York Stock Exchange

Nasdaq

(Title of Class)

(Exchanges)

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

For annual reports, indicate by check mark the information filed with this Form:


x Annual Information Form		x Audited Annual Financial Statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

2,012,314,469 Common Shares outstanding as of December 31, 2015

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes x No ¨

The Annual Report on Form 40-F shall be incorporated by reference into, or as an exhibit to, as applicable, the Registrant’s Registration Statements on Form S-8 (File Nos. 333-160783 and 333-143550) under the Securities Act of 1933, as amended.

PRINCIPAL DOCUMENTS

The following documents have been filed as part of this Annual Report on Form 40-F:

A. Annual Information Form

For the Annual Information Form (“AIF”) of Turquoise Hill Resources Ltd. (the “Corporation”) for the year ended December 31, 2015, see Exhibit 99.1 of this Annual Report on Form 40-F. The AIF included as Exhibit 99.1 is incorporated by reference into this Annual Report on Form 40-F.

B. Audited Annual Financial Statements

For the Corporation’s Audited Consolidated Financial Statements for the years ended December 31, 2015 and 2014, including the report of the independent auditor with respect thereto, see Exhibit 99.2 of this Annual Report on Form 40-F. The Audited Consolidated Financial Statements included as Exhibit 99.2 are incorporated by reference into this Annual Report on Form 40-F.

C. Management’s Discussion and Analysis

For the Corporation’s Management’s Discussion and Analysis for the year ended December 31, 2015 (the “MD&A”), see Exhibit 99.3 of this Annual Report on Form 40-F. The MD&A included as Exhibit 99.3 is incorporated by reference into this Annual Report on Form 40-F.

FORWARD-LOOKING STATEMENTS

Certain statements made herein, including statements relating to matters that are not historical facts and statements of the Corporation’s beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking information and statements relate to future events or future performance, reflect current expectations or beliefs regarding future events and are typically identified by words such as “anticipate,” “could,” “should,” “expect,” “seek,” “may,” “intend,” “likely,” “plan,” “estimate,” “will,” “believe” and similar expressions suggesting future outcomes or statements regarding an outlook. These include, but are not limited to, statements respecting anticipated business activities, planned expenditures, corporate strategies, and other statements that are not historical facts.

Certain important factors that could cause actual results, performance or achievements to differ materially from those in the forward-looking statements and information include, among others, copper, gold and silver price volatility, discrepancies between actual and estimated production, mineral reserves and resources and metallurgical recoveries, mining operational and development risks, litigation risks, regulatory restrictions (including environmental regulatory restrictions and liability), activities or assessments by governmental authorities, currency fluctuations, the speculative nature of mineral exploration, the global economic climate, dilution, share price volatility, competition, loss of key employees, additional funding requirements, capital and operating costs, including with respect to the development of the underground mine, and defective title to mineral claims or property. Although the Corporation has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements and information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. All such forward-looking information and statements are based on certain assumptions and analyses made by the Corporation’s management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements, however, are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information or statements.

With respect to specific forward-looking information concerning the construction and continued development of the Oyu Tolgoi Mine, the Corporation has based its assumptions and analyses on certain factors which are inherently uncertain. Uncertainties and assumptions include, among others: the timing and cost of the construction and expansion of mining and processing facilities; the timing and availability of a long-term power source for the Oyu Tolgoi Mine; the timing and ability to satisfy all conditions precedent to the first drawdown under the Oyu Tolgoi Project Financing (as defined in the section entitled “Definitions” in the AIF); the approval of the Statutory Feasibility Study (as defined in the section entitled “Definitions” in the AIF) by Oyu Tolgoi LLC and its shareholders; the impact of changes in, changes in interpretation to or changes in enforcement of, laws, regulations and government practices in Mongolia; the availability and cost of skilled labour and transportation; the obtaining of (and the terms and timing of obtaining) necessary environmental and other government approvals, consents and permits; the availability of funding on reasonable terms; the impact of the delay in the funding and development of the Oyu Tolgoi underground mine; delays, and the costs which would result from delays, in the development of the underground mine (which could significantly exceed the costs projected in the Statutory Feasibility Study and the 2014 Oyu Tolgoi Technical Report (as defined in the section entitled “Definitions” in the AIF)); projected copper, gold and silver prices and demand; and production estimates and the anticipated yearly production of copper, gold and silver at the Oyu Tolgoi Mine.

The cost, timing and complexities of mine construction and development are increased by the remote location of a property such as the Oyu Tolgoi Mine. It is common in new mining operations and in the development or expansion of existing facilities to experience unexpected problems and delays during development, construction and mine start-up. Additionally, although the Oyu Tolgoi Mine has achieved commercial production, there is no assurance that future development activities will result in profitable mining operations. In addition, funding and development of the underground component of the Oyu Tolgoi Mine were delayed. These delays can impact project economics.

This Annual Report on Form 40-F also contains references to estimates of mineral reserves and mineral resources. The estimation of reserves and resources is inherently uncertain and involves subjective judgments about many relevant factors. The mineral resource estimates contained in this Annual Report on Form 40-F are inclusive of mineral reserves. Further, mineral resources that are not mineral reserves do not have demonstrated economic viability. The accuracy of any such estimates is a function of the quantity and quality of available data, and of the assumptions made and judgments used in engineering and geological interpretation (including future production from the Oyu Tolgoi Mine, the anticipated tonnages and grades that will be achieved or the indicated level of recovery that will be realized), which may prove to be unreliable. There can be no assurance that these estimates will be accurate or that such mineral reserves and mineral resources can be mined or processed profitably. In addition, see “Cautionary Note to United States Investors.” Such estimates and statements are, in large part, based on the following:

•

interpretations of geological data obtained from drill holes and other sampling techniques. Large scale continuity and character of the deposits will only be determined once significant additional drilling and sampling has been completed and analyzed. Actual mineralization or formations may be different from those predicted. It may also take many years from the initial phase of drilling before production is possible, and during that time the economic feasibility of exploiting a deposit may change. Reserve and resource estimates are materially dependent on prevailing metal prices and the cost of recovering and processing minerals at the individual mine sites. Market fluctuations in the price of metals or increases in the costs to recover metals from the Corporation’s mining projects may render mining of ore reserves uneconomic and affect the Corporation’s operations in a materially adverse manner. Moreover, various short-term operating factors may cause a mining operation to be unprofitable in any particular accounting period;

•

assumptions relating to commodity prices and exchange rates during the expected life of production, mineralization of the area to be mined, the projected cost of mining, and the results of additional planned development work. Actual future production rates and amounts, revenues, taxes, operating expenses, environmental and regulatory compliance expenditures, development expenditures, and recovery rates may vary substantially from those assumed in the estimates. Any significant change in these assumptions, including changes that result from variances between projected and actual results, could result in material downward revision to current estimates;

•

assumptions relating to projected future metal prices. The prices used reflect organizational consensus pricing views and opinions in the financial modeling for the Oyu Tolgoi Mine and are subjective in nature. It should be expected that actual prices will be different than the prices used for such modeling (either higher or lower), and the differences could be significant; and

•

assumptions relating to the costs and availability of treatment and refining services for the metals mined from the Oyu Tolgoi Mine, which require arrangements with third parties and involve the potential for fluctuating costs to transport the metals and fluctuating costs and availability of refining services. These costs can be significantly impacted by a variety of industry-specific and also regional and global economic factors (including, among others, those which affect commodity prices). Many of these factors are beyond the Corporation’s control.

Readers are cautioned not to place undue reliance on forward-looking information or statements. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. Events or circumstances could cause the Corporation’s actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements are included in the “Risk Factors” section of the AIF.

Readers are further cautioned that the list of factors enumerated in the “Risk Factors” section of the AIF that may affect future results is not exhaustive. When relying on the Corporation’s forward-looking information and statements to make decisions with respect to the Corporation, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Furthermore, the forward-looking information and statements contained in this Annual Report on Form 40-F are made as of the date of this document and the Corporation does not undertake any obligation to update or to revise any of the included forward-looking information or statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The forward-looking information and statements contained in this Annual Report on Form 40-F are expressly qualified by this cautionary statement.

CAUTIONARY NOTE TO UNITED STATES INVESTORS

The documents filed as part of this Annual Report on Form 40-F have been prepared in accordance with the requirements of Canadian securities laws, which differ from the requirements of U.S. securities laws. Unless otherwise indicated, all reserve and resource estimates included in this Annual Report on Form 40-F have been prepared in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”), and the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards for mineral resources and mineral reserves (“CIM Standards”). NI 43-101 is a rule developed by the Canadian Securities Authorities that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

Canadian standards, including NI 43-101, differ significantly from the requirements of the U.S. Securities and Exchange Commission (the “SEC”), and reserve and resource information contained in this Annual Report on Form 40-F may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserve.” Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under the SEC standards. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “Measured mineral resources,” “Indicated mineral resources” or “Inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. U.S. investors should also understand that “Inferred mineral resources” have an even greater amount of uncertainty as to their existence and an even greater uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “Inferred mineral resource” will ever be upgraded to a higher category. Under NI 43-101, estimated “Inferred mineral resources” generally may not form the basis of feasibility or pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of an “Inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained pounds” or “contained ounces” of metal in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by the Corporation in compliance with NI 43-101 may not qualify as “reserves” under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with U.S. standards.

ADDITIONAL DISCLOSURE

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Corporation under applicable securities legislation is gathered and reported to senior management, including the Corporation’s principal executive officer and principal financial officer, on a timely basis so that appropriate decisions can be made regarding public disclosure.

As of the end of the Corporation’s fiscal year ended December 31, 2015, an evaluation of the effectiveness of the Corporation’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was carried out by the Corporation’s management with the participation of the principal executive officer and principal financial officer. Based upon that evaluation, the Corporation’s principal executive officer and principal financial officer have concluded that as of the end of that fiscal year, the Corporation’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to the Corporation’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

The Corporation’s management, including the principal executive officer and principal financial officer, believe that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide only a reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system reflects the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls is also based in part on certain assumptions about the likelihood of certain events, and there can be no assurance that any design can achieve its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

Management’s Report on Internal Control over Financial Reporting

The required disclosure is included in the Corporation’s Management’s Discussion and Analysis for the year ended December 31, 2015, contained in Exhibit 99.3 of this Annual Report on Form 40-F and incorporated by reference herein.

Changes in Internal Control over Financial Reporting

There were no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

PricewaterhouseCoopers LLP (“PwC”) has issued an unqualified opinion on the Corporation’s internal control over financial reporting which accompanies the Corporation’s Audited Consolidated Financial Statements for the year ended December 31, 2015 included as Exhibit 99.2 of this Annual Report on Form 40-F.

NOTICES PURSUANT TO REGULATION BTR

None.

AUDIT COMMITTEE

The Corporation’s board of directors (the “Board”) has a separately-designated standing Audit Committee as defined by Section 3(a)(58)(A) of the Exchange Act for the purpose of overseeing the accounting and financial reporting processes of the Corporation and audits of the Corporation’s annual consolidated financial statements. As of the date of this Annual Report, the members of the Audit Committee are Ms. Jill Gardiner and Messrs. Peter Gillin and Russel Robertson. Mr. Robertson has been Chair of the Audit Committee since January 1, 2015.

Each of the directors serving on the Audit Committee has also been determined by the Board to be independent within the criteria established by the SEC, the New York Stock Exchange (the “NYSE”) and the NASDAQ Stock Market (“Nasdaq”) for audit committee membership.

AUDIT COMMITTEE FINANCIAL EXPERT

The Board has determined that each of Ms. Gardiner and Messrs. Gillin and Robertson is an “audit committee financial expert” (as defined in paragraph 8(b) of General Instruction B to Form 40-F). In addition, each of Ms. Gardiner and Messrs. Gillin and Robertson is independent, as that term is defined by the SEC and the NYSE and Nasdaq listing standards. Mr. Robertson is a Chartered Professional Accountant and a Fellow of the Institute of Chartered Professional Accountants (Ontario) and has worked as an accounting professional for over 35 years. Mr. Gillin holds a Chartered Financial Analyst Designation and worked as a professional investment banker for over 30 years. Ms. Gardiner has held various roles in the investment banking industry for over 20 years.

CODE OF BUSINESS CONDUCT AND ETHICS

The Corporation has adopted a written “code of ethics” (defined in paragraph 9(b) of General Instruction B to Form 40-F), entitled “The way we work” (the “Code of Ethics”), which applies to all of the Corporation’s employees, executive officers and directors, including the Corporation’s principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Code of Ethics includes, among other things, written standards for the Corporation’s principal executive officer, principal financial officer and principal accounting officer that are required by the SEC for a code of ethics applicable to such officers. To review or obtain a copy of the Code of Ethics, see “Citizenship – The way we work and Ethics Point” posted on the Corporation’s website, www.turquoisehill.com. The Code of Ethics is also available in print to any shareholder who requests it. Requests for copies of the Code of Ethics should be made by contacting: Turquoise Hill Resources Ltd., Suite 354 – 200 Granville Street, Vancouver, British Columbia, V6C 1S4.

Since the adoption of the Code of Ethics, there have not been any amendments to the Code of Ethics or waivers, including implicit waivers, from any provision of the Code of Ethics.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

PwC has been the Corporation’s independent auditor since April 2, 2012.

The aggregate fees billed by PwC and its affiliates in fiscal 2015 and fiscal 2014 are detailed below (rounded).


(Cdn$)	2015		2014
Audit Fees (a)	$	1,474,000	$	1,697,000
Audit Related Fees (b)	$	409,000	$	948,000
Tax Fees (c)	$	17,000	$	Nil
Other Fees (d)	$	Nil	$	3,000

Total	$	1,900,000	$	2,648,000

(a)	Fees for audit services billed relating to fiscal 2015 and 2014 consist of:

•

audit of the Corporation’s annual consolidated financial statements; and

•

audit of its subsidiary’s (SouthGobi Resources Ltd. (“SouthGobi”)) statutory annual consolidated financial statements. In 2015, SouthGobi ceased to be a subsidiary of the Corporation; fees included for fiscal 2015 only include those fees that were charged during the period which SouthGobi was the Corporation’s subsidiary.

In addition, in 2015 and 2014, fees were paid for services provided pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, applicable Canadian securities laws and the required attestations relating to the effectiveness of the Corporation’s internal controls on financial reporting.

(b)	Fees for audit-related services provided during fiscal 2015 and 2014 consist of:

•

translation services;

•

reviews of the Corporation’s interim financial statements;

•

reviews of its subsidiary’s (SouthGobi) interim financial statements during the period which SouthGobi was the Corporation’s subsidiary; and

•

comfort letters, consents, and other services related to SEC, Canadian and other securities regulatory authorities’ matters.

(c)	Fees for tax services provided during fiscal 2015 consisted of tax filings for Singapore entities.

(d)	Fees for other services provided during fiscal 2014 related to a subscription fee in connection with an online database for reporting requirements. This fee was not paid in 2015 as the subscription was discontinued.

The Audit Committee’s Charter requires the pre-approval by the Audit Committee of all audit and non-audit services provided by the external auditor. In March 2013, the Board adopted a resolution pursuant to which the Audit Committee is required to pre-approve all audit and non-audit services above $250,000 provided by the external auditor. Pre-approval from the Audit Committee can be sought for planned engagements based on budgeted or committed fees. No further approval is required to pay pre-approved fees. Additional pre-approval is required for any increase in scope or in final fees.

Pursuant to these procedures, 100% of each of the services provided by the Corporation’s external auditor relating to the fees reported as audit, audit-related, tax and other fees were approved by the Audit Committee.

OFF-BALANCE SHEET ARRANGEMENTS

During the year ended December 31, 2015, the Corporation was not a party to any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations, financial condition, revenues or expenses, liquidity, capital expenditures or capital resources of the Corporation.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The required information is provided under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations,” contained in Exhibit 99.3 to this Annual Report on Form 40-F and incorporated by reference herein.

CORPORATE GOVERNANCE PRACTICES

Corporate Governance Practices Compared to NYSE and Nasdaq Listing Standards

The Corporation has reviewed its corporate governance practices against the requirements of the NYSE and Nasdaq, and determined that, except for the composition of the Corporation’s Nominating and Corporate Governance Committee (the “NCG Committee”) as discussed below, its corporate governance practices do not differ in any significant way from those followed by U.S. companies under the NYSE and Nasdaq listing standards. This includes the composition of the Board because in excess of one-half of the Corporation’s directors (four of seven directors) have been determined by the Board to be independent for purposes of the NYSE and Nasdaq corporate governance rules. The Board has determined the following four directors to be independent under the NYSE and Nasdaq corporate governance rules: Jill Gardiner, Dr. James Gill, Peter Gillin, and Russel Robertson.

The composition of the NCG Committee, however, includes one director that is not independent, which differs from the NYSE and Nasdaq corporate governance standards that require a listed company to maintain a nominating/corporate governance committee composed entirely of independent directors. The NCG Committee is composed of three voting members, a majority of whom are independent directors. Canadian securities legislation does not require a listed company to maintain a certain level of independence within the nominating/corporate governance committee. As a foreign private issuer, the Corporation is permitted under NYSE and Nasdaq listing standards to follow Canadian corporate governance practices on certain matters, including the composition of the nominating/corporate governance committee.

Presiding Director at Meetings of Independent Directors

The Board holds regular annual and quarterly meetings. Between the quarterly meetings, the Board meets as required, generally by means of telephone conferencing facilities. As part of the quarterly meetings, the Corporation’s “independent directors” (as that term is defined in the rules of the NYSE) also have the opportunity to meet separate from management. If required, between regularly scheduled board meetings, a meeting of independent directors is held by teleconference to update the directors on corporate or other developments since the last Board meeting. Management also communicates informally with members of the Board on a regular basis, and solicits the advice of Board members on matters falling within their special knowledge or experience. Jill Gardiner, the Corporation’s Chair since January 2015, served as the presiding director at such meetings of independent directors during the year ended December 31, 2015.

Communication with Independent Directors

Shareholders may send communications to the Corporation’s independent directors by writing to the Chair, c/o Turquoise Hill Resources Ltd., Suite 354 – 200 Granville Street, Vancouver, British Columbia, V6C 1S4. Communications will be referred to the Chair for appropriate action. The status of all outstanding concerns addressed to the Chair will be reported to the Board as appropriate.

Corporate Governance Guidelines

According to Rule 303A.09 of the NYSE Listed Company Manual and Rule 5610 of the Nasdaq Marketplace Rules, a listed company must adopt and disclose a set of corporate governance guidelines with respect to specified topics. Such guidelines are required to be posted on the listed company’s website. The Corporation has adopted the required guidelines and has posted them on its website at www.turquoisehill.com. The required guidelines are available in print to any shareholder who requests them. Requests for copies of these documents should be made by contacting: Turquoise Hill Resources Ltd., Suite 354 – 200 Granville Street, Vancouver, British Columbia, V6C 1S4.

Board Committee Mandates

The Mandates of the Corporation’s Audit Committee, Compensation and Benefits Committee, Nominating and Corporate Governance Committee and Health, Safety and Environment Committee are each available for viewing on the Corporation’s website at www.turquoisehill.com, and are available in print to any shareholder who requests them. Requests for copies of these documents should be made by contacting: Turquoise Hill Resources Ltd., Suite 354 – 200 Granville Street, Vancouver, British Columbia, V6C 1S4.

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

Undertaking

The Corporation undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

Consent to Service of Process

The Corporation has previously filed an Appointment of Agent for Service of Process on Form F-X with respect to the class of securities in relation to which the obligation to file this Form 40-F arises.

Any change to the name or address of the agent for service of process of the registrant shall be communicated promptly to the SEC by an amendment to the Form F-X referencing the file number of the Corporation.

DISCLOSURE PURSUANT TO SECTION 13(r) OF THE EXCHANGE ACT

Pursuant to the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Exchange Act, the Corporation is required to disclose certain activities of the Corporation and any of the Corporation’s affiliates (as defined in Rule 12b-2 of the Exchange Act) related to the Islamic Republic of Iran. On December 31, 2015, Rio Tinto International Holdings Limited (together with its affiliates, “Rio Tinto”) beneficially owned approximately 50.8% of our Common Shares and therefore is considered the Corporation’s affiliate as defined in Rule 12b-2 of the Exchange Act. As a result, we are including in this Annual Report on Form 40-F the information relating to Rio Tinto set forth below, which is contained in the Annual Report on Form 20-F for the year ended December 31, 2015 filed by Rio Tinto plc and Rio Tinto Limited with the SEC on March 3, 2016.

“Rio Tinto acquired its interest in Namibia-based Rössing Uranium Limited (Rössing) in 1970. The Iranian Foreign Investments Company (IFIC) acquired its original minority shareholding in Rössing in 1975. IFIC’s interest predates the establishment of the Islamic Republic of Iran and the U.S. economic sanctions targeting Iran’s nuclear, energy and ballistic missile programs. IFIC acquired and continues to own a minority shareholding in Rössing in accordance with Namibian law.

Rössing is neither a business partnership nor joint venture between Rio Tinto and IFIC. Rössing is a Namibian limited liability company with a large number of shareholders, including Rio Tinto with 68.60 per cent, IFIC with 15.29 per cent, the Industrial Development Corporation of South Africa with 10.22 per cent, local individual shareholders with a combined interest of 2.47 per cent and the Government of the Republic of Namibia with 3.42 per cent but with an additional 51 per cent vote at a general meeting of Rössing on matters of national interest.

As a shareholder in Rössing, Rio Tinto has no power or authority to divest IFIC’s holding in Rössing. However, Rössing and the Namibian Government have taken several recent steps to limit IFIC’s future involvement in Rössing.

On 1 October 2010, Namibia reported to the United Nations, pursuant to Article 31 of the United Nations Security Council Resolution 1929 (UN SCR 1929), that it had reached an agreement with the Islamic Republic of Iran that IFIC will not participate in any future investments nor will it acquire any further shares in Rössing. It was also agreed that the Government of Iran will not acquire interests in any commercial activity in Namibia involving uranium mining, production, or use of nuclear materials and technology, as required under UN SCR1929, until such time as the United Nations Security Council determines that the objectives of the Resolution have been met.

The Rössing board also took steps in 2012 to terminate IFIC’s involvement in the governance of Rössing. As a shareholder in Rössing, IFIC was entitled under Namibian law to attend annual general meetings of Rössing, which they do attend. IFIC was previously represented on the board of Rössing by two directors. While this level of board representation did not provide IFIC with the ability to influence the conduct of Rössing’s business on its own, the Rössing board nonetheless determined that, in light of international economic sanctions, it would be in the best interest of Rössing to terminate IFIC’s involvement in board activity. Therefore, on 4 June 2012, at the annual general meeting of Rössing, the shareholders of the company, including Rio Tinto, voted not to re-elect the two IFIC board members. This ended IFIC’s participation in Rössing board activities. IFIC accordingly is not represented on the Rössing board, nor does it have the right to attend board meetings or receive any board information.

Dividends

While IFIC is entitled to its pro rata share of any dividend that the majority of the board may declare for all shareholders in Rössing, IFIC has not received such monies since early 2008. Simply by maintaining its own shareholding in Rössing, Rio Tinto is not engaging in any activity intended or designed to confer any direct or indirect financial support for IFIC. A dividend was declared for 2014 in February 2015 with an amount payable to Skeleton Coast Diamonds Limited on 31 March 2015. No portion of the dividends is to be paid to IFIC.

Uranium Off-Take and Technology

Rössing is one of the world’s largest and longest-operating uranium mines. All of the uranium produced by Rössing is sold to Rio Tinto Marketing Pte. Ltd, (doing business as Rio Tinto Uranium), which re-sells this product to electric utilities in North America, Asia and Europe. As a minority shareholder, IFIC has no uranium product off-take rights. Neither IFIC nor other Government of Iran entities have any supply contracts in place with Rössing and receive no uranium from Rössing. IFIC also does not have access to any technology through its investment in Rössing or rights to such technology.

While Rio Tinto does not view itself as actively transacting or entering into business dealings with an instrumentality of the Government of Iran, this information has been provided to ensure transparency regarding the passive, minority shareholding in Rössing currently held by IFIC. Rio Tinto has disclosed the IFIC shareholding matter to the United States Government and has periodically updated the U.S. Department of State as to the same.”

SIGNATURE

Pursuant to the requirements of the Exchange Act, the Corporation certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

Dated: March 17, 2016


TURQUOISE HILL RESOURCES LTD.

By:		/s/ Dustin S. Isaacs
Name:		Dustin S. Isaacs
Title:		General Counsel and Corporate Secretary

EXHIBIT INDEX


Exhibit Number		Document

99.1		Annual Information Form for the year ended December 31, 2015.

99.2		Audited Consolidated Financial Statements of Turquoise Hill Resources Ltd., including the notes thereto, as of and for the years ended December 31, 2015 and 2014, together with the report thereon of the Independent Auditor.

99.3		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

99.4		Consent of PricewaterhouseCoopers LLP, Independent Auditor.

99.5		Consent of Bernard Peters.

99.6		Consent of Sharron Sylvester.

99.7		Consent of OreWin Pty Ltd.

99.8		Consent of Kendall Cole-Rae.

99.9		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

99.10		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

99.11		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

99.12		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

Exhibit 99.1

TURQUOISE HILL RESOURCES LTD.

Annual Information Form

For the year ended

December 31, 2015

Dated March 15, 2016

TABLE OF CONTENTS


INTERPRETATION INFORMATION			1

FORWARD-LOOKING INFORMATION AND FORWARD-LOOKING STATEMENTS			1

CAUTIONARY NOTE TO UNITED STATES INVESTORS			3

CURRENCY AND EXCHANGE RATES			4

DEFINITIONS			5



CONVERSION FACTORS			10
GLOSSARY OF TECHNICAL TERMS AND ABBREVIATIONS			10

CORPORATE STRUCTURE			11

NAME, ADDRESS AND INCORPORATION			11
INTER-CORPORATE RELATIONSHIPS			11

GENERAL DEVELOPMENT OF THE BUSINESS			12

OVERVIEW			12
THREE YEAR HISTORY			12
AGREEMENTS WITH RIO TINTO			19
AGREEMENTS WITH THE GOVERNMENT OF MONGOLIA			33

RISK FACTORS			41

DESCRIPTION OF THE BUSINESS			56

OVERVIEW			56
QUALIFIED PERSONS			56
OYU TOLGOI MINE			56
OTHER PROJECTS			85
OTHER INFORMATION			85

DIVIDENDS			86

DESCRIPTION OF CAPITAL STRUCTURE			86

COMMON SHARES			86
PREFERRED SHARES			86

MARKET FOR SECURITIES			87

DIRECTORS AND OFFICERS			88

NAME AND OCCUPATION			88
SHAREHOLDINGS OF DIRECTORS AND EXECUTIVE OFFICERS			89
COMMITTEES OF THE BOARD OF DIRECTORS			89
CONFLICTS OF INTEREST			89
AUDIT COMMITTEE INFORMATION			90

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS			90

TRANSFER AGENT AND REGISTRAR			90

MATERIAL CONTRACTS			91

INTERESTS OF EXPERTS			91

ADDITIONAL INFORMATION			92

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INTERPRETATION INFORMATION

Forward-Looking Information and Forward-Looking Statements

Certain statements made herein, including statements relating to matters that are not historical facts and statements of the Corporation’s beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking information and statements relate to future events or future performance, reflect current expectations or beliefs regarding future events and are typically identified by words such as “anticipate”, “could”, “should”, “expect”, “seek”, “may”, “intend”, “likely”, “plan”, “estimate”, “will”, “believe” and similar expressions suggesting future outcomes or statements regarding an outlook. These include, but are not limited to, statements respecting anticipated business activities, planned expenditures, corporate strategies, and other statements that are not historical facts.

Forward-looking statements and information are made based upon certain assumptions and other important factors that, if untrue, could cause the actual results, performance or achievements of the Corporation to be materially different from future results, performance or achievements expressed or implied by such statements or information. There can be no assurance that such statements or information will prove to be accurate. Such statements and information are based on numerous assumptions regarding present and future business strategies, local and global economic conditions, and the environment in which the Corporation will operate in the future, including the price of copper, gold and silver, anticipated capital and operating costs, anticipated future production and cash flows, and the status of the Corporation’s relationship and interaction with the Government of Mongolia on the continued development of the Oyu Tolgoi Mine and Oyu Tolgoi LLC internal governance. Certain important factors that could cause actual results, performance or achievements to differ materially from those in the forward-looking statements and information include, among others, copper, gold and silver price volatility, discrepancies between actual and estimated production, mineral reserves and resources and metallurgical recoveries, mining operational and development risks, litigation risks, regulatory restrictions (including environmental regulatory restrictions and liability), activities or assessments by governmental authorities, currency fluctuations, the speculative nature of mineral exploration, the global economic climate, dilution, share price volatility, competition, loss of key employees, additional funding requirements, capital and operating costs, including with respect to the development of the underground mine, and defective title to mineral claims or property. Although the Corporation has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements and information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. All such forward-looking information and statements are based on certain assumptions and analyses made by the Corporation’s management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements, however, are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information or statements.

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the impact of changes in, changes in interpretation to or changes in enforcement of, laws, regulations and government practices in Mongolia; the availability and cost of skilled labour and transportation; the obtaining of (and the terms and timing of obtaining) necessary environmental and other government approvals, consents and permits; the availability of funding on reasonable terms; the impact of the delay in the funding and development of the Oyu Tolgoi underground mine; delays, and the costs which would result from delays, in the development of the underground mine (which could significantly exceed the costs projected in the Statutory Feasibility Study and the 2014 Oyu Tolgoi Technical Report); projected copper, gold and silver prices and demand; and production estimates and the anticipated yearly production of copper, gold and silver at the Oyu Tolgoi Mine.

This Annual Information Form (“AIF”) also contains references to estimates of mineral reserves and mineral resources. The estimation of reserves and resources is inherently uncertain and involves subjective judgments about many relevant factors. The mineral resource estimates contained in this AIF are inclusive of mineral reserves. Further, mineral resources that are not mineral reserves do not have demonstrated economic viability. The accuracy of any such estimates is a function of the quantity and quality of available data, and of the assumptions made and judgments used in engineering and geological interpretation (including future production from the Oyu Tolgoi Mine, the anticipated tonnages and grades that will be achieved or the indicated level of recovery that will be realized), which may prove to be unreliable. There can be no assurance that these estimates will be accurate or that such mineral reserves and mineral resources can be mined or processed profitably. In addition, see “Cautionary Note to United States Investors”. Such estimates and statements are, in large part, based on the following:

•

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•

Readers are further cautioned that the list of factors enumerated in the “Risk Factors” section of this AIF that may affect future results is not exhaustive. When relying on the Corporation’s forward-looking information and statements to make decisions with respect to the Corporation, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Furthermore, the forward-looking information and statements contained in this AIF are made as of the date of this document and the Corporation does not undertake any obligation to update or to revise any of the included forward-looking information or statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The forward-looking information and statements contained in this AIF are expressly qualified by this cautionary statement.

CAUTIONARY NOTE TO UNITED STATES INVESTORS

This AIF has been prepared in accordance with the requirements of Canadian securities laws, which differ from the requirements of United States (“U.S.”) securities laws. Unless otherwise indicated, all reserve and resource estimates included in this AIF have been prepared in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”), and the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards for mineral resources and mineral reserves (“CIM Standards”). NI 43-101 is a rule developed by the Canadian Securities Authorities that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

Canadian standards, including NI 43-101, differ significantly from the requirements of the SEC, and reserve and resource information contained in this AIF may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserve”. Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under the SEC standards. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “Measured mineral resources”, “Indicated mineral resources” or “Inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the

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SEC. U.S. investors should also understand that “Inferred mineral resources” have an even greater amount of uncertainty as to their existence and an even greater uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “Inferred mineral resource” will ever be upgraded to a higher category. Under NI 43-101, estimated “Inferred mineral resources” generally may not form the basis of feasibility or pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of an “Inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained pounds” or “contained ounces” of metal in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by the Corporation in compliance with NI 43-101 may not qualify as “reserves” under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with U.S. standards.

CURRENCY AND EXCHANGE RATES

In this AIF, all dollar amounts are quoted in U.S. dollars unless otherwise indicated. References to “$” and “US$” are to U.S. dollars, references to “C$” are to Canadian dollars and references to “A$” are to Australian dollars.

The Bank of Canada noon exchange rates for the conversion of one U.S. dollar using Canadian dollars were as follows during the indicated periods:

(Stated in C$)


	Year Ended December 31,
	2015	2014	2013

End of period	1.3840	1.1601	1.0636

High for the period	1.3990	1.1643	1.0697

Low for the period	1.1728	1.0614	0.9839

Average for the period	1.2787	1.1045	1.0299

The Bank of Canada noon exchange rate on March 15, 2016 for the conversion of U.S. dollars into Canadian dollars was US$1.00 equals C$1.3359 (one Canadian dollar on that date equalled US$0.7486).

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DEFINITIONS

In this AIF, unless there is something in the subject matter or context inconsistent therewith, the following terms have the meanings assigned to them below. Other capitalized terms used in this AIF and defined elsewhere in the text of this AIF shall have the definitions assigned to such terms elsewhere in this AIF and, unless otherwise indicated, shall have such meaning throughout this AIF. Certain other scientific and technical terms and abbreviations used in this AIF are defined under the section headed “Technical Terms and Abbreviations”.



“2010 Rights Offering”		means the Corporation’s rights offering completed in February 2011.

“2012 MoA”		means the memorandum of agreement dated April 17, 2012 among the Corporation, RTIH and RTSEA, as amended by an amending agreement dated May 22, 2012, the terms of which are more particularly described under the heading “General Development of the Business – Agreements with Rio Tinto – 2012 MoA”.

“2012 Rights Offering”		means the Corporation’s rights offering completed in July 2012.

“2012 Standby Commitment”		means the agreement by RTIH, subject to certain terms, conditions and limitations set out in the 2012 MoA, to purchase any Common Shares underlying unexercised rights in connection with the 2012 Rights Offering.

“2013 MoA”		means the memorandum of agreement dated August 23, 2013 among the Corporation, RTIH and RTSEA, as amended by an amending agreement dated November 14, 2013, the terms of which are more particularly described under the heading “General Development of the Business – Agreements with Rio Tinto – 2013 MoA”.

“2013 Rights Offering”		means the Corporation’s rights offering completed in January 2014.

“2013 Standby Commitment”		means the agreement by RTIH, subject to certain terms, conditions and limitations set out in the 2013 MoA, to purchase any Common Shares underlying unexercised rights in connection with the 2013 Rights Offering.

“2014 AGM”		means the Corporation’s annual meeting of shareholders held on May 8, 2014.

“2014 Oyu Tolgoi Technical Report”		means the NI 43-101 compliant technical report titled “Oyu Tolgoi 2014 Technical Report”, prepared by OreWin Pty Ltd. with an effective date of September 20, 2014.

“2015 AGM”		means the Corporation’s annual meeting of shareholders held on May 8, 2015.

“Anti-Dilution Series D Warrants”		means the now expired anti-dilution Series D Warrants that were issuable to RTIH pursuant to the 2012 MoA, the terms of which are more particularly described under the heading “General Development of the Business – Agreements with Rio Tinto – 2012 MoA”.

“Anti-Dilution Warrants”		means the share purchase warrants exercisable to acquire Common Shares issued to RTIH pursuant to RTIH’s exercise of its pre-emptive rights under the Private Placement Agreement.

“ARSHA”		means the amended and restated shareholders’ agreement dated June 8, 2011 among Oyu Tolgoi LLC, THR Oyu Tolgoi Ltd. (formerly Ivanhoe Oyu Tolgoi (BVI) Ltd.), Oyu Tolgoi Netherlands B.V. and Erdenes MGL LLC.

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“ASX”		means the Australian Stock Exchange.

“Board of Directors”		means the board of directors of the Corporation, as constituted from time to time.

“Bridge Facility”		means the Corporation’s $1.5 billion bridge facility entered into in connection with the 2012 MoA pursuant to which RTIH agreed to cause one of its affiliates to fund ongoing development of the Oyu Tolgoi Mine.

“Canadian Securities Authorities”		means the securities commissions or similar securities regulatory authorities in the various provinces and territories of Canada.

“Common Shares”		means common shares in the capital of the Corporation.

“Contract Assignment Arrangement Agreement”		means the contract assignment arrangement agreement dated August 13, 2008 among the Corporation, Oyu Tolgoi LLC and Rio Tinto Alcan.

“Credit Agreement”		means the credit agreement dated October 24, 2007, as amended, between the Corporation, as borrower, and RTIH, as lender.

“Entrée Earn-in Agreement”		means the equity participation and earn-in agreement dated October 15, 2004, as amended on November 9, 2004, between Entrée Gold and the Corporation.

“Entrée Gold”		means Entrée Gold Inc.

“Entrée Joint Venture”		means the joint venture between Oyu Tolgoi LLC and Entrée Gold contemplated by the Entrée Earn-in Agreement in respect of a portion of the Hugo North Extension in which (i) Oyu Tolgoi LLC holds an 80% interest and Entrée Gold holds a 20% interest in minerals below 560m, and (ii) Oyu Tolgoi LLC holds a 70% interest and Entrée Gold holds a 30% interest in minerals above 560m.

“Erdenes”		means either Erdenes MGL LLC or Erdenes OT LLC, as the context requires, each a company owned by the Government of Mongolia.

“ESIA”		means Environmental and Social Impact Assessment.

“First Tranche Investment”		means the 37,089,883 Common Shares issued to RTIH on October 27, 2006 under the Private Placement Agreement.

“Heruga”		means the Heruga mineral deposit of the Oyu Tolgoi Mine.

“HoA”		means the heads of agreement dated December 8, 2010 between the Corporation and RTIH, as amended, the terms of which are more particularly described under the heading “General Development of the Business – Agreements with Rio Tinto – HoA”.

“Hugo Dummett Deposits”		means collectively, the Hugo North, the Hugo South and the Hugo North Extension mineral deposits of the Oyu Tolgoi Mine.

“Hugo North”		means the Hugo North mineral deposit of the Oyu Tolgoi Mine.

“Hugo North Extension”		means the Hugo North Extension deposit of the Oyu Tolgoi Mine, representing the extension of the Hugo Dummett Deposits into the area that is the subject of the Entrée Joint Venture.

“Hugo South”		means the Hugo South mineral deposit of the Oyu Tolgoi Mine.

“Inova”		means Chinova Resources Pty Ltd (formerly known as Inova Resources Limited and Ivanhoe Australia Limited).

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“Interim Funding Facility”		means the Corporation’s $1.8 billion non-revolving interim funding facility with RTSEA, as lender, entered into on December 8, 2010.

“Investment Agreement”		means the investment agreement dated October 6, 2009 among the Government of Mongolia, Oyu Tolgoi LLC, the Corporation and RTIH in respect of the Oyu Tolgoi Mine, providing legal, administrative and tax stability during its term and extension, if any, and guaranteeing the legal, administrative and tax framework in force in Mongolia.

“Kyzyl Gold Project”		means the gold project in northeastern Kazakhstan owned by Altynalmas Gold Ltd. which encompasses the Bakyrchik and Bolshevik gold deposits.

“LIBOR”		means the London Interbank Offered Rate, the rate charged by one bank to another for lending money.

“MD&A”		means the Corporation’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2015.

“NASDAQ”		means the NASDAQ Stock Market.

“New Bridge Facility”		means the Corporation’s secured $600 million bridge funding facility with RTSEA.

“New Bridge Funding Agreement”		means the $600 million bridge funding agreement dated August 23, 2013 among the Corporation, RTIH and RTSEA in respect of the New Bridge Facility, as amended by an amending agreement dated November 14, 2013.

“Novel Sunrise”		means Novel Sunrise Investments Limited.

“NSR”		means net smelter returns.

“NUR”		means National United Resources Holdings Limited.

“NYSE”		means the New York Stock Exchange.

“Operating Committee”		means the contractually created governance body formed pursuant to the HoA through which decisions have been agreed to be made concerning the exercise of the Corporation’s indirect voting rights in Oyu Tolgoi LLC, as more particularly described under the heading “General Development of the Business – Agreements with Rio Tinto – HoA – Governance Arrangements”.

“Ovoot Tolgoi”		means the location known as Ovoot Tolgoi (formerly Nariin Sukhait) in southern Mongolia.

“Ovoot Tolgoi Coal Project”		means SouthGobi’s coal mine at Ovoot Tolgoi, which includes the Sunset Field (including the Underground) and the Sunrise Field.

“Oyu Tolgoi LLC”		means Oyu Tolgoi LLC, formerly Ivanhoe Mines Mongolia Inc. LLC.

“Oyu Tolgoi Mine”		means the Corporation’s copper and gold mine located at Oyu Tolgoi in Mongolia and, where appropriate, ancillary operations and facilities.

“Oyu Tolgoi Project Financing”		means project financing for the development of the Oyu Tolgoi Mine.

“Oyu Tolgoi Shareholder Holdcos”		means THR Oyu Tolgoi Ltd. (formerly Ivanhoe Oyu Tolgoi (BVI) Ltd.) and Oyu Tolgoi Netherlands B.V., the two indirect, wholly-owned subsidiaries through which the Corporation holds its interest in Oyu Tolgoi LLC.

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“Power Purchase Agreement”		means the electricity purchase and sale agreement dated November 3, 2012 among Oyu Tolgoi LLC, Inner Mongolia Power International Cooperation Co., Ltd. and the National Electricity Transmission Grid Company, providing for the supply of power to the Oyu Tolgoi Mine from Inner Mongolia Power International Cooperation Co., Ltd.

“Preferred Shares”		means preferred shares in the capital of the Corporation.

“Private Placement Agreement”		means the private placement agreement dated October 18, 2006 between the Corporation and RTIH, as amended.

“Private Placement Warrants”		means the Series A Warrants, the Series B Warrants, the Series C Warrants, the Anti-Dilution Warrants, or any of them, as the context requires.

“Put Agreement”		means the put agreement dated August 13, 2008 among the Corporation, Oyu Tolgoi LLC and Rio Tinto Alcan, as amended.

“Put Option Placement Shares”		means the 15,000,000 Common Shares purchased by RTIH on March 19, 2010 at a price of C$16.31 per Common Share.

“Rio Tinto”		means, collectively, Rio Tinto plc and its affiliates or, where appropriate, one of its affiliates, excluding Turquoise Hill Group.

“Rio Tinto Alcan”		means Rio Tinto Alcan Pte. Ltd., a corporation incorporated under the laws of Singapore and a member of Rio Tinto.

“RTIH”		means Rio Tinto International Holdings Limited, a Corporation incorporated under the laws of England and Wales and a member of Rio Tinto, and where the context requires, also refers to its subsidiaries, 46117 Yukon Inc. and 535630 Yukon Inc.

“RTSEA”		means Rio Tinto South East Asia Limited, an affiliate of RTIH.

“SEC”		means the United States Securities and Exchange Commission.

“Second Tranche Investment”		means the 46,304,473 Common Shares issued to RTIH on October 27, 2009 under the Private Placement Agreement.

“Series A Warrants”		means the series A purchase warrants of the Corporation issued to RTIH on October 27, 2006 in connection with the Private Placement Agreement, the terms of which are more particularly described under the heading “General Development of the Business – Agreements with Rio Tinto – Private Placement Agreement”.

“Series B Warrants”		means the series B purchase warrants of the Corporation issued to RTIH on October 27, 2006 in connection with the Private Placement Agreement, the terms of which are more particularly described under the heading “General Development of the Business – Agreements with Rio Tinto – Private Placement Agreement”.

“Series C Warrants”		means the series C purchase warrants of the Corporation issued to RTIH on October 29, 2007 in connection with the Credit Agreement, the terms of which are more particularly described under the heading “General Development of the Business – Agreements with Rio Tinto – Credit Agreement”.

“Series D Warrants”		means the now expired series D purchase warrants of the Corporation issued to RTIH on May 22, 2012 in connection with the 2012 Rights Offering in accordance with the 2012 MoA, the terms of which are more particularly described under the heading “General Development of the Business – Agreements with Rio Tinto – 2012 MoA”.

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“Shareholder Rights Plan”		means the Amended and Restated Shareholder Rights Plan dated April 21, 2010 between the Corporation and CIBC Mellon Trust Company (now CST Trust Company).

“Short Term Bridge Facility”		means the Corporation’s non-revolving bridge facility of up to $225 million with RTSEA.

“Short Term Bridge Funding Agreement”		means the $225 million short term bridge funding agreement dated June 28, 2013 between the Corporation and RTSEA in respect of the Short Term Bridge Facility, as amended.

“SouthGobi”		means SouthGobi Resources Ltd.

“Standstill Cap”		means the hard cap limitation in the HoA whereby RTIH could not, during the specified period, subject to certain exceptions, acquire any Common Shares or securities convertible into or exercisable for Common Shares if such acquisition would result in RTIH owning more than 49.0% of the then issued and outstanding Common Shares assuming the full exercise of the Private Placement Warrants.

“Statutory Feasibility Study”		means the feasibility study filed by Oyu Tolgoi LLC in March 2015, as subsequently updated by Oyu Tolgoi LLC in August 2015 with the Mongolian Minerals Council pursuant to applicable Mongolian statutory requirements.

“Sunrise Field”		means the area of the coal deposit delineated and identified as the Sunrise Field in the Ovoot Tolgoi Coal Project, formerly referred to as the South-East Field.

“Sunset Field”		means the area of the coal deposit delineated and identified as the Sunset Field in the Ovoot Tolgoi Coal Project, formerly referred to as the West Field.

“T-Bill Purchase Agreement”		means the treasury bill purchase agreement dated October 6, 2009 between Oyu Tolgoi LLC and the Government of Mongolia, which was subsequently assigned to the Corporation by Oyu Tolgoi LLC on November 27, 2012.

“Technical Committee”		means a committee established under the terms of the Private Placement Agreement through which RTIH and the Corporation manage the Oyu Tolgoi Mine, as more particularly described under the heading “General Development of the Business – Agreements with Rio Tinto – Private Placement Agreement”.

“Turquoise Hill” or the “Corporation”		means Turquoise Hill Resources Ltd. and, where the context so requires, includes its subsidiaries.

“Turquoise Hill Group”		means, collectively, Turquoise Hill and its subsidiaries or a group of subsidiaries, as the context requires.

“TSX”		means the Toronto Stock Exchange.

“Underground”		means the part of the Oyu Tolgoi underground resources or Ovoot Tolgoi Coal Project comprising the underground coal resources of the Sunset Field.

“Underground Plan”		means the Oyu Tolgoi Underground Mine Development and Financing Plan dated May 18, 2015 among the Government of Mongolia, Erdenes, Turquoise Hill, THR Oyu Tolgoi Ltd., Oyu Tolgoi Netherlands B.V., RTIH and Oyu Tolgoi LLC.

“YBCA”		means the Business Corporations Act (Yukon).

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Conversion Factors

For ease of reference, the following conversion factors are provided:


Imperial Measure =	Metric Unit	Metric Unit =	Imperial Measure
2.47 acres	1 ha	0.4047 ha	1 acre
3.28 feet	1 m	0.3048 m	1 foot
0.62 miles	1 km	1.609 km	1 mile
0.032 ounces (troy)	1 gram	31.1 grams	1 ounce (troy)
2.205 pounds	1 kilogram	0.454 kilograms	1 pound
1.102 tons (short)	1 tonne	0.907 tonnes	1 ton
0.029 ounces (troy)/ton	1 gram/tonne	34.28 grams/tonne	1 ounce (troy)/ton

Glossary of Technical Terms and Abbreviations

Certain scientific and technical terms and abbreviations used in this AIF are defined in the glossary of technical terms and abbreviations attached as Schedule B to this AIF.

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CORPORATE STRUCTURE

Name, Address and Incorporation

The Corporation was incorporated under the Company Act (British Columbia) on January 25, 1994 under the name 463212 B.C. Ltd. In February 1994, the Corporation changed its name to Indochina Goldfields Ltd. In March 1994, the Corporation increased its authorized capital from 10,000 Common Shares to 100,000,000 Common Shares and created 100,000,000 Preferred Shares. In February 1995, the Corporation was continued under the YBCA. In July 1997, the Corporation increased its authorized capital to an unlimited number of Common Shares and an unlimited number of Preferred Shares. In June 1999, the Corporation changed its name to “Ivanhoe Mines Ltd.”. In August 2012, the Corporation changed its name to “Turquoise Hill Resources Ltd.”.

The Corporation’s head office is located at 354 – 200 Granville Street, Vancouver, British Columbia, Canada, V6C 1S4. The Corporation’s registered office is located at 300 – 204 Black Street, Whitehorse, Yukon, Canada, Y1A 2M9.

Inter-corporate Relationships

The following sets forth, as of the date of this AIF, the name, jurisdiction of incorporation and the voting equity ownership interest of the Corporation in each of the subsidiaries through which the Corporation ultimately owns its interest in Oyu Tolgoi LLC. These subsidiaries are presented in descending order according to the chain of voting equity ownership. Accordingly, the first subsidiary presented in each group is owned directly by the Corporation and the voting equity ownership interest of the Corporation in that subsidiary is shown in the right hand column opposite its name and jurisdiction of incorporation. The voting equity ownership interest shown in respect of each other subsidiary is, except as otherwise indicated, that of the subsidiary listed immediately above it. The Corporation’s 66% voting equity ownership in Oyu Tolgoi LLC, which owns the Oyu Tolgoi Mine, the Corporation’s only material property as of the date of this AIF, is held between two groups of subsidiaries.

Oyu Tolgoi LLC Group One Subsidiaries


Name of Subsidiary	Jurisdiction of	Voting Equity Ownership
	Incorporation	Interest

THR Delaware Holdings, LLC (formerly Ivanhoe Mines Delaware Holdings, LLC)	Delaware		100	%

THR Aruba Holdings LLC A.V.V. (formerly Ivanhoe Mines Aruba Holdings LLC A.V.V.)	Aruba		100	%

THR Oyu Tolgoi Ltd. (formerly Ivanhoe Oyu Tolgoi (BVI) Ltd.)	British Virgin Islands		100	%

Oyu Tolgoi LLC	Mongolia		0.21	%

Oyu Tolgoi LLC Group Two Subsidiaries


Name of Subsidiary	Jurisdiction of	Voting Equity Ownership
	Incorporation	Interest

THR Mines (BC) Ltd. (formerly Ivanhoe OT Mines Ltd.)	British Columbia		100	%

Turquoise Hill Netherlands Coöperatief U.A.	Netherlands		100	%

Oyu Tolgoi Netherlands B.V.	Netherlands		100	%

Oyu Tolgoi LLC	Mongolia		65.79	%

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Additional direct and indirect subsidiaries of the Corporation (i) holding, individually, 10% or less, and in the aggregate, 20% or less of the Corporation’s consolidated assets, and (ii) generating, individually, 10% or less, and in the aggregate, 20% or less of the Corporation’s consolidated sales and operating revenues, in each case, as at and for the year ended December 31, 2015, have been omitted.

GENERAL DEVELOPMENT OF THE BUSINESS

Overview

Turquoise Hill is an international mining company focused on the operation and further development of the Oyu Tolgoi copper-gold mine in southern Mongolia, which is the Corporation’s principal and only material mineral resource property. The Oyu Tolgoi Mine is held through a 66% interest in Oyu Tolgoi LLC; the remaining 34% interest is held by Erdenes.

Three Year History

2013

In January 2013, the Oyu Tolgoi Mine processed its first ore through the concentrator, and shortly thereafter, the first copper-gold concentrate from the Oyu Tolgoi Mine was produced.

In February 2013, the Corporation signed a binding agreement with Sumeru Gold BV for the sale of the Corporation’s 50% interest in Altynalmas Gold Ltd., which holds 100% ownership of the Kyzyl Gold Project. An additional agreement regarding the sale was entered into in August 2013. As described below, the transaction was successfully completed in November 2013.

In February 2013, the Corporation announced the acceptance of Andrew Harding’s resignation from the Board of Directors and the appointment of Jean-Sébastien Jacques to the Board of Directors. As described below, Jean-Sébastien Jacques subsequently resigned from the Board of Directors in September 2013.

In May 2013, the Corporation announced that Livia Mahler and Peter Meredith, both nominees of Robert Friedland, would not stand for re-election to the Board of Directors. Under the terms of the 2012 MoA, Mr. Friedland had the right to nominate two directors to the Board of Directors for as long as he continued to own at least 10% of the outstanding Common Shares. Following private sale transactions completed in late April 2013, Mr. Friedland’s holdings in Turquoise Hill shares fell below the 10% threshold. Dan Larsen, a RTIH nominee, also did not stand for re-election. RTIH nominated Virginia Flood in Mr. Larsen’s place and she was elected to the Board of Directors at the annual shareholders’ meeting.

In May 2013, the Corporation announced that it had been actively engaged with lenders to finalize the project financing plan and term sheet with the aim of raising approximately $4 billion and that Rio Tinto had signed commitment letters with 15 global banks that locked in pricing and terms.

In June 2013, the Corporation announced that it had entered into the Short Term Bridge Funding Agreement with RTIH. For more information on the Short Term Bridge Funding Agreement, see “General Development of the Business – Agreements with Rio Tinto – Short Term Bridge Facility”.

In June 2013, the Corporation announced that commissioning of the Oyu Tolgoi concentrator continued to progress and that more than 40,000t of concentrate had been produced. The Corporation also announced that all necessary permits had been received and that the mine was ready to commence concentrate shipments.

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In July 2013, the Corporation announced that the Oyu Tolgoi Mine commenced shipping copper concentrate. The initial sale of approximately 5,800t of concentrate was announced as being sent to customers in China. A convoy carrying approximately 600t of concentrate departed from the mine on July 9, 2013 with the remainder of the shipment taking place over the following two weeks.

In August 2013, the Corporation announced that, in light of changes in the gold market, it had entered into an additional agreement with Sumeru Gold BV in connection with the sale of the Corporation’s 50% interest in Altynalmas Gold Ltd. (as mentioned above). The supplemental agreement reflected a conditionally reduced cash consideration of $235 million, instead of the original cash consideration of $300 million. The Corporation received the $235 million advance payment on August 7, 2013. The transaction successfully closed on November 29, 2013.

In August 2013, the Corporation announced that it had signed a binding term sheet (the “Binding Term Sheet”) with RTIH for a new funding package that was designed to meet the Corporation’s cash needs through the end of 2013, including the New Bridge Facility. For more information on the Binding Term Sheet and the New Bridge Facility, see “General Development of the Business – Agreements with Rio Tinto – Binding Term Sheet and New Financing Package” and “General Development of the Business – Agreements with Rio Tinto – New Bridge Facility”, respectively.

In August 2013, the Corporation announced that it had entered into a pre-bid acceptance deed with Shanxi Donghui Coal Coking & Chemical Group Co., Ltd. in respect of approximately 14.9% of the issued and outstanding ordinary shares in Inova. The Corporation advised that it would tender all of its other Inova shares. The transaction was successfully concluded in November 2013, resulting in the Corporation having completed the divestment of the entirety of its 56.1% interest in Inova to Shanxi Donghui Coal Coking & Chemical Group Co., Ltd.

In September 2013, the Corporation announced the acceptance of Jean-Sébastien Jacques’ resignation from the Board of Directors. Rowena Albones was appointed to the Board of Directors in October 2013.

In September 2013, the Corporation announced that the Oyu Tolgoi concentrator was running at full capacity or approximately 100,000t of ore processed per day. By September 18, 2013, the mine had produced 160,000t of concentrate and had shipped approximately 38,000t to the bonded warehouse in China. The Corporation further announced that Oyu Tolgoi LLC’s customers were engaged with Chinese customs officials to receive the necessary approvals to enable them to collect purchased concentrate from the warehouse. In October 2013, it was announced that Oyu Tolgoi LLC’s customers received the necessary approvals allowing them to collect the purchased concentrate from the warehouse. As revenue is recognized by Oyu Tolgoi LLC when a customer collects concentrate, the Corporation announced that Oyu Tolgoi LLC would begin recording revenue.

In November 2013, the Corporation announced that it filed restated consolidated financial statements for the year ended December 31, 2012 as well as restated management’s discussion and analysis for such year, including comparative periods presented therein, to: correct errors related to SouthGobi revenue recognition; correct an error related to income taxes on inter-company interest; and reclassify Inova as discontinued operations. Additional information regarding the purpose and consequences of the restatement are set forth in the Corporation’s restated consolidated financial statements for the year ended December 31, 2012 as well as the restated management’s discussion and analysis for such year, copies of which have been filed with the Canadian Securities Authorities on SEDAR at www.sedar.com.

In November 2013, Turquoise Hill commenced a rights offering to raise approximately $2.4 billion in gross proceeds. For more information on the 2013 Rights Offering, see “General Development of the Business –

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Agreements with Rio Tinto – 2013 MoA”. The Corporation also announced that it had agreed with RTIH to extend the maturity dates of the Interim Funding Facility and the New Bridge Facility to the earlier of the second business day following the closing date of the 2013 Rights Offering and January 15, 2014.

On December 13 and 18, 2013 two putative securities class action lawsuits, which were subsequently consolidated, were filed in the U.S. District Court for the Southern District of New York against the Corporation and certain of its officers and directors. The lawsuits sought to recover damages resulting from alleged misstatements about the Corporation’s financial performance and business prospects arising from revisions to its recognition of revenue on SouthGobi’s coal sales, as disclosed on November 8, 2013. In December 2014, U.S. District Court Judge Lorna G. Schofield dismissed the lawsuit. The plaintiffs did not appeal Judge Schofield’s dismissal by February 9, 2015, the appeal deadline.

Throughout 2013, a number of substantive matters were raised by the Government of Mongolia relating to the implementation of the Investment Agreement, the ARSHA, Oyu Tolgoi Project Financing, permitting and approvals. As a result of certain matters, development of the underground mine was suspended on August 13, 2013. As described later in this section of the AIF, the Corporation signed the Underground Plan in May 2015 which addresses the key outstanding shareholder matters. For more information on the Underground Plan, see “General Development of the Business – Agreements with the Government of Mongolia –Underground Plan”.

2014

In January 2014, the Corporation completed the 2013 Rights Offering, issuing a total of 1,006,116,602 Common Shares for aggregate gross proceeds of approximately $2.4 billion. Approximately 99.3% of the Common Shares were issued in the basic subscription of the 2013 Rights Offering with the balance being issued in the additional subscription. RTIH exercised all of its rights under the basic subscription and did not participate in the additional subscription of the 2013 Rights Offering, which was available to all shareholders who fully participated in the basic subscription. Because the 2013 Rights Offering was over-subscribed, RTIH was not required to purchase any shares under the 2013 Standby Commitment. As a result of the 2013 Rights Offering, RTIH’s stake in the Corporation remained unchanged at 50.8% of the outstanding Common Shares. The net proceeds from the 2013 Rights Offering were primarily used to repay all outstanding amounts under the Interim Funding Facility and the New Bridge Facility and expenses associated therewith and with the 2013 Rights Offering.

In February 2014, the Corporation announced that concentrator production rates had been impacted by various post-commissioning issues including the failure of the rake blades in two tailings thickeners. This resulted in the shutdown of one line in the concentrators for a period of seven weeks to repair both thickeners.

In March 2014, the Corporation announced that it was continuing to work together with Rio Tinto and the Government of Mongolia with the aim of resolving outstanding shareholder matters and finalizing project finance for further development of the underground mine at Oyu Tolgoi. The Corporation stated that progress was being made and some matters had been resolved. All parties remained committed to further development of Oyu Tolgoi. As described later in this section of the AIF, the Corporation has now signed the Underground Plan which addresses the key outstanding shareholder matters. For more information on the Underground Plan, see “General Development of the Business – Agreements with the Government of Mongolia –Underground Plan”.

In May 2014, the Corporation announced that Rowena Albones, Jill Gardiner, Peter Gillin, Dr. David Klingner, Kay Priestly, Russel C. Robertson and Jeff Tygesen – being the nominees set forth in the management proxy circular dated March 26, 2014 – had been elected as directors of Turquoise Hill at the 2014 AGM. Directors Virginia Flood, Isabelle Hudon, Warren Goodman and Charles Lenegan did not stand for re-election.

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In May 2014, the Corporation announced that Steeve Thibeault was to replace Christopher Bateman as the Chief Financial Officer of the Corporation effective June 1, 2014.

In June 2014, the Corporation announced that Oyu Tolgoi LLC had received an audit report from the Mongolian Tax Authority claiming unpaid taxes, penalties and disallowed entitlements associated with the initial development of the Oyu Tolgoi Mine. The Corporation further announced that a notice of dispute with the Government of Mongolia had been filed following receipt of the audit report from the Mongolian Tax Authority. As described later in this section of the AIF, Oyu Tolgoi LLC subsequently received a written decision from the Mongolian Tax Authority reducing the amount claimed to be payable by Oyu Tolgoi LLC.

In July 2014, the Corporation announced that it had entered into a sale and purchase agreement with NUR providing for the sale by the Corporation of 56,102,000 common shares of SouthGobi at a price of C$0.455 per common share. Under the terms of the sale and purchase agreement, the Corporation was to receive approximately C$12.8 million in cash at closing of the transaction and deferred consideration of approximately C$12.8 million one year after closing. As described below, the outside date of the sale and purchase agreement with NUR was extended to April 30, 2015, at which time the agreement expired and the transaction contemplated thereunder was not completed.

In August 2014, the Corporation announced that, following the sending of extension requests to all project finance lenders in April 2014, all of the 15 global banks participating in the Oyu Tolgoi Project Financing had agreed to extend their respective commitment letters for the financing of the underground development at Oyu Tolgoi to September 30, 2014. In addition, Export Development Canada, the European Bank of Reconstruction and Development, the International Finance Corporation, the Export-Import Bank of the United States, as well as the Australian Export Finance and Insurance Corporation, also had conditional board approvals to close the financing.

In August 2014, the Corporation announced that Oyu Tolgoi LLC had signed a Power Sector Cooperation Agreement with the Government of Mongolia for the exploration of a Tavan Tolgoi-based independent power producer. The agreement lays out a framework for long-term strategic cooperation between the Government of Mongolia and Oyu Tolgoi LLC to deliver a comprehensive energy plan for the South Gobi region.

In September 2014, the Corporation announced that the Oyu Tolgoi Mine concentrator experienced a failure of the rake arms in one of the mine’s two tailings thickeners. An investigation found that operational issues combined with fabrication-quality problems led to the failure of the rakes. The repair of the rakes and re-commissioning of the Oyu Tolgoi tailings thickeners was completed on September 30, 2014. During the repair period, the concentrator continued to run at approximately 60% throughput.

In September 2014, the Corporation announced that Oyu Tolgoi LLC had received a written decision from the Mongolian Tax Authority. The tax ruling reduced the amount of tax, interest and penalties claimed to be payable by Oyu Tolgoi LLC from approximately $127 million to approximately $30 million. In connection with the entering into of the Underground Plan, Oyu Tolgoi has, in a separate agreement with the Government of Mongolia, agreed, without accepting liability and without creating a precedent, to pay the amount of the determination by way of settlement to resolve this tax matter. For more information on the Underground Plan, see “General Development of the Business – Agreements with the Government of Mongolia –Underground Plan”.

In September 2014, the Corporation announced that the 2014 Oyu Tolgoi Feasibility Study was finalized and presented to the board of directors of Oyu Tolgoi LLC, and in October 2014, the Corporation announced that it had filed the 2014 Oyu Tolgoi Technical Report.

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In October 2014, the Corporation announced that it received repayment for its First T-Bill, which was to mature on October 19, 2014. For more information on the T-Bills, see “General Development of the Business – Agreements with the Government of Mongolia – T-Bill Purchase Agreement and Prepayment Agreement”.

In October 2014, the Corporation announced the appointment of Dr. James W. Gill to the Board of Directors as an independent director effective November 1, 2014.

In November 2014, the Corporation stated that it was continuing to engage with the proposed project financing lender group and was keeping both the international financial institutions and the commercial banks informed of the status of discussions with the Government of Mongolia. Commitments from the commercial bank consortium formally expired on September 30, 2014. The Corporation indicated that timing of any lender commitment extension requests will be determined when definitive progress or resolution has been made on the shareholder matters. As described below, Oyu Tolgoi LLC has now entered into the Project Finance Facility. For more information on the Project Finance Facility and on the material agreements entered into by the Corporation in connection therewith, see “General Description of the Business – Three Year History – 2015” and “Turquoise Hill Financing Support Agreement”, “Oyu Tolgoi Financing Support Agreement” and “Cash Management Services Agreement” under the heading “General Development of the Business – Agreements with Rio Tinto”, respectively.

In November 2014, the Corporation announced the retirement of Chair Dr. David Klingner, effective January 1, 2015, and Chief Executive Officer Kay Priestly, effective December 1, 2014. Current directors Jill Gardiner and Jeff Tygesen were appointed Chair of the Board of Directors and Chief Executive Officer of the Corporation, respectively. Ms. Priestly remained on the Board of Directors until December 31, 2014. Effective January 1, 2015, Dr. Craig Stegman was appointed as a director to fill the vacancy following Ms. Priestly’s retirement. In addition, effective January 1, 2015, director Russel C. Robertson took over as Chair of the Corporation’s Audit Committee and Ms. Gardiner took over as Chair of the Corporation’s Nominating and Corporate Governance Committee.

In December 2014, the Corporation announced that it had signed an amendment to the sale and purchase agreement with NUR entered into in July 2014 providing, among other matters, for an extension to the outside closing date from November 30, 2014 to April 30, 2015. As described below, the sale and purchase agreement expired on April 30, 2015 and the transaction contemplated thereunder was not completed.

In December 2014, Turquoise Hill announced that there had been a fire in one of the ball mill cyclone packs at the Oyu Tolgoi concentrator. There were no injuries. Following completed inspections, the concentrator returned to service using the other mills and cyclone packs. Repairs from the fire were completed on January 2, 2015 and the concentrator returned to full production shortly thereafter.

In 2014, Oyu Tolgoi LLC produced 148,400t of copper and 589,000 ounces of gold in concentrates and, under International Financial Reporting Standards (“IFRS”), recorded net revenue of approximately $1.7 billion in sales on approximately 733,700 t of concentrates, reflecting the Oyu Tolgoi Mine’s first full year of production. Recoveries improved through 2014, driven by both operational improvements and the increased ore grades as the Oyu Tolgoi Mine developed the high grade zone in the last half of 2014. Marketing and logistics improvements allowed concentrate inventories to be drawn down to normal levels by the end of 2014.

2015

In February 2015, the Corporation announced that it had entered into a sale and purchase agreement with Novel Sunrise providing for the sale to Novel Sunrise of all its SouthGobi shares not subject to its then still pending sale

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and purchase agreement with NUR. Under the terms of the sale and purchase agreement with Novel Sunrise, Turquoise Hill agreed to sell 48,705,155 common shares of SouthGobi at a price of C$0.35 per common share. Pursuant to the sale and purchase agreement, the Corporation also had a put option to sell to Novel Sunrise up to an additional 1,671,985 common shares at the same price of C$0.35 per common share (the “Novel Sunrise Put Option”). Concurrently with the announcement of the sale and purchase agreement with Novel Sunrise, SouthGobi announced that it had entered into a private placement with Novel Sunrise for the issuance of up to 21.75 million common shares and mandatory convertible units for gross proceeds of approximately $7.5 million. Following the closing of the sale transaction with Novel Sunrise in April 2015, the Corporation continued to hold 56,102,000 shares of SouthGobi that were subject to the then still pending sale and purchase agreement with NUR, representing at the time approximately a 23.3% equity interest in SouthGobi after giving effect to the private placement with Novel Sunrise announced by SouthGobi on February 24, 2015.

In February 2015, Oyu Tolgoi LLC produced its one millionth tonne of concentrate.

In March 2015, the Corporation announced that Oyu Tolgoi LLC had filed the Statutory Feasibility Study with the Mongolian Minerals Council.

In April 2015, the Corporation completed the sale of the 48,705,155 common shares of SouthGobi under the sale and purchase agreement with Novel Sunrise for approximately C$17 million. Half of the aggregate purchase price, representing approximately C$8.5 million, was received by the Corporation at closing, and the balance of approximately C$8.5 million was received on August 4, 2015.

In May 2015, the Corporation disclosed that its previously announced and signed sale and purchase agreement with NUR, which had provided for the sale to NUR of 56,102,000 shares in the capital of SouthGobi, had expired on April 30, 2015 without the transaction contemplated thereunder having been completed. Following the expiry of the sale and purchase agreement with NUR, the Corporation exercised the Novel Sunrise Put Option and sold an additional 1,671,985 common shares of SouthGobi to Novel Sunrise for proceeds of approximately C$0.6 million, which closed in early June 2015.

In May 2015, the Corporation announced that Rowena Albones, Jill Gardiner, Dr. James W. Gill, Peter Gillin, Russel C. Robertson, Dr. Craig Stegman and Jeff Tygesen – being the nominees set forth in the management proxy circular dated March 20, 2015 – had been elected as directors of Turquoise Hill at the 2015 AGM.

In May 2015, the Corporation announced the signing of the Underground Plan by the Government of Mongolia, Turquoise Hill and Rio Tinto. The Underground Plan provides a pathway forward in addressing outstanding shareholder matters to restart underground development at the Oyu Tolgoi Mine. The Underground Plan confirms the project cost for the Oyu Tolgoi Mine’s initial construction and development and reinforces the principles set out in the Investment Agreement and the ARSHA. The Corporation further announced that the Underground Plan and certain related agreements address key outstanding matters including the following specific items: tax matters, the 2% NSR, sales royalty calculation and management services payments. The agreements also address the sourcing of power for the Oyu Tolgoi Mine from within Mongolia. The overall value impact for the Corporation in connection with the agreements is less than 2% of the value of the reserve case of $7.4 billion. For more information on the Underground Plan, see “General Development of the Business – Agreements with the Government of Mongolia –Underground Plan”.

In August 2015, the Corporation announced that Oyu Tolgoi LLC had filed revised schedules for the Statutory Feasibility Study with the Mongolian Minerals Council. The filing also aligned the Statutory Feasibility Study with the Underground Plan. The Mongolian Minerals Council had already tentatively accepted the Statutory Feasibility Study filed in March 2015, pending a revision of its schedules and alignment with the Underground

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Plan. The Statutory Feasibility Study is based on the same feasibility study and aligns with the 2014 Oyu Tolgoi Technical Report. The Corporation further announced that funding for pre-start activities had been approved, in order to ensure the project is ramped back into production as soon as possible, while not making contract commitments ahead of completing the full project approval. The funding covers work scheduled to take place before the official “notice to proceed” is approved, which the Corporation later announced it expected early in the second quarter of 2016.

In September 2015, the Corporation noted the signing by the Government of Mongolia of the request of the Multilateral Investment Guarantee Agency (“MIGA”) for host country approval with respect to guarantees to be issued by MIGA in connection with the Oyu Tolgoi Project Financing.

In September 2015, the Corporation announced the resignation of Stewart Beckman, Senior Vice President, Operations and Technical Development, effective October 1, 2015.

In November 2015, China Investment Corporation (“CIC”) announced that it had acquired ownership of 11,957,738 common shares of SouthGobi. Following the CIC announcement, and on-market sales of common shares of SouthGobi by the Corporation between April and December 2015, the Corporation’s ownership of SouthGobi was reduced to 49,348,915 common shares as at December 31, 2015, representing a 19.2% equity interest in SouthGobi.

In December 2015, the Corporation announced that Oyu Tolgoi LLC had signed a $4.4 billion project finance facility (the “Project Finance Facility”). The Project Finance Facility is being provided by a syndicate of international financial institutions and export credit agencies representing the governments of Canada, the United States and Australia, along with 15 commercial banks. The Corporation further announced that it will continue to work with Rio Tinto and Oyu Tolgoi LLC towards completing the Statutory Feasibility Study, including the updated capital estimates required in connection therewith, and securing all necessary permits for the development of the underground mine. Once these steps have been completed, and subject to the Board of Directors and each of the boards of directors of RTIH and Oyu Tolgoi LLC approving a formal “notice to proceed”, the full Project Finance Facility will be drawn down by Oyu Tolgoi LLC subject to the satisfaction of certain condition precedents typical for a financing of this nature. Net proceeds from the Project Finance Facility (the “Net PF Proceeds”), after fees and taxes, are anticipated to be approximately $4.1 billion. The Net PF Proceeds will be used by Oyu Tolgoi LLC to pay down shareholder loans payable to Turquoise Hill, and will be available to be re-drawn by Oyu Tolgoi LLC for the development of the underground mine. For information on the material agreements entered into by the Corporation in connection with the Project Finance Facility, see “Turquoise Hill Financing Support Agreement”, “Oyu Tolgoi Financing Support Agreement” and “Cash Management Services Agreement” under the heading “General Development of the Business – Agreements with Rio Tinto”.

In 2015, Oyu Tolgoi LLC produced 202,200 t of copper, exceeding the Corporation’s guidance of 175,000 to 195,000 t and produced 653,000 ounces of gold, meeting 2015 guidance of 600,000 to 700,000 ounces. It recorded net revenue of approximately $1.6 billion in sales. Mill throughput increased by 23.9% compared to 2014 driven by operational improvements.

2016 to date

On January 20, 2016, the Corporation announced the appointment of Brendan Lane as Vice President, Operations and Development effective February 1, 2016.

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Agreements with Rio Tinto

In 2006, the Corporation identified RTIH as a strategic investor to support development of the Oyu Tolgoi Mine. The parties have entered into a series of agreements since 2006 pursuant to which RTIH has provided equity and debt financing to fund ongoing development of the Oyu Tolgoi Mine and operations of the Corporation. Since 2006, RTIH, together with other Rio Tinto affiliates, has acquired a 50.8% majority interest in Turquoise Hill, and is responsible for the day-to-day operational management and development process of the Oyu Tolgoi Mine.

Private Placement Agreement

In October 2006, Turquoise Hill and RTIH entered into the Private Placement Agreement and the First Tranche Investment was completed, pursuant to which Turquoise Hill issued 37,089,883 Common Shares to RTIH at a price of $8.18 per Common Share, for an aggregate subscription price of approximately $303.4 million. The First Tranche Investment represented, upon issuance, 9.95% of the then issued and outstanding Common Shares.

In October 2009, the Second Tranche Investment was completed, pursuant to which Turquoise Hill issued a further 46,304,473 Common Shares to RTIH at a price of $8.38 per Common Share, for an aggregate subscription price of approximately $388 million. The combined First Tranche Investment and Second Tranche Investment represented, upon issuance, 19.7% of the then issued and outstanding Common Shares.

In conjunction with the First Tranche Investment, the Corporation issued to RTIH the Series A Warrants and the Series B Warrants. The Series A Warrants entitled RTIH to purchase up to 46,026,522 Common Shares at prices per Common Share ranging from $8.38 to $8.54 depending on when they were exercised and the Series B Warrants entitled RTIH to purchase up to 46,026,522 Common Shares at prices per Common Share ranging from $8.38 to $9.02 depending on when they were exercised. On June 29, 2010, RTIH exercised all Series A Warrants, at an exercise price of $8.54 per Common Share, and was issued a total of 46,026,522 Common Shares. As a result of such issuance, Rio Tinto’s equity ownership of the Corporation increased at the time from approximately 22.3% to 29.6% of the then issued and outstanding Common Shares.

RTIH was granted pre-emptive rights entitling RTIH to participate, subject to certain specific exceptions, in future issuances of Common Shares on a basis sufficient to maintain its percentage shareholding interest in the Corporation on economic terms equivalent to those upon which any such Common Shares are issued to third parties. RTIH’s pre-emptive rights remain in effect.

RTIH was also granted a right of first offer, permitting RTIH to provide any equity financing, until October 24, 2012, that the Corporation otherwise proposed to obtain. This right of first offer has now expired.

RTIH and the Corporation also agreed to establish the Technical Committee to manage all aspects of the engineering, construction, development and operation of the Oyu Tolgoi Mine, whereby all material activities and operations in respect of the Oyu Tolgoi Mine must first be approved prior to implementation.

The Private Placement Agreement also contained provisions relating to Turquoise Hill’s use of funds from Common Shares issued to RTIH under the Private Placement Agreement, standstill and Common Share acquisition limits, right of first refusal in respect of any proposed disposition of the Corporation’s interest in the Oyu Tolgoi Mine, and Board of Director nomination entitlements. These provisions were subsequently amended by the HoA. See “General Development of the Business – Agreements with Rio Tinto – HoA”.

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Credit Agreement

In October 2007, the Corporation and RTIH entered into the Credit Agreement pursuant to which RTIH agreed to make the credit facility (the “Credit Facility”) available to the Corporation. The aggregate principal amount advanced to the Corporation under the Credit Facility was $350 million. As an inducement to provide the Credit Facility, Turquoise Hill issued the Series C Warrants to RTIH.

On September 13, 2010, the Credit Facility was, by its terms, automatically converted into Common Shares. The $350 million principal amount plus approximately $50.8 million in accrued and unpaid interest was converted into 40,083,206 Common Shares at a conversion price of $10.00 per Common Share. As a result of this conversion, Rio Tinto’s equity ownership of the Corporation increased at the time from approximately 29.6% to 34.9% of the then issued and outstanding Common Shares.

Contract Assignment Arrangement Agreement and Put Agreement

In August 2008, the Corporation, Oyu Tolgoi LLC and Rio Tinto Alcan entered into the Contract Assignment Arrangement Agreement which provided for Rio Tinto Alcan to purchase from Oyu Tolgoi LLC certain Oyu Tolgoi Mine equipment already acquired by Oyu Tolgoi LLC, and to take an assignment of certain contracts with third party suppliers for additional Oyu Tolgoi Mine equipment on long lead time orders, pending the successful completion of negotiations with the Government of Mongolia relating to the Investment Agreement. As consideration for the purchase of the equipment and the assignment of the contracts, Rio Tinto Alcan paid to Oyu Tolgoi LLC an aggregate purchase price of approximately $121.5 million.

In conjunction with the Contract Assignment Arrangement Agreement, the Corporation, Oyu Tolgoi LLC and Rio Tinto Alcan also entered into a Put Agreement whereby Rio Tinto Alcan had the ability to require Oyu Tolgoi LLC to re-purchase the equipment once the Investment Agreement became effective. Rio Tinto Alcan’s rights under the Put Agreement were assigned to RTIH. RTIH exercised its option under the Put Agreement in March 2010 and concurrently subscribed for, by way of private placement, the Put Option Placement Shares for total consideration of approximately C$244.6 million. Approximately C$198.2 million of the proceeds from the issuance of the Put Option Placement Shares was allocated and set-off against the purchase from Rio Tinto Alcan of the Oyu Tolgoi Mine equipment covered by the option under the Put Agreement. The balance of the proceeds from the issuance of the Put Option Placement Shares, equal to approximately C$46.4 million, was paid to Turquoise Hill in cash.

HoA

On December 8, 2010, Turquoise Hill and RTIH entered into the HoA, whereby Turquoise Hill and RTIH agreed to, among other things, RTIH’s support and full participation in the 2010 Rights Offering, the financing and management of the Oyu Tolgoi Mine, replacing or amending certain contractual obligations under the Private Placement Agreement and a good faith obligation on the part of RTIH to support Turquoise Hill in its efforts to raise Oyu Tolgoi Project Financing as well as other matters, as described in further detail below. The following is a summary only and is qualified in its entirety by reference to the HoA, a copy of which has been filed with the Canadian Securities Authorities on SEDAR at www.sedar.com.

Exercise of Certain Series B Warrants

Under the terms of the HoA, RTIH was required to exercise 33,783,784 Series B Warrants, resulting in the issuance of 33,783,784 Common Shares, at an exercise price of $8.88 per Common Share, for cash proceeds to Turquoise Hill of approximately $300 million. Turquoise Hill further agreed to amend the terms of the remaining

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Private Placement Warrants to adjust the number of Common Shares issuable to adjust for the dilutive effect of the 2010 Rights Offering. As a result of the exercise of the 33,783,784 Series B Warrants (and 720,203 Anti-Dilution Warrants) in December 2010, Rio Tinto’s equity ownership of Turquoise Hill increased at the time from 34.9% to 38.7% of the then issued and outstanding Common Shares. In addition, RTIH agreed to exercise the remaining 12,242,738 Series B Warrants and 35,000,000 Series C Warrants in accordance with future funding requests for the Oyu Tolgoi Mine.

2010 Rights Offering

RTIH agreed to (i) publicly support the 2010 Rights Offering, and (ii) exercise all rights issued to it pursuant to the 2010 Rights Offering to purchase Common Shares. The parties to the HoA also agreed (i) on the subscription price per Common Share under the 2010 Rights Offering, (ii) to remove the Minimum Subscription Condition (as defined in the HoA), and (iii) to increase the maximum permitted size of the 2010 Rights Offering to $1.2 billion. As a result of the exercise of its rights under the 2010 Rights Offering and the purchase of the RMF Purchased Shares and the Citi Purchased Shares (each as defined below), Rio Tinto’s equity ownership of Turquoise Hill increased at the time from 38.7% to 42.1% of the then issued and outstanding Common Shares.

Common Share Purchases from Robert Friedland and Citibank N.A.

Concurrently with the execution of the HoA, RTIH entered into separate agreements to purchase, prior to the record date of the 2010 Rights Offering, 10,000,000 Common Shares from Robert Friedland (the “RMF Purchased Shares”) and, upon the completion of the 2010 Rights Offering, a further 10,000,000 Common Shares (11,500,000 after applying a gross-up to take into account the 2010 Rights Offering) from Citibank N.A. (the “Citi Purchased Shares”). The purchase price paid by RTIH for the RMF Purchased Shares was $25.34 per RMF Purchased Share. The purchase price paid by RTIH for the first 10,000,000 Citi Purchased Shares was $25.34 per Citi Purchased Share, with the remaining balance of 1,500,000 Citi Purchased Shares purchased at $13.88 per Citi Purchased Share, which was equal to the subscription price per Common Share under the 2010 Rights Offering.

Exercise of Remaining Series B Warrants and Series C Warrants

On June 21, 2011, in addition to its exercise of the remaining 14,070,182 Series B Warrants for 14,070,182 Common Shares at a price per Common Share of $8.51¹, RTIH exercised all 40,224,365 Series C Warrants for 40,224,365 Common Shares at a price per Common Share of $9.43¹, and 827,706 Anti-Dilution Warrants for 827,706 Common Shares at a price per Common Share of $2.97, the result of which, when taken together with the exercise of the remaining Series B Warrants, increased Rio Tinto’s equity ownership of the Corporation at the time from approximately 42.1% to 46.5% of the then issued and outstanding Common Shares.

Subscription Right

Pursuant to the HoA, RTIH received a subscription right (the “Subscription Right”), exercisable from time to time to purchase Common Shares from Turquoise Hill’s treasury at the volume weighted average price of a Common Share on the TSX during the five trading days immediately prior to the applicable date of exercise. RTIH’s entitlement to exercise the Subscription Right was subject to certain limitations, including the Standstill Cap, and allowed RTIH to purchase up to 49% of the outstanding Common Shares minus the amount, if any, by which 3,700,000 exceeds the number of Common Shares acquired by Rio Tinto and all persons with whom Rio Tinto is acting jointly or in concert. RTIH exercised the Subscription Right in August 2011 to acquire 27,896,570

¹ The number of remaining Series B Warrants and the number of Series C Warrants was in each case adjusted in accordance with their terms to reflect the dilutive effect of the 2010 Rights Offering.

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Common Shares at a price of C$18.98 per Common Share, thereby increasing Rio Tinto’s equity ownership of the Corporation at the time from 46.5% to 48.5% of the issued and outstanding Common Shares.

In September 2011, RTIH acquired 3,700,000 Common Shares through a privately negotiated share purchase agreement at a price of C$19.75 per Common Share for an aggregate purchase price of C$73,075,000, thereby increasing Rio Tinto’s equity ownership of the Corporation at the time from 48.5% to 49.0% of the then issued and outstanding Common Shares. In January 2012, RTIH exercised the Subscription Right and acquired 439,216 Common Shares at a price of C$19.66 per Common Share for total aggregate proceeds to the Corporation of approximately C$8.6 million. Together with the Subscription Right exercised in August 2011, the Corporation received aggregate proceeds of approximately C$538.1 million.

Standstill Cap

The share purchase limitations applicable to RTIH under the Private Placement Agreement were replaced by the Standstill Cap. The restrictions imposed on RTIH pursuant to the Standstill Cap expired on January 18, 2012. Subsequent to the expiry of the Standstill Cap, RTIH purchased 15.1 million Common Shares from third parties, and thereby increased Rio Tinto’s equity ownership of the Corporation from 49% to approximately 51% of the then issued and outstanding Common Shares.

Use of Proceeds

The Corporation agreed to use all of the proceeds from the 2010 Rights Offering and from the sale of any Common Shares to RTIH pursuant to the exercise of the Private Placement Warrants, the Subscription Right or otherwise, other than $180 million, for expenditures in respect of the Oyu Tolgoi Mine. The Corporation further agreed not to use the proceeds from the sale of any of its assets that are unrelated to the Oyu Tolgoi Mine (“Non-Oyu Tolgoi Assets”) to acquire any new assets or to fund any existing projects other than the development of the Oyu Tolgoi Mine and the Kyzyl Gold Project.

The above use of proceeds covenants in the HoA were amended in the 2012 MoA to replace the Kyzyl Gold Project with the repayment of the Interim Funding Facility as an acceptable and permitted use of such proceeds. They were further amended in the 2013 MoA to include proceeds from the proposed sale of the Corporation’s 50% interest in Altynalmas Gold Ltd. as part of the proceeds subject to the same restrictions as the proceeds from the sale of any Non-Oyu Tolgoi Assets.

Funding Requests

If and when Turquoise Hill required further funds for the development of the Oyu Tolgoi Mine, it was obligated to notify RTIH. After receiving any such notice, RTIH was required to exercise a sufficient number of the remaining Private Placement Warrants, if any, to generate proceeds sufficient to fund expenditures as set out in each such notice. Once all the Private Placement Warrants were exercised, further funding from RTIH required for the development of the Oyu Tolgoi Mine was done by way of drawdown under the Interim Funding Facility.

Under the 2012 MoA, the Bridge Facility, the proceeds of the 2012 Rights Offering, Oyu Tolgoi Project Financing and the provision of completion support by RTIH formed the principal components of the financing plan for the development of the Oyu Tolgoi Mine, in addition to the Interim Funding Facility. For further information on the Bridge Facility, see “General Development of the Business – Agreements with Rio Tinto – 2012 MoA – Bridge Facility”.

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Under the 2013 MoA, the sources of funding for the development of the Oyu Tolgoi Mine under the HoA were amended to include the Interim Funding Facility, the Short Term Bridge Facility and the New Bridge Facility. For further information on the Short Term Bridge Facility and the New Bridge Facility, see “General Development of the Business – Agreements with Rio Tinto – 2013 MoA – Short Term Bridge Facility” and “General Development of the Business – Agreements with Rio Tinto – 2013 MoA – New Bridge Facility”, respectively.

Oyu Tolgoi Project Financing

RTIH and the Corporation agreed to act together diligently and in good faith to negotiate Oyu Tolgoi Project Financing acceptable to both RTIH and the Corporation, acting reasonably, in an amount of $3.6 billion, unless otherwise agreed by the parties, with the original goal of having Oyu Tolgoi Project Financing in place before June 30, 2011.

Under the 2012 MoA, the amount to be borrowed for Oyu Tolgoi Project Financing was amended to a range between $3 billion and $4 billion, the target date for Oyu Tolgoi Project Financing was extended to December 31, 2012 and RTIH assumed leadership of the Oyu Tolgoi Project Financing negotiations.

Under the 2013 MoA, the target date for Oyu Tolgoi Project Financing was extended to November 14, 2013 (as discussed under “General Development of the Business – Three Year History – 2014”, the financing commitments of the project finance lenders were extended to, and expired on, September 30, 2014).

The Corporation and RTIH further agreed under the HoA that, until such time as Oyu Tolgoi Project Financing was to be secured, RTIH would provide the Corporation with the Interim Funding Facility to fund ongoing development of the Oyu Tolgoi Mine subject to compliance with the terms of the Interim Funding Facility. For more information on the Interim Funding Facility, see “General Development of the Business – Agreements with Rio Tinto – Interim Funding Facility”.

In December 2015, Oyu Tolgoi LLC signed the Project Finance Facility. For more information on the Project Finance Facility, as well as the material agreements entered into by the Corporation in connection with the Project Finance Facility, see “General Description of the Business – Three Year History – 2015” and “Turquoise Hill Financing Support Agreement”, “Oyu Tolgoi Financing Support Agreement” and “Cash Management Services Agreement” under the heading “General Development of the Business – Agreements with Rio Tinto”, respectively.

Governance Arrangements

The Corporation and RTIH agreed to cause (i) three nominees from each of the Corporation and RTIH to be appointed as the directors of Oyu Tolgoi LLC reserved for the Oyu Tolgoi Shareholder Holdcos under the ARSHA, and (ii) the Oyu Tolgoi Shareholder Holdcos to exercise all of their rights under the ARSHA in accordance with instructions given by the Operating Committee, which is comprised of two nominees from each of the Corporation and RTIH, with a RTIH nominee serving as chairman. The Corporation and RTIH are to instruct their respective nominees to vote at Oyu Tolgoi LLC board meetings as a block in accordance with the instructions received from the Operating Committee. All decisions of the Operating Committee, other than decisions in respect of certain defined special matters, require a majority vote of the members with a casting vote of the chairman (being a RTIH nominee) in the case of a tie. Decisions in respect of certain “special matters” require a unanimous vote of the members of the Operating Committee.

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Oyu Tolgoi Mine Management and Exploration

RTIH was granted the right to appoint an affiliate (the “Rio Tinto Manager”) to manage the Oyu Tolgoi Mine under the terms of a management agreement (the “Oyu Tolgoi Governance Agreement”); however, Oyu Tolgoi LLC has the right to terminate the Oyu Tolgoi Governance Agreement in certain circumstances, including if the Rio Tinto Manager is unable to pay its debts as they become due, causing the Rio Tinto Manager to be unable to perform its obligations under the Oyu Tolgoi Governance Agreement, if Rio Tinto disposes of a sufficient number of Common Shares such that it ceases to hold a direct and/or indirect beneficial ownership interest in Oyu Tolgoi LLC of more than 10%, or if the Rio Tinto Manager ceases to be a wholly-owned subsidiary member of Rio Tinto and the situation is not remedied within 60 days after being required in writing to do so.

The Rio Tinto Manager delegated, by way of sub-contract, management of exploration within the areas covered by the Oyu Tolgoi Mine licences, but outside of the “Core Area” of the Oyu Tolgoi Mine, to a designated subsidiary of the Corporation (on a non-exclusive basis). The Corporation was responsible for preparing exploration programs and budgets for such exploration, but RTIH had the right to approve any exploration expenditures in excess of $30 million per year. The duties and powers of conducting exploration activities outside the “Core Area” were subsequently transferred to and assumed by the Rio Tinto Manager under the 2012 MoA. See “General Development of the Business – Agreements with Rio Tinto – 2012 MoA – Oyu Tolgoi Exploration Activities” for more details.

Interim Funding Facility

All amounts outstanding under the Interim Funding Facility were repaid on January 14, 2014 from the net proceeds of the 2013 Rights Offering.

2012 MoA

The Corporation, RTIH and RTSEA entered into the 2012 MoA on April 17, 2012 and amended certain of its terms on May 22, 2012. The 2012 MoA contemplates a comprehensive financing plan comprising a number of transactions in respect of the financing of the Oyu Tolgoi Mine, the management of the Corporation, certain amendments to the HoA, and other matters. The financing commitments made by RTIH pursuant to the terms of the 2012 MoA were provided to address the uncertainty that previously existed with respect to the financing of the Oyu Tolgoi Mine and provide the Corporation with more secure access to a source of funding, which was intended to allow for a higher degree of funding certainty for the Oyu Tolgoi Mine until commercial production was achieved. The following is a summary only and is qualified in its entirety by reference to the 2012 MoA, as amended, a copy of which has been filed with the Canadian Securities Authorities on SEDAR at www.sedar.com.

2012 Rights Offering

The Corporation and RTIH agreed to the key terms of the 2012 Rights Offering. These terms included (i) the issuance of rights sufficient to generate gross proceeds of up to $1.8 billion; (ii) the price payable for each Common Share upon exercise of a right; (iii) the agreement by RTIH to exercise its basic subscription privilege in full and to provide the 2012 Standby Commitment, subject to certain terms, conditions and limitations set out in the 2012 MoA; (iv) the payment of a fee by the Corporation to RTIH as consideration for RTIH providing the 2012 Standby Commitment; and (v) the offering of an additional subscription privilege to holders of rights that have exercised their basic subscription privilege in full.

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The 2012 Rights Offering closed on July 27, 2012 and the Corporation issued an aggregate of 259,558,050 Common Shares in satisfaction of the rights exercised. As the 2012 Rights Offering was fully subscribed,² RTIH was not required to purchase any additional Common Shares under the 2012 Standby Commitment.

Oyu Tolgoi Project Financing and Completion Support

In accordance with the terms of the HoA, RTIH and the Corporation agreed to continue to act together diligently and in good faith to negotiate Oyu Tolgoi Project Financing. The estimate for the total amount of financing at such time was revised to a range of between $3 billion and $4 billion, with the final terms of such financing subject to the acceptance of each of the Corporation, RTIH, and the board of directors of Oyu Tolgoi LLC, each acting reasonably.

Provided that Oyu Tolgoi Project Financing was made available on terms reasonably satisfactory to RTIH and RTIH was reasonably satisfied at the Oyu Tolgoi Project Financing closing date that the Oyu Tolgoi Mine (including a power plant) was fully financed (including a reasonable provision for contingencies), it was agreed that a RTIH affiliate (the “Rio Tinto Supporter”) would enter into a completion support agreement with the Corporation, pursuant to which the Rio Tinto Supporter would agree to provide a completion support guarantee to the lenders of Oyu Tolgoi Project Financing. As consideration for the provision of such completion support, the Corporation would be responsible to pay to the Rio Tinto Supporter an annual fee of 2.5% payable annually, in advance, on the amount of debt that is projected as the aggregate average of the debt that will be outstanding under the Oyu Tolgoi Project Financing at each calendar month end during the subject 12 month period.

As part of the Project Finance Facility, Rio Tinto agreed to provide the completion support undertaking as contemplated above (the “Completion Support Undertaking”). In consideration for providing completion support, Oyu Tolgoi LLC and Turquoise Hill have agreed to pay Rio Tinto an annual fee equal to 2.5% of the amounts drawn under the Project Finance Facility, of which 1.9% is payable by Oyu Tolgoi LLC and 0.6% is payable by Turquoise Hill. The annual completion support fee will apply to funding used for facility fees and taxes at the initial drawdown, as well as amounts used to fund development of the Oyu Tolgoi Mine. The obligation to pay the completion support fee will terminate on the date Rio Tinto’s completion support obligations to the Oyu Tolgoi Project Financing lenders terminate.

Bridge Facility

RTIH agreed to cause one of its affiliates to provide the Corporation with the Bridge Facility to fund ongoing development of the Oyu Tolgoi Mine. A front end fee of $15 million was paid on May 24, 2012 by the Corporation to the affiliate of RTIH providing the Bridge Facility. The Bridge Facility was to be drawn down to fund ongoing Oyu Tolgoi Mine expenditures if, and to the extent that, funds from the Interim Funding Facility, Oyu Tolgoi Project Financing or other sources were not available in a timely manner. The Bridge Facility expired undrawn on May 23, 2013.

Board of Directors

Upon execution of the 2012 MoA, it was agreed that the Board of Directors would be reduced from 14 to 13 directors and that a majority of the directors would be independent until January 18, 2014. This independence requirement has now expired. The quorum required for the transaction of business at a meeting of the Board of Directors was fixed as a majority of the number of directors elected or appointed and in office immediately before

² 99.2% of the 2012 Rights Offering rights were exercised in the first instance pursuant to a basic subscription privilege with the remainder taken up via an additional subscription privilege.

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the applicable meeting. The 2012 MoA also specified that Mr. Friedland had the right, conditional upon him continuing to own at least 10% of the Common Shares, to select two Turquoise Hill directors (of which at least one must be independent) from the incumbent Turquoise Hill directors (other than himself and each acceptable to RTIH) and that RTIH would exercise its voting power to vote in favour of the election of such directors from time to time until the earlier of January 18, 2014 and the date Turquoise Hill ceases to be a reporting issuer.

In addition, the 2012 MoA provided for the abolishment of the Corporation’s Office of the Chairman and the repeal of the Corporation’s policy that required directors to hold Common Shares.³

Concurrently with the execution of the 2012 MoA, Robert Friedland, Edward Flood, Dr. Markus Faber, David Korbin, Livia Mahler, Tracy Stevenson and Dan Westbrook resigned as directors of the Corporation, and David Huberman resigned as Chair of the Board of Directors. As part of these resignations, each resigning director entered into mutual release agreements with RTIH and the Corporation. From the execution of the 2012 MoA until the date of this AIF, there have been additional changes to the individuals comprising the Board of Directors. For more information on certain of these changes, see “General Development of the Business – Three Year History – 2013”, “General Development of the Business – Three Year History – 2014” and “General Development of the Business – Three Year History – 2015”.

On May 1, 2013, the Corporation announced that as a result of Mr. Friedland falling below the 10% ownership threshold, his right to nominate two directors had expired and that his director nominees would not stand for re-election. As a result, the Corporation and RTIH agreed that the Board of Directors would consist of 11 directors. See “General Development of the Business – Three Year History – 2013”. Following the 2014 AGM, the Board of Directors now consists of seven directors. See “General Development of the Business – Three Year History – 2014”.

Oyu Tolgoi Exploration Activities

The Oyu Tolgoi Exploration Agreement (as defined in the HoA) was terminated and the duties and powers of conducting exploration activities in respect of the Oyu Tolgoi Mine are now held by the Rio Tinto Manager, in its role as manager of the Oyu Tolgoi Mine.

Series D Warrants

The Corporation issued to RTIH the Series D Warrants exercisable to purchase an additional 55 million Common Shares at any time until May 22, 2015. Following the 2012 Rights Offering, the number of Common Shares underlying the Series D Warrants and the exercise price per Series D Warrant were adjusted in accordance with their terms to 74,247,460 and $10.37, respectively, to adjust for the dilutive impact of the 2012 Rights Offering and to preserve the original economic value of the Series D Warrants. Following the 2013 Rights Offering, the exercise price per Series D Warrant was further adjusted to $8.20 in accordance with certain price adjustment provisions contained in the certificate evidencing the Series D Warrants to adjust for the dilutive impact of the 2013 Rights Offering and to preserve the original economic value of the Series D Warrants. The Series D Warrants expired on May 22, 2015 without having been exercised.

³ The repeal of the Common Share ownership requirement for directors is consistent with RTIH’s corporate policy that prohibits directors who are employees of RTIH (seconded or otherwise) from receiving options to purchase Common Shares.

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Anti-Dilution Series D Warrants

In addition to the Series D Warrants, the Corporation agreed pursuant to the terms and conditions of the 2012 MoA to grant RTIH the Anti-Dilution Series D Warrants if, at any time prior to the expiry of the Series D Warrants on May 22, 2015, the Corporation was to have issued Common Shares in connection with a future rights offering. The Anti-Dilution Series D Warrants, upon issuance, would represent the same percentage of the outstanding Common Shares that RTIH and its affiliates would have beneficially owned if all of the then outstanding Series D Warrants and any previously issued Anti-Dilution Series D Warrants beneficially owned by RTIH or its affiliates had been fully exercised immediately before the record date of such future rights offering.

In connection with the 2013 Rights Offering, the Corporation issued to RTIH Anti-Dilution Series D Warrants exercisable to purchase an additional 74,247,460 Common Shares at any time until May 22, 2015 at an exercise price of $4.31 per Common Share (subject to certain price adjustment provisions contained in the certificate evidencing the Anti-Dilution Series D Warrants). The Anti-Dilution Series D Warrants expired on May 22, 2015 without having been exercised.

Anti-Dilution Subscription Right

For the subscription price of C$1,000, RTIH was granted, pursuant to the 2012 MoA, the right (the “Anti-Dilution Subscription Right”) to subscribe from time to time for Common Shares in respect of any dilution of Rio Tinto’s equity ownership position in the Corporation as a result of the issuance of Common Shares pursuant to certain exercises of incentive stock options (i) that were exercised prior to the date of the 2012 MoA, or (ii) that remain outstanding and are exercised after the date of the 2012 MoA, subject to a maximum subscription limit of 30,051,345 Common Shares (being the product of an adjustment to reflect the dilutive effect of the 2013 Rights Offering in accordance with the terms of the certificate evidencing the Anti-Dilution Subscription Right). The Anti-Dilution Subscription Right will remain exercisable until the 20^th business day following the expiration or exercise of the last incentive stock option that was outstanding on May 24, 2012, as such options may be adjusted in accordance with their terms. The subscription price per Common Share under the Anti-Dilution Subscription Right will be the volume weighted average price of a Common Share on the TSX during the five (5) trading days immediately before the applicable date of exercise.

In connection with the 2013 Rights Offering, the Corporation affected an equitable adjustment to the number of outstanding stock options and granted an additional 1,047,998 options to the holders of all outstanding stock options to adjust for the dilutive effect of the 2013 Rights Offering and, correspondingly, the Corporation increased the number of Common Shares underlying the Anti-Dilution Subscription Right by 4,402,223 such that the Anti-Dilution Subscription Right is presently exercisable for an aggregate of 30,051,345 Common Shares. As of the date of this AIF, RTIH had not subscribed for any Common Shares underlying the Anti-Dilution Subscription Right.

Short Term Bridge Facility

On June 28, 2013, the Corporation entered into the Short Term Bridge Funding Agreement with RTSEA providing for the Short Term Bridge Facility. Advances made under the Short Term Bridge Facility were used by Turquoise Hill to fund operations and the underground development of the Oyu Tolgoi Mine. On August 2, 2013, Turquoise Hill received a $235 million advance payment from Sumeru Gold BV in connection with Turquoise Hill’s sale of its 50% interest in Altynalmas Gold Ltd., which was used to repay in full amounts then outstanding under the Short Term Bridge Facility.

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In the event the Short Term Bridge Facility was not repaid in full at the maturity date (initially August 12, 2013, and subsequently extended to August 28, 2013 by the Binding Term Sheet described below) or in case of an event of default under the terms of the Short Term Bridge Facility, RTSEA was entitled to convert any outstanding amounts into Common Shares at a price per share equal to 85% of the then prevailing five-day volume weighted average trading price of the shares on the New York Stock Exchange. The conversion option was irrevocably waived by RTSEA pursuant to the terms of the Binding Term Sheet.

RTIH’s obligation to advance funding under the Short Term Bridge Facility was subject to a number of conditions and compliance by the Corporation with a series of covenants. For more details regarding such conditions and covenants, reference is made to the Short Term Bridge Funding Agreement, a copy of which has been filed with the Canadian Securities Authorities on SEDAR at www.sedar.com.

The Short Term Bridge Funding Agreement was terminated when definitive agreements for the New Bridge Facility were entered into (as described below under “Binding Term Sheet and New Financing Package”).

Binding Term Sheet and New Financing Package

On August 7, 2013, the Corporation entered into the Binding Term Sheet setting out the material terms and conditions on which RTIH and RTSEA agreed to provide a new financing package designed to address the Corporation’s then anticipated medium term funding needs in connection with the Oyu Tolgoi Mine (the “New Financing Package”).

On August 23, 2013, the Corporation, RTIH and RTSEA entered into definitive agreements and documents giving effect to the Binding Term Sheet, including, among others, the New Bridge Funding Agreement with respect to the New Bridge Facility and the 2013 MoA, each as described in further detail below. Certain other definitive agreements (including certain security agreements) were entered into on September 5, 2013.

New Bridge Facility

As part of the New Financing Package, RTSEA agreed to provide the Corporation with the New Bridge Facility for the purpose of initially refinancing all amounts then outstanding under the Short Term Bridge Funding Agreement and thereafter for the purpose of funding expenditures to be incurred in connection with the Oyu Tolgoi Mine, if and to the extent that funds from the Oyu Tolgoi Project Financing or from other sources would not be available in a timely manner. It was contemplated that such expenditures would include the costs of the continued ramp-up and completion of the open pit phase of the Oyu Tolgoi Mine, and other assets, expenses and payments related to the Oyu Tolgoi Mine. RTSEA and the Corporation entered into the New Bridge Funding Agreement for the purpose of providing the New Bridge Facility. The New Bridge Facility bore interest at the rate of LIBOR plus 5% per annum on drawn amounts and required payment to RTSEA of a commitment fee of 2% per annum on undrawn amounts.

On November 14, 2013, RTIH, RTSEA and the Corporation entered into an amending agreement that amended the 2013 MoA and the New Bridge Funding Agreement, pursuant to which they agreed to extend the latest closing date for the 2013 Rights Offering to January 13, 2014 and, correspondingly, to extend the maturity dates of the Interim Funding Facility and the New Bridge Facility to the earlier of the second business day following the closing date of the 2013 Rights Offering and January 15, 2014. See also “General Development of the Business – Agreements with Rio Tinto – 2013 MoA – 2013 Rights Offering”.

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The Corporation was required to prepay all amounts outstanding under the New Bridge Facility with the entire amount of (i) the net proceeds of the 2013 Rights Offering and any other placement or other issuance of Common Shares, and (ii) the net after-tax proceeds of any sale or other disposition of mineral resource interests and assets held, directly or indirectly, by the Corporation, other than the Oyu Tolgoi Mine, provided that if the entire amount of such net proceeds exceeded the obligations of the Corporation to RTSEA then outstanding under the New Bridge Facility, the Corporation would only be required to apply such amount of such net proceeds as was sufficient to pay all of the then outstanding amounts under the New Bridge Facility and the remaining amount of such net proceeds would be applied, to the extent required, to prepay the Interim Funding Facility. The Corporation was also required to make prepayments of its outstanding obligations under the New Bridge Facility in certain other circumstances.

All amounts outstanding under the New Bridge Facility and the Interim Funding Facility were repaid on January 14, 2014 from the net proceeds of the 2013 Rights Offering.

2013 MoA

Under the terms of the 2013 MoA, the Corporation, RTSEA and RTIH agreed that if, by an agreed upon “Launch Deadline”, Oyu Tolgoi Project Financing was either (i) not in place and available for drawdown or (ii) in place and available for drawdown but for any reason Oyu Tolgoi LLC, as borrower thereunder, was restricted from drawing down an amount sufficient, or from distributing the proceeds of such drawdown, to repay all amounts then outstanding under the Interim Funding Facility and the New Bridge Facility, to reimburse the Corporation and its affiliates for all fees paid in connection with the Oyu Tolgoi Project Financing prior to the date of such initial drawdown, and to pay all amounts payable by the Corporation and its affiliates on account of Mongolian withholding tax upon the repayment by Oyu Tolgoi LLC of certain shareholder debt which may be required under the terms of the Oyu Tolgoi Project Financing to be repaid, then the Corporation would be obligated to conduct a rights offering by way of prospectus. It was also agreed that such rights offering was to raise sufficient funds in order to permit the Corporation, in the case of (i) above, to repay all amounts outstanding under the Interim Funding Facility and the New Bridge Facility by their respective maturity dates, or in the case of (ii) above, to fund the amount by which the aforementioned uses of the proceeds of such initial drawdown exceed the amount of Oyu Tolgoi Project Financing funds which can, at such time, be drawn down for such purposes by Oyu Tolgoi LLC.

Under the 2013 MoA, the Corporation, RTSEA and RTIH agreed to the key terms and conditions upon which the Corporation would undertake the 2013 Rights Offering, and to certain continuing covenants which are substantially similar in scope and content and are consistent with other pre-existing contractual arrangements and that they would continue to act together diligently and in good faith to negotiate the Oyu Tolgoi Project Financing; a copy of the 2013 MoA has been filed with the Canadian Securities Authorities on SEDAR at www.sedar.com.

Amendment to the 2013 MoA

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2013 Rights Offering

The Corporation and RTIH agreed to the key terms of the 2013 Rights Offering in the 2013 MoA. These terms included: (i) the issuance of rights sufficient to generate gross proceeds, which, after the payment therefrom of the fee in consideration for the 2013 Standby Commitment and any other fees, costs or expenses incurred by Turquoise Hill in connection with the 2013 Rights Offering, the amount required to fund the payment or repayment on the closing date of the 2013 Rights Offering of all amounts then outstanding under the Interim Funding Facility and the New Bridge Facility, plus such additional amount agreed to between the Corporation and RTIH, each acting reasonably; (ii) the price payable for each Common Share upon exercise of a right; (iii) the agreement by RTIH to exercise its basic subscription privilege in full and to provide the 2013 Standby Commitment, subject to certain terms, conditions and limitations set out in the 2013 MoA; (iv) the payment of a fee by the Corporation to RTIH as consideration for RTIH providing the 2013 Standby Commitment; and (v) the offering of an additional subscription privilege to holders of rights that have exercised their basic subscription privilege in full.

The 2013 Rights Offering expired on January 7, 2014 and closed on January 13, 2014, resulting in the Corporation issuing an aggregate of 1,006,116,602 Common Shares in satisfaction of the rights exercised. As the 2013 Rights Offering was fully subscribed,⁴ RTIH was not required to purchase any additional Common Shares under the 2013 Standby Commitment. For certain other effects of the 2013 Rights Offering, see “General Development of the Business – Agreements with Rio Tinto – 2012 MoA – Series D Warrants”, “General Development of the Business – Agreements with Rio Tinto – 2012 MoA – Anti-Dilution Series D Warrants” and “General Development of the Business – Agreements with Rio Tinto – 2012 MoA – Anti-Dilution Subscription Right”.

Other Oyu Tolgoi Mine Matters

Pursuant to the 2013 MoA, Turquoise Hill agreed not to sell, transfer or otherwise dispose of or encumber any interest in the Oyu Tolgoi Mine without RTIH’s consent until the earlier of (i) the date on which the initial drawdown under the Oyu Tolgoi Project Financing is completed and the proceeds thereof are used to fund the payment in full of the Initial PF Drawdown Requirements (as defined in the 2013 MoA) and (ii) December 31, 2015.

Non-Disclosure Agreement

In September 2014, the Corporation and RTIH entered into a Non-Disclosure Agreement to consolidate the pre-existing confidentiality provisions contained in certain agreements between members of the Turquoise Hill Group and Rio Tinto, including the Private Placement Agreement and the 2012 MoA, which are available on SEDAR at www.sedar.com.

Exploration Services Agreement

In December 2014, the Corporation and Rio Tinto Mining and Exploration Limited (“Rio Tinto Mining”) entered into an Exploration Services Agreement pursuant to which Rio Tinto Mining agreed to provide certain exploration services of a consultancy and advisory nature to the Corporation within a defined orbit area of approximately 50 km surrounding Oyu Tolgoi (excluding, in particular, the Oyu Tolgoi leases and Entrée Gold leases considered in the Investment Agreement). The exploration services are to be provided in accordance with an annual exploration plan and budget that is jointly approved by Rio Tinto Mining and the Board of Directors. Under the terms of the agreement, the Corporation is to pay Rio Tinto Mining an annual management fee of 10% of the first $1 million

⁴ Approximately 99.3% of the 2013 Rights Offering rights were exercised in the first instance pursuant to a basic subscription privilege with the remainder taken up via an additional subscription privilege.

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of each agreed upon exploration plan and budget and 6% on any amounts that exceed such amount. The Exploration Services Agreement formalizes the arrangements already in place between the parties pursuant to a heads of agreement relating to exploration services dated June 20, 2014. As contemplated by the Exploration Services Agreement, Turquoise Hill entered into annual services agreements with Rio Tinto Holdings LLC and Rio Tinto Exploration Pty Limited for the years 2014 and 2015.

The agreement further provides that if the Corporation declines to fund a project proposed by Rio Tinto Mining within the exploration area, Rio Tinto Mining will have the right to use all documentation, exploration information and data that the Corporation holds in respect of the exploration area to pursue such project in its own right. The Corporation will retain an option to acquire any such project for an amount equal to three times the total expenses paid by Rio Tinto Mining directly in connection with such project, but only after Rio Tinto Mining has incurred $5 million dollars in expenditures. The exploration services agreement does not prevent either company from engaging independently in prospecting, exploration and mining of minerals in the area outside of the defined exploration area.

Deposit Agreement

In December 2014, the Corporation and Rio Tinto Canada Inc. (“RTC”) entered into a deposit agreement, as renewed in February 2015, March 2015 and June 2015, pursuant to which the Corporation could, in its absolute discretion, deposit with RTC funds in either Canadian dollars or U.S. dollars by the transfer or other deposit of monies from a bank account of the Corporation to a bank account of RTC. Any such funds or deposit were invested or deposited for a fixed term in accordance with a notice of deposits given to RTC by the Corporation. The deposit agreement with RTC expired in December 2015. A similar deposit agreement was entered into in December 2014 between Movele S.à r.l., a wholly-owned subsidiary of the Corporation, and Rio Tinto Finance plc (“RTF”). The deposit agreement between Movele S.à r.l. and RTF was renewed in February 2015, March 2015, June 2015, December 2015 and February 2016.

Master Services Agreement

In March 2015, the Corporation and Rio Tinto Services Inc. (“RTS”) entered into a master services agreement pursuant to which RTS is to provide certain services to the Corporation, as more specifically described in one or more Statements of Work. Such services include, for example, finance support services, tax services, and treasury services. This agreement formalizes the arrangements already in place between the parties thereto. See “Interest of Management and Others in Material Transactions” and the Corporation’s MD&A for additional information regarding the consideration paid for such services.

Turquoise Hill Agreements in Connection with Oyu Tolgoi Project Financing

In connection with the Project Finance Facility and in consideration for and in connection with the Completion Support Undertaking provided by Rio Tinto, the Corporation has entered into a number of agreements, including: a financing support agreement with Rio Tinto dated December 15, 2015 (the “Turquoise Hill Financing Support Agreement”); a financing support agreement with Oyu Tolgoi LLC and Rio Tinto dated December 15, 2015 (the “Oyu Tolgoi Financing Support Agreement”); and a cash management services agreement with 9539549 Canada Inc., a wholly-owned subsidiary of Rio Tinto, and RTIH dated December 15, 2015 (the “Cash Management Services Agreement”). The following is a summary of such agreements only and is qualified in its entirety by reference to the Turquoise Hill Financing Support Agreement, the Oyu Tolgoi Financing Support Agreement and the Cash Management Services Agreement, a copy of each of which has been filed with the Canadian Securities Authorities on SEDAR at www.sedar.com.

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Turquoise Hill Financing Support Agreement

The provisions contained in the Turquoise Hill Financing Support Agreement are broadly in line with the principles and provisions established under the 2012 MoA. Under the Turquoise Hill Financing Support Agreement, Rio Tinto has the right to require that the Corporation effect an equity contribution by way of private placement of Turquoise Hill shares to Rio Tinto or a rights offering similar in form and structure to the 2013 Rights Offering in the event a fact or circumstance occurs which (i) affects or could reasonably be expected to affect the Corporation’s ability to meet its obligations under a sponsor debt service undertaking that the Corporation will enter into with Rio Tinto, the project lenders and agents representing such lenders in order to guarantee to the finance parties the payment of principal, interest and fees owed by Oyu Tolgoi LLC to the senior lenders under the Oyu Tolgoi Project Financing, or (ii) gives rise to an event of default or completion default under the agreements entered into in connection with the Project Finance Facility. Under the Turquoise Hill Financing Support Agreement, the Corporation also has the right to propose an alternative financing proposal to Rio Tinto which, depending on the nature of such proposal, may require Rio Tinto’s consent. The parties have agreed that the aggregate amount of any such funding mechanisms shall not exceed 25% of Turquoise Hill’s market capitalization as of the date of signing. Any such transaction shall also be subject to applicable securities laws.

The Turquoise Hill Financing Support Agreement also contains certain restrictions relating to the conduct of the Corporation’s business and operations and to the implementation of certain corporate transactions until the later of (i) the date the Completion Support Undertaking terminates, (ii) the date that all senior loan advances under the agreements entered into in connection with the Project Finance Facility are repaid in full, and (iii) the date that all subordinated debt advances by Rio Tinto have been repaid in full, which shall be deemed to be the date on which the Completion Support Undertaking terminates if, as of such date, the aggregate amount of subordinated debt advances by Rio Tinto has not exceeded $500 million.

Oyu Tolgoi Financing Support Agreement

Under the Oyu Tolgoi Financing Support Agreement, in the event a fact or circumstance occurs which affects or could reasonably be expected to affect Oyu Tolgoi LLC’s ability to meet its obligations under the agreements entered into in connection with the Project Finance Facility or give rise to an event of default thereunder, Rio Tinto shall have the right to require that Oyu Tolgoi LLC borrow funds from Rio Tinto (or an affiliate thereof) by way of a senior debt advance or a subordinated debt advance, or borrow funds from a third party senior lender. The proceeds of any such advances shall be used to repay amounts due and owing to the Oyu Tolgoi Project Financing lenders.

Cash Management Services Agreement

Under the Cash Management Services Agreement, the Corporation appointed 9539549 Canada Inc., a wholly-owned subsidiary of Rio Tinto, as service provider to provide post-drawdown cash management services in connection with the Net PF Proceeds. The Net PF Proceeds shall be deposited with 9539549 Canada Inc. and returned to the Corporation as required for purposes of funding the underground at the Oyu Tolgoi Mine. The Corporation is also entitled to the return of any outstanding balance of such managed funds upon the termination of the Completion Support Undertaking. RTIH has agreed to guarantee the obligations of the service provider under the Cash Management Services Agreement.

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Agreements with the Government of Mongolia

Investment Agreement

The parties to the Investment Agreement are the Corporation, its 66% owned subsidiary Oyu Tolgoi LLC, RTIH, and the Government of Mongolia. The Investment Agreement provides for, among other things, a framework for maintaining a stable tax and operational environment for the Oyu Tolgoi Mine, protection of the parties’ investment in the Oyu Tolgoi Mine, the term of the parties’ investment in the Oyu Tolgoi Mine, the right to realize the benefits of such investment, the undertaking of mining activities with minimum damage to the environment and human health, the rehabilitation of the environment, the social and economic development of the Southern Gobi region and the creation of new jobs in Mongolia.

Effective Date

The Investment Agreement became effective as of March 31, 2010 (the “Effective Date”), following the satisfaction of all conditions precedent to its effectiveness. These conditions included the completion of a number of corporate transactions intended to establish an efficient foundation for the operation of the Oyu Tolgoi Mine and the respective interests of the parties, such as the restructuring of Oyu Tolgoi LLC and the conversion of certain exploration licences to mining licences.

Term

The Investment Agreement has an initial term of 30 years from the Effective Date (the “Initial Term”). Oyu Tolgoi LLC has the right, exercisable by notice given not less than 12 months prior to the expiry of the Initial Term and subject to the fulfillment of certain conditions, to extend the Initial Term of the Investment Agreement for an additional term of 20 years (the “Renewal Term”).

In order to exercise its right to obtain the Renewal Term, Oyu Tolgoi LLC must have performed the following obligations during the Initial Term:

•

demonstrated that the Oyu Tolgoi Mine has been operated to industry best practice in terms of national and community benefits, environment and health and safety practices;

•

made capital expenditures in respect of the Oyu Tolgoi Mine of at least $9 billion;

•

complied in all material respects with its obligations to pay taxes under the laws of Mongolia, as stabilized under the terms of the Investment Agreement;

•

commenced commercial production at the Oyu Tolgoi Mine within five years of the “Financing Completion Date”, being the earlier of (i) the date on which Oyu Tolgoi LLC has obtained access to Oyu Tolgoi Project Financing sufficient to fully construct the Oyu Tolgoi Mine in accordance with the feasibility study submitted to the Government of Mongolia or (ii) two years after the Effective Date. In March 2012, Oyu Tolgoi LLC notified the Government of Mongolia that the Financing Completion Date occurred on March 31, 2012, given Oyu Tolgoi Project Financing had not been obtained as of that date;

•

if, as part of the development of the Oyu Tolgoi Mine, Oyu Tolgoi LLC has constructed, or is constructing, a copper smelter, Oyu Tolgoi LLC must have constructed or be constructing such smelter in Mongolia;

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•

if the development and operation of the Oyu Tolgoi Mine has caused any unanticipated and irreversible ecological damage to natural resources in Mongolia, Oyu Tolgoi LLC must have paid compensation based on the value of any such permanently damaged natural resources in accordance with the applicable laws of Mongolia; and

•

within four years after having commenced commercial production at the Oyu Tolgoi Mine, which occurred in September 2013, secured the total power requirements for the Oyu Tolgoi Mine from sources within the territory of Mongolia.

Investment Protection

The Investment Agreement confirms Oyu Tolgoi LLC’s rights to market, sell and export mineral products from the Oyu Tolgoi Mine at international market prices and to freely expend and repatriate its sale proceeds in Mongolian togrogs and foreign currencies. It also conveys legal protection on capital, property and assets of Oyu Tolgoi LLC and its affiliates, and the requirement that any expropriation action must be in accordance with due process of law on a non-discriminatory basis and with the condition of full compensation by the Government of Mongolia to the affected party.

Taxes, Royalties and Fees

Throughout the Initial Term and the Renewal Term, if any, all taxes payable by Oyu Tolgoi LLC will remain stabilized. The annual corporate income tax rate is stabilized at 10% on all sums earned up to three billion togrogs (approximately $2.1 million). All taxable income earned in excess of three billion togrogs will be taxed at the rate of 25%. In addition to corporate income tax, the following taxes have been stabilized: customs duties; value-added tax; excise tax (except on gasoline and diesel fuel purchases); royalties (at 5% of the sales value of all mineral products mined from the Oyu Tolgoi Mine that are sold, shipped for sale, or used by Oyu Tolgoi LLC); mineral exploration and mining licence payments (at $15 per ha); and immovable property tax and/or real estate tax.

The previously existing windfall profits tax was eliminated with effect as of January 1, 2011. Taxation on dividends and other forms of income have also been stabilized at zero percent. Non-stabilized taxes shall apply to Oyu Tolgoi LLC on a non-discriminatory basis.

Project Financing

Under the ARSHA (discussed further below), the shareholders of Oyu Tolgoi LLC agreed to use their commercially reasonable endeavours to use project financing as a priority funding mechanism (if beneficial and appropriate from an overall project perspective) and to assist Oyu Tolgoi LLC to obtain Oyu Tolgoi Project Financing as soon as practicable.

In connection therewith, Oyu Tolgoi LLC entered into the Project Finance Facility in December 2015. For more information on the Project Finance Facility, see “General Development of the Business – Three Year History – 2015”.

Commercial Production

Commencement of commercial production is defined as being the first day of the month following the month in which regular shipments to customers first occurs after achievement of 70% of planned concentrator throughput based on design capacity at that stage of construction for the Oyu Tolgoi Mine, for a continuous period of 30 days. Commencement of commercial production at the Oyu Tolgoi Mine was achieved in September 2013.

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Infrastructure

All roads, pipelines and other transportation infrastructure funded or constructed by Oyu Tolgoi LLC or its affiliates in connection with the development of the Oyu Tolgoi Mine are required to be constructed to a standard necessary to meet the specific requirements of the Oyu Tolgoi Mine only. Oyu Tolgoi LLC may provide the public, the Government of Mongolia and third parties with access to certain infrastructure and/or services, provided such access does not interfere with the operation of the Oyu Tolgoi Mine. In addition, Oyu Tolgoi LLC may recover costs by way of payments or collection of tolls from those persons or entities using such infrastructure and/or services.

Oyu Tolgoi LLC is permitted to construct a road between the Oyu Tolgoi Mine site and the Gashuun Sukhait border crossing with China. Oyu Tolgoi LLC may deduct the road construction expenses from its annual taxable income. The Government of Mongolia is responsible for the maintenance of the road and the collection of road use fees from any third party users. Oyu Tolgoi LLC and its contractors/sub-contractors are exempt from any such road use fees.

Oyu Tolgoi LLC has the right to access, and to use, self-discovered water resources for any purpose connected with the Oyu Tolgoi Mine during the life of the Oyu Tolgoi Mine, including construction, commission, operation and rehabilitation of the Oyu Tolgoi Mine. Oyu Tolgoi LLC is required to pay fees for its water use but such fees must be no less favourable than those payable from time to time by other domestic and international users, must take into account the quantity and quality of the water removed and consumed, and are treated as a deductible expense from Oyu Tolgoi LLC’s taxable income.

Smelter

Oyu Tolgoi LLC shall, within three years after commencing commercial production from the Oyu Tolgoi Mine, if requested by the Government of Mongolia, prepare a research report on the economic viability of constructing and operating a copper smelter in Mongolia to process the mineral concentrate derived from the Oyu Tolgoi Mine. Oyu Tolgoi LLC will in priority supply copper concentrate to any third party operated smelter in Mongolia that the Government has a whole or partial ownership interest in on agreed commercial terms based on international standards and prices, provided that the smelter meets the required technical specifications and any smelter owned or operated by Oyu Tolgoi LLC in Mongolia will have first priority of supply. If Oyu Tolgoi LLC owns and operates a smelter in Mongolia, Oyu Tolgoi LLC has agreed to offer all gold bullion produced at such smelter to the Mongol Bank, subject to reasonable commercial terms and prevailing international prices.

Power Supply

During the construction period of the Oyu Tolgoi Mine and until the four year anniversary after the Oyu Tolgoi Mine attains commercial production, Oyu Tolgoi LLC has the right to import electric power from sources outside Mongolia, including China. Within four years after having commenced commercial production, Oyu Tolgoi LLC is required to secure all of its power requirements for the Oyu Tolgoi Mine from a domestic Mongolian source.

In November 2012, Oyu Tolgoi LLC, Inner Mongolia Power International Cooperation Co., Ltd. and the National Electricity Transmission Grid Company entered into the Power Purchase Agreement for the supply of power to the Oyu Tolgoi Mine from electric power facilities in China.

In August 2014, the Corporation entered into a Power Sector Cooperation Agreement with the Government of Mongolia for the exploration of a Tavan Tolgoi-based independent power producer. The agreement lays out a framework for long-term strategic cooperation between the Government of Mongolia and Oyu Tolgoi LLC to

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deliver a comprehensive energy plan for the South Gobi region. Under the Power Sector Cooperation Agreement, the Government of Mongolia assumes the responsibility to import and supply power required by Oyu Tolgoi LLC until such time as the commissioning of a domestic Mongolian power source, which meets Oyu Tolgoi LLC’s power needs, is completed. See “General Development of the Business – Three Year History – 2014”.

In May 2015, the Corporation entered into the Underground Plan with the Government of Mongolia, Erdenes, THR Oyu Tolgoi Ltd., Oyu Tolgoi Netherlands B.V., RTIH and Oyu Tolgoi LLC, which addresses, among other things, the sourcing of power for the Oyu Tolgoi Mine from within Mongolia. For more information on the Underground Plan, see “General Development of the Business – Agreements with the Government of Mongolia –Underground Plan”.

Local Communities

Oyu Tolgoi LLC will conduct, implement, and update, from time to time, socio-economic impact assessments, socio-economic risk analyses, multi-year community plans, community relations management systems, policies, procedures and guidelines, and mine closure plans, all of which shall be produced with community participation and input and be consistent with international best practices. Oyu Tolgoi LLC will also conduct community development and education programs.

Oyu Tolgoi LLC will prioritize the training, recruiting and employment of citizens from local communities for the Oyu Tolgoi Mine, giving specific preference to the citizens of Umnugovi Aimag. Once the Oyu Tolgoi Mine attains commercial production, 90% of the Oyu Tolgoi Mine employees must be Mongolian nationals. Oyu Tolgoi LLC must use its best endeavours to ensure that 50% of its engineers are Mongolian nationals within five years after achieving commercial production, and increasing to 70% after ten years of achieving commercial production. Oyu Tolgoi LLC must use its best efforts to ensure that not less than 60% of its contractors’ employees are Mongolian nationals for construction work and 75% of its contractors’ employees are Mongolian nationals for mining and mining related work.

Environment

The Investment Agreement also includes environmental protection provisions, in accordance with which Oyu Tolgoi LLC will implement an environmental protection plan and provide to the Government of Mongolia an independent report on progress every three years. In 2012, the Corporation completed the ESIA and shortly thereafter such plan was submitted to the Government of Mongolia.

Disputes

Any dispute that is not resolved through negotiation will be resolved by binding arbitration in accordance with the procedures under the Arbitration Rules of the United Nations Commission on International Trade Law in force at the time of the dispute.

ARSHA

Concurrently with the execution of the Investment Agreement, Oyu Tolgoi LLC and the Oyu Tolgoi Shareholder Holdcos entered into the ARSHA with Erdenes. Erdenes MGL LLC transferred its shares in Oyu Tolgoi LLC and its rights and obligations under the ARSHA to its subsidiary, Erdenes OT LLC. The ARSHA contemplates the basis upon which the Government of Mongolia, through Erdenes, acquired an initial 34% equity interest in the Oyu Tolgoi Mine through a shareholding in Oyu Tolgoi LLC and provides for the respective rights and obligations of the parties as shareholders of Oyu Tolgoi LLC.

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On June 8, 2011, the parties to the ARSHA amended the interest payable terms under such agreement. Specifically, the interest rate to be applied to Existing Shareholder Loans, Shareholder Debt and Government Debt (each as defined and discussed further below) on and from January 31, 2011 was reduced to LIBOR plus 6.5%, down from the previous rate of 9.9%, adjusted for the U.S. Consumer Price Index. The interest rate adjustment was made taking into consideration the global interest rates that prevailed in 2009 following the global economic crisis.

Ownership of Oyu Tolgoi LLC

Under the terms of the ARSHA, within 21 business days after the Effective Date, Oyu Tolgoi LLC issued to Erdenes that number of common shares of Oyu Tolgoi LLC (“Oyu Tolgoi Shares”) that, upon issuance, represented 34% of the then issued and outstanding Oyu Tolgoi Shares. If Oyu Tolgoi LLC exercises its right under the Investment Agreement to obtain the Renewal Term, Erdenes shall have the option to acquire additional Oyu Tolgoi Shares on terms to be agreed upon between Erdenes and the Oyu Tolgoi Shareholder Holdcos, to increase its shareholding in Oyu Tolgoi LLC to 50%. Erdenes’ shareholding of Oyu Tolgoi LLC may not be diluted by the issuance of new Oyu Tolgoi Shares without its consent.

Management of the Oyu Tolgoi Mine

Oyu Tolgoi LLC’s board of directors must appoint a management team for the Oyu Tolgoi Mine as nominated by the Oyu Tolgoi Shareholder Holdcos to provide management services to Oyu Tolgoi LLC. The management team engaged by Oyu Tolgoi LLC is responsible for providing management services to Oyu Tolgoi LLC for the Oyu Tolgoi Mine and is required to report to Oyu Tolgoi LLC’s board of directors on a quarterly basis. For more information on the management of the Oyu Tolgoi Mine, see “General Development of the Business – Agreements with Rio Tinto – HoA – Governance Arrangements”.

Management Services Payment

A management services payment is payable to the Corporation engaged as the management team in the amount of 3% of the Oyu Tolgoi Mine’s operating and capital costs incurred prior to the commencement of commercial production and 6% thereafter. The management team can direct Oyu Tolgoi LLC to pay part or all of this management services payment to the Corporation, RTIH or their respective affiliates. This management services payment is shared, as to 50%, by the Corporation and its affiliates and, as to 50%, by RTIH and its affiliates as agreed separately by the Corporation and RTIH.

It was further determined in the Underground Plan, that, notwithstanding the terms of the ARSHA, in calculating the management services payment, the rate applied to capital costs of the underground development is to be 3% instead of 6%, as provided by the ARSHA. The management services payment rate on operating cost and capital related to current operations remains at 6%. For more information see “General Description of the Business – Agreements with Rio Tinto – Underground Plan”.

Election of Directors

Appointment of directors as between the Oyu Tolgoi Shareholder Holdcos and Erdenes is divided pro rata based on their respective shareholdings. The Oyu Tolgoi Shareholder Holdcos have the right to nominate six directors and Erdenes has the right to nominate three directors. Under the HoA, the Corporation and RTIH have agreed that the six directors nominated by the Oyu Tolgoi Shareholder Holdcos will be comprised of three nominees from each of the Corporation and RTIH. See “General Development of the Business – Agreements with Rio Tinto – HoA – Governance Arrangements”.

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Existing Shareholder Loans and Cash Calls

All funds advanced to Oyu Tolgoi LLC prior to the Effective Date by the Corporation, RTIH or any of their respective affiliates in relation to the Oyu Tolgoi Mine (the quantum of which has been agreed to by Oyu Tolgoi LLC and the Government of Mongolia), including interest thereon (collectively, the “Existing Shareholder Loans”), are repayable prior to any dividends or distributions being made to the shareholders of Oyu Tolgoi LLC, as further discussed below.

Oyu Tolgoi LLC may request that the shareholders of Oyu Tolgoi LLC contribute funds (“Called Sums”) in proportion to their respective share ownership interests in Oyu Tolgoi LLC to meet the projected cash requirements of Oyu Tolgoi LLC under the Oyu Tolgoi Mine programs and budgets approved by Oyu Tolgoi LLC’s board of directors.

During the period commencing on the date Erdenes acquired its 34% interest in Oyu Tolgoi LLC and ending three years after the commencement of commercial production from the Oyu Tolgoi Mine (the “Funding Period”), the Oyu Tolgoi Shareholder Holdcos have agreed to fund all contributions of Called Sums, including those otherwise payable by Erdenes, unless Erdenes elects to contribute to any Called Sum. The Oyu Tolgoi Shareholder Holdcos will determine what method or methods of finance will apply in respect of those contributions, including by way of a combination of shareholder debt and/or common shares.

Where the Oyu Tolgoi Shareholder Holdcos cover Erdenes’ contribution to a Called Sum and funding is by way of common equity, shares are also issued to Erdenes to maintain its 34% shareholding. Such contributions on Erdenes’ behalf (“Government Debt”) are subject to interest as set out below. All dividends payable to Erdenes must be paid by Oyu Tolgoi LLC to the Oyu Tolgoi Shareholder Holdcos (or nominated Turquoise Hill Group or Rio Tinto companies) in repayment of the principal and interest outstanding on Government Debt, but otherwise the Oyu Tolgoi Shareholder Holdcos have no recourse to Erdenes. In addition, Erdenes may elect to repay outstanding Government Debt at any time.

After the Funding Period, Erdenes has the option of contributing to any required funding, but is not obligated to do so. Regardless of whether or not Erdenes contributes funding, its shareholding in Oyu Tolgoi LLC cannot be diluted. If Erdenes elects not to fund its proportionate share, the Oyu Tolgoi Shareholder Holdcos have the right to meet the full funding requirement in a similar manner as for the initial funding (but are not obligated to do so).

Each of the Government Debt, the Existing Shareholder Loans and shareholder debt provided after the Effective Date (“Shareholder Debt”) accrues interest at a rate of LIBOR plus 6.5% on and from January 31, 2011, down from the previous rate of 9.9%, adjusted for the U.S. Consumer Price Index, which applied prior to that date.

Payment of Dividends

All principal and interest outstanding on Shareholder Debt, Government Debt and the Existing Shareholder Loans must be paid in full to the Corporation prior to the payment of any dividends to the shareholders of Oyu Tolgoi LLC. Subject to the foregoing, if Oyu Tolgoi LLC has profits available for distribution in respect of any completed financial year, Oyu Tolgoi LLC’s board of directors will declare that all of those profits must be distributed by way of cash dividends within three months after the end of that financial year, subject to the retention of reasonable and proper reserves for Oyu Tolgoi LLC’s future cash requirements (including potential expansions, working capital, and the maintenance of funds for capital costs and other actual or contingent liabilities).

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Transfer of Shares of Oyu Tolgoi LLC to Third Parties

No shareholder of Oyu Tolgoi LLC may dispose of or transfer any of its shares to a third party without first offering such shares to the other shareholders of Oyu Tolgoi LLC on equivalent commercial terms as those offered by the relevant third party.

T-Bill Purchase Agreement and Prepayment Agreement

Concurrently with the execution of the Investment Agreement, Oyu Tolgoi LLC also entered into the T-Bill Purchase Agreement with the Government of Mongolia pursuant to which Oyu Tolgoi LLC agreed to purchase from the Government, in instalments, three discounted treasury bills (the “T-Bills”) with an aggregate face value of $287.5 million for an aggregate purchase price of $250 million.

Originally, the T-Bills were to be purchased in three separate instalments, with each purchase triggered by the attainment of a defined milestone. The initial T-Bill (“First T-Bill”), with a face value of $115 million, was purchased in October 2009 for $100 million.

Rather than purchase the second and third T-Bills, the Government of Mongolia proposed, and Oyu Tolgoi LLC agreed, that the purchase price otherwise payable for the second T-Bill ($50 million) and third T-Bill ($100 million) could be made as prepaid tax instalments. The Government of Mongolia and Oyu Tolgoi LLC entered into a Prepayment Agreement in June 2011 pursuant to which Oyu Tolgoi LLC made a tax prepayment in June 2011, and a prepayment previously made by Oyu Tolgoi LLC in April 2010 also became subject to the terms of such Prepayment Agreement. The prepayments accrue interest at an after tax rate of 1.59% and may be applied by Oyu Tolgoi LLC to offset any of its tax liabilities that have accrued on and after January 1, 2012. To the extent not fully offset, the outstanding amount of the prepayments (including interest) will become immediately repayable to Oyu Tolgoi LLC on the fifth anniversary of the date of payment, subject to accelerated maturity on a material breach of the Investment Agreement or upon termination of the Investment Agreement. Application of the prepayments by Oyu Tolgoi LLC to offset certain portions of its tax liabilities began during the year ended December 31, 2014. The second T-Bill ($50 million) has now been fully applied as a pre-paid tax instalment and $80 million of the third T-Bill has also been applied as a pre-paid tax instalment, including any accrued interest as at December 31, 2015.

In November 2012, Oyu Tolgoi LLC agreed to assign its rights and obligations under the T-Bill Purchase Agreement and the First T-Bill to the Corporation in consideration for the Corporation restricting a non-interest bearing loan between the Corporation and Oyu Tolgoi LLC in the outstanding amount of the First T-Bill. The principal amount of the First T-Bill ($115 million) became repayable on October 19, 2014, being the fifth anniversary date of its issuance. The Corporation received repayment of the First T-Bill on October 17, 2014.

Underground Plan

The signing of the Underground Plan provided a pathway forward in addressing outstanding shareholder matters to restart underground development at the Oyu Tolgoi Mine. The Underground Plan confirmed the project cost for the Oyu Tolgoi Mine’s initial construction and development and reinforced the principles set out in the Investment Agreement and the ARSHA. The Underground Plan and certain related agreements address key outstanding matters including the following specific items: tax matters, the 2% NSR, sales royalty calculation and management services payments. Such agreements also address the sourcing of power for the Oyu Tolgoi Mine from within Mongolia. In this regard, Turquoise Hill continues to work with Oyu Tolgoi LLC on possible support of Oyu Tolgoi LLC’s obligations under a potential power purchase arrangement from the Tavan Tolgoi power plant project.

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With respect to the 2% NSR matter, Turquoise Hill has conceded that it has no entitlement to receive payment of the 2% NSR it acquired in 2003 from BHP Billiton, the enforceability of which was subsequently challenged by the Assistant General Prosecutor of Mongolia under Mongolian law.

In a separate agreement with the Government of Mongolia, Oyu Tolgoi LLC agreed, without accepting liability and without creating a precedent, to pay the amount of the revised determination received from the Mongolia Tax Authority in connection with a general tax audit of Oyu Tolgoi LLC, by way of settlement to resolve the tax matter. For more information see “General Description of the Business – Three Year History – 2014”.

Under the Underground Plan it was also agreed that Oyu Tolgoi LLC’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.

Finally, notwithstanding the terms of the ARSHA, it was agreed that in calculating the management services payment, the rate applied to capital costs of the underground development is to be 3% instead of 6%, as provided by the ARSHA. The management services payment rate on operating costs and capital related to current operations remains at 6%.

For more information on the Underground Plan see “General Development of the Business – Three Year History – 2015”. The above is a summary only and is qualified in its entirety by reference to the Underground Plan, a copy of which has been filed with the Canadian Securities Authorities on SEDAR at www.sedar.com.

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RISK FACTORS

The Corporation is subject to a number of risks due to the nature of the industry in which it operates, the present state of development of its business and the foreign jurisdictions in which it carries on business. The following is a summary description of the material risks and uncertainties to which the Corporation is subject. Some of the following statements are forward-looking and actual results may differ materially from the results anticipated in these forward-looking statements. Please refer to the section titled “Interpretation Information – Forward-Looking Information and Forward-Looking Statements” in this AIF. If any of such risks or risks not currently known to the Corporation actually occurs or materializes, the Corporation’s business, financial condition or results of operations could be adversely affected, even materially adversely affected.

The Corporation may be limited in its ability to enforce the Investment Agreement and the Underground Plan against Mongolia, a sovereign government.

The Investment Agreement and the Underground Plan impose numerous obligations and commitments upon the Government of Mongolia that provide clarity and certainty in respect of the development and operation of the Oyu Tolgoi Mine. The Investment Agreement also includes a dispute resolution clause that requires the parties to resolve disputes through international commercial arbitration procedures. Nevertheless, if and to the extent that the Government of Mongolia does not observe the terms and conditions of the Investment Agreement and the Underground Plan, there may be limitations on the Corporation’s ability to enforce the terms of the Investment Agreement and the Underground Plan against the Government of Mongolia, which is a sovereign nation, regardless of the outcome of any arbitration proceeding. If the terms of the Investment Agreement and/or the Underground Plan cannot be enforced effectively, the Corporation could be deprived of substantial rights and benefits arising from its investment in the Oyu Tolgoi Mine with little or no recourse against the Government of Mongolia for fair and reasonable compensation. Irrespective of the ultimate outcome of any potential dispute, any requirement to engage in discussions or proceedings with the Government of Mongolia, whether or not formal, would result in significant delays, expense and diversion of management’s attention. Such an outcome would have a material adverse impact on the Corporation and its share price.

There can be no assurance that the Corporation will be able to access the funding that it needs to continue development of the Oyu Tolgoi Mine. In particular, there can be no assurance that the conditions for one or more drawdowns under the Oyu Tolgoi Project Financing will be satisfied in a timely manner or at all, or that the corporate, governmental and other approvals required for the initial drawdown under Oyu Tolgoi Project Financing will be obtained.

Development of the open pit mine at the Oyu Tolgoi Mine has been completed and the Oyu Tolgoi Mine is now operational. On December 15, 2015, the Corporation announced that Oyu Tolgoi LLC had entered into the $4.4 billion Project Finance Facility to fund development of the underground mine. The Corporation is working towards completion of the drawdown conditions under the Project Finance Facility, which included the completion of the Statutory Feasibility Study, which was filed in August 2015, and the updated capital estimates required in connection therewith, as well as securing all necessary permits, the approval of the Board of Directors and each of the boards of directors of RTIH and Oyu Tolgoi LLC of a formal “notice to proceed” and certain other conditions precedent. The full Project Finance Facility will be available for drawdown upon completion of the aforementioned conditions.

However, to the extent the drawdown conditions under the Project Finance Facility are not satisfied in a timely manner or at all, funding under the Project Finance Facility may be delayed or may not be available. Furthermore, additional funding may be required to complete the development of the underground mine. If project financing is

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not available or obtainable on reasonable commercial terms for such purposes, the Corporation could seek to issue Common Shares or instruments convertible into equity, including through future rights offerings, which issuances could result in dilution to the holders of Common Shares and have a material adverse effect upon the market price of Common Shares. Under the terms of the covenants forming part of the Turquoise Hill Financing Support Agreement, the Corporation is prohibited from creating, incurring or permitting to remain outstanding any indebtedness, other than certain permitted indebtedness, and from amending its constating documents to create and issue Preferred Shares. As a result of these restrictions, in seeking to raise additional capital, the Corporation may not incur indebtedness for borrowed money or issue debt securities, other securities convertible into debt securities or Preferred Shares while the covenants forming part of the Turquoise Hill Financing Support Agreement are in force and effect unless it obtains a waiver or consent from RTIH permitting the incurrence of such indebtedness or the issuance of such securities.

The Government of Mongolia holds a significant stake in the Oyu Tolgoi Mine.

Although the ARSHA contemplates that the Corporation will maintain a controlling interest in the Oyu Tolgoi Mine, the Government of Mongolia also holds a significant stake in Oyu Tolgoi LLC which holds the Oyu Tolgoi Mine property. In addition, a portion of the Oyu Tolgoi Mine property is held subject to an agreement with Entrée Gold, a Canadian exploration stage resource company in which the Corporation directly holds a 9.4% interest and RTIH directly holds an 11.3% interest. Therefore, the Corporation will be subject to risks to which shareholders are typically exposed. Such risks include the potential for disputes respecting development, operation and financing matters (including Oyu Tolgoi LLC board and Mongolian governmental approvals in respect of the Oyu Tolgoi Project Financing) resulting from multiple levels of corporate and/or governmental approvals and differing sophistication in relevant business and technical matters, inequality of bargaining power and incompatible strategic and economic objectives (both in the short term and the longer term) among the shareholders.

The Corporation’s ability to carry on business in Mongolia is subject to legal and political risks.

Although the Corporation expects that the Investment Agreement and the Underground Plan will continue to bring significant stability and clarity to the legal, political and operating environment in which the Corporation will develop and operate the Oyu Tolgoi Mine, the Corporation remains subject to potential legal and political risks in Mongolia.

There can be no absolute assurance that the Corporation’s assets will not be subject to nationalization, requisition, expropriation or confiscation, whether legitimate or not, by any authority or body. In addition, there can be no assurance that neighbouring countries’ political and economic policies in relation to Mongolia will not have adverse economic effects on the development of the Corporation’s mining projects, including its ability to access power, transport and sell its products and access construction labour, supplies and materials.

There is no assurance that provisions under Mongolian law for compensation and reimbursement of losses to investors under such circumstances would be effective to restore the full value of the Corporation’s original investment or to compensate for the loss of the current value of the Mongolian projects. Insofar as the Government of Mongolia is a sovereign entity against which the terms of the Investment Agreement and the Underground Plan may take considerable time to enforce (if enforceable at all), this risk applies to the Oyu Tolgoi Mine despite the provisions of the Investment Agreement respecting nationalization and expropriation. There can be no assurance that Mongolian laws protecting foreign investments will not be amended or abolished or that existing laws will be enforced or interpreted to provide adequate protection against any or all of the risks described above.

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The legal framework in Mongolia is, in many instances, based on recent political reforms or newly enacted legislation, which may not be consistent with long-standing conventions and customs. Although legal title risks in respect of the Oyu Tolgoi Mine are believed to be significantly mitigated by the terms of the Investment Agreement, there may still be ambiguities, inconsistencies and anomalies in the other agreements, licences and title documents through which the Corporation holds its direct or indirect interests in other mineral resource properties in Mongolia, or the underlying legislation upon which those interests are based, which are atypical of more developed legal systems and which may affect the interpretation and enforcement of the Corporation’s rights and obligations. Many laws have been enacted, but in many instances they are neither understood nor enforced and may be applied in an inconsistent, arbitrary and unfair manner, while legal remedies may be uncertain, delayed or unavailable. These laws or their enforcement by national, regional or local authorities can adversely affect, among other things, water access rights, operating costs resulting from unanticipated increases in tariff rates and overall assessment of risk. Accordingly, while the Corporation believes that it has taken the legal steps necessary to obtain and hold its property and other interests in Mongolia, there can be no guarantee that such steps will be sufficient to preserve those interests.

Recent and future amendments to Mongolian laws could adversely affect the Corporation’s mining rights in the Oyu Tolgoi Mine, or make it more difficult or expensive to develop such project and carry out mining in Mongolia.

The Government of Mongolia has put in place a framework and environment for foreign direct investment. However, there are political constituencies within Mongolia that have espoused ideas that would not be regarded by the international mining industry as conducive to foreign investment if they were to become law or official government policy. This was evidenced by revisions to Mongolia’s minerals laws in 2006 (and some of the revisions passed in 2014) and the enactment of a windfall profits tax that same year (that has since been repealed) as well as by the passage of legislation to control foreign direct investment in strategic sectors of the Mongolian economy, including mining (since amended to relax the controls imposed). There can be no assurance that the present or future Parliament will refrain from enacting legislation that undermines the Investment Agreement or otherwise adversely impacts the Oyu Tolgoi Mine or that the present or a future government will refrain from adopting government policies or seeking to renegotiate the terms of the Investment Agreement (which was threatened in both 2011 and 2012 and aspects of the agreement were part of ongoing shareholder discussions with the Government of Mongolia that were resolved in 2015) in ways that are adverse to the Corporation’s interests or that impair the Corporation’s ability to develop and operate the Oyu Tolgoi Mine or other projects on the basis presently contemplated, which may have a material adverse impact on the Corporation and its share price.

The Investment Agreement and the Underground Plan include a number of future covenants that may be outside of the control of the Corporation to perform.

The Investment Agreement and the Underground Plan commit the Corporation to perform many obligations in respect of the development and operation of the Oyu Tolgoi Mine. While performance of many of these obligations is within the effective control of the Corporation, the scope of certain obligations may be open to interpretation. Further, the performance of other obligations may require co-operation from third parties or may be dependent upon circumstances that are not necessarily within the control of the Corporation. For example:

•

Mongolian nationals must represent at least 90% of the Oyu Tolgoi Mine employees now that commercial production has been attained, and 50% of the Oyu Tolgoi Mine’s engineers must be Mongolian nationals within five years, increasing to 70% after ten years. Achieving or maintaining these targets is contingent upon the availability of a sufficient number of qualified personnel, which is not wholly within the Corporation’s control.

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•

Although Oyu Tolgoi LLC has reached commercial production, there is a risk that unforeseen mining or processing difficulties may be encountered that could prevent Oyu Tolgoi LLC from maintaining the required commercial production levels.

•

Oyu Tolgoi LLC is obligated, on a priority basis, to purchase and utilize services supplied by Mongolian citizens and/or legal entities, and equipment, raw materials, materials and spare parts manufactured in Mongolia, to the extent such services and materials are available on a competitive time, cost, quantity and quality basis, and to give preference to Mongolian suppliers of freight and transportation services required for the Oyu Tolgoi Mine. Such services and facilities may not be available to the extent required or may be available upon commercial terms that are less advantageous than those available from other sources.

•

Oyu Tolgoi LLC has community development commitments and social responsibility obligations. There is a risk that Oyu Tolgoi LLC will be unable to meet the expectations or demands of relevant community stakeholders to the extent contemplated to allow Oyu Tolgoi LLC to meet its commitments under the Investment Agreement.

•

The extension of the term of the Investment Agreement from 30 years to 50 years and then to 70 years is subject to a number of conditions, including the Corporation having demonstrated that the Oyu Tolgoi Mine has been operated in accordance with industry best practices in terms of national and community benefits, environment and health and safety practices. The inherently subjective nature of these criteria creates the risk that the Corporation and the Government of Mongolia may disagree as to whether the conditions for extending the term of the Investment Agreement have been met.

Despite the Corporation’s best efforts, such provisions are not necessarily within its control and non-fulfilment of any such provision may result in a default or breach under the Investment Agreement and the Underground Plan. Such a default or breach could result in termination of the Investment Agreement and the Underground Plan or damages accruing, which may have a material adverse impact on the Corporation and its share price.

The Investment Agreement commits Oyu Tolgoi LLC to utilize only Mongolian power sources within four years of commencing commercial production.

The Investment Agreement commits Oyu Tolgoi LLC to utilize only Mongolian power sources. Such sources of power may not be available or may be available upon commercial terms that are less advantageous than those available from other potential power suppliers. Despite the Corporation’s best efforts, such an obligation is not necessarily within the Corporation’s control and non-fulfilment of such requirement may result in a default under the Investment Agreement. Such default could result in termination of the Investment Agreement or damages accruing, which may have a material adverse impact on the Corporation and its share price.

RTIH, as the holder of a majority of the Common Shares, and as manager of the Oyu Tolgoi Mine, has the ability to exert a significant degree of control over the Corporation, Oyu Tolgoi LLC and the Oyu Tolgoi Mine.

RTIH, a wholly-owned subsidiary of Rio Tinto, together with other Rio Tinto affiliates, owns a majority of the outstanding Common Shares and can exercise its voting power to elect all of the members of the Board of Directors, subject to applicable securities legislation. RTIH can also exercise its majority voting power to unilaterally pass any ordinary resolution submitted to a vote of the Corporation’s shareholders, except for resolutions in respect of which RTIH is an interested party and for which disinterested shareholder approval is required. In addition, under the HoA, RTIH was appointed as manager of the Oyu Tolgoi Mine which provides RTIH with responsibility for the management of the Oyu Tolgoi Mine. The Corporation’s Chief Executive Officer and Chief Financial Officer were nominated by RTIH. Such persons, together with the rest of the Corporation’s senior management team, are employed by affiliates of RTIH and are seconded to the Corporation.

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RTIH is also able to exert a significant degree of control over the management, development and operation of the Oyu Tolgoi Mine through a series of governance mechanisms established under the Private Placement Agreement and the HoA. These include the Technical Committee established under the Private Placement Agreement and the Operating Committee established under the HoA, through which RTIH is able to control decisions respecting the business of Oyu Tolgoi LLC subject to a veto of the Corporation in respect of certain special matters.

The interests of RTIH and the interests of the Corporation’s other shareholders may not necessarily be aligned in all respects and there can be no assurance that RTIH, together with other Rio Tinto affiliates, will exercise its rights as the Corporation’s majority shareholder and its other contractual rights under the Private Placement Agreement, the HoA, the 2012 MoA and the 2013 MoA in a manner that is consistent with the best interests of either the Corporation or the Corporation’s other shareholders.

A substantial portion of Turquoise Hill’s liquid assets are deposited with or managed by affiliates of Rio Tinto.

On December 15, 2015, the Corporation entered into the Cash Management Services Agreement with 9539549 Canada Inc., a wholly-owned subsidiary of Rio Tinto, pursuant to which the Net PF Proceeds are to be deposited with and managed by 9539549 Canada Inc. until they are returned to Turquoise Hill for purposes of funding the underground at the Oyu Tolgoi Mine. Although RTIH has guaranteed the obligations of 9539549 Canada Inc. under the Cash Management Services Agreement, a delay in the return of such funds when requested by Turquoise Hill, or the unavailability of such funds for any reason, could result in a material adverse effect on the Corporation. In December 2014, Movele S.à.r.l., a wholly-owned subsidiary of the Corporation, entered into a deposit agreement with RTF, which has subsequently been renewed, pursuant to which Movele S.à.r.l. has deposited funds with RTF, which are invested or deposited by RTF for fixed terms. The inability of Movele S.à.r.l. to access cash and cash equivalent investments on deposit with RTF under the deposit agreement, in a timely manner or at all due to circumstances which limit RTF’s ability to return such funds to Movele S.à.r.l. could have a material adverse impact on Turquoise Hill and its business.

The actual cost of developing the Oyu Tolgoi Mine may differ materially from the Corporation’s estimates and involve unexpected problems or delays.

The Corporation’s estimates regarding the cost of development and operation of the Oyu Tolgoi Mine are estimates only and are based on many assumptions and analyses made by the Corporation’s management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These estimates and the assumptions upon which they are based are subject to a variety of risks and uncertainties and other factors that could cause actual expenditures to differ materially from those estimated. If these estimates prove incorrect, the total capital expenditures required to complete development of the underground component of the Oyu Tolgoi Mine may increase, which may have a material adverse impact on the Corporation, its results of operations, financial condition and share price.

There are also a number of uncertainties inherent in the development and construction of any new or existing mine, including the Oyu Tolgoi Mine. These uncertainties include the timing and cost, which can be considerable, of the construction of mining and processing facilities; the availability and cost of skilled labour, the impact of fluctuations in commodity prices, process water, power and transportation, including costs of transport for the supply chain for the Oyu Tolgoi Mine, which requires routing approaches which have not been fully tested; the annual usage fees payable to the local province for sand, aggregate and water; the availability and cost of appropriate smelting and refining arrangements; and the need to obtain necessary environmental and other government permits, such permits being on reasonable terms, and the timing of those permits. The cost, timing and complexities of mine construction and development are increased by the remote location of a property such as the Oyu Tolgoi Mine.

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It is common in new mining operations and in the development or expansion of existing facilities to experience unexpected problems and delays during development, construction and mine start-up, which may cause delays in the commencement or expansion of mineral production. In particular, funding and development of the underground component of the Oyu Tolgoi Mine was delayed until matters with the Government of Mongolia were addressed with the signing of the Underground Plan. Such delays could have unforeseen impacts on disclosed project economics. Accordingly, there is no assurance that the current or future development, construction or expansion activities will be successfully completed within cost estimates, on schedule or at all and, if completed, there is no assurance that such activities will result in profitable mining operations.

Changes in, or more aggressive enforcement of, laws and regulations could adversely impact the Corporation’s activities.

Mining operations, exploration and related financing activities are subject to extensive laws and regulations. These relate to production, development, exploration, exports, imports, taxes and royalties, labour standards, occupational health, waste disposal, protection and remediation of the environment, access to water, mine decommissioning and reclamation, mine safety, toxic substances, transportation safety and emergency response and other matters.

Compliance with these laws and regulations increases the costs of exploring, drilling, developing, constructing, operating and closing mines and other facilities. It is possible that the costs, delays and other effects associated with these laws and regulations may impact the Corporation’s decision as to whether to continue to operate in a particular jurisdiction or whether to proceed with exploration or development of properties. Since legal requirements change frequently, are subject to interpretation and may be enforced to varying degrees in practice, the Corporation is unable to predict the ultimate cost of compliance with these requirements or their effect on operations. Furthermore, changes in governments, regulations and policies and practices could have an adverse impact on the Corporation’s future cash flows, earnings, results of operations and financial condition, which may have a material adverse impact on the Corporation and its share price.

The Corporation is exposed to risks of changing political stability and government regulation in the countries in which it carries out its activities.

The Corporation carries out its activities in countries which may be affected in varying degrees by political stability, government regulations related to the mining industry and foreign investment therein, and by the policies of other nations in respect of these countries. Any changes in regulations or shifts in political conditions are beyond the control of the Corporation and may adversely affect its business. The Corporation’s activities may be affected to varying degrees by government regulations, including those with respect to restrictions on production, price controls, export controls, income and other taxes, expropriation of property, employment, land use, water use, environmental legislation and mine safety. The Corporation may be subject to disputes or issues with customs officials affecting the shipment of the Corporation’s products in jurisdictions in which it operates, and the ability of its customers to collect such products may arise and could have an adverse effect on the Corporation’s ability to collect and/or recognize revenue. The Corporation’s activities may also be affected to varying degrees by political and economic instability, economic, investment or other sanctions imposed by other nations, terrorism, military repression, crime, extreme fluctuations in currency exchange rates and high inflation.

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In certain areas where the Corporation is active, the regulatory environment is in a state of continuing change, and new laws, interpretations, regulations and requirements may be retroactive in their effect and implementation. The laws of certain of the countries in which the Corporation carries out its activities also have the potential to be applied in an inconsistent manner due to the substantial administrative discretion granted to the responsible government officials or agencies. As such, even the Corporation’s best efforts to comply with the laws and regulations may not result in effective compliance in the determination of government bureaucrats, which may have a material adverse impact on the Corporation and its share price.

The disclosed resource and reserve estimates are estimates only and are subject to change based on a variety of factors, some of which are beyond the Corporation’s control. The Corporation’s actual production, revenues and capital expenditures may differ materially from these estimates.

The disclosed estimates of reserves and resources in this AIF, including the anticipated tonnages and grades that will be achieved or the indicated level of recovery that will be realized, are estimates and no assurances can be given as to their accuracy. Such estimates are, in large part, based on interpretations of geological data obtained from drill holes and other sampling techniques, and large scale continuity and character of the deposits will only be determined once significant additional drilling and sampling has been completed and analyzed. Actual mineralization or formations may be different from those predicted. Reserve and resource estimates are materially dependent on prevailing metal prices and the cost of recovering and processing minerals at the individual mine sites. Market fluctuations in the price of metals or increases in the costs to recover metals from the Corporation’s mining projects may render mining of ore reserves uneconomical and affect the Corporation’s operations in a materially adverse manner. Moreover, various short-term operating factors may cause a mining operation to be unprofitable in any particular accounting period.

Prolonged declines in the market price of metals may render reserves containing relatively lower grades of mineralization uneconomic to exploit and could materially reduce the Corporation’s reserves and resources. Should such reductions occur, material write-downs of the Corporation’s investments in mining properties or the discontinuation of development or production might be required, and there could be cancellations of or material delays in the development of new projects, increased net losses and reduced cash flow. The estimates of mineral reserves and resources attributable to a specific property are based on internationally accepted engineering and evaluation principles. The estimated amount of contained metals in Proven mineral reserves and Probable mineral reserves does not necessarily represent an estimate of a fair market value of the evaluated properties.

The financial modeling for the Oyu Tolgoi Mine is based on projected future metal prices. The prices used reflected organizational consensus pricing views and opinions and are subjective in nature. It should be expected that actual prices will be different than the prices used for such modelling (either higher or lower), and the differences could be significant.

There are numerous uncertainties inherent in estimating quantities of mineral reserves and resources. The estimates referenced in this AIF are based on various assumptions relating to commodity prices and exchange rates during the expected life of production, mineralization of the area to be mined, the projected cost of mining, and the results of additional planned development work. Actual future production rates and amounts, revenues, taxes, operating expenses, environmental and regulatory compliance expenditures, development expenditures, and recovery rates may vary substantially from those assumed in the estimates. Many of the projections and estimates are based on subjective views and assumptions. Any significant change in these assumptions, including changes that result from variances between projected and actual results, could result in material downward revision to current estimates, which may have a material adverse impact on the Corporation and its share price.

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A number of the uncertainties relate to the costs and availability of smelting services for the metals mined from the Oyu Tolgoi Mine, which require arrangements with third parties and involve the potential for fluctuating costs to transport the metals and fluctuating costs and availability of such services. These costs can be significantly impacted by a variety of industry-specific and also regional and global economic factors (including, among others, those which affect commodity prices). Many of these factors are beyond the Corporation’s control.

Mining projects are sensitive to the volatility of metal prices.

The long-term viability of the Oyu Tolgoi Mine depends in large part on the world market prices of copper, gold and silver. The market prices for these metals are volatile and are affected by numerous factors beyond the Corporation’s control. These factors include international economic and political trends, expectations of inflation, global and regional demand, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities, increased production due to improved mining and production methods and economic events, including the performance of Asia’s economies. Ongoing worldwide economic uncertainty could lead to prolonged recessions in many markets which may, in turn, result in reduced demand for commodities, including base and precious metals. In 2015 and year-to-date in 2016, copper, gold and silver prices have declined significantly as a result of various macroeconomic factors and it is anticipated that there will be continued volatility in metal prices.

The aggregate effect of these factors on metal prices in the medium or long term is impossible to predict. Should prevailing metal prices be depressed or below variable production costs of the Corporation’s current and planned mining operations for an extended period, losses may be sustained and, under certain circumstances, there may be a curtailment or suspension of some or all of the Corporation’s mining, development and exploration activities. The Corporation would also have to assess the economic impact of any sustained lower metal prices on recoverability and, therefore, the cut-off grade and level of the Corporation’s reserves and resources. These factors could have an adverse impact on the Corporation’s future cash flows, earnings, results of operations, stated reserves and financial condition, which may have a material adverse impact on the Corporation and its share price.

The following table sets forth for the periods indicated: (i) the London Metals Exchange’s high, low and average settlement prices for copper in U.S. dollars per pound; (ii) the high, low and average London afternoon fixing prices for gold in U.S. dollars per ounce; and (iii) the high, low and average London afternoon fixing prices for silver in U.S. dollars per ounce.


Year	Copper						Gold						Silver
	High		Low		Average		High		Low		Average		High		Low		Average
2011		$4.62		$3.05		$4.00		$1,895		$1,319		$1,572		$48.70		$26.16		$35.12
2012		$3.93		$3.29		$3.61		$1,792		$1,540		$1,669		$37.23		$26.67		$31.15
2013		$3.77		$3.04		$3.34		$1,694		$1,192		$1,411		$32.23		$18.61		$23.79
2014		$3.37		$2.84		$3.10		$1,385		$1,142		$1,266		$22.05		$15.28		$19.08
2015		$2.94		$2.04		$2.49		$1,296		$1,049		$1,160		$18.36		$13.67		$15.66

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Under Mongolia’s Resolution No. 175, the Government of Mongolia may seek contribution or reimbursement from Oyu Tolgoi LLC for compensation it provides to third parties adversely affected by Resolution No. 175.

In June 2011, the Government of Mongolia passed Resolution No. 175, the purpose of which is to authorize the designation of certain land areas for “special government needs” with certain defined areas in proximity to the Oyu Tolgoi Mine. These special government needs areas are to be used for infrastructure facilities for the development of the Oyu Tolgoi Mine, if required.

Most of the areas designated for special government needs are subject to existing mineral exploration and mining licences issued by the Government of Mongolia to third parties and, in certain cases, a mineral resource has been declared and registered with the applicable governmental authorities in respect of such licences. It is not clear at this time what areas of land covered by Resolution No. 175 may be required for the purposes of infrastructure for the Oyu Tolgoi Mine and, if required, what level of impact that may have, if any, on third parties holding mineral exploration and mining licenses over such areas. Oyu Tolgoi LLC has entered into certain consensual arrangements with some of the affected third parties; however, such arrangements have not been completed with all affected third parties. If Oyu Tolgoi LLC cannot enter into consensual arrangements with an affected third party and such third party’s rights to use and access the subject land area are ultimately adversely affected by application of Resolution No. 175, compensation to such third parties will be payable under Mongolian legislation as indicated by Resolution No. 175.

It is not clear at this time whether the Government of Mongolia will expect some of any compensation necessary to be paid to such third parties to be borne by Oyu Tolgoi LLC or if it will assume that obligation alone. It is also expected, but not yet formally confirmed by the Government of Mongolia, that any consensual arrangements effected with affected third parties by Oyu Tolgoi LLC may make the application of Resolution No. 175 unnecessary.

To the extent that consensual arrangements are not entered into with affected third parties or not recognized by the Government, and the Government of Mongolia seeks contribution or reimbursement from Oyu Tolgoi LLC for compensation it provides such third parties, the amount of such contribution or reimbursement is not presently quantifiable and may be significant.

The Corporation is subject to substantial environmental and other regulatory requirements and such regulations are becoming more stringent. Non-compliance with such regulations, either through current or future operations or a pre-existing condition, could materially adversely affect the Corporation.

All phases of the Corporation’s operations are subject to environmental regulations in the various jurisdictions in which it operates and has operated. For example, the Oyu Tolgoi Mine is subject to a requirement to meet environmental protection obligations. The Corporation must complete an Environmental Protection Plan for approval by the Government of Mongolia and complete a report prepared by an independent expert on environmental compliance every three years.

Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

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Environmental legislation is evolving in a manner which will likely require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Corporation’s operations. Environmental hazards may exist on the properties in which the Corporation holds interests which are presently unknown to the Corporation and which have been caused by previous or existing third party owners or operators of the properties. Government approvals and permits are also often required in connection with various aspects of the Corporation’s operations. To the extent such approvals are required and not obtained, the Corporation may be delayed or prevented from proceeding with planned exploration or development of its mineral properties, which may have a material adverse impact on the Corporation and its share price.

Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Corporation and cause increases in capital expenditures or production costs or reductions in levels of production at producing properties or require abandonment or delays in development of new mining properties, which may have a material adverse impact on the Corporation and its share price.

Previous mining operations may have caused environmental damage at former mining projects of the Corporation, and if the Corporation cannot prove that such damage was caused by other operators, its indemnities and exemptions from liability may not be effective.

The Corporation has received exemptions from liability from relevant governmental authorities for environmental damage caused by previous mining operations at former mining projects. There is a risk, however, that, if an environmental accident occurred at those sites, it may be difficult or impossible to assess the extent to which environmental damage was caused by the Corporation’s activities or the activities of other operators. In that event, the liability exemptions could be ineffective and possibly worthless, which may have a material adverse impact on the Corporation and its share price.

The Corporation’s ability to obtain dividends or other distributions from its subsidiaries may be subject to restrictions imposed by law, foreign currency exchange regulations and financing arrangements.

The Corporation conducts its operations through subsidiaries. Its ability to obtain dividends or other distributions from its subsidiaries may be subject to restrictions on dividends or repatriation of earnings under applicable local law, including any tax obligations, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which the subsidiaries operate or are incorporated. The ability of the Corporation’s subsidiaries to pay dividends or to make other distributions to the Corporation is also subject to their having sufficient funds to do so. If its subsidiaries are unable to pay dividends or to make other distributions, the Corporation’s growth may be inhibited unless it is able to obtain additional equity or debt financing on acceptable terms. In the event of a subsidiary’s liquidation, the Corporation may lose all or a portion of its investment in that subsidiary. The Corporation expects to be able to rely on the terms of the Investment Agreement to pay dividends out of Mongolia, subject to certain restrictions contained in the Investment Agreement, but will be unable to do so in respect of projects that are not covered by the terms of the Investment Agreement, which may have a material adverse impact on the Corporation and its share price.

The Corporation is subject to anti-corruption legislation.

The Corporation is subject to the United States’Foreign Corrupt Practices Act and other similar legislation, such as, but not necessarily limited to, Canada’s Corruption of Foreign Public Officials Act (collectively, “Anti-Corruption Legislation”), which prohibits the Corporation or any officer, director, employee or agent of the

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Corporation or any shareholder of the Corporation acting on its behalf from giving, paying, offering to give or pay, or authorizing the giving or payment of any reward, advantage, benefit or anything of value to any foreign government or public official, government staff member, political party, or political candidate in an attempt to obtain or retain business, obtain an advantage in the course of business, or to otherwise induce or influence a person working in an official capacity. The Anti-Corruption Legislation also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls. The Corporation’s international activities create the risk of unauthorized payments or offers of payments by its employees, consultants or agents, even though they may not always be subject to its control. The Corporation strictly prohibits these practices by its employees and agents. However, the Corporation’s existing safeguards and any future improvements may prove to be less than effective, and its employees, consultants or agents may engage in conduct for which the Corporation might be held responsible. Any failure by the Corporation to adopt appropriate compliance procedures and ensure that its employees and agents comply with the Anti-Corruption Legislation and applicable laws and regulations in foreign jurisdictions could result in substantial penalties or restrictions on its ability to conduct its business, which may have a material adverse impact on the Corporation and its share price.

There can be no assurance that the interests held by the Corporation in its exploration, development and mining properties are free from defects or that material contractual arrangements between the Corporation and entities owned or controlled by foreign governments will not be unilaterally altered or revoked.

The Corporation has investigated its rights to explore and exploit its various properties and, to the best of its knowledge, those rights are in good standing, but no assurance can be given that such rights will not be revoked, or significantly altered, to the detriment of the Corporation. There can also be no assurance that the Corporation’s rights will not be challenged or impugned by third parties. The Corporation has also applied for rights to explore, develop and mine various properties, but there is no certainty that such rights, or any additional rights applied for, will be granted on terms satisfactory to the Corporation or at all, which may have a material adverse impact on the Corporation and its share price.

The Corporation is currently engaged in an SEC comment letter process relating to revenue recognition accounting treatment regarding certain sales of coal by SouthGobi, which process could result in a requirement to file future supplements to or further restatements of the Corporation’s financial disclosure.

The Corporation has received comment letters from the staff (the “Staff”) of the SEC relating to the Annual Report on Form 40-F for the year ended December 31, 2012 filed with the SEC on March 25, 2013. The Staff’s comments addressed accounting and disclosure matters primarily related to revenue recognition accounting under U.S. GAAP in respect of certain sales of coal by the Corporation’s then majority-owned subsidiary, SouthGobi. On November 14, 2013, the Corporation filed restated consolidated financial statements for the year ended December 31, 2012 as well as restated management’s discussion and analysis for such year, including comparative periods presented therein, and has concluded that such restatement appropriately addresses the timing of revenue recognition for these transactions. However, as of the date of this AIF, the Staff’s comments remain unresolved, and until these comments are resolved, the Corporation cannot predict whether the Staff will agree with the Corporation’s conclusion or whether it will require the Corporation to supplement its disclosures or further restate or make other changes to its historical consolidated financial statements, including with respect to the financial information contained in the Corporation’s previously filed annual and quarterly reports. If the Corporation is required to supplement its disclosures or further restate its previously reported financial statements in any way, it could have an impact on the portion of the Corporation’s results represented by SouthGobi’s operations in previous periods. Since 2012, the Corporation has reduced its ownership of SouthGobi’s common shares, and as at December 31, 2015, the Corporation held 49,348,915 common shares of SouthGobi, representing a 19.2% equity interest in SouthGobi. For more information see “General Description of the Business – Three Year History – 2015”.

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The Corporation does not expect to pay dividends for the foreseeable future.

The Corporation has not paid any dividends on its Common Shares to date and it does not intend to declare or pay dividends for the foreseeable future, as it anticipates that it will reinvest future earnings, if any, in the development and growth of the Oyu Tolgoi Mine and its business generally. Therefore, investors will not receive any funds unless they sell their Common Shares, and investors may be unable to sell their Common Shares on favourable terms or at all. The Corporation cannot give any assurance of a positive return on investment or that investors will not lose the entire amount of their investment in Common Shares. Prospective investors seeking or needing dividend income or liquidity should not purchase Common Shares.

There is no assurance that the Corporation will be capable of consistently producing positive operating cash flows.

Oyu Tolgoi LLC generated positive operating cash flows in 2015. However, there is no assurance that the Corporation will be capable of producing positive cash flow on a consistent basis or for a sustained period of time or arranging for additional capital, whether through project debt financing or otherwise, if required, to continue open pit operations as currently planned or in respect of additional funding requirements for the underground mine. If such additional capital is required but not available on commercially reasonable terms or at all, it may have a material adverse impact on the value of the Oyu Tolgoi Mine and, consequently, on the Corporation and its share price.

There is no guarantee that any exploration or development activity will result in additional commercial production.

Development of a mineral property is contingent upon obtaining satisfactory exploration results. Mineral exploration and development involves substantial expenses and a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to adequately mitigate. There is no assurance that additional commercial quantities of ore will be discovered on any of the Corporation’s exploration properties. There is also no assurance that, even if commercial quantities of ore are discovered, a mineral property will be brought into commercial production. The discovery of mineral deposits is dependent upon a number of factors, not the least of which is the technical skill of the exploration personnel involved. The commercial viability of a mineral deposit, once discovered, is also dependent upon a number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to infrastructure, metal prices and government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection. In addition, assuming discovery of a commercial ore body, depending on the type of mining operation involved, several years can elapse from the initial phase of drilling until commercial operations are commenced. Most of the above factors are beyond the control of the Corporation.

The Corporation cannot insure against all of the risks associated with mining.

Exploration, development and production operations on mineral properties involve numerous risks and hazards, including rock bursts, slides, fires, earthquakes or other adverse environmental occurrences; industrial accidents; labour disputes; political and social instability; technical difficulties due to unusual or unexpected geological formations; failures of pit walls, shafts, head frames, underground workings; and flooding and periodic interruptions due to inclement or hazardous weather conditions.

These risks can result in, among other things, damage to, and destruction of, mineral properties or production facilities; personal injury (and even loss of life); environmental damage; delays in mining; monetary losses; and legal liability.

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It is not always possible to obtain insurance (or to fully insure) against all such risks and the Corporation may decide not to insure against certain risks as a result of high premiums or other reasons. The occurrence of an event that is not fully covered or covered at all, by insurance, could have a material adverse effect on the Corporation’s financial condition, results of operations and cash flows and could lead to a decline in the value of the securities of the Corporation. The Corporation does not maintain insurance against political or environmental risks, which may have a material adverse impact on the Corporation and its share price.

The loss of, or a substantial decline in sales to, a top customer could have a material adverse effect on the Corporation’s revenues and profitability.

A reduction or delay in orders from leading customers, including reductions or delays due to market, economic or competitive conditions, could have a material adverse effect upon the Corporation’s results of operations. Customers that previously accounted for significant revenue may not necessarily generate similar levels of or any revenue in any future period. The failure to obtain new customers or repeat orders from existing customers may materially affect the Corporation’s operating results. The Corporation anticipates that its exposure to a group of key customers in any given fiscal year will continue for the foreseeable future. There is a risk that existing customers will elect not to do business with the Corporation in the future or will experience financial or other difficulties.

The Corporation faces risks associated with enforcement of its contractual rights.

Enforcement of existing and future laws and contracts in jurisdictions in which the Corporation carries out its activities is subject to uncertainty, and the implementation and interpretation of them may be inconsistent. The promulgation of new laws and changes to existing laws may adversely affect foreign companies, such as the Corporation, with activities in or contracts with counterparties in such jurisdictions. These uncertainties could limit the legal protections available to the Corporation. The Corporation’s inability to enforce its contractual rights could have a material adverse effect on its business and profitability. In addition, the Corporation is exposed to risks of political instability and government regulation in the countries in which it carries out its activities. See also the risk factor titled “The Corporation may be limited in its ability to enforce the Investment Agreement and the Underground Plan against Mongolia, a sovereign government”.

The Corporation’s prospects depend on its ability to attract and retain key personnel.

Recruiting and retaining qualified personnel is critical to the Corporation’s success. The number of persons skilled in the acquisition, exploration and development of mining properties is limited and competition for such persons is intense. The Corporation believes that it has been successful in recruiting the necessary personnel to meet its corporate objectives but, to the extent the Corporation’s business activity grows and it commences development of the underground component of the Oyu Tolgoi Mine, it will require additional key financial, operational, mining and management personnel, as well as additional staff on the operations side. The Corporation is also dependent on Rio Tinto for the secondment of skilled labour at the Oyu Tolgoi Mine, particularly in the construction and early development phases. Although the Corporation believes that it will be successful in attracting and retaining qualified personnel, including qualified secondees from Rio Tinto, there can be no assurance of such success.

In addition, pursuant to the terms of the Investment Agreement, the Corporation is obligated to hire a specific number of Mongolian nationals as the Oyu Tolgoi Mine continues in commercial production. Among other obligations, the Corporation must use its best endeavours to ensure that within five years of the Oyu Tolgoi Mine attaining commercial production, at least 50%, and within 10 years of the Oyu Tolgoi Mine attaining commercial production, at least 70% of the engineers employed at the Oyu Tolgoi Mine are Mongolian nationals (and failure to meet these levels will result in financial penalties).

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Capital markets are volatile, and capital may not at all times be available on terms acceptable to the Corporation or at all.

Securities markets throughout the world are cyclical and, over time, tend to undergo high levels of price and volume volatility, and the market price of securities of many companies, particularly those in the resource sector, can experience wide fluctuations which are not necessarily related to the operating performance, underlying asset values or prospects of such companies. Increased levels of volatility and resulting market turmoil could adversely impact the Corporation and its share price. In addition, in the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. The Corporation cannot assure you that similar litigation will not occur in the future with respect to it. Such litigation could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect upon the Corporation’s business, operating results, and financial condition.

If the Corporation is required to access credit markets to carry out its development objectives, the state of domestic and international credit markets and other financial systems could affect the Corporation’s access to, and cost of, capital. If these credit markets were significantly disrupted, as they were in 2007 and 2008, such disruptions could make it more difficult for the Corporation to obtain, or increase its cost of obtaining, capital and financing for its operations. Such capital may not be available on terms acceptable to the Corporation or at all, which may have a material adverse impact on the Corporation and its share price.

The Corporation may be a passive foreign investment corporation (PFIC), which could have adverse U.S. federal income tax consequences to U.S. holders of Common Shares.

Based on the scope of its past, current and projected operations, the Corporation does not believe that it was a PFIC for the 2015 tax year. However, the determination of the Corporation’s PFIC status for any year is very fact-specific, and there can be no assurance in this regard for future years. If the Corporation is classified as a PFIC, U.S. holders of Common Shares could be subject to adverse U.S. federal income tax consequences, including increased tax liabilities and possible additional reporting requirements, which may have a material adverse impact on the Corporation and its share price.

The Corporation may from time to time hold substantial funds in cash and cash equivalents and there is a risk that financial market turmoil or other extraordinary events could prevent the Corporation from obtaining timely access to such funds or result in the loss of such funds.

The Corporation may from time to time hold substantial funds in cash and cash equivalents, including treasury bills, money market funds and bank deposits. Management has adopted a conservative investment philosophy with respect to such funds, as the Corporation may require that these funds be used on short notice to support its business objectives. Nevertheless, there is a risk that an extraordinary event in financial markets generally or with respect to an obligor under an investment individually will occur that prevents the Corporation from accessing its cash and cash equivalent investments. Such an event could, in the case of delayed liquidity, have a negative impact on the implementation of time sensitive business objectives that require access to such funds or such an event could, in extreme circumstances, result in the loss of some or all of such funds.

The Corporation’s business could be materially and adversely affected by litigation proceedings.

The Corporation is subject to litigation risks. All industries, including the mining industry, are subject to legal claims, with and without merit. The Corporation may be required to defend against any such claims that are asserted against it, or may deem it necessary or advisable to initiate legal proceedings to protect its rights. The

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expense and distraction of any claims or proceedings, even with respect to claims that have no merit and whether or not resolved in the Corporation’s favour, could materially and adversely affect its business, operating results, and financial condition. Further, if a claim or proceeding were resolved against the Corporation or if it were to settle any such dispute, the Corporation may be required to pay damages and costs or refrain from certain activities, any of which could have a material adverse impact on the Corporation’s business, operating results, and financial condition. The Corporation at one time conducted exploration and mining operations in a number of jurisdictions and, as a result of such activities and operations, it may be subject to governmental or regulatory investigations and claims even in those jurisdictions in which it is not currently active.

Certain directors of the Corporation are directors or officers of, or have shareholdings or other interests in, other mineral resource companies and there is the potential that such directors will encounter conflicts of interest with the Corporation.

Certain of the directors of the Corporation are directors, officers or employees of, or have shareholdings or other interests in, other mineral resource companies and, to the extent that such other companies may participate in ventures in which the Corporation may participate, the directors of the Corporation may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In all cases where directors and officers have an interest in another resource company, such directors and officers may have conflicts of interest, such as where such other companies may also compete with the Corporation for the acquisition of mineral property rights.

In the event that any such conflict of interest arises, a director who has such a conflict is required to disclose the conflict to a meeting of the directors of the Corporation and will generally abstain from voting for or against the approval of such participation or such terms. In appropriate cases, the Corporation will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict. In accordance with the YBCA, the directors of the Corporation are required to act honestly, in good faith and in the best interests of the Corporation. In determining whether or not the Corporation will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the potential benefits to the Corporation, the degree of risk to which the Corporation may be exposed and its financial position at that time.

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DESCRIPTION OF THE BUSINESS

Overview

The Oyu Tolgoi Mine has been identified as a mineral project on a property that is material to Turquoise Hill.

Qualified Persons

Disclosure of a scientific or technical nature in this AIF in respect of the Oyu Tolgoi Mine was prepared under the supervision of Kendall Cole-Rae, B.Sc. (Geology), an employee of Rio Tinto, a registered member of the Society for Mining, Metallurgy and Exploration (SME #4138633), and a “qualified person” as that term is defined in NI 43-101.

The 2014 Oyu Tolgoi Technical Report is the current Technical Report for the Oyu Tolgoi Mine and related projects. Disclosure of a scientific or technical nature in this AIF in respect of the 2014 Oyu Tolgoi Technical Report was prepared by the following qualified persons: Bernard Peters, B. Eng. (Mining), FAusIMM of OreWin Pty Ltd. (“OreWin”), who was responsible for the overall preparation of the report and the mineral reserves estimate of the report, as well as the preparation of the geotechnical sections and the sections related to and including processing, and Sharron Sylvester, B.Sc. Geology, MAIG (RPGeo), of OreWin, who was responsible for preparation of the mineral resources estimate of the report, both of whom are “qualified persons” for the purposes of NI 43-101.

Oyu Tolgoi Mine

The information in this section is based on the 2014 Oyu Tolgoi Technical Report, with an effective date of September 20, 2014, in accordance with the requirements of NI 43-101, and does not include depletion through year end 2015. The following is a summary only and all references to the 2014 Oyu Tolgoi Technical Report are qualified in their entirety with reference to the 2014 Oyu Tolgoi Technical Report, a copy of which was filed with the Canadian Securities Authorities on October 28, 2014 and is available on SEDAR at www.sedar.com.

Summary of Project Development

The Oyu Tolgoi copper and gold project (“Oyu Tolgoi”) is located in the Southern Gobi region of Mongolia and is being developed by Oyu Tolgoi LLC. Oyu Tolgoi consists of a series of deposits containing copper, gold, silver, and molybdenum. The deposits lie in a structural corridor where mineralization has been discovered over a 26 km strike length. The Oyu Tolgoi deposits stretch over 12 km, from the Hugo North deposit in the north through the adjacent Hugo South, down to the Southern Oyu Tolgoi (“SOT”) deposit and extending to the Heruga deposit in the south as shown in the illustration below.

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Oyu Tolgoi Projected Long Section

LOGO

The series of deposits contain an estimated Measured and Indicated mineral resource of 46.8 billion pounds of contained copper and 25.3 million ounces of contained gold and an estimated Inferred mineral resource of 51.5 billion pounds of contained copper and 36.0 million ounces of contained gold. The Oyu Tolgoi trend is still open to the north and south and the deposits have not been closed off at depth.

Oyu Tolgoi LLC is 66% owned by the Corporation and 34% owned by Erdenes. Rio Tinto owns 50.8% of the Corporation and Erdenes is owned by the Government of Mongolia. RTIH is also the appointed manager of Oyu Tolgoi.

Over time, there is expected to be multiple investment decisions made for Oyu Tolgoi and an evaluation of each development option, as and when it is required, ensuring that the commitments it makes represent the optimum use of capital to develop Oyu Tolgoi.

The initial investment decision was made in 2010 to construct the SOT Open Pit mine, a nominal 100 ktpd concentrator and supporting infrastructure. These facilities are complete and the operation has commenced commercial production. Processing operations have been in production since December 2012, commercial production was achieved in September 2013, and first concentrate exported in October 2013.

Part of the initial investment decision included continued investment into the development of the Hugo North underground mine in parallel with mining the open pit. Lift 1 of Hugo North is the most significant value driver for the project and plans for its further development are now at a feasibility stage. The current investment decision for Oyu Tolgoi LLC is the continued development of the underground mine in parallel with initial open pit operations. To support the continued underground development program, Oyu Tolgoi LLC in conjunction with RTIH and the Corporation, has been advancing Oyu Tolgoi Project Financing with a group of international banks.

In August 2013, development of the underground mine was delayed to allow matters with the Government of Mongolia to be resolved. In May 2015, the signing of the Underground Plan provided a pathway forward in addressing outstanding shareholder matters. For more information on the Underground Plan, see “General Development of the Business – Agreements with the Government of Mongolia –Underground Plan”.

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This delay has in turn postponed the timing of decisions relating to any expansions of the operations. The 2014 Oyu Tolgoi Technical Report production estimates contemplated early works beginning late in the third quarter of 2014 but this has yet to occur.

The project scope for the 2014 Oyu Tolgoi Technical Report and evaluation of Mineral Reserves matches that of the Oyu Tolgoi Project Financing. A summary of the production and financial results for the 2014 Reserve Case are shown in the table below.


Description	Units	2014 Reserve Case Mineral Reserves
Total Processed	Bt	1.5
Cu Grade	%	0.85
Au Grade	g/t	0.32
Ag Grade	g/t	1.94
Copper Recoverable	Billion lb	24.9
Gold Recoverable	Moz	11.9
Silver Recoverable	Moz	78.0
Life	Years	41
Expansion Capital	US$B	4.9
NPV8% After Tax	US$B	7.43
IRR After Tax	%	29%
Payback Period	Years	9

Notes:

NPV8% is Net Present Value (“NPV”) at a discount rate of 8.0%.

IRR is Internal Rate of Return.

Metal prices used for calculating the financial analysis were as follows: long-term copper at $3.08/lb; gold at $1,304/oz; and silver at $21.46/oz. The analysis has been calculated with assumptions for smelter refining and treatment charges, deductions and payment terms, concentrate transport, metallurgical recoveries and royalties.

For mine planning the metal prices used to calculate block model NSR were copper at $3.01/lb; gold at $1,250/oz; and silver at $20.37/oz. For the open pit processing and general administration, the following operating costs have been used to determine cut-off grades: Southwest at $8.37/t, Central Chalcocite, Central Covellite, and Central Chalcopyrite at $7.25/t and the underground costs were based on $15.34/t.

For the underground block cave, all mineral resources within the shell have been converted to mineral reserves. This includes low grade Indicated mineral resources. It also includes Inferred mineral resources, which have been assigned a zero grade and treated as dilution. The SOT Open Pit mineral reserves were mineral reserves in the pit at January 1, 2014. It does not include stockpiles.

For SOT only Measured mineral resources were used to report Proven mineral reserves and only Indicated mineral resources were used to report Probable mineral reserves. For Hugo North Measured and Indicated mineral resources were used to report Probable mineral reserves.

The Mineral Reserves reported above are not additive to the mineral resources.

Economic analysis has been calculated from the start of 2015 and exclude 2014. Costs shown are real costs not nominal costs. Expansion capital includes only direct project costs and does not include non-cash shareholder interest, management payments, tax pre-payments, forex adjustments, or exploration phase expenditure.

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The 2014 Oyu Tolgoi Technical Report updated the project status since the 2013 Oyu Tolgoi Technical Report dated as of March 25, 2013 (“2013 Oyu Tolgoi Technical Report”). The key differences are as follows:

•

An updated mineral resource model and estimate for the Hugo North deposit. The updated mineral resource estimate is similar to and confirms the previous estimates contained in the 2013 Oyu Tolgoi Technical Report. Mineral resource models for the other Oyu Tolgoi deposits remained unchanged.

•

Updated mineral reserves estimates are broadly in line with previous estimates. The open pit allows for depletion in 2013 but does not include depletion from 2014 and 2015. Modified underground dilution and mining loss assumptions result in lower grades and mining recovery.

•

Underground ore handling is now planned to be conveyed to surface via decline, which opens the Oyu Tolgoi Mine to additional production flexibility and future optionality. The new mine plan will make use of the existing shafts and the planned shafts.

•

The reduced Project NPV is the result of delays and a reduction due to more cautious cave performance assumptions, which also led to a reduction in recovered metal and a slowing of ramp-up of the cave.

•

Underground block cave mine production remained at 95 ktpd.

•

The plant rate remained the nominal 100 ktpd.

•

The 2014 Oyu Tolgoi Technical Report expansion capital of $4.9 billion for the underground project, which was in line with the $5.1 billion estimate contained in the 2013 Oyu Tolgoi Technical Report (excludes $0.5 billion of capital spent in 2013 and 2014).

Oyu Tolgoi has a large mineral resource providing management with flexibility in studying alternative paths for mine development to match future economic conditions. Ongoing planning work using Inferred mineral resources has identified the potential for further expansions.

The 2014 Oyu Tolgoi Technical Report uses updated mineral resources for the Hugo North deposit and the mineral resources for SOT, Hugo South and Heruga remain the same as previously published. The overall strategy for the development of the Oyu Tolgoi Mine remains the same as it has been in previous studies.

The 2014 Oyu Tolgoi Technical Report includes mineral resources from the Oyu Tolgoi Mine (wholly owned by Oyu Tolgoi LLC) and Entrée Joint Venture licence areas. The Shivee Tolgoi Licence and the Javkhlant Licence are held by Entrée Gold. The Shivee Tolgoi Licence and the Javkhlant Licence are planned to be operated by Oyu Tolgoi LLC. Oyu Tolgoi LLC will receive 80% of cash flows after capital and operating costs for material originating below 560 m, and 70% above this depth.

Four deposits have been identified in the mineral resources at the Oyu Tolgoi Mine; they are Hugo North, SOT, Hugo South, and Heruga. Hugo South and Hugo North comprise the Hugo Dummett deposit. Heruga is a separate deposit south of the SOT deposit. The mine planning work to date suggests the following relative ranking for overall return from each deposit, from highest value to lowest:

•

Hugo North

•

SOT

Southwest Zone

Central Zone

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•

Hugo South

•

Heruga

Currently and in the initial years the predominant source of ore is the SOT Open Pit. Underground infrastructure and mine development occurred in parallel to the surface works for the Hugo North underground block cave. Stockpiling allows the higher grade ore from Hugo North to gradually displace the open pit ore as the underground production ramps-up to reach 95 ktpd.

Ore is processed through the existing concentrator using conventional crushing, grinding, and flotation circuits. The concentrate produced is trucked to smelters and traders in China.

The Oyu Tolgoi Mine has extensive infrastructure, which has been constructed in addition to the concentrating facilities. The major initial infrastructure elements include:

•

Water Borefields;

•

Water Treatment;

•

Housing;

•

Airport;

•

Supporting Facilities; and

•

Power Transmission Lines, Sub-Station.

Development of the entire resource is the objective of all stakeholders and over the life of the Oyu Tolgoi Mine, Oyu Tolgoi LLC will continue to progress its understanding of these resources and ultimately make decisions on development of the entire resource.

The Oyu Tolgoi Mine’s large resource base represents outstanding opportunities for production expansion. The figure below shows an example of the decision tree for the possible development options at the Oyu Tolgoi Mine. This has been updated to include options that take advantage of productivity improvements in plant throughput that have begun to be recognized in the process plant. The decision tree shows options assuming that continuous improvements in plant productivity are achieved over the next five years. Then there would be key decision points for plant expansion and the development of new mines at Hugo North Lift 2, Hugo South, and eventually Heruga. This provides an opportunity as Oyu Tolgoi LLC will have the benefit of incorporating actual performance of the operating mine into the study before the next investment decisions are required. Oyu Tolgoi LLC plans to continue to evaluate alternative production cases in order to define the relative ranking and timing requirements for overall development options.

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Oyu Tolgoi Mine Development Options

LOGO

Project Description and Location

Oyu Tolgoi LLC holds its rights to the Oyu Tolgoi Mine through mining licence 6709A (“Oyu Tolgoi Licence”), comprising approximately 8,496 ha of property. The Government of Mongolia granted the Oyu Tolgoi Licence to Ivanhoe Mines (Mongolia) Inc. (now Oyu Tolgoi LLC) in 2003 along with mining licences for three properties identified as mining licences 6708A, 6710A, and 6711A. Subsequently, licence 6711A has been relinquished. The majority of the identified mineralization at the Oyu Tolgoi Mine occurs within the Oyu Tolgoi Licence at the Hugo Dummett and SOT deposits.

The Oyu Tolgoi Licence includes the right to explore, develop mining infrastructure and facilities, and conduct mining operations at the Oyu Tolgoi Mine. In 2006, the Mongolian Parliament passed new mining legislation and changed the term of mining licences to a 30-year term with two 20-year extensions. The first figure below shows the location of the Oyu Tolgoi Mine regionally relative to the Mongolian-Chinese border and the second figure below shows the deposits and licence boundaries.

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Project Location

LOGO

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The Oyu Tolgoi Mine and Surrounding Licences

LOGO

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Oyu Tolgoi LLC has an economic interest in ML 15225A (Javkhlant) and 15226A (Shivee Tolgoi) pursuant to an Equity Participation and Earn-in Agreement with Entrée Gold (as amended in 2005). This agreement contemplates the establishment of a joint venture between the parties that provides for Oyu Tolgoi LLC to hold legal title in ML 15225A and 15226A, subject to the terms of the agreement, and to Oyu Tolgoi LLC meeting prescribed earn-in expenditures. While a joint venture has not been formed, the earn-in requirements have been met, and Oyu Tolgoi LLC’s participating interest in the joint venture (including the licences) will be:

•

in respect of the proceeds from mining from the surface to 560 m below the surface, 70%; and

•

in respect of the proceeds from mining from depths beneath 560 m, 80%.

The vast majority of the identified mineralization for the project occurs at the Hugo Dummett and SOT deposits within the Oyu Tolgoi Licence. The northernmost extension of the Hugo Dummett deposit (Hugo North) crosses onto the Shivee Tolgoi Property. The Heruga deposit lies almost entirely within the Javkhlant Property, with only the northern extreme passing into ML 6709A. There are numerous exploration targets across ML 6708A, 6709A, 6710A, 15225A, and 15226A.

The Oyu Tolgoi Licence property was surveyed by an independent consultant in 2002 and by a qualified Mongolian Land Surveyor in 2004 to establish the legal boundaries of the Oyu Tolgoi Licence concession.

Environmental and Social Impact Assessment

Oyu Tolgoi LLC has completed a comprehensive ESIA for the Oyu Tolgoi Mine. The ESIA undertaken as part of the project finance process was publically disclosed in August 2012. The culmination of nearly 10 years of independent work and research carried out by both international and Mongolian experts, the ESIA identifies and assesses the potential environmental and social impacts of the project, including cumulative impacts, focusing on key areas such as biodiversity, water resources, cultural heritage, and resettlement.

The ESIA also sets out measures through all project phases in an effort to avoid, minimize, mitigate, and manage potential adverse impacts to acceptable levels established by Mongolian regulatory requirements and good international industry practice, as defined by the requirements of the Equator Principles, and the standards and policies of the International Finance Corporation (“IFC”), European Bank for Reconstruction and Development (“EBRD”), and other financing institutions.

Corporate commitment to sound environmental and social planning for the project is based on RTIH’s global code of business conduct, titled “The Way We Work”, a version of which has been adopted by the Corporation. The Way We Work defines the way RTIH manages the economic, social, and environmental challenges of its global operations.

Oyu Tolgoi LLC has implemented and audited an environmental management system (“EMS”) that conforms to the requirements of ISO 14001: 2004. The EMS for operations consists of detailed plans to control the environmental and social management aspects of all project activities following the commencement of commercial production in 2013. The Oyu Tolgoi ESIA builds upon an extensive body of studies and reports, and Detailed Environmental Impact Assessments (“DEIAs”) that have been prepared for project design and development purposes, and for Mongolian approvals under the following laws:

•

The Environmental Protection Law (1995);

•

The Law on Environmental Impact Assessment (1998, as amended in 2001); and

•

The Minerals Law (2006).

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These initial studies, reports, and DEIAs were prepared over a six-year period between 2002 and 2008, primarily by the Mongolian company Eco-Trade LLC, with input from Aquaterra on water issues.

The original DEIAs provided baseline information for both social and environmental issues. These DEIAs covered impact assessments for different project areas, and were prepared as separate components to facilitate technical review as requested by the Government of Mongolia.

The original DEIAs were in accordance with Mongolian standards and while they incorporated World Bank and IFC guidelines, they were not intended to comprehensively address overarching IFC policies such as the IFC Policy on Social and Environmental Sustainability, or the EBRD Environmental and Social Policy.

Following submission and approval of the initial DEIAs, the Government of Mongolia requested that Oyu Tolgoi LLC prepare an updated, comprehensive ESIA whereby the discussion of impacts and mitigation measures was project-wide and based on the latest project design. The ESIA was also to address social issues, meet Government of Mongolia (legal) requirements, and comply with current IFC good practice.

For the ESIA, the baseline information from the original DEIAs was updated with recent monitoring and survey data. In addition, a social analysis was completed through the commissioning of a Socio-Economic Baseline Study and the preparation of a Social Impact Assessment (SIA) for the project.

The requested ESIA, completed in 2012, combines the DEIAs, the project SIA, and other studies and activities that have been prepared and undertaken by and for Oyu Tolgoi LLC.

Government and Community Relations

Resolution No. 175

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Accessibility, Climate, Local Resources and Physiography

The Oyu Tolgoi Mine is located in the South Gobi region of Mongolia, approximately 550km south of the capital city, Ulaanbaatar. The most prominent nearby community is Dalanzadgad, with a population of approximately 25,000, which is located approximately 220km northwest of the Oyu Tolgoi Mine. Facilities at Dalanzadgad include a regional hospital, tertiary technical colleges, domestic airport and a six megawatt capacity coal-fired power station. The closest community to the Oyu Tolgoi Mine is Khanbogd, the centre of the Khanbogd Soum. Khanbogd has a population of approximately 4,700 and is located 35km to the east of the Oyu Tolgoi Mine.

Road access to the Oyu Tolgoi Mine follows a sealed road for part and a well-defined track directly south from Ulaanbaatar requiring approximately 12 hours travel time in a four wheel drive vehicle. Mongolian rail service and a large electric power line lie 350km east of the Oyu Tolgoi Mine at the main rail line between Ulaanbaatar and China. The China-Mongolia border is located approximately 80km south of the Oyu Tolgoi Mine. Oyu Tolgoi LLC constructed a road from the Oyu Tolgoi Mine to the border. Oyu Tolgoi LLC constructed a 220kV transmission line connecting to the Chinese (Inner Mongolian) grid. This line has the capacity to supply all of the Oyu Tolgoi Mine’s power needs. The Chinese Government has a highway to the Mongolian border, which is a direct link between the border south of the Oyu Tolgoi Mine to the trans-China railway system. Oyu Tolgoi LLC has constructed a concrete airstrip and the Oyu Tolgoi Mine is serviced by flights to and from Ulaanbaatar.

The South Gobi region has a continental, semi-desert climate with cool springs and autumns, hot summers, and cold winters. The average annual precipitation is approximately 80mm, 90% of which falls in the form of rain with the remainder as snow. Temperatures range from an extreme maximum of about 36° Celsius to an extreme minimum below -31° Celsius. The area occasionally receives very high winds accompanied by sand storms that often severely reduce visibility for several hours at a time. Oyu Tolgoi LLC conducts mining operations year-round.

The property comprising the Oyu Tolgoi Mine ranges in elevation from 1,140m to 1,215m above sea level. The local region is covered by sparse semi-desert vegetation and is used by nomadic herders who tend camels, goats and sheep. The topography largely consists of gravel-covered plains, with low hills along the northern and western borders. Scattered, small rock outcrops and colluvial talus are widespread within the northern, western and southern parts of the property. The topography is amenable to the construction of infrastructure for mining operations. Seismicity studies related to the property have been conducted and Oyu Tolgoi LLC has determined that the seismicity of the area comprising the Oyu Tolgoi Mine is generally low.

Applicable Mongolian laws relating to mining and land use govern Oyu Tolgoi LLC’s surface rights on the Oyu Tolgoi Mine, while the Oyu Tolgoi Mine’s use and treatment of water is governed by applicable water and mining laws. These laws permit licence holders to use the land and water in connection with exploration and mining operations, subject to the discretionary authority of Mongolian national, provincial and regional governmental authorities.

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History

Project Exploration History

Oyu Tolgoi Licence

The existence of copper in the Oyu Tolgoi area has been recognized since the Bronze Age, but contemporary exploration for Mineral Resources did not begin until the 1980s, when a joint Mongolian and Russian geochemical survey team identified a molybdenum anomaly over the Central zone. Evidence of alteration and copper mineralization at the South zone was first noted by geologist Garamjav in 1983, during a regional reconnaissance of the area. In September 1996, Garamjav guided geologists from Magma Copper Company (“Magma”) to the area. These geologists identified a porphyry-copper leached cap over Central zone and quickly moved to secure exploration tenements. Magma was subsequently acquired by BHP (“BHP”), later BHP-Billiton. The target at Oyu Tolgoi was a large supergene-enriched porphyry.

Geophysical surveying at Oyu Tolgoi was first initiated by BHP in 1997. An airborne magnetometer survey was flown at a height of approximately 100 m on 300 m spaced, east-west oriented lines over approximately 1,120 km2 of BHP’s mineral concession. The survey provided good resolution of the magnetic features to facilitate geological and structural interpretation across the concession areas. BHP also undertook an induced polarisation (“IP”) survey using a single gradient array with a 2,000 m AB electrode spacing and a ground magnetometer survey. The first survey was conducted on north-south oriented lines and produced data that were difficult to reconcile to the then-known geology. A later survey by the Corporation in 2001 was conducted on east-west oriented lines and therefore perpendicular to the structural trend. This immediately showed the close correlation between mineralization and chargeable response, which has proven to be highly successful in further exploration. Both IP datasets were surveyed by a local Mongolian surveying team at 250 m line spacing. The surveys covered the Southern, Southwest, Central, and North exploration targets but did not extend into the Far North region that ultimately became the Hugo Dummett deposit.

BHP carried out geological, geochemical (stream sediment and soil), and geophysical surveys and diamond drilling programs (23 drillholes total) in the Central and South zones in 1997 and 1998. Copper and gold values were encountered at depths from 20–70 m below surface, and a supergene-enriched, chalcocite blanket was encountered in one drillhole (OT-3). Based on the results of this drilling, BHP performed a Mineral Resources estimate in 1998, but the resulting tonnage and grade estimate was considered too small to meet BHP corporate objectives, and BHP elected to offer the property for joint venture. The Corporation visited Oyu Tolgoi in May 1999 and agreed to acquire 100% interest in the property, subject to a 2.0% net smelter return royalty. In 2000, the Corporation completed 8,000 m of reverse circulation (RC) drilling, mainly at the Central zone, to explore the chalcocite blanket discovered earlier by BHP. Based on this drilling, the Corporation updated the Mineral Resources estimates.

In 2001, the Corporation continued RC drilling, mostly in the South zone area, to test for additional supergene copper mineralization, and then drilled three core holes to test the deep hypogene copper–gold potential. One of these holes, OTRCD150, drilled over Southwest zone, intersected 508 m of chalcopyrite mineralization from a depth of 70 m, grading 0.81% Cu and 1.17 g/t Au. This marked the discovery of the SOT deposit.

These results encouraged the Corporation to mount a major follow-up drill program. In late 2002, drilling in the far northern section of the property intersected 638 m of bornite–chalcopyrite-rich mineralization in drillhole OTD270, starting at a depth of 222 m. This hole marked the discovery of the Hugo Dummett deposit. A first-time Mineral Resources estimate for the deposit was prepared in 2004, and the Mineral Resources were updated in 2005, 2007 and 2014.

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In 2004, a scoping study was prepared to evaluate the economics of mining the SOT deposit by open pit methods. In 2005, the first integrated development plan (IDP05) for the Project was prepared, which envisaged the SOT deposit being mined as an open pit and the Hugo North deposit being developed as an underground block cave mine.

The first underground development at Oyu Tolgoi started with sinking the bulk sample Camel Well shaft (3.6 m diameter x 74 m deep) in the open pit area between October 2004 and January 2005. Surface works for the first shaft to access the Hugo North deposit, Shaft 1, began in February 2004, and sinking started in February 2005. The 1,300 m level station was reached in October 2007, with the station developed and sinking continuing to a final depth of 1,385 m by January 2008. A temporary bucket loadout arrangement was fitted by March 2008 to support off shaft lateral development.

Two kilometres of horizontal development from Shaft 1 were completed initially, primarily to provide access to and geotechnical characterisation of the orebody and the surrounding conditions. This development was subsequently expanded in parallel with the beginning of the 2010 integrated development plan (IDP10), focusing on additional data gathering to support studies as well as advancing pre-production access. In 2012, after the completion of 11 km of horizontal development, the Shaft 1 bucket hoisting arrangement was converted to a skip-and-cage arrangement to support a more intensive development and construction programme. A total of 16 km of lateral development was undertaken from Shaft 1 before the underground project was placed into care and maintenance in August 2013.Lateral development performance has been very good, with advance rates matching and exceeding feasibility study rates and excavation and ground support being of high quality. Ground conditions and response to mining have been as expected. Negligible water has been intersected.

Surface works for Shaft 2, a 10 m finished diameter shaft, began in July 2006 and were placed on hold in December 2007. Shaft 2 works recommenced in April 2010 and by August 2013, Shaft 2 sinking reached a depth of 1,167 m. Shaft-sinking is now adjacent to underground development and is ready for breakthrough upon restart, which will establish an independent second means of egress and additional ventilation. Ground conditions have been as expected with negligible water intersections.

A surface-to-underground raisebore was commenced in mid-2010 adjacent to Shaft 1, with a planned 500 m upper leg and 800 m lower leg. Significant challenges were encountered while both piloting and reaming, and the raise excavation was abandoned. The ventilation strategy for the underground project was reviewed and changed, resulting in removal of all surface-to-underground raisebores previously planned for the project in preference to sinking an additional shaft (Shaft 5). Shaft 5, a 6.7 m finished diameter shaft, commenced surface works in August 2012 and sinking in April 2013. At August 2013, sinking had reached a depth of 208 m, progressing on schedule with ground conditions as expected.

In 2010, the integrated development plan (IDP) was updated as a development and operating plan (IDOP) within the framework of the Investment Agreement. The 2010 integrated development plan (IDP10) assumed that the mining operation would still comprise open pit mining of the SOT deposit and block caving of an initial part of the Hugo North deposit.

The feasibility study includes the initial Hugo North Lift 1 and several phases of the open pit mine. Further potential development of Hugo North (both a second lift and panel extensions) and Hugo South continue to be studied.

During 2011 and 2012, a detailed integrated development and operating plan (DIDOP) was started as an update of IDOP and IDP10. DIDOP was not completed but was further developed to become OTFS14 which was disclosed as the Oyu Tolgoi Technical Report 2014.

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Joint Venture Licences

The Corporation initiated exploration work on the Shivee Tolgoi and Javkhlant licences in November 2004, following the signing of an earn-in agreement with Entrée Gold.

Before that time, Entrée had undertaken soil geochemical surveys, ground magnetics, Bouguer gravity and pole-dipole geophysical surveying, and geological mapping, but had failed to locate any mineralization of significance.

Starting at the northern boundary of the Oyu Tolgoi Mining Licence, an IP survey was run on 100 m spaced lines oriented east-west to trace the northern projection of the Hugo North deposit. This initial IP survey used gradient array with 11,000 m AB electrode spacing and covered an area extending 5.6 km north of the boundary and 10 km in width. Subsequent IP surveys covering smaller areas within the larger area were carried out with gradient arrays.

The IP surveys resulted in the delineation of a significant chargeability feature being traced for approximately 4.0 km north along strike of the Hugo North deposit. Additional IP chargeability targets were also revealed 2.5–3.0 km west of the Hugo North trend and are referred to as the Eagle anomalies.

The Corporation commenced drilling northward from the northern boundary of the Oyu Tolgoi Mining Licence in 2005. A first-time resource estimate for the Hugo North Extension deposit was completed in 2006. Underground mining plans for Hugo North Extension Reserve and Life of Mine Sensitivity case were included in technical reports after 2010.

In 2005 and 2006, Ivanhoe Mines (Mongolia) Inc. (now Oyu Tolgoi LLC) conducted IP surveying on 100 m spaced, east-west lines across Entrée Gold’s Javkhlant licence to the south of the SOT Mineral Resource area. This resulted in the discovery of three significant chargeability IP anomalies subsequently named the Sparrow South, Castle Rock, and Southwest Magnetic anomalies. Core drilling was initiated to test these IP anomalies in early 2007. A series of successful drillholes in the area supported a first-time Mineral Resources estimate over what is now known as the Heruga deposit (formerly the Sparrow South anomaly) in 2008.

Geology and Mineralization

The Oyu Tolgoi porphyry deposits are hosted within the Gurvansaikhan Terrane, part of the Central Asian Orogenic Belt, rocks of which now comprise the South Gobi region of Mongolia.

Development of the Central Asian Orogenic Belt consisted of Palaeozoic age accretionary episodes that assembled a number of island and continental margin magmatic arcs, rifted basins, accretionary wedges, and continental margins; arc development ceased by about the Permian. During the Late Jurassic to Cretaceous, north-south extension occurred, accompanied by the intrusion of granitoid bodies, unroofing of metamorphic core complexes, and formation of extensional and transpressional sedimentary basins. North-east–south-west shortening is superimposed on the earlier units and is associated with major strike-slip faulting and folding within the Mesozoic sedimentary basins.

The Gurvansaikhan Terrane is interpreted to be a juvenile island arc assemblage that consists of highly deformed accretionary complexes and volcanic arc assemblages dominated by imbricate thrust sheets, dismembered blocks, mélanges, and high-strain zones. Lithologies identified to date in the Gurvansaikhan Terrane include Silurian to Carboniferous terrigenous sediments, volcanic-rich sediments, carbonates, and intermediate to felsic volcanic rocks. Sedimentary and volcanic units have been intruded by Devonian granitoids and Permo-Carboniferous diorite, monzodiorite, granite, granodiorite, and syenite bodies, which can range size from dykes to batholiths.

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Major structures to the west of the Gurvansaikhan Terrane include the Gobi-Tien Shan sinistral strike-slip fault system that splits eastward into a number of splays in the Oyu Tolgoi area, and the Gobi Altai Fault system, which forms a complex zone of sedimentary basins over-thrust by basement blocks to the north and north-west of the Oyu Tolgoi Mine. To the east of the Gurvansaikhan Terrane, regional structures are dominated by the north-east striking East Mongolian Fault Zone, which forms the south-east boundary of the terrane. This regional fault may have formed as a major suture during Late Palaeozoic terrane assembly, with Mesozoic reactivation leading to the formation of north-east elongate sedimentary basins along the fault trace.

The Oyu Tolgoi copper–gold porphyry deposits are situated in a poorly exposed inlier of Devonian mafic to intermediate volcanic, volcaniclastic, and sedimentary rocks that have been intruded by Devonian to Permian felsic plutons. These rocks are unconformably overlain by poorly consolidated Cretaceous sedimentary rocks and younger unconsolidated sedimentary deposits.

Two major stratigraphic sequences are recognized in the project area:

•

Tuffs, basaltic rocks, and sedimentary strata of probable island-arc affinity, assigned to the Upper Devonian Alagbayan Group; and

•

An overlying succession containing conglomerates, fossiliferous marine siltstones, sandstones, water-lain tuffs, and basaltic to andesitic flows and volcaniclastic rocks, assigned to the Carboniferous Sainshandhudag Formation. The two sequences are separated by a regional unconformity that, in the Oyu Tolgoi area, is associated with a time gap of about 10–15 Ma.

The volcanic and sedimentary rocks are cut by several phases of intrusive rocks ranging from batholithic intrusions to narrow discontinuous dykes and sills. Compositional and textural characteristics vary.

A thin covering of gently dipping to horizontal Cretaceous stratified clay and clay-rich gravel overlies the Palaeozoic sequence, infilling paleo-channels and small fault-controlled basins.

The Oyu Tolgoi area is underlain by complex networks of poorly exposed faults, folds, and shear zones. These structures influence the distribution of mineralization by both controlling the original position and form of mineralized bodies, and modifying them during post-mineral deformation events.

The Oyu Tolgoi copper–gold deposits currently comprise, from north to south:

•

Hugo Dummett (includes the Hugo North Extension zone, which is the extension of the Hugo North deposit onto the joint venture ground);

•

Hugo South;

•

SOT (includes the Southwest, South, Wedge, Central, Bridge, Western, and Far South zones); and

•

Heruga.

The surface traces and surface projection of the distinct porphyry centres define a north–north-east trending mineralized corridor underlain by east dipping panels of Upper Devonian or older layered sequences intruded by quartz-monzodiorite and granodiorite stocks and dykes.

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Mineral Deposits

The deposits that are incorporated in the current mine plan are the SOT and Hugo North (Lift 1). The Hugo North (Lift 2), Hugo South, and Heruga deposits are currently outside the mine plan.

The SOT deposit has historically been treated as a number of separate zones; however, for mining purposes, the one pit (or potential future underground beneath the pit) will extract all SOT mineralization, and therefore the descriptors in this section have taken the approach that the orebody comprises a number of mineralized zones within an overall single deposit framework.

Southern Oyu Tolgoi (SOT) Deposit

The SOT deposit includes the main Southwest, South, Wedge, and Central zones and a number of smaller, fault-bounded zones, described in the following subsections. The planned open pit will incorporate the majority of these zones. The zones form contiguous sectors of mineralization representing multiple mineralizing centres, each with distinct styles of mineralization, alteration, and host rock lithology. The boundaries between the individual deposits and zones coincide with major faults. Faulting has resulted in different erosional histories for the zones, depending on the depth to which a zone has been down-faulted or uplifted relative to neighbouring zones.

Hugo Dummett Deposits

The Hugo Dummett deposits, Hugo North and Hugo South, contain porphyry-style mineralization associated with quartz-monzodiorite intrusions, concealed beneath a sequence of Upper Devonian and Lower Carboniferous sedimentary and volcanic rocks. The deposits are highly elongated to the north–north-east and extend over 3 km. The dividing line between the two deposits is 4,766,300 m North, a location marked by the thinning and locally discontinuous nature of the high-grade copper mineralization (defined by greater than 2.0% copper). The line, which is broadly coincident with the east striking 110° Fault, separates the gold- and copper-rich zone hosted in augite basalt and quartz-monzodiorite of the Hugo North deposit from the more southerly, gold-poor, ignimbrite- and augite basalt-hosted mineralization at Hugo South.

Early technical reports filed by the Corporation on the project refer to the Far North zone; this was the initial name for the Hugo Dummett area, and its use has been discontinued. Part of the Hugo North deposit extends onto the Shivee Tolgoi mining licence. This area is known as the Hugo North Extension and is referred to as the Copper Flats deposit in technical reports filed by Entrée Gold.

Heruga Deposit

The Heruga deposit is the most southerly of the currently known deposits at Oyu Tolgoi. The deposit is a copper–gold–molybdenum porphyry deposit and is zoned with a molybdenum-rich carapace at higher elevations overlying gold-rich mineralization at depth. The top of the mineralization starts 500–600 m below the present ground surface.

The deposit has been drilled over a 2.3 km length, is elongated in a north–north-east direction, and plunges to the north. Exploration of the down-plunge extension is open but not active. The northern boundary of the mineralization is assumed to be the Solongo Fault, which marks the southern boundary of the planned SOT open pit.

Quartz-monzodiorite intrusions intrude the Devonian augite basalts as elsewhere in the district, and again are considered to be the progenitors of mineralization and alteration. Within Heruga itself, quartz-monzodiorite intrusions are small compared to the stocks present in the Hugo Dummett and SOT areas, perhaps explaining the

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lower grade of the Heruga deposit. Non-mineralized dykes, which make up about 15% of the volume of the deposit, cut all other rock types. However, the quartz-monzonite body appears to flare to the east and forms a large stock within the Heruga North area of interest.

The deposit is transected by a series of north–north-east trending vertical fault structures that step down 200–300 m at a time to the west and have divided the deposit into at least two structural blocks.

Mineralized veins have a much lower density at Heruga than in the more northerly SOT and Hugo Dummett deposits. High-grade copper and gold intersections show a strong spatial association with contacts of the mineralized quartz-monzodiorite porphyry intrusion in the southern part of the deposit, occurring both within the outer portion of the intrusion and in adjacent enclosing basaltic country rock.

At deeper levels, mineralization consists of chalcopyrite and pyrite in veins and disseminated within biotite–chlorite–albite–actinolite-altered basalt or sericite–albite-altered quartz?monzodiorite. The higher levels of the orebody are overprinted by strong quartz–sericite–tourmaline–pyrite alteration where mineralization consists of disseminated and vein-controlled pyrite, chalcopyrite, and molybdenite.

There is no oxide zone at Heruga. No high-sulfidation style mineralization has been identified to date.

Exploration

Oyu Tolgoi LLC’s exploration strategy is focused on developing a project pipeline prioritized in areas that can impact the current development of the Oyu Tolgoi orebodies, seeking low-cost development options and continuing assessment of legacy datasets to enable future discovery. Hugo West Shallow, West Oyu, Castle Rock, Airport, West Mag and South East IP have been identified as priority targets that will be the focus of the future exploration program. There are also several deep targets that warrant further investigation including those west and north of the West Bat Fault.

Infill drilling to increase resource confidence and geotechnical orebody knowledge is part of a longer-term strategy to add incremental resource tonnes and convert resources to reserves. Initially this work will focus on Hugo North Lift 1 Panels 3–5, Hugo North Lift 2, and Hugo South.

Mineral Resources and Mineral Reserves

The estimates of mineral resources and reserves at the Oyu Tolgoi Mine identified below are contained in the 2014 Oyu Tolgoi Technical Report and were classified using logic consistent with the CIM Standards. The current estimate of mineral resources for the Oyu Tolgoi Mine was independently reviewed by Sharron Sylvester of OreWin, who is a “qualified person” for the purposes of NI 43-101. The current estimate of mineral reserves for the Oyu Tolgoi Mine was independently reviewed by Bernard Peters of OreWin, who is a “qualified person” for the purposes of NI 43-101.

Mineral Resources

The total Mineral Resources for Oyu Tolgoi are shown in the table beginning on page 80, titled “Oyu Tolgoi Mineral Resource Summary, September 21, 2014”. An idealized profile of Oyu Tolgoi deposits (Southern Oyu, Hugo Dummett and the Heruga Deposit – Section looking West) is shown on page 79.

Mongolia has its own system for reporting mineral reserves and mineral resources. Oyu Tolgoi LLC registered a mineral reserve with the Government of Mongolia in 2009. A key difference between the two standards is the classification of material contained in Hugo North Lift 2, Hugo South, and Heruga under Mongolian standards as

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reserves. This contrasts to the NI 43-101 definitions, which include only SOT and Hugo North Lift 1 in the mineral reserve category.

The base case copper equivalent (CuEq) cut-off grade assumptions for each deposit were determined using cut-off grades applicable to mining operations exploiting similar deposits. The CuEq cut-off applied for the underground was 0.37% CuEq and the CuEq cut-off applied to the open pit was 0.22% CuEq.

2014 CuEq Formula Derivation

The 2014 copper equivalence formulae incorporate copper, gold, and silver, and also molybdenum for Heruga. The assumed metal prices are $3.01/lb for copper, $1,250/oz for gold, $20.37/oz for silver, and $11.90/lb for molybdenum.

Copper estimates are expressed in the form of percentages (%), gold and silver are expressed in grams per tonne (g/t), and molybdenum is expressed in parts per million (ppm).

Metallurgical recovery for gold, silver, and molybdenum are expressed as a percentage relative to copper recovery.

The unit conversions used in the calculation are as follows:

g/t to oz/t = 31.103477

lb/kg = 2.20462

tonne to lb = 2204.62

g/t to tonne = 1x10^–6

This leads to a base formula of:

CuEq14 = Cu + ((Au x AuRev) + (Ag x AgRev) + (Mo x MoRev)^†) / CuRev

† Mo and MoRev are only incorporated into CuEq calculations for Heruga

Where:

CuRev = (3.01 x 22.0462)

AuRev = (1,250 / 31.103477 x RecAu)

AgRev = (20.37 / 31.103477 x RecAg)

MoRev = (11.90 x 0.00220462 x RecMo)

RecAu = Au Recovery / Cu Recovery

RecAg = Ag Recovery / Cu Recovery

RecMo = Mo Recovery / Cu Recovery

Different metallurgical recovery assumptions lead to slightly different copper equivalent formulas for each of the deposits; these are outlined in the following tables for SOT, Hugo North, Hugo North Extension, Hugo South, and Heruga. In all cases, the metallurgical recovery assumptions are based on metallurgical testwork. For SOT, actual mill performance has been used to further refine the recovery assumptions over the life-of-mine. Recoveries are relative to copper because copper contributes the most to the equivalence calculation.

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All elements included in the copper equivalent calculation have a reasonable potential to be recovered and sold, except for molybdenum. Molybdenum grades are only considered high enough to support construction of a molybdenum recovery circuit for Heruga mineralization; hence the recoveries of molybdenum are assumed to be zero for the other deposits.

Copper equivalence assumptions and calculations for the various deposits are shown in the tables below.

SOT – Copper Equivalence Assumptions and Calculation based on Average Grades


	Cu		Au		Ag		Mo
Metal Price	$	3.01/lb	$	1,250/oz	$	20.37/oz	$	11.9/lb
Recovery		0.794		0.704		0.754		0
Recovery Relative to Cu		1		0.887		0.949		0
Conversion Factor		22.0462		0.0321507		0.0321507		0.0022046

	% Cu		g/t Au		g/t Ag		ppm Mo		CuEq	$/t
Cu Credit		1							1		66.36
Au Credit				1					0.537		35.63
Ag Credit						1			0.009		0.62
Mo Credit								1	0		0.03
Cu Grade		0.45							0.45		29.86
Au Grade				0.31					0.166		11.05
Ag Grade						1.23			0.012		0.76
Mo Grade								0	0		–
CuEq Grade & Revenue		0.45		0.31		1.23		0.	0.628		41.67

From the table above, the base formula is adjusted for SOT as follows:

CuEq14(_SOT) =

Cu + ((Au x 1,250 x 0.0321507 x 0.887) + (Ag x 20.37 x 0.0321507 x 0.949)) / (3.01 x 22.0462)

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Hugo North – Copper Equivalence Assumptions and Calculation based on Average Grades


	Cu	Au	Ag	Mo
Metal Price	$3.01/lb	$1,250/oz	$20.37/oz	$11.9/lb
Recovery	0.92	0.83	0.86	0
Recovery Relative to Cu	1	0.906	0.941	0
Conversion Factor	22.0462	0.0321507	0.0321507	0.0022046

	% Cu	g/t Au	g/t Ag	ppm Mo	CuEq	$/t
Cu Credit	1				1		66.36
Au Credit		1			0.549		36.43
Ag Credit			1		0.009		0.62
Mo Credit				1	0		0.03
Cu Grade	1.66				1.66		110.16
Au Grade		0.34			0.187		12.38
Ag Grade			3.37		0.031		2.08
Mo Grade				27.43	0		–
CuEq Grade & Revenue	1.66	0.34	3.37	27.43	1.878		124.62

From the table above, the base formula is adjusted for Hugo North as follows:

CuEq14(_HN) =

Cu + ((Au x 1,250 x 0.0321507 x 0.906) + (Ag x 20.37 x 0.0321507 x 0.941)) / (3.01 x 22.0462)

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Hugo North Extension – Copper Equivalence Assumptions and Calculation based on Average Grades


	Cu	Au	Ag	Mo
Metal Price	$3.01/lb	$1,250/oz	$20.37/oz	$11.9/lb
Recovery	0.92	0.84	0.86	0.00
Recovery Relative to Cu	1.00	0.913	0.942	0
Conversion Factor	22.0462	0.0321507	0.0321507	0.0022046

	% Cu	g/t Au	g/t Ag	ppm Mo	CuEq	$/t
Cu Credit	1				1		66.36
Au Credit		1			0.553		36.69
Ag Credit			1		0.009		0.62
Mo Credit				1	0		0.03
Cu Grade	1.59				1.59		105.51
Au Grade		0.55			0.304		20.18
Ag Grade			3.72		0.035		2.29
Mo Grade				25.65	0		–
CuEq Grade & Revenue	1.59	0.55	3.72	25.65	1.929		127.98

From the table above, the base formula is adjusted for Hugo North Extension as follows:

CuEq14(_HNE) =

Cu + ((Au x 1,250 x 0.0321507 x 0.913) + (Ag x 20.37 x 0.0321507 x 0.942)) / (3.01 x 22.0462)

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Hugo South – Copper Equivalence Assumptions and Calculation based on Average Grades


	Cu	Au	Ag	Mo
Metal Price	$3.01/lb	$1,250/oz	$20.37/oz	$11.9/lb
Recovery	0.89	0.81	0.85	0
Recovery Relative to Cu	1	0.909	0.945	0
Conversion Factor	22.0462	0.0321507	0.0321507	0.0022046

	% Cu	g/t Au	g/t Ag	ppm Mo	CuEq	$/t
Cu Credit	1				1		66.36
Au Credit		1			0.551		36.54
Ag Credit			1		0.009		0.62
Mo Credit				1	0		0.03
Cu Grade	1.07				1.07		71.00
Au Grade		0.06			0.033		2.19
Ag Grade			2.07		0.019		1.28
Mo Grade					0		–
CuEq Grade & Revenue	1.07	0.06	2.07		1.122		74.48

From the table above, the base formula is adjusted for Hugo South as follows:

CuEq14(_HS) =

Cu + ((Au x 1,250 x 0.0321507 x 0.909) + (Ag x 20.37 x 0.0321507 x 0.945)) / (3.01 x 22.0462)

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Heruga – Copper Equivalence Assumptions and Calculation based on Average Grades


	Cu	Au	Ag	Mo
Metal Price	$3.01/lb	$1,250/oz	$20.37/oz	$11.9/lb
Recovery	0.86	0.79	0.82	0.635
Recovery Relative to Cu	1	0.911	0.949	0.736
Conversion Factor	22.0462	0.0321507	0.0321507	0.0022046

	% Cu	g/t Au	g/t Ag	ppm Mo	CuEq	$/t
Cu Credit	1				1		66.36
Au Credit		1			0.552		36.61
Ag Credit			1		0.009		0.62
Mo Credit				1	0		0.03
Cu Grade	0.42				0.42		27.87
Au Grade		0.41			0.226		15.01
Ag Grade			1.47		0.014		0.91
Mo Grade				138.47	0.055		2.67
CuEq Grade & Revenue	0.42	0.41	1.47	138.47	0.70		46.47

From the table above, the base formula is adjusted for Heruga as follows:

CuEq14(_HERUGA) =

Cu + ((Au x 1,250 x 0.0321507 x 0.911) + (Ag x 20.37 x 0.0321507 x 0.949) +

(Mo x 11.9 x 0.0022046 x 0.736)) / (3.01 x 22.0462)

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Idealized Profile of Southern Oyu, Hugo Dummett, and the Heruga Deposit (Section Looking West)

LOGO

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Oyu Tolgoi Mineral Resource Summary, September 21, 2014


Classification	Deposit	Tonnage (Mt)		Cu (%)		Au (g/t)		Ag (g/t)		Mo (ppm)		CuEq (%)		Contained Metal
Classification	Deposit	Tonnage (Mt)		Cu (%)		Au (g/t)		Ag (g/t)		Mo (ppm)		CuEq (%)		Cu (Mlb)		Au (koz)		Ag (koz)		Mo (Mlb)		CuEq (Mlb)
Southern Oyu Tolgoi (SOT) Deposit – Open Pit (0.22% CuEq Cut-Off)
Measured			432		0.52		0.41		1.37		51.6		0.76		4,984		5,693		19,055		49		7,204
Indicated			740		0.38		0.23		1.12		55.4		0.52		6,282		5,477		26,726		90		8,471
Measured + Indicated			1,172		0.44		0.30		1.21		54.0		0.61		11,266		11,170		45,781		139		15,675
Inferred			390		0.29		0.16		0.87		43.6		0.38		2,465		1,952		10,862		38		3,253
Southern Oyu Tolgoi (SOT) Deposit – Underground (0.37% CuEq Cut-Off)
Measured			14		0.40		0.77		1.16		38.8		0.83		121		342		509		1.2		250
Indicated			93		0.35		0.59		1.19		34.3		0.67		713		1,766		3,562		7.1		1,386
Measured + Indicated			107		0.35		0.61		1.18		34.8		0.69		833		2,108		4,072		8.2		1,636
Inferred			159		0.39		0.32		0.85		25.4		0.56		1,354		1,638		4,382		8.9		1,985
Hugo Dummett Deposits (0.37% CuEq Cut-Off)
Measured	OT LLC		98		1.97		0.46		4.48		30.3		2.26		4,231		1,446		14,046		6.5		4,865
	EJV		1		1.43		0.12		2.86		39.4		1.52		35		4		103		0.1		38
	All Hugo North		99		1.96		0.46		4.46		30.4		2.25		4,267		1,450		14,149		6.6		4,902
Indicated	OT LLC		749		1.56		0.34		3.35		34.3		1.78		25,737		8,268		80,718		57		29,362
	EJV		128		1.65		0.55		4.12		33.6		1.99		4,663		2,271		16,988		10		5,633
	All Hugo North		877		1.57		0.37		3.46		34.2		1.81		30,400		10,539		97,707		66		34,994
Measured + Indicated	OT LLC		847		1.61		0.36		3.48		33.85		1.83		29,968		9,714		94,764		63		34,226
	EJV		129		1.65		0.55		4.11		33.70		1.99		4,698		2,276		17,091		10		5,670
	All Hugo North		976		1.61		0.38		3.56		33.83		1.85		34,667		11,989		111,856		73		39,897
Inferred	OT LLC		811		0.77		0.27		2.34		34.8		0.94		13,807		7,058		60,964		62		16,851
	EJV		179		0.99		0.34		2.68		25.4		1.20		3,887		1,963		15,418		10		4,730
	All Hugo North		990		0.81		0.28		2.40		33.1		0.99		17,695		9,021		76,382		72		21,581
Inferred	Hugo South		845		0.77		0.07		1.78		66.4		0.83		14,372		1,861		48,406		124		15,384
Heruga Deposit (0.37% CuEq Cut-Off)
Inferred Heruga Javkhlant EJV			1,700		0.39		0.37		1.39		113.2		0.64		14,610		20,428		75,955		424		24,061
Inferred Heruga TRQ			116		0.41		0.29		1.56		109.8		0.61		1,037		1,080		5,819		28		1,565
Inferred (All Heruga)			1,816		0.39		0.37		1.40		113.0		0.64		15,647		21,508		81,774		453		25,626

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Classification	Deposit	Tonnage (Mt)		Cu (%)		Au (g/t)		Ag (g/t)		Mo (ppm)		CuEq (%)		Contained Metal
Classification	Deposit	Tonnage (Mt)		Cu (%)		Au (g/t)		Ag (g/t)		Mo (ppm)		CuEq (%)		Cu (Mlb)		Au (koz)		Ag (koz)		Mo (Mlb)		CuEq (Mlb)
Oyu Tolgoi All Deposits Grand Total
Measured			544		0.78		0.43		1.93		47.4		1.03		9,372		7,486		33,713		57		12,356
Indicated			1,711		0.99		0.32		2.33		43.4		1.19		37,394		17,782		127,995		164		44,851
Measured + Indicated			2,255		0.94		0.35		2.23		44.3		1.15		46,766		25,268		161,708		220		57,207
Inferred			4,201		0.56		0.27		1.64		75.0		0.73		51,533		35,979		221,805		695		67,830

Notes:

The mineral resources include mineral reserves.

The Results are reported as at September 20, 2014 and do not include depletion through year end 2015.

The contained gold and copper estimates in the tables have not been adjusted for metallurgical recoveries.

The 0.22% CuEq cut-off is equivalent to the open pit mineral reserve cut-off determined by Oyu Tolgoi LLC.

The 0.37% CuEq cut-off is equivalent to the underground mineral reserve cut-off determined by Oyu Tolgoi LLC.

SOT open pit mineral resources exclude material mined in the open pit as at December 31, 2013.

CuEq has been calculated using assumed metal prices ($3.01/lb for copper, $1,250/oz for gold, $20.37/oz for silver, and $11.90/lb for molybdenum). Mo grades outside of Heruga are assumed to be zero for CuEq calculations.

•

SOT CuEq% = Cu% + (( Au (g/t) x 1,250 x 0.0321507 x 0.887) + ( Ag (g/t) x 20.37 x 0.0321507 x 0.949)) / (3.01 x 22.0462)

•

HN (Oyu Tolgoi LLC) CuEq% = Cu% + (( Au (g/t) x 1,250 x 0.0321507 x 0.906) + ( Ag (g/t) x 20.37 x 0.0321507 x 0. 941)) / (3.01 x 22.0462)

•

HN (EJV) CuEq% = Cu% + (( Au (g/t) x 1,250 x 0.0321507 x 0.913) + ( Ag (g/t) x 20.37 x 0.0321507 x 0. 942)) / (3.01 x 22.0462)

•

HS CuEq% = Cu% + (( Au (g/t) x 1,250 x 0.0321507 x 0.909) + ( Ag (g/t) x 20.37 x 0.0321507 x 0. 945)) / (3.01 x 22.0462)

•

Heruga CuEq% = Cu% + (( Au (g/t) x 1,250 x 0.0321507 x 0.911) + ( Ag (g/t) x 20.37 x 0.0321507 x 0. 949) + (Mo (ppm) x 11.9 x 0.0022046 x 0.736)) / (3.01 x 22.0462)

Totals may not match due to rounding.

Mineral resources are not mineral reserves until they have demonstrated economic viability based on a feasibility study or pre-feasibility study. Although the resource classifications of Measured, Indicated and Inferred are mineral resource classification confidence categories defined by the CIM that are recognized and required to be disclosed by NI 43-101, the SEC does not recognize them. Disclosure of the terms in the table above is permitted under NI 43-101; however, the SEC permits mineralization that does not constitute “reserves” by SEC standards to be reported only as tonnage and grade. See “Cautionary Note to United States Investors”.

10.

EJV is the Entrée Gold Joint Venture. The Shivee Tolgoi and Javkhlant licences are held by Entrée Gold. The Shivee Tolgoi and EJV Javkhlant Licences are planned to be operated by Oyu Tolgoi LLC. Oyu Tolgoi LLC will receive 80% of cash flows after capital and operating costs for material originating below 560 m, and 70% above this depth.

11.

Mineral resources that are not mineral reserves do not have demonstrated economic viability.

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Mineral Reserves

The mineral reserves for the project have been estimated using the SOT and Hugo North Mineral Resources. Total mineral reserves for the project and the Oyu Tolgoi LLC and EJV mineral reserves for the open pit and underground components of the project are shown in the table below. The mineral reserves for the 2014 Oyu Tolgoi Technical Report are based on mine planning work prepared by Oyu Tolgoi LLC. Mine designs were prepared using industry-standard mining software, assumed metal prices as described in the notes to the mineral reserves, and smelter terms as set forth in Section 22 of the 2014 Oyu Tolgoi Technical Report. The report only considers mineral resources in the Measured and Indicated categories, and engineering that has been carried out to a feasibility level or better to estimate the open pit and underground mineral reserve. Results reported herein do not include depletion due to mining production through year end 2015. For information and illustrative purposes, the depletion and depleted Mineral Reserve is provided for reference in Schedule C.

Southern Oyu Tolgoi (SOT) Open Pit Mineral Reserve

In order to estimate the Mineral Reserves, OreWin relied on the study work prepared by Oyu Tolgoi LLC. Pit designs were prepared using industry standard methods, assumed metal prices as described above, and smelter terms as set forth in the 2014 Oyu Tolgoi Technical Report. The estimate was prepared on a simplified project analysis on a pre-tax basis. Key variables noted by OreWin include: marketing matters, water supply and management, and power supply. The report only considers Mineral Resources in the Measured and Indicated categories, and engineering that has been carried out to a feasibility level or better to estimate the open pit Mineral Reserve.

Hugo North Underground Mineral Reserve

Mine planning work by Oyu Tolgoi LLC has continued since the previous mineral reserve estimate in 2013. The underground mineral reserve has increased by approximately 8 Mt.

The Hugo Dummett underground deposit will be mined by block caving; a safe, highly productive, cost-effective method. The deposit is comparable in dimension and tonnage to other deposits currently operating by block cave mining elsewhere in the world. The mine planning work has been prepared using industry standard mining software, assumed metal prices as noted in the tables.

For Hugo North Measured and Indicated mineral resources were used to report Probable mineral reserves. There is approximately 60 Mt of Measured and Indicated mineral resource that has been converted to Probable mineral reserve. The engineering has been carried out to a feasibility level or better to estimate the underground mineral reserve. To ensure that Inferred mineral resources do not become included in the reserve estimate, copper and gold grades on Inferred mineral resources within the block cave shell were set to zero and such material was assumed to be dilution. The block cave shell was defined by a $15/t NSR.

Further mine planning will examine lower shut-offs. The Hugo North mineral reserve is on both the Oyu Tolgoi Licence and the EJV Shivee Tolgoi Licence.

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Oyu Tolgoi Mineral Reserve, September 20, 2014


Estimate	Ore (Mt)		Cu (%)	Au (g/t)	Ag (g/t)		Recovered Metal
Estimate			Cu (%)	Au (g/t)			Cu (Mlb)		Au (koz)		Ag (koz)
Southern Oyu Tolgoi (SOT)
Proven		410	0.54	0.42		1.38		3,829		3,952		13,768
Probable		621	0.40	0.24		1.13		4,363		3,233		17,122
SOT Mineral Reserve (Proven + Probable)		1,031	0.45	0.31		1.23		8,192		7,186		30,890
Hugo Dummett
Probable (Hugo North – OT LLC)		464	1.66	0.34		3.37		15,592		4,199		43,479
Probable (Hugo North – EJV)		35	1.59	0.55		3.72		1,121		519		3,591
Hugo North Mineral Reserve (Probable)		499	1.66	0.35		3.40		16,713		4,717		47,070
Oyu Tolgoi All Deposits Mineral Reserve
Proven		410	0.54	0.42		1.38		3,829		3,952		13,768
Probable		1,120	0.96	0.29		2.14		21,075		7,951		64,192
Total Mineral Reserve (Proven + Probable)		1,530	0.85	0.32		1.94		24,905		11,903		77,960

Notes:

Metal prices used for calculating the financial analysis were as follows: long term copper at $3.08/lb; gold at $1,304/oz; and silver at $21.46/oz. The analysis has been calculated with assumptions for smelter refining and treatment charges, deductions and payment terms, concentrate transport, metallurgical recoveries and royalties.

For mine planning the metal prices used to calculate block model NSR were copper at $3.01/lb; gold at $1,250/oz; and silver at $20.37/oz.

For the open pit processing and general administration, the following operating costs have been used to determine cut-off grades: Southwest at $8.37/t, Central Chalcocite, Central Covellite, and Central Chalcopyrite at $7.25/t and the underground (including some mining costs) costs were based on $15.34/t.

For the underground block cave, all mineral resources within the shell have been converted to mineral reserves. This includes Indicated mineral resources below the resource cut-off grade. It also includes Inferred mineral resources, which have been assigned a zero grade and treated as dilution.

The SOT Open Pit mineral reserves were mineral reserves in the pit at January 1, 2014. It does not include stockpiles.

For SOT only Measured mineral resources were used to report Proven mineral reserves and only Indicated mineral resources were used to report Probable mineral reserves.

For Hugo North Measured and Indicated mineral resources were used to report Probable mineral reserves.

EJV is the Entrée Joint Venture. The Shivee Tolgoi Licence and the Javkhlant Licence are held by Entrée. The Shivee Tolgoi Licence and the Javkhlant Licence are planned to be operated by Oyu Tolgoi LLC. Oyu Tolgoi LLC will receive 80% of cash flows after capital and operating costs for material originating below 560 m, and 70% above this depth.

The mineral reserves reported above were not additive to the mineral resources.

10.

Totals may not match due to rounding.

Human Resources and Training Strategy

Oyu Tolgoi LLC has stated that its human resource and training strategy is key to a corporate vision of ensuring that all Oyu Tolgoi staff and contractors meet and exceed international best practice standards. The human resources and training strategy provides a framework of policies, procedures, and processes that are well defined and aligned to support the achievement of the overall business objectives of the company. Oyu Tolgoi LLC is working in partnership with relevant Mongolian government agencies and non-government agencies (NGOs) to ensure that a suitably qualified workforce is available to meet the requirements of the Oyu Tolgoi Mine. Oyu Tolgoi LLC’s policies and procedures for human resources and training meet all applicable Mongolian Labour and Social Security Laws and regulations, including those contained within the Labour Law of Mongolia (July 1999). International conventions and standards, including applicable International Labour Organisation (ILO)

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conventions, the International Finance Corporation (IFC) Performance Standards, and the European Bank for Reconstruction and Development (EBRD), guide the human resources and training strategy and activities.

Oyu Tolgoi LLC prioritizes employment of local residents from the soums within the Project Area of Influence—Khanbogd, Manlai, Bayan Ovoo, and Dalanzadgad—as well as from other areas in the South Gobi region. Oyu Tolgoi LLC has a requirement that not less than 90% of its employees consists of citizens of Mongolia. Oyu Tolgoi LLC meets this requirement.

Occupational Health, Hygiene and Safety

Oyu Tolgoi LLC’s Health, Safety and the Environment (“HSE”) management system (“HSE MS”) has been implemented and been audited as compliant against AS/NZS ISO 14001: 2004 Environmental Management System and OHSAS 18001: 2007 Occupational Health and Safety management system. The HSE MS was developed to provide management with clear direction on HSE management, means to ensure compliance, and a basis for driving improvements. The Oyu Tolgoi HSE MS applies to all persons working for or on behalf of Oyu Tolgoi LLC, including contractors, suppliers, the general public, special interest groups, and government representatives, and covers the health, safety, and environmental management of all Oyu Tolgoi LLC’s activities, assets, products, and services. Oyu Tolgoi LLC achieved an excellent safety performance for 2015 with an All Injury Frequency Rate of 0.33 per 200 kh (thousand hours) worked.

The HSE policy has been developed and is regularly reviewed in consultation with key stakeholders. Such policy is intended to reflect a best practice approach to health, safety, and environment with the underlying principle that all people are accountable for health and safety.

The HSE policy is seen as an enabler for the entire HSE MS. It provides high-level principles that are intended to be implemented through the application of all parts of the HSE MS. The HSE policy is endorsed by the chief executive officer of Oyu Tolgoi LLC to ensure the appropriate priority is placed on implementation and compliance.

Mining Operations

Mining is in progress at the SOT Open Pit. The Oyu Tolgoi Mine has a nominal design capacity of 100 ktpd of ore and has three key components:

•

an open pit mine;

•

a concentrator; and

•

infrastructure to support the construction and the operations.

The open pit uses a conventional drill, blast load and haul. Electric and diesel drill and shovels and diesel haul trucks. Oyu Tolgoi employs a conventional SAG mill / ball mill / grinding circuit (SABC) followed by flotation. The major initial infrastructure elements include: water borefields; water treatment; housing; airport; supporting facilities, and power transmission lines, sub-station. Concentrate is sold free-on-board at a bonded yard on the Chinese side of the border in Ganqimaodao.

Part of the initial investment decision included an ongoing investment into the development of the Hugo North underground mine. Lift 1 of Hugo North is the most significant value driver for the Oyu Tolgoi Mine. The current investment decision for Oyu Tolgoi LLC is the continued development of the underground mine in parallel with initial open pit operations as outlined in the underground feasibility study.

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To support the continued underground development program, Oyu Tolgoi LLC entered into the Project Finance Facility in December 2015. The Oyu Tolgoi Project Financing base case is the nominal 100 ktpd capacity of the initial concentrator fed by the SOT open pit mine initially which would be gradually displaced by the more valuable Hugo North underground ore.

Other Projects

Turquoise Hill, through its 100% subsidiaries, Asia Gold Mongolia LLC, Heruga Exploration LLC and SGLS LLC, operates an exploration program in Mongolia on licences that are not part of the Oyu Tolgoi Mine. The exploration program in 2013, 2014 and 2015 continued at a more modest rate than in previous years. Licences cover a total of approximately 24,800 ha in separate licences. Of these licences, approximately 20,000 ha are covered by the Ulaan Khud licence which was previously explored in a joint venture with BHP. The Turquoise Hill-BHP Joint Venture was formed in 2005 and concluded in 2012.

In 2011, Turquoise Hill announced a new zone of shallow copper-molybdenum-gold mineralization approximately 10 km north of the Oyu Tolgoi Mine. This discovery, known as Ulaan Khud North, extended the known strike length of the Oyu Tolgoi Trend by an additional 3 km to the north, to a total of more than 23 km. In order to convert the Pre-Mining Agreement for the Ulaan Khud licence (received from the Government of Mongolia in March 2011) further field exploration work and infill drilling was completed in December 2012. A total of 6422.2 m have been drilled in 21 holes, including re-drilling of 2 previous holes and 2 geotechnical holes to define a very small resource under the Mongolian code for classification of mineral reserves and resources. A study compliant with the Mongolian requirements was submitted and an application made for a mining licence. The deposit is very small and will not impact on the Oyu Tolgoi development plans as outlined in the 2014 Oyu Tolgoi Technical Report. The issuance of the licence has been delayed pursuant to Resolution No. 175.

An application for the grant of a mining licence on the SGLS lease was declined pursuant to Resolution No. 175. The lease contains a limestone deposit Dalan Shar Uul. The Ulaan Khud licence also partially overlaps with an area being set aside for infrastructure related to the Oyu Tolgoi Mine. The ultimate impact of this on the exploration licences is still not clear. For more information on Resolution No. 175, see “Description of the Business – Oyu Tolgoi Mine – Government and Community Relations” in this AIF.

Other Information

Equity Investments

Turquoise Hill holds equity investments in a number of publicly traded, non-subsidiary mineral exploration, development and mining companies. The following table outlines the equity investments held by the Turquoise Hill Group and, in respect of each such equity investment involving securities that are listed on a stock exchange, their quoted market value as at December 31, 2015:


Company	Number of Shares	Value
Asia Now Resources Corp. (TSX-V)	969,036	N/A⁽¹⁾
Entrée Gold Inc. (TSX)	13,799,333	C$4.0 million
Intec Limited (ASX)	4,117,484	A$24.7 thousand
Ivanhoe Mines Ltd. (formerly Ivanplats Limited) (TSX)	3,482,190⁽²⁾	C$2.1 million
SouthGobi Resources Ltd. (TSX and Hong Kong Stock Exchange)	49,349,515⁽³⁾	C$19.2 million or HKD118.4 million

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Notes:

(1)

In August 2015, the Ontario Superior Court ordered the appointment of a receiver, without security, of the assets, undertakings and properties of Asia Now Resources Corp.

(2)

Since January 1, 2016, Turquoise Hill has sold 3,482,190 Class A shares of Ivanhoe Mines Ltd. on the market.

(3)

Since January 1, 2016, Turquoise Hill has sold 3,269,497 common shares of SouthGobi on the market.

Employees

As at December 31, 2015, Turquoise Hill and Oyu Tolgoi LLC collectively had a total of 2,678 employees.

DIVIDENDS

Turquoise Hill has not declared or paid any dividends on its outstanding Common Shares since its incorporation and does not anticipate that it will do so in the foreseeable future. The declaration of dividends on the Common Shares is, subject to certain statutory restrictions described below, within the discretion of the Board of Directors based on their assessment of, among other factors, Turquoise Hill’s earnings or lack thereof, its capital and operating expenditure requirements and its overall financial condition. Under the YBCA, the discretion of the Board of Directors to declare or pay a dividend on the Common Shares is restricted if reasonable grounds exist to conclude that Turquoise Hill is, or after payment of the dividend would be, unable to pay its liabilities as they become due or that the realizable value of its assets would, as a result of the dividend, be less than the aggregate sum of its liabilities and the stated capital of the Common Shares.

DESCRIPTION OF CAPITAL STRUCTURE

The authorized share capital of Turquoise Hill consists of an unlimited number of Common Shares without par value and an unlimited number of Preferred Shares. As of the date hereof, there are 2,012,314,469 Common Shares and no Preferred Shares issued and outstanding. Rights and restrictions in respect of the Common Shares and the Preferred Shares are set out in Turquoise Hill’s articles of continuance, Turquoise Hill’s by-laws and in the YBCA and its regulations.

Common Shares

The holders of Common Shares are entitled to one vote per Common Share at all meetings of shareholders except meetings at which only holders of another specified class or series of shares of Turquoise Hill are entitled to vote separately as a class or series. Subject to the prior rights of the holders of Preferred Shares, the holders of Common Shares are entitled to receive dividends as and when declared by the directors, and to receive a pro rata share of the remaining property and assets of Turquoise Hill in the event of liquidation, dissolution or winding up of Turquoise Hill. The Common Shares have no pre-emptive, redemption, purchase or conversion rights. Neither the YBCA nor the constating documents of Turquoise Hill impose restrictions on the transfer of Common Shares on the register of Turquoise Hill, provided that Turquoise Hill receives the certificate representing the Common Shares to be transferred together with a duly endorsed instrument of transfer and payment of any fees and taxes which may be prescribed by the Board of Directors from time to time. There are no sinking fund provisions in relation to the Common Shares and they are not liable to further calls or to assessment by Turquoise Hill. The YBCA provides that the rights and provisions attached to any class of shares may not be modified, amended or varied unless consented to by special resolution passed by a majority of not less than two-thirds of the votes cast in person or by proxy by holders of shares of that class.

Preferred Shares

The Preferred Shares are issuable in one or more series, each consisting of such number of Preferred Shares as may be fixed by Turquoise Hill’s directors. Turquoise Hill’s directors may from time to time, by resolution passed

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before the issue of any Preferred Shares of any particular series, alter the constating documents of Turquoise Hill to determine the designation of the Preferred Shares of that series, to fix the number of Preferred Shares therein and alter the constating documents to create, define and attach special rights and restrictions to the shares of that series including, without limitation, the following: (i) the nature, rate or amount of dividends and the dates, places and currencies of payment thereof; (ii) the consideration for, and the terms and conditions of, any purchase of the Preferred Shares for cancellation or redemption; (iii) conversion or exchange rights; (iv) the terms and conditions of any share purchase plan or sinking fund; and (v) voting rights and restrictions.

Under the terms of the restrictive covenants contained in the Turquoise Hill Financing Support Agreement, the Corporation is prohibited from amending its constating documents to create and issue Preferred Shares without the prior written consent of Rio Tinto.

Registered holders of both the Preferred Shares and Common Shares are entitled, at their option, to a certificate representing their shares of Turquoise Hill.

MARKET FOR SECURITIES

The Common Shares of Turquoise Hill are traded in Canada on the TSX, and in the U.S. on the NYSE and the NASDAQ. The closing price of Turquoise Hill’s Common Shares on the TSX on March 15, 2016 was C$3.66. The closing price listed on the NYSE on March 15, 2016 was $2.74, and the closing price listed on the NASDAQ on March 15, 2016 was $2.735.

The following indicates the monthly range of high and low closing prices of a Common Share and the total monthly volumes traded on the TSX, the NYSE and the NASDAQ during the period beginning on January 1, 2015 and ending on December 31, 2015:


	NYSE/NASDAQ⁽¹⁾					TSX⁽²⁾
	High		Low		Volume	High		Low		Volume
	US$		US$			C$		C$
2015
January	$	3.27	$	2.70	56,474,688	$	3.85	$	3.24	36,259,748
February	$	3.23	$	2.97	48,572,874	$	4.02	$	3.75	25,677,647
March	$	3.15	$	2.95	44,317,328	$	3.97	$	3.68	23,237,669
April	$	4.22	$	3.20	109,480,962	$	5.09	$	4.04	82,679,928
May	$	4.51	$	4.24	96,476,485	$	5.50	$	5.13	72,613,013
June	$	4.42	$	3.79	75,867,300	$	5.49	$	4.75	64,330,579
July	$	3.75	$	3.36	64,671,922	$	4.77	$	4.39	36,861,135
August	$	3.39	$	2.86	74,935,211	$	4.41	$	3.78	41,394,136
September	$	3.02	$	2.47	63,737,818	$	3.98	$	3.31	46,880,908
October	$	3.09	$	2.48	51,626,154	$	3.99	$	3.27	42,314,868
November	$	2.94	$	2.61	30,483,428	$	3.82	$	3.49	31,930,019
December	$	2.63	$	2.34	54,989,412	$	3.63	$	3.22	39,331,182

(1) Information is presented on a consolidated basis for all of the U.S. as reported by Bloomberg under “TRQ US”.

(2) Information is presented on a consolidated basis for all of Canada as reported by Bloomberg under “TRQ CN”.

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DIRECTORS AND OFFICERS

Name and Occupation

The name, province or state, and country of residence and position with Turquoise Hill of each director and executive officer of Turquoise Hill, as of the date hereof (except as otherwise disclosed), and the principal business or occupation in which each director or executive officer has been engaged during the immediately preceding five years is as follows:


Name and Municipality of Residence	Position with Turquoise Hill	Principal Occupation During Past Five Years
ROWENA ALBONES Brisbane, Australia	Director (since October 2013)	Chief Financial Officer, Copper & Coal, Rio Tinto (2012 to present); Group Advisor, Reporting and Analysis, Rio Tinto (2009 to 2012).

STEWART BECKMAN Brisbane, Australia	Senior Vice President, Operations and Technical Development (May 2012 to September 2015)	Senior Vice President, Operations and Technical Development, Turquoise Hill (2012 to 2015); Project Director for Oyu Tolgoi Phase 2 (2014 to 2015); Regional General Manager, Technology & Innovation Americas, Rio Tinto (2010 to 2012); General Manager, Tom Price and Marandoo Mines, Rio Tinto - Western Australia (2007 to 2010).

JILL GARDINER Vancouver, British Columbia, Canada	Director and Chair (Director since May 2012 and Chair since January 2015)	Director, Capital Power Corporation (2015 to present); Director, Parkbridge Lifestyle Communities Inc. (2011 to present); Director, Silverbirch Hotels & Resorts (2014 to present); Financial Consultant (2012 to 2014).

DR. JAMES W. GILL Toronto, Ontario, Canada	Director (since November 2014)	Director, Toromont Industries Ltd (2015 to present); Technical Advisor, Asset Chile’s Fenex Fund (2012 to present); Mining Consultant (2007 to present); Non-Executive Chairman and Director, Thundermin Resources Ltd. (1986 to 2015).

R. PETER GILLIN Toronto, Ontario, Canada	Director (since May 2012)	Director, Sherritt International Corp. (2010 to present); Director, TD Mutual Funds Corporate Class Ltd. (2010 to present); Lead Director, Dundee Precious Metals Inc. (2009 to present); Director, Silver Wheaton Corp. (2004 to present).

BRENDAN LANE Sandy, Utah, USA	Vice President, Operations and Development (since February 2016)	Finance Director MEL & Grasberg, Rio Tinto (2013 –2016), Manager Business Analysis Copper, Rio Tinto (2011- 2013), Manager Business Analysis Coal, Rio Tinto (2009 – 2011).

RUSSEL C. ROBERTSON Toronto, Ontario, Canada	Director (since June 2012)	Executive Vice-President, and Head, Anti-Money Laundering, BMO Financial Group (2013 to present); Director, Virtus Investment Partners Inc. (2013 to present); Executive Vice-President, Business Integration, BMO Financial Group and Vice-Chair, BMO Financial Corp. (2011 to 2013); Chief Financial Officer, BMO Financial Group (2008 to 2011).

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Name and Municipality of Residence	Position with Turquoise Hill	Principal Occupation During Past Five Years
DR. CRAIG STEGMAN Cottonwood Heights, Utah, USA	Director (since January 2015)	Chief Growth & Innovation Officer, Copper & Coal, Rio Tinto (2013 to present); Managing Director, Copper Major Projects, Rio Tinto (2012 to 2013); Managing Director, Northparkes Mines, Rio Tinto (2009 to 2012).

STEEVE THIBEAULT Cottonwood Heights, Utah, USA	Chief Financial Officer (since June 2014)	Chief Financial Officer, Turquoise Hill (2014 to present); Chief Finance Officer, Energy Resources of Australia (2009 to 2014).

JEFF TYGESEN Sandy, Utah, USA	Director and Chief Executive Officer (Director since August 2012 and Chief Executive Officer since December 1, 2014)	Chief Executive Officer, Turquoise Hill (2014 to present); Vice-President, Copper Development, Rio Tinto Copper Group (2011 to 2014); Mining Executive, Rio Tinto Copper Group (2009 to 2011).

Each director’s term of office expires at the next annual general meeting of Turquoise Hill.

Shareholdings of Directors and Executive Officers

As of the date hereof, the directors and executive officers, as a group, own, directly or indirectly, 129,750 Common Shares.

Committees of the Board of Directors

The committees of the Board of Directors consist of the following standing committees: Audit Committee, Compensation and Benefits Committee, Nominating and Corporate Governance Committee and Health, Safety and Environment Committee. The current members of the Audit Committee are Russel C. Robertson (Chair), Jill Gardiner and Peter Gillin. The current members of the Compensation and Benefits Committee are Peter Gillin (Chair), Russel C. Robertson and Jill Gardiner. The current members of the Nominating and Corporate Governance Committee are Jill Gardiner (Chair), Dr. James W. Gill and Rowena Albones. The current members of the Health, Safety and Environment Committee are Jeff Tygesen (Chair), Dr. James W. Gill and Dr. Craig Stegman. The current members of the SouthGobi Special Committee are Jill Gardiner (Chair), Rowena Albones and Peter Gillin. The current members of the Oyu Tolgoi Committee are Jill Gardiner (Chair), Rowena Albones, Peter Gillin, Russel C. Robertson and Jeff Tygesen. In March 2016, the following ad hoc committees were disbanded and dissolved: the Special Committee for SouthGobi, which was established in 2014, and the Oyu Tolgoi Special Committee, which was established in 2013.

Conflicts of Interest

Certain directors of Turquoise Hill and its subsidiaries are associated with other reporting issuers or other corporations. These relationships may give rise to conflicts of interest from time to time. For example, Rowena Albones and Dr. Craig Stegman are also officers of Rio Tinto, and Jeff Tygesen, Steeve Thibeault, Brendan Lane and Stewart Beckman are or were, as the case may be, seconded employees of Rio Tinto, which has a controlling interest in the Corporation. Ms. Albones and Messrs. Tygesen and Stegman are nominated by RTIH to act as directors of the Corporation. In accordance with the YBCA, a director or officer of a corporation who (a) is a party to a material contract or proposed material contract with the corporation; or (b) is a director or an officer of or has a material interest in any person who is a party to a material contract or proposed material contract with the corporation, shall disclose in writing to the corporation or request to have entered in the minutes of meetings of directors the nature and extent of the interest.

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The Corporation has implemented a Code of Business Conduct and Ethics (the “Ethics Policy”), which is modelled on Rio Tinto’s global code of business conduct titled The Way We Work. The Ethics Policy is applicable to all employees, consultants, officers and directors regardless of their position in the organization, at all times and everywhere the Corporation does business. The Ethics Policy provides that the Corporation’s employees, consultants, officers and directors will uphold its commitment to a culture of honesty, integrity and accountability and the Corporation requires the highest standards of professional and ethical conduct from its employees, consultants, officers and directors. The Corporation takes any violation of applicable anti-bribery laws very seriously and any employee who violates these laws will be subject to disciplinary measures up to and including termination of employment.

The Corporation believes that its Ethics Policy is responsive to any potential issues in which such policies are meant to address and clearly demonstrates the Corporation’s full commitment to all of its stakeholders to act at all times as a responsible social and corporate citizen.

The Corporation has a confidential whistleblower program. Employees are encouraged to report any suspicion of unethical or illegal practices.

Audit Committee Information

Information concerning the Audit Committee of Turquoise Hill, as required by National Instrument 52-110 –Audit Committees, is provided in Schedule A to this AIF.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Other than as disclosed below or elsewhere in this AIF, no director or executive officer of the Corporation, or person or company that beneficially owns, or controls or directs, directly or indirectly, more than 10% of the issued and outstanding Common Shares, nor any associate or affiliate of the foregoing, has any material interest, direct or indirect, in any transaction within the Corporation’s three most recently completed financial years, or during the current financial year, that has materially affected, or is reasonably expected to materially affect, the Corporation.

RTIH, together with its affiliates, is the Corporation’s largest shareholder, holding 50.8% of the issued and outstanding Common Shares. Within the Corporation’s three most recently completed financial years, and within the current financial year, Rio Tinto has been party to a series of transactions that have materially affected, or could materially affect, the Corporation. See “General Development of the Business – Agreements with Rio Tinto”. During the year ended December 31, 2015, Rio Tinto provided services to the Corporation for the Oyu Tolgoi Mine on a cost-recovery basis which amounted to $49.3 million (2014 – $78.6 million and 2013 – $98.3 million). In addition, various other transactions were entered into between the Corporation and Rio Tinto in fiscal 2015, as further described under Item 14 of the Corporation’s MD&A.

TRANSFER AGENT AND REGISTRAR

The registrar and transfer agent for the Common Shares in Canada is CST Trust Company at its principal offices in Vancouver and Toronto.

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MATERIAL CONTRACTS

Material contracts under National Instrument 51-102 Continuous Disclosure Obligations are contracts, other than contracts entered into in the ordinary course of the Corporation’s business, that are material to the Corporation. The following is a list of: (i) material contracts entered into since January 1, 2015; and (ii) material contracts entered into prior to January 1, 2015 but after January 1, 2002 that remain in effect:

1.	Entrée Earn-in Agreement.⁵ See “Description of the Business – Summary of Project Development – Project Description and Location”.

2.	Private Placement Agreement. See “General Development of the Business – Agreements with Rio Tinto – Private Placement Agreement”.

3.	Investment Agreement. See “General Development of the Business – Agreements with the Government of Mongolia – Investment Agreement”.

4.	ARSHA. See “General Development of the Business – Agreements with the Government of Mongolia – ARSHA”.

5.	HoA. See “General Development of the Business – Agreements with Rio Tinto – HoA”.

6.	2012 MoA. See “General Development of the Business – Agreements with Rio Tinto – 2012 MoA”.

7.	Power Purchase Agreement. See “General Development of the Business – Agreements with the Government of Mongolia – Power Supply”.

8.	2013 MoA. See “General Development of the Business – Agreements with Rio Tinto – 2013 MoA”.

9.	Underground Plan. See “General Development of the Business – Agreements with the Government of Mongolia – the Underground Plan”.

10.	Turquoise Hill Financing Support Agreement. See “General Development of the Business – Agreements with Rio Tinto – Turquoise Hill Financing Support Agreement”.

11.	Oyu Tolgoi Financing Support Agreement. See “General Development of the Business – Agreements with Rio Tinto – Oyu Tolgoi Financing Support Agreement”.

12.	Cash Management Services Agreement. See “General Development of the Business – Agreements with Rio Tinto – Cash Management Services Agreement”.

INTERESTS OF EXPERTS

PricewaterhouseCoopers LLP has been the auditor of the Corporation since April 2, 2012 and Deloitte LLP was the auditor of the Corporation from January 1995 until April 2, 2012. PricewaterhouseCoopers LLP is independent within the meaning of the Code of Professional Conduct of the Institute of Chartered Professional Accountants of British Columbia.

⁵ Under the terms of the Investment Agreement, Turquoise Hill agreed to transfer its interest in the Entrée Joint Venture to Oyu Tolgoi LLC.

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Turquoise Hill has relied on the work of the qualified persons listed in the section of this AIF titled “Description of the Business – Qualified Persons” in connection with the scientific and technical information presented in this AIF in respect of its material mineral property, the Oyu Tolgoi Mine, which is based upon the 2014 Oyu Tolgoi Technical Report, which report is available for review on SEDAR at www.sedar.com.

To the knowledge of Turquoise Hill, none of the qualified persons listed in the section of this AIF titled “Description of the Business – Qualified Persons” who prepared or contributed to the preparation of the 2014 Oyu Tolgoi Technical Report, nor any of companies listed therein that employ those individuals, hold Common Shares or securities exercisable to acquire Common Shares equal to or greater than 1% of the issued and outstanding Common Shares.

ADDITIONAL INFORMATION

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of Turquoise Hill securities and options to purchase Common Shares is contained in the management proxy circular for the annual general meeting of Turquoise Hill to be held on May 3, 2016, which will be filed on SEDAR at www.sedar.com concurrently with the filing of this AIF. Additional financial information is contained in Turquoise Hill’s comparative financial statements and MD&A as at and for the years ended December 31, 2015 and 2014. Copies of the management proxy circular, financial statements and MD&A (when filed) are available on SEDAR at www.sedar.com, and may also be obtained upon request from Turquoise Hill at 354 – 200 Granville Street, Vancouver, British Columbia, V6C 1S4.

Additional information relating to Turquoise Hill may be found on SEDAR at www.sedar.com.

SCHEDULE A

AUDIT COMMITTEE INFORMATION

Composition of Audit Committee

Turquoise Hill’s Audit Committee consists of Russel C. Robertson, Jill Gardiner and Peter Gillin. Mr. Robertson has been Chair of the Audit Committee since January 1, 2015. The Board of Directors has determined that all members of the Audit Committee satisfy the independence, financial literacy, expertise and financial experience requirements under applicable securities laws, rules and regulations, stock exchange and any other regulatory requirements applicable to Turquoise Hill. In addition, in accordance with the Sarbanes-Oxley Act, the Board of Directors has determined that each of Jill Gardiner, Peter Gillin and Russel Robertson is an audit committee financial expert.

Relevant Education and Experience

Russel C. Robertson

Mr. Robertson holds a Bachelor of Arts degree (Honours) from the Richard Ivey School of Business at the University of Western Ontario, is a Chartered Professional Accountant (FCPA, FPA) and a Fellow of the Institute of Chartered Professional Accountants (Ontario). He is a member of the Institute of Corporate Directors. Since June, 2013, Mr. Robertson has served as Executive Vice-President, and Head, Anti-Money Laundering at BMO Financial Group. Mr. Robertson previously held various senior positions with two major accounting firms, including holding the positions of Vice-Chair, Deloitte & Touche LLP (Canada), and Canadian Managing Partner, Arthur Andersen LLP (Canada).

Jill Gardiner

Ms. Gardiner holds a Bachelor of Science degree and a Masters of Business Administration, both from Queens University. Ms. Gardiner is a member of the Institute of Corporate Directors. During her 20 plus years in the investment banking industry, she has held various roles pertaining to, and has developed considerable expertise in the areas of corporate finance, mergers and acquisitions, and debt capital markets.

R. Peter Gillin

Mr. Gillin holds an Honours Business Administration degree from the Richard Ivey School of Business, University of Western Ontario, and is a Chartered Financial Analyst. Mr. Gillin is a member of the Institute of Corporate Directors, the CFA Institute and the CFA Society of Toronto.

Audit Fees

PricewaterhouseCoopers LLP have been the Corporation’s auditor since April 2, 2012. Deloitte LLP was the Corporation’s auditor from January 1995 to April 2012.

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The aggregate fees billed by PricewaterhouseCoopers LLP and its affiliates in fiscal 2015 and fiscal 2014 are detailed below (rounded).


	PwC	PwC

(Canadian $)	2015	2014

Audit Fees (a)	$1,474,000	$1,697,000

Audit Related Fees (b)	$409,000	$948,000

Tax Fees (c)	$17,000	Nil

Other Fees (d)	Nil	$3,000


Total	$1,900,000	$2,648,000

(a)	Fees for audit services billed relating to fiscal 2015 and 2014 consist of:

•

audit of the Corporation’s annual consolidated financial statements; and

•

audit of its subsidiary’s (SouthGobi) statutory annual consolidated financial statements. In 2015, SouthGobi ceased to be a subsidiary of the Corporation; fees included for fiscal 2015 only include those fees that were charged during the period which SouthGobi was the Corporation’s subsidiary.

In addition, in 2015and 2014 fees were paid for services provided pursuant to section 404 of the Sarbanes-Oxley Act, applicable Canadian securities laws and the required attestations relating to the effectiveness of the Corporation’s internal controls on financial reporting.

(b)	Fees for audit-related services provided during fiscal 2015 and 2014 consist of:

•

translation services;

•

reviews of Turquoise Hill’s interim financial statements;

•

reviews of its subsidiary’s (SouthGobi) interim financial statements during the period which SouthGobi was the Corporation’s subsidiary; and

•

comfort letters, consents, and other services related to SEC, Canadian and other securities regulatory authorities’ matters.

(c)	Fees for tax services provided during fiscal 2015 consisted of tax filings for Singapore entities.

(d)	Fees for other services provided during fiscal 2014 related to a subscription fee in connection with an online database for reporting requirements. This fee was not paid in 2015 as the subscription was discontinued.

The Audit Committee’s charter requires the pre-approval by the Audit Committee of all audit and non-audit services provided by the external auditor. In March 2013, the Board of Directors adopted a resolution pursuant to which the Audit Committee is required to pre-approve all audit and non-audit services above $250,000 provided by the external auditor. Pre-approval from the Audit Committee can be sought for planned engagements based on budgeted or committed fees. No further approval is required to pay pre-approved fees. Additional pre-approval is required for any increase in scope or in final fees.

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SCHEDULE B

GLOSSARY OF TECHNICAL TERMS AND ABBREVIATIONS

AAS: atomic absorption spectroscopy.

Ag: silver. A metal element of economic interest.

albite: a triclinic mineral of the feldspar group. A member of the plagioclase and the alkali feldspar series. A common rock-forming mineral in granite, intermediate to felsic igneous rocks, low-temperature metamorphic rocks, and hydrothermal cavities and veins.

anomaly: a departure from the norm which may indicate the presence of mineralization in the underlying bedrock.

argillic: of or relating to clay or clay minerals.

assay: the chemical analysis of an ore, mineral or concentrate of metal to determine the amount of valuable species.

Au: gold. A metal element of economic interest.

augite: a monoclinic mineral of the pyroxene group. It appears dark-green to black with prismatic cleavage. It is a common rock-forming mineral in igneous and metamorphic rocks.

basalt: a dark-coloured mafic igneous rocks, commonly extrusive but locally intrusive (e.g., as dikes). It is composed chiefly of calcic plagioclase and clinopyroxene. Nepheline, olivine, orthopyroxene, or quartz may be present in the rocks.

biotite: a monoclinic mineral of the mica group. It is dark brown, dark green, black and is a common rock-forming mineral in crystalline rocks, either as an original crystal in igneous rocks or as a metamorphic product in gneisses and schists.

bornite: an isometric mineral which is metallic. It appears brownish bronze tarnishing to iridescent blue and purple. It is a valuable source of copper.

breccias: is a rock composed of broken fragments of minerals or rock cemented together by a fine-grained matrix, that can be either similar to or different from the composition of the fragments.

carbonaceous: means coaly, containing carbon or coal, esp. shale or other rock containing small particles of carbon distributed throughout the whole mass.

chalcocite: a form of copper mineral ore that generally contains a high copper content.

chalcopyrite: a form of copper mineral ore that generally contains a low copper content.

colluvial talus: a sloping mass of earth material that has accumulated at the base of a hill, through the action of gravity.

concentrate: a product containing valuable metal from which most of the waste material in the ore has been eliminated.

concentrator: a plant for recovery of valuable minerals from ore in the form of concentrate. The concentrate must then be treated in some other type of plant, such as a smelter, to effect recovery of the pure metal.

covellite: a supergene mineral found in copper deposits; a source of copper.

Cu: copper. A metal element of economic interest.

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CuEq: a copper equivalent grade, calculated using assumed metal prices for copper, gold and, where applicable, molybdenum.

cut-off grade: the lowest grade of mineral resources considered economic; used in the calculation of reserves and resources in a given deposit.

dacite: a light gray volcanic rock containing a mixture of plagioclase and other crystalline minerals in glassy silica, similar in appearance to rhyolite.

dyke: a tabular igneous intrusion that cuts across the bedding or foliation of the country rock.

enargite: an orthorhombic mineral which appears metallic gray-black. It appears in vein and replacement copper deposits as small crystals or granular masses and is an important ore of copper and arsenic.

epithermal: a hydrothermal mineral deposit formed within about 1 km of the Earth’s surface and in the temperature range of 50 to 200 degrees C, occurring mainly as veins.

fault: a fracture in rock along which the adjacent rock surfaces are differentially displaced.

feasibility study: a comprehensive study of a mineral deposit in which all geological, engineering, legal, operating, economic, social, environmental and other relevant factors are considered in sufficient detail that it could reasonably serve as the basis for a final decision by a financial institution to finance the development of the deposit for mineral production.

fold: a curve or bend of a planar structure such as rock strata, bedding planes, foliation, or cleavage. A fold is a product of deformation, although its definition is descriptive and not genetic and may include primary structures.

g: SI unit symbol for gram (one one-thousandth of a kilogram).

gangue: valueless rock or mineral in ore.

granodiorite: a group of coarse-grained plutonic rocks intermediate in composition between quartz diorite and quartz monzonite, containing quartz, plagioclase (oligoclase or andesine), and potassium feldspar, with biotite, hornblende, or, more rarely, pyroxene, as the mafic components.

gravity survey: measurements of the gravitational field at a series of different locations over an area of interest. The objective in exploration work is to associate variations with differences in the distribution of densities and hence rock types.

g/t: grams per tonne.

Ha: SI symbol for hectare.

HQ: diamond drilling equipment that produces a 63.5mm core diameter.

hypogene: primary mineralization formed by mineralizing solutions emanating up from a deep magnetic source.

Indicated mineral resource: that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and test information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.

Inferred mineral resource: that part of a mineral resource for which the quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but

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not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.

intrusive: rock which while molten, penetrated into or between other rocks but solidified before reaching the surface.

IP: induced polarization.

km: SI unit symbol for kilometre.

koz: thousand ounces.

ktpd: thousand tonnes per day.

kV: thousand volts.

lapilli: pyroclastics that may be either essential, accessory, or accidental in origin, of a size range that has been variously defined within the limits of 2 mm and 64 mm.

lb: pound (mass).

leach: to dissolve minerals or metals out of ore with chemicals.

lithologic: pertaining to the gross physical character of a rock or rock formation.

lithology: the general physical characteristics of rocks in a particular area.

m: SI unit symbol for metre.

m³: cubic metres.

magnetite: an isometric mineral of the spinel group which is black in appearance. It forms with magnesioferrite and crystallizes in octahedral formations and is strongly ferromagnetic. A major mineral in banded iron formations and magmatic iron deposits and an ore of iron.

Measured mineral resource: that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.

mineral reserve: the economically mineable part of a Measured or Indicated mineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, and economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. An ore reserve includes diluting materials and allowances for losses that may occur when the material is mined.

mineral resource: is a concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge.

Mlb: million pounds.

mm: SI symbol for millimetre.

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Mo: molybdenum. A metal element of economic interest.

monocline: a local steepening in an otherwise uniform gentle dip.

monzodiorite: a coarse-grained igneous rock consisting of essential plagioclase feldspar, orthoclase feldspar, hornblende, and biotite, with or without pyroxene.

Moz: million troy ounces

Mt: million tonnes.

muscovite: a monoclinic mineral of the mica group. It is a common rock-forming mineral in silicic plutonic rocks, mica schists, gneisses, and commercially in pegmatites.

MW: megawatts.

NQ: diamond drilling equipment that produces a 47.5mm core diameter.

oz: troy ounce (mass).

paleochannel: a remnant of an inactive river or stream channel that has been either filled or buried by younger sediment.

porphyry: any igneous rock in which relatively large, conspicuous crystals (called phenocrysts) set in a fine-grained ground mass.

ppm: parts per million.

PQ: diamond drilling equipment that produces an 85mm core diameter.

preliminary assessment or scoping study: a study that includes an economic analysis of the potential viability of mineral resources taken at an early stage of the project prior to the completion of a preliminary feasibility study.

preliminary feasibility study and pre-feasibility study: a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, has been established and an effective method of mineral processing has been determined, and includes a financial analysis based on reasonable assumptions of technical, engineering, legal, operating, economic, social, and environmental factors and the evaluation of other relevant factors which are sufficient for a qualified person, acting reasonably, to determine if all or part of the mineral resource may be classified as a mineral reserve.

pyrite: an isometric mineral. It is an accessory in igneous rocks, and in metamorphic rocks, in sedimentary rocks including coal seams and is a source of sulphur which may have included gold.

pyritic: pertaining to, resembling, or having the properties of pyrite.

pyroclastic: produced by explosive or aerial ejection of ash, fragments, and glassy material from a volcanic vent. Applied to the rocks and rock layers as well as to the textures so formed.

QA: quality assurance.

QC: quality control.

QMD or quartz monzodiorite: plutonic rock containing quartz, alkali feldspars, plagioclase feldspars and feldspathoid minerals.

qualified person: an individual who: (a) is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development or operation, or mineral project assessment, or any combination of these; (b) has experience relevant to the subject matter of the mineral project; and (c) is a member in good standing of a professional association as defined by NI 43-101.

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quartz: a general term for a variety of cryptocrystalline varieties of silica.

RC: reverse circulation method of drilling.

rhyolite: a group of extrusive igneous rocks, typically porphyritic and commonly exhibiting flow texture, with phenocrysts of quartz and alkali feldspar in a glassy to cryptocrystalline groundmass and also refers to any rock in that group. Rhyolite grades into rhyodacite with decreasing alkali feldspar content and into trachyte with a decrease in quartz.

seismicity: measure of frequency and magnitudes of earthquakes in a given area.

selenium: a nonmetallic element and member of the sulphur family. It is widely distributed in small quantities, usually as selenides of heavy metals and obtained from electrolytic copper refining.

sericite: a white, fine-grained potassium mica occurring in small scales as an alteration product of various aluminosilicate minerals, having a silky luster, and found in various metamorphic rocks (esp. in schists and phyllites) or in the wall rocks, fault gouge, and vein fillings of many ore deposits. It is commonly muscovite or very close to muscovite in composition, but may also include paragonite and illite.

shear zones: volumes of rock deformed by shearing stress under brittle-ductile or ductile conditions, typically in subduction zones at depths down to 10-20 km.

stratigraphic sequence: a chronologic succession of sedimentary rocks from older below to younger above, essentially without interruption.

strike: the direction, or course or bearing, of a vein or rock formation measured on a level surface.

sulphidation: a reaction with sulphur to form sulphides.

sulphides: compounds of sulphur with other metallic elements.

supergene: ore minerals that have been formed by the effects (usually oxidization and secondary sulphide enrichment) of descending ground water.

t: metric tonne (1000kg).

tailings: the gangue and other refuse material resulting from the washing, concentration, or treatment of ground ore.

tectonic units: three-dimensional rock bodies with distinct physical boundaries and unique structural characters including temporal evolution.

tellurium: a trigonal mineral. It appears in pyrite, sulphur, or in the fine dust of gold-telluride mines.

tennantite: an isometric mineral of the tetrahedrite group. It may contain zinc, silver, or cobalt replacing copper. Appears in veins and is an important source of copper.

tpd: tonnes per day.

tuff: consolidated pyroclastic rocks.

vein: a zone or belt of mineralized rock lying within boundaries clearly separating it from neighbouring rock. It includes all deposits of mineral matter found through a mineralized zone or belt coming from the same source, impressed with the same forms and appearing to have been created by the same processes.

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SCHEDULE C

DEPLETION FROM THE MINERAL RESERVE TO DECEMBER 31, 2015

For information purposes the following tables showing the depletion from the Mineral Reserve to 31 December 2015 has been included.

Oyu Tolgoi Mineral Reserve, September 20, 2014


Estimate	Ore (Mt)		Cu (%)		Au (g/t)		Ag (g/t)		Recovered Metal
									Cu (Mlb)		Au (koz)		Ag (koz)
									Cu (Mlb)		Au (koz)		Ag (koz)
Southern Oyu Tolgoi (SOT)
Proven		410		0.54		0.42		1.38		3,829		3,952		13,768
Probable		621		0.04		0.24		1.13		4,363		3,233		17,122
SOT Mineral Reserve (Proven + Probable)		1,031		0.45		0.31		1.23		8,192		7,186		30,890
Hugo Dummett
Probable (Hugo North – OT LLC)		464		1.66		0.34		3.37		15,592		4,199		43,479
Probable (Hugo North – EJV)		35		1.59		0.55		3.72		1,121		519		3,591
Hugo North Mineral Reserve (Probable)		499		1.66		0.35		3.40		16,713		4,717		47,070
Oyu Tolgoi All Deposits Mineral Reserve
Proven		410		0.54		0.42		1.38		3,829		3,952		13,768
Probable		1,120		0.96		0.29		2.14		21,075		7,951		64,192
Total Mineral Reserve (Proven + Probable)		1,530		0.85		0.32		1.94		24,905		11,903		77,960

Notes:

For mine planning the metal prices used to calculate block model NSR were copper at $3.01/lb; gold at $1,250/oz; and silver at $20.37/oz.

The Net Smelter Return (NSR) is used to define the Mineral Reserve cut-offs at Oyu Tolgoi, therefore cut-off is denominated in $/t. By definition the cut-off is the point at which the costs are equal to the NSR. For the open pit processing and general administration, the following operating costs have been used to determine cut-off grades: Southwest at $8.37/t, Central Chalcocite, Central Covellite, and Central Chalcopyrite at $7.25/t and the underground (including some mining costs) costs were based on $15.34/t.

For the underground block cave, all Mineral Resources within the shell have been converted to Mineral Reserves. This includes Indicated Mineral Resources below the resource cut-off grade. It also includes Inferred Mineral Resources, which have been assigned a zero grade and treated as dilution.

The SOT Open Pit Mineral Reserves were Mineral Reserves in the pit at January 1, 2014. It does not include stockpiles.

For SOT only Measured Mineral Resources were used to report Proven Mineral Reserves and only Indicated Mineral Resources were used to report Probable Mineral Reserves.

For Hugo North Measured and Indicated Mineral Resources were used to report Probable Mineral Reserves.

The Mineral Reserves reported above were not additive to the Mineral Resources.

10.

Totals may not match due to rounding.

- ix -

Oyu Tolgoi Mineral Reserve Depletion from September 20, 2014 to December 31, 2015


Estimate	Ore (Mt)		Cu (%)		Au (g/t)		Ag (g/t)		Recovered Metal
Estimate	Ore (Mt)		Cu (%)		Au (g/t)		Ag (g/t)		Cu (Mlb)		Au (koz)	Ag (koz)
Southern Oyu Tolgoi (SOT)
Proven		57		0.52		0.82		1.24		563	1,177		1,931
Probable		23		0.57		0.30		1.61		304	130		1,145
SOT Mineral Reserve (Proven + Probable)		81		0.53		0.67		1.34		867	1,308		3,076
Hugo Dummett
Probable (Hugo North – OT LLC)		-		-		-		-		-	-		-
Probable (Hugo North – EJV)		-		-		-		-		-	-		-
Hugo North Mineral Reserve (Probable)		-		-		-		-		-	-		-
Oyu Tolgoi All Deposits Mineral Reserve
Proven		57		0.52		0.82		1.24		563	1,177		1,931
Probable		23		0.57		0.30		1.61		304	130		1,145
Total Mineral Reserve (Proven + Probable)		81		0.53		0.67		1.34		867	1,308		3,076

Notes:

Depletion is a result of production from January 1, 2014 to December 31, 2015

Totals may not match due to rounding.

- xii -

Oyu Tolgoi Mineral Reserve, December 31, 2015


Estimate	Ore (Mt)	Cu (%)	Au (g/t)	Ag (g/t)	Recovered Metal
Estimate	Ore (Mt)	Cu (%)	Au (g/t)	Ag (g/t)	Cu (Mlb)	Au (koz)	Ag (koz)
Southern Oyu Tolgoi (SOT)
Proven	353	0.54	0.35	1.40	3,266	2,775	11,837
Probable	598	0.39	0.23	1.11	4,058	3,103	15,9773
SOT Mineral Reserve (Proven + Probable)	951	0.45	0.28	1.22	7,325	5,878	27,814
Hugo Dummett
Probable (Hugo North – OT LLC)	464	1.66	0.34	3.37	15,592	4,199	43,479
Probable (Hugo North – EJV)	35	1.59	0.55	3.72	1,121	519	3,591
Hugo North Mineral Reserve (Probable)	499	1.66	0.35	3.40	16,713	4,717	47,070
Oyu Tolgoi All Deposits Mineral Reserve
Proven	353	0.54	0.35	1.40	3,266	2,775	11,837
Probable	1,097	0.97	0.29	2.15	20,771	7,820	63,047
Total Mineral Reserve (Proven + Probable)	1,450	0.86	0.30	1.97	24,037	10,595	74,884

Notes:

For mine planning the metal prices used to calculate block model NSR were copper at $3.01/lb; gold at $1,250/oz; and silver at $20.37/oz.

The Net Smelter Return (NSR) is used to define the Mineral Reserve cut-offs at Oyu Tolgoi, therefore cut-off is denominated in $/t. By definition the cut-off is the point at which the costs are equal to the NSR.For the open pit processing and general administration, the following operating costs have been used to determine cut-off grades: Southwest at $8.37/t, Central Chalcocite, Central Covellite, and Central Chalcopyrite at $7.25/t and the underground (including some mining costs) costs were based on $15.34/t.

The SOT Open Pit Mineral Reserves were Mineral Reserves in the pit at the effective date of December 31, 2015. It does not include stockpiles.

For SOT only Measured Mineral Resources were used to report Proven Mineral Reserves and only Indicated Mineral Resources were used to report Probable Mineral Reserves.

For Hugo North Measured and Indicated Mineral Resources were used to report Probable Mineral Reserves.

The Mineral Reserves reported above were not additive to the Mineral Resources.

10.

Totals may not match due to rounding.

Exhibit 99.2

LOGO

Independent Auditor’s Report and Consolidated Financial Statements

December 31, 2015 and 2014

Independent Auditor’s Report

To the Shareholders of Turquoise Hill Resources Ltd.

We have completed an integrated audit of Turquoise Hill Resources Ltd.’s December 31, 2015 consolidated financial statements and its internal control over financial reporting as at December 31, 2015 and an audit of its December 31, 2014 consolidated financial statements. Our opinions, based on our audits are presented below.

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of Turquoise Hill Resources Ltd., which comprise the consolidated statements of financial position as at December 31, 2015, December 31, 2014 and January 1, 2014 and the consolidated statements of income (loss), comprehensive income (loss), cash flows and equity for the years ended December 31, 2015 and December 31, 2014, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally accepted auditing standards also require that we comply with ethical requirements.

An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Turquoise Hill Resources Ltd. as at December 31, 2015, December 31, 2014 and January 1, 2014 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Report on internal control over financial reporting

We have also audited Turquoise Hill Resources Ltd.’s internal control over financial reporting as at December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management’s responsibility for internal control over financial reporting

Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Report on Internal Controls over Financial Reporting.

Auditor’s responsibility

Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances.

We believe that our audit provides a reasonable basis for our audit opinion on the company’s internal control over financial reporting.

Definition of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Inherent limitations

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion, Turquoise Hill Resources Ltd. maintained, in all material respects, effective internal control over financial reporting as at December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

signed “PricewaterhouseCoopers LLP”

Chartered Professional Accountants

Vancouver, British Columbia

March 17, 2016

TURQUOISE HILL RESOURCES LTD.

Consolidated Statements of Income (Loss)

(Stated in thousands of U.S. dollars)


		Year Ended December 31,
	Note	2015		2014

Continuing operations
Revenue	4	$	1,634,762	$	1,735,646
Cost of sales	5		(974,956)		(1,235,113)

Gross margin			659,806		500,533

Operating expenses	6		(452,539)		(375,850)
Corporate administration expenses			(17,193)		(22,588)
Other income (expenses)	7		(46,164)		12,246

Income before finance items and taxes			143,910		114,341

Finance items
Finance income	8		3,164		8,618
Finance costs	8		(8,354)		(14,679)

			(5,190)		(6,061)

Income from continuing operations before taxes			138,720		108,280


Income taxes	17		166,086		(51,001)

Income from continuing operations			304,806		57,279


Discontinued operations
Income (loss) after tax from discontinued operations	14		2,284		(297,163)

Income (loss) for the year		$	307,090	$	(239,884)


Attributable to owners of Turquoise Hill Resources Ltd.			313,303		26,929
Attributable to owners of non-controlling interests			(6,213)		(266,813)

Income (loss) for the year		$	307,090	$	(239,884)


Income (loss) attributable to owners of Turquoise Hill Resources Ltd.
Continuing operations		$	340,654	$	198,829
Discontinued operations			(27,351)		(171,900)

		$	313,303	$	26,929


Basic and diluted earnings (loss) per share attributable to Turquoise Hill Resources Ltd.
Continuing operations	22	$	0.17	$	0.10
Discontinued operations			(0.01)		(0.09)

Income		$	0.16	$	0.01


Basic weighted average number of shares outstanding (000’s)			2,012,306		1,976,438

The accompanying notes are an integral part of these consolidated financial statements.

TURQUOISE HILL RESOURCES LTD.

Consolidated Statements of Comprehensive Income (Loss)

(Stated in thousands of U.S. dollars)



	Year Ended December 31,

	2015		2014

Income (loss) for the year	$	307,090	$	(239,884)

Other comprehensive income (loss):
Items that have been / may be classified subsequently to income or loss:
Fair value movements:
Losses on revaluation of available for sale investments (Note 19)		(6,940)		(27,363)
Losses on revaluation of available for sale investments transferred to the statement of income (loss) (Note 19)		11,431		265

Other comprehensive income (loss) for the year (a)	$	4,491	$	(27,098)



Total comprehensive income (loss) for the year	$	311,581	$	(266,982)


Attributable to owners of Turquoise Hill	$	317,794	$	77
Attributable to owners of non-controlling interests		(6,213)		(267,059)

Total comprehensive income (loss) for the year	$	311,581	$	(266,982)

(a)

No tax charges and credits arose on items recognized as other comprehensive income or loss in 2015 (2014: nil).

The accompanying notes are an integral part of these consolidated financial statements.

TURQUOISE HILL RESOURCES LTD.

Consolidated Statements of Cash Flows

(Stated in thousands of U.S. dollars)



			Year Ended December 31,
	Note		2015		2014

Cash generated from operating activities before interest and tax		21	$	650,518	$	718,543

Interest received				2,289		15,522
Interest paid				(3,676)		(19,797)
Income and other taxes paid				(66,650)		(17,398)

Net cash generated from operating activities				582,481		696,870

Cash flows from investing activities
Proceeds from sale of discontinued operations		14		11,867		-
Proceeds from sale and redemption of financial assets				20,023		115,000
Expenditures on property, plant and equipment				(116,211)		(242,175)
Proceeds from sales of mineral property rights and other assets				1,237		10,142
Other investing cash flows				1,645		-

Cash used in investing activities of continuing operations				(81,439)		(117,033)
Cash used in investing activities of discontinued operations				(114)		(4,406)

Cash used in investing activities				(81,553)		(121,439)


Cash flows from financing activities
Payment of project financing fees		11		(26,263)		-
Proceeds from bridge funding facility		15		-		62,373
Repayment of interim and bridge funding facilities		15		-		(2,191,635)
Proceeds from credit facilities		15		-		143,826
Repayment of credit facilities		15		-		(90,000)
Issue of share capital		18		34		2,288,664

Cash (used in) from financing activities of continuing operations				(26,229)		213,228
Cash from (used in) financing activities of discontinued operations				3,500		(98)

Cash (used in) from financing activities				(22,729)		213,130


Effects of exchange rates on cash and cash equivalents				(864)		(130)

Net increase in cash and cash equivalents				477,335		788,431


Cash and cash equivalents - beginning of year			$	866,543	$	78,112
Cash and cash equivalents - end of year				1,343,878		866,543
Less cash and cash equivalents classified in current assets held for sale				-		(3,788)

Cash and cash equivalents as presented on the statement of financial position			$	1,343,878	$	862,755

The accompanying notes are an integral part of these consolidated financial statements.

TURQUOISE HILL RESOURCES LTD.

Consolidated Statements of Financial Position

(Stated in thousands of U.S. dollars)


	Note	December 31, 2015		December 31, 2014		January 1, 2014
Current assets
Cash and cash equivalents	9	$	1,343,878	$	862,755	$	78,112
Inventories	10		321,409		396,782		844,510
Trade and other receivables			12,210		14,519		4,853
Prepaid expenses and other assets	11		53,375		76,903		105,088
Due from related parties	23		3,623		7,864		5,070
Assets held for sale	14		-		229,489		-

			1,734,495		1,588,312		1,037,633

Non-current assets
Property, plant and equipment	12		6,319,983		6,597,395		7,209,453
Inventories	10		539		52,757		21,229
Deferred income tax assets	17		165,000		-		-
Financial assets	13		20,078		60,553		370,471

			6,505,600		6,710,705		7,601,153

Total assets		$	8,240,095	$	8,299,017	$	8,638,786


Current liabilities
Borrowings and other financial liabilities	15		-		-		2,145,093
Trade and other payables			166,766		185,852		280,395
Deferred revenue			72,004		140,135		107,796
Payable to related parties	23		34,801		53,784		247,692
Liabilities held for sale	14		-		120,871		-

			273,571		500,642		2,780,976

Non-current liabilities
Borrowings and other financial liabilities	15		13,574		14,086		108,866
Deferred income tax liabilities	17		52,916		122,820		91,380
Decommissioning obligations	16		104,421		93,004		118,562

			170,911		229,910		318,808

Total liabilities			444,482		730,552		3,099,784


Equity
Share capital	18		11,432,122		11,432,060		9,150,621
Contributed surplus			1,555,774		1,555,721		1,551,466
Accumulated other comprehensive income (loss)	19		(14)		(4,505)		22,347
Deficit			(4,473,360)		(4,788,340)		(4,815,269)

Equity attributable to owners of Turquoise Hill			8,514,522		8,194,936		5,909,165
Attributable to non-controlling interests	20		(718,909)		(626,471)		(370,163)

Total equity			7,795,613		7,568,465		5,539,002


Total liabilities and equity		$	8,240,095	$	8,299,017	$	8,638,786

The accompanying notes are an integral part of these consolidated financial statements.

The financial statements were approved by the directors on March 15, 2016 and signed on their behalf by:


/s/ J. Gardiner				/s/ R. Robertson
J. Gardiner, Director				R. Robertson, Director

TURQUOISE HILL RESOURCES LTD.

Consolidated Statements of Equity

(Stated in thousands of U.S. dollars)



Year Ended December 31, 2015	Attributable to owners of Turquoise Hill
	Share capital (Note 18)		Contributed surplus		Accumulated other comprehensive income (loss) (Note 19)		Deficit		Total		Non-controlling Interests (Note 20)		Total equity

Opening balance	$	11,432,060	$	1,555,721	$	(4,505)	$	(4,788,340)	$	8,194,936	$	(626,471)	$	7,568,465

Income (loss) for the year		-		-		-		313,303		313,303		(6,213)		307,090
Comprehensive income for the year		-		-		4,491		-		4,491		-		4,491
Equity issued to holders of non-controlling interests		-		-		-		1,677		1,677		1,823		3,500
Employee share options		62		53		-		-		115		-		115
Other decrease in non-controlling interests (Note 20)		-		-		-		-		-		(88,048)		(88,048)

Closing balance	$	11,432,122	$	1,555,774	$	(14)	$	(4,473,360)	$	8,514,522	$	(718,909)	$	7,795,613


Year Ended December 31, 2014	Attributable to owners of Turquoise Hill
	Share capital (Note 18)		Contributed surplus		Accumulated other comprehensive income (loss) (Note 19)		Deficit		Total		Non-controlling Interests (Note 20)		Total equity

Opening balance	$	9,150,621	$	1,551,466	$	22,347	$	(4,815,269)	$	5,909,165	$	(370,163)	$	5,539,002

Income (loss) for the year		-		-		-		26,929		26,929		(266,813)		(239,884)
Comprehensive loss for the year		-		-		(26,852)		-		(26,852)		(246)		(27,098)
Equity issued for rights offering (Note 18), net of share issue costs of $79,775		2,281,175		-		-		-		2,281,175		-		2,281,175
Equity issued to holders of non-controlling interests		-		1,824		-		-		1,824		10,531		12,355
Employee share options		264		2,431		-		-		2,695		220		2,915

Closing balance	$	11,432,060	$	1,555,721	$	(4,505)	$	(4,788,340)	$	8,194,936	$	(626,471)	$	7,568,465

The accompanying notes are an integral part of these consolidated financial statements.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

1.	Nature of operations

The consolidated financial statements of Turquoise Hill Resources Ltd. (“Turquoise Hill”) were authorized for issue in accordance with a directors’ resolution on March 15, 2016. Rio Tinto plc is the ultimate parent company and indirectly owns a 50.8% majority interest in Turquoise Hill as at December 31, 2015.

Turquoise Hill, together with its subsidiaries (collectively referred to as “the Company”), is an international mining company focused principally on the operation and further development of the Oyu Tolgoi copper-gold mine in Southern Mongolia. Turquoise Hill’s head office is located at 354-200 Granville Street, Vancouver, British Columbia, Canada, V6C 1S4. Turquoise Hill’s registered office is located at 300-204 Black Street, Whitehorse, Yukon, Canada, Y1A 2M9.

Turquoise Hill has its primary listing in Canada on the Toronto Stock Exchange and secondary listings in the U.S. on the New York Stock Exchange and the NASDAQ.

2.	Summary of significant accounting policies

(a)

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are the Company’s first consolidated financial statements prepared in accordance with IFRS.

These consolidated financial statements have been prepared on a going concern basis, and in making the assessment that the Company is a going concern, management have taken into account all available information about the future, which is at least, but is not limited to, twelve months from December 31, 2015.

The accounting policies applied in these consolidated financial statements are based on IFRS issued by the IASB. An explanation of how the transition to IFRS has affected the reported equity and comprehensive income (loss) of the Company previously reported in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), is provided in Note 27.

(b)

Use of estimates and judgments

The preparation of financial statements requires management to make assumptions and estimates that affect the reported amounts and other disclosures in these consolidated financial statements. Actual results may differ materially from the amounts included in the consolidated financial statements as the result of changes to the assumptions and inputs upon which estimates and judgments are based.

Significant estimates and judgments used in the preparation of these consolidated financial statements include: reserves and resources; recoverable amount of property, plant and equipment; depletion and depreciation of property, plant and equipment; decommissioning obligations; deferred stripping; income taxes; and the net realizable value of inventories.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(b)

Use of estimates and judgments (continued)

Estimates and judgments that are not explained elsewhere in these consolidated financial statements, which could result in a material effect in the next financial year on the carrying amounts of assets and liabilities, are outlined below.

Reserves and resources

Mineral reserve and resource estimates are based on various assumptions relating to operating matters set forth in National Instrument 43-101. These include production costs, mining and processing recoveries, cut-off grades, long term commodity prices, inflation rates and the costs and availability of treatment and refining services for the metals mined. Cost estimates are based on feasibility study estimates or operating history, and estimates are prepared by appropriately qualified persons (as defined in National Instrument 43-101). Estimated recoverable reserves and resources are used to determine the depreciation of property, plant and equipment at each operating mine area; to account for capitalized deferred stripping costs; to perform when required, formal assessments of the recoverable amount of property, plant and equipment; and to forecast the timing of the payment of decommissioning obligations.

Recoverable amount of property, plant and equipment

Property, plant and equipment are tested for impairment when events or changes in circumstance indicate that the carrying value may be higher than the recoverable amount. Judgment is required in assessing whether certain factors would be considered an indicator of impairment. Management considers both internal and external information to determine whether there is an indicator of impairment.

When an impairment review is undertaken, the recoverable amount is assessed by reference to the higher of value in use and fair value less costs of disposal (“FVLCD”). FVLCD is usually estimated either from the value obtained from an active market where applicable, or by using discounted cash flow techniques based on detailed life-of-mine and/or production plans. Inputs used in the discounted cash flow represent management’s best estimate of what an independent market participant would consider appropriate, and include an assessment of commodity price forecasts and discount rate derived from market data relating to a range of industry participants.

The estimates used by management in arriving at its estimate of recoverable amount are subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Company’s investments in property, plant and equipment.

Depletion and depreciation of property, plant and equipment

Property, plant and equipment comprise one of the largest components of the Company’s assets and, as such, the amortization of these assets has a significant effect on the Company’s financial statements.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(b)

Use of estimates and judgments (continued)

Capital works in progress are not categorized as mineral property interests, mining plant and equipment or other capital assets until the capital asset is in the condition and location necessary for its intended use. Mining plant and equipment and other capital assets are depreciated over their expected economic lives using either the units of production method or the straight-line method. Depletion of each mineral property interest is provided on the units of production basis using estimated proven and probable reserves as the depletion basis.

For long-lived assets that are depleted or depreciated over proven and probable reserves using the units of production method, a change in the original estimate of proven and probable reserves would result in a change in the rate of depletion or deprecation.

Decommissioning obligations

The estimate of decommissioning obligations is based on future expectations in the determination of closure provisions. Management makes a number of assumptions and judgments including: estimating the amount of future reclamation costs and their timing, risk-free inflation rates and risk-free discount rates. The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods in relation to the remediation of the Company’s existing assets could differ materially from their estimated undiscounted future value.

Income taxes

The Company must make significant estimates in respect of the provision for income taxes and the composition of its deferred income tax assets and deferred income tax liabilities. The Company’s operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question which may, on resolution in the future, result in adjustments to the amount of deferred income tax assets and deferred income tax liabilities, and those adjustments may be material to the Company’s financial position and results of operations.

The Company computes the provision for deferred income taxes under the liability method. Deferred taxes arise from the recognition of the tax consequences of temporary differences by applying statutory tax rates applicable to future years to differences between the financial statement’s carrying amounts and the tax bases of certain assets and liabilities. The Company recognizes deferred tax assets for unused tax losses, tax credits and deductible temporary differences, only to the extent it is probable that future taxable profits will be available against which they can be utilized.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(b)

Use of estimates and judgments (continued)

The determination of the ability of the Company to utilize tax losses carried forward to offset income taxes payable in the future requires management to exercise judgment and make assumptions about the Company’s future performance. Management is required to assess whether the Company is more likely than not able to benefit from these tax losses. Changes in economic conditions, metal prices, timing of taxable income streams and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.

Net realizable value of inventories

Inventory, including stockpiles of ore, are valued at the lower of weighted average cost and net realizable value (NRV). If ore stockpiles are not expected to be processed within the 12 months after the statement of financial position date, they are included within non-current assets and net realizable value is calculated on a discounted cash flow over the planned processing timeframe for such ore. Evaluating net realizable value requires management judgment in the selection of estimates for, among other inputs, discount rate, price assumptions, timing of processing, and associated costs.

(c)

Basis of consolidation

The financial statements consist of the consolidation of the accounts of Turquoise Hill and its respective subsidiaries, together with the Company’s share of associates accounted for as described below.

All intercompany transactions and balances between Turquoise Hill and its subsidiaries have been eliminated on consolidation. Where necessary, adjustments are made to assets, liabilities, and results of subsidiaries and associates to bring their accounting policies into line with those used by the Company.

(i)

Subsidiaries

Subsidiaries are entities controlled by Turquoise Hill. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The Company controls an entity if it has power to direct the activities of the entity that significantly affects its returns (“the relevant activities”), has exposure or rights to variable returns from its involvement with the entity and has the ability to use its power to affect those returns.

The Company consolidates all wholly-owned subsidiaries. The following table illustrates the Company’s method of accounting for its interests in an operating subsidiary where the Company holds less than a 100% voting or economic interest:



Entity	Percent of equity interests owned at December 31, 2015	Method at December 31, 2015

Oyu Tolgoi LLC	66.0%	Consolidation

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(c)

Basis of consolidation (continued)

The Company’s principal operating subsidiary is Oyu Tolgoi LLC (“Oyu Tolgoi”). Wholly-owned subsidiaries of Turquoise Hill together hold a 66.0% interest in Oyu Tolgoi, whose principal asset is the Oyu Tolgoi copper-gold mine located in Southern Mongolia. The remaining 34% non-controlling interest in Oyu Tolgoi is owned by Erdenes Oyu Tolgoi LLC (“Erdenes”), a company controlled by the Mongolian government. The Company has historically funded 100% of the Oyu Tolgoi copper-gold mine’s exploration and development costs via equity and debt investments in Oyu Tolgoi and non-recourse loans to Erdenes. Income and loss of Oyu Tolgoi is attributed to the controlling and non-controlling shareholders based on ownership percentage. Non-recourse loans advanced to Erdenes upon the issuance of additional equity interests to Erdenes are accounted for separately and recorded as an offset to non-controlling interest in equity. Unrealized interest on the non-recourse loans to Erdenes, which are recoverable principally through dividends from Oyu Tolgoi or sale by Erdenes of its interests in Oyu Tolgoi, is recognized when right to repayment of the interest becomes probable.

(ii)

Associates

An associate is an entity that is neither controlled nor jointly controlled by the Company, but over which the Company has significant influence. Significant influence is presumed to exist where there is neither control nor joint control and the Company has over 20 per cent of the voting rights, unless it can be clearly demonstrated that this is not the case. Significant influence can also arise where the Company holds fewer than 20 per cent of the voting rights if it has the power to participate in the financial and operating policy decisions affecting the entity. Investments in associates are accounted for using the equity method of accounting. For all associates, the carrying value will include any long term debt interests that in substance form part of the Company’s net investment.

Under the equity method of accounting, the investment is recorded initially at cost to the Company. In subsequent periods the carrying amount of the investment is adjusted to reflect the Company’s share of the associate’s retained post-acquisition profit or loss and other comprehensive income. When the Company’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured receivables, the Company does not recognize any further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

(d)

Currency translation and foreign exchange

The Company has determined the U.S. dollar to be the functional currency of Turquoise Hill and its significant subsidiaries as it is the currency of the primary economic environment in which Turquoise Hill and all of its significant subsidiaries operate. Accordingly, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect at the date of the statement of financial position and non-monetary assets and liabilities are translated at the time of acquisition or

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(d)

Currency translation and foreign exchange (continued)

issue. Revenues and expenses are translated at rates approximating the exchange rates in effect at the date of the transaction. All exchange gains and losses are included in the consolidated statement of income (loss) during the year.

(e)

Sales revenue

The Company’s primary source of revenue is from the sale of concentrate containing copper, gold and silver. Sales revenue is only recognized on individual sales when all of the following criteria are met:

•

the Company has transferred to the buyer the significant risks and rewards of ownership of the product;

•

the Company retains neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

•

the amount of revenue can be measured reliably;

•

it is probable that the economic benefits associated with the sale will flow to the Company; and

•

the costs incurred or to be incurred in respect of the sale can be measured reliably.

These conditions are generally satisfied and sales revenue recognized when the product is delivered as specified by the customer, which is typically upon loading of the product to the customer’s truck, train or vessel. The Company recognizes deferred revenue in the event it receives payment from a customer before a sales transaction meets all the criteria for revenue recognition.

Sales revenue is commonly subject to adjustment based on the final determination of contained metal. In such cases, sales revenue is initially recognized on a provisional basis using the Company’s best estimate of contained metal and subsequently adjusted.

Certain products are “provisionally priced” whereby the selling price is subject to final adjustment at the end of a period normally ranging from 30 to 180 days after delivery to the customer as defined in the sales contract. The final price is based on the market price at the relevant quotation point stipulated in the contract which gives rise to an embedded derivative that is required to be bifurcated from the host contract. The host contract is the receivable from the sale of product based on relevant forward market prices at the time of sale. At each reporting date, the provisionally priced metal is marked to market based on the forward selling price for the quotation period stipulated in the contract. For this purpose, the selling price can be measured reliably for those products, such as copper, gold, and silver, for which there exists an active and freely traded commodity market such as the London Metals Exchange and the value of product sold by the Company is directly linked to the form in which it is traded on that market. The marking to market of the embedded derivative is classified as a component of sales revenue.

Mining royalties are included in operating expenses.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(f)

Exploration and evaluation

All direct costs related to the acquisition of mineral property interests are capitalized in the period incurred.

Exploration and evaluation costs are charged to operations in the period incurred until such time as it has been determined that a mineral property has proven and probable reserves and the property is economically viable, in which case subsequent evaluation costs incurred to develop a mineral property are capitalized. Exploration and evaluation costs include value-added taxes incurred in foreign jurisdictions when recoverability of those taxes is uncertain.

(g)

Property, plant and equipment

Property, plant and equipment are recorded at cost, less accumulated depletion and depreciation and accumulated impairment losses. The cost of property, plant and equipment includes the estimated close down and restoration costs associated with the asset.

Once an undeveloped mining project has been established as commercially viable, including that it has established proven and probable reserves and approval to mine has been given, expenditure other than that on land, buildings, plant and equipment is capitalized under “Mineral property interests.” Ore reserves may be declared for an undeveloped mining project before its commercial viability has been fully determined and approval to mine has been given. Evaluation costs may continue to be capitalized during the period between declaration of reserves and approval to mine as further work is undertaken in order to refine the development case to maximize the project’s return.

Project development expenditures, including costs to acquire and construct buildings and equipment are capitalized under “Capital works in progress” provided that the project has been established as commercially viable. Capital works in progress are not categorized as mineral property interests, mining plant and equipment or other capital assets until the capital asset is in the condition and location necessary for its intended use.

Costs which are necessarily incurred while commissioning new assets, in the period before they are capable of operating in the manner intended by management, are capitalized. Development costs incurred after the commencement of production are capitalized to the extent they are expected to give rise to a future economic benefit. Interest on borrowings related to construction or development projects is capitalized until the point when substantially all the activities that are necessary to make the asset ready for its intended use are complete.

(h)

Deferred stripping

In open pit mining operations, it is necessary to remove overburden and other waste materials to access ore from which minerals can be extracted economically. The process of mining overburden and waste materials is referred to as stripping.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(h)

Deferred stripping (continued)

During the development of an open pit mine, before production commences, stripping costs are capitalized as part of mineral property interests and are subsequently amortized over the life of the mine on a units of production basis.

During the production phase, stripping activity is undertaken for the dual purpose of extracting inventory for current production as well as improving access to the ore body.

Stripping costs incurred for the purpose of extracting current inventories are included in the costs of inventory produced during the period the stripping costs are incurred.

In order for production phase stripping costs to qualify for capitalization as a stripping activity asset, three criteria must be met:

•

it must be probable that economic benefit will be realized in a future accounting period as a result of improved access to the ore body created by the stripping activity;

•

it must be possible to identify the “component” of the ore body for which access has been improved; and

•

it must be possible to reliably measure the costs that relate to the stripping activity.

When the cost of stripping related to development which has a future benefit is not distinguishable from the cost of producing current inventories, the stripping costs are allocated to each activity based on a relevant production measure. Generally, the measure would be calculated based on a ratio obtained by dividing the tonnage of waste mined for the component for the period by the quantity of ore mined for the component. Stripping costs incurred in the period related to the component are deferred to the extent that the current period ratio exceeds the life of component ratio.

The stripping activity asset is depreciated on a units of production basis based on expected production of ore over the life of the components benefited. The life of component ratios are based on proven and probable reserves based on the mine plan; they are a function of the mine design and therefore changes to that design will generally result in changes to the ratios. Changes in other technical or economic parameters that impact reserves may also impact the life of component ratios. Changes to the life of component ratios are accounted for prospectively.

Deferred stripping costs are included in “Mineral property interests” within property, plant and equipment and are amortized on a units of production basis over the useful life of the component that has been made more accessible as a result of the stripping activity. Amortization of deferred stripping costs is included as a cost of production in the period.

(i)

Depreciation and depletion

Property, plant and equipment is depreciated over its useful life, or over the remaining life of the mine if that is shorter and there is no alternative use for the asset.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(i)

Depreciation and depletion (continued)

The useful lives of the major assets of a cash-generating unit are often dependent on the life of the ore body to which they relate. Where this is the case, the lives of mining properties, and their associated concentrators and other long lived processing equipment generally relate to the expected life of the ore body. The life of the ore body, in turn, is estimated on the basis of the life-of-mine plan. In applying the units of production method, depreciation is calculated using the metal content of the ore extracted from the mine in the period as a percentage of the total metal content of the ore to be extracted in current and future periods based on proved and probable reserves.

Development costs that relate to a discrete section of an ore body, and which only provide benefit over the life of those reserves, are depreciated over the estimated life of that discrete section. Development costs incurred that relate to the entire ore body are depreciated over the estimated life of the entire ore body.

Assets within operations for which production is not expected to fluctuate significantly from one year to another or which have a physical life shorter than the mine are depreciated on a straight line basis. Depreciation commences when an asset is available for use.

(j)

Impairment of non-current assets

Property, plant and equipment is reviewed for impairment when events or changes in circumstances indicate that the full carrying amount may not be recoverable.

Impairment is assessed at the level of cash-generating units which are identified as the smallest identifiable group of assets capable of generating cash inflows which are largely independent of the cash inflows from other assets. When an impairment review is undertaken, the recoverable amount is assessed by reference to the higher of value in use and fair value less costs of disposal (“FVLCD”).

The value in use is the net present value of expected future pre-tax cash flows from the relevant cash-generating unit in its current condition, both from continuing use and ultimate disposal. For value in use, recent cost levels are considered, together with expected changes in costs that are compatible with the current condition of the business and which meet the requirements of IFRS.

The best evidence of FVLCD is often the value obtained from an active market or binding sale agreement. Where this is not the case, or where neither an active market nor a binding sale agreement exists, FVLCD is based on the best information available to reflect the amount a market participant would pay for the cash-generating unit in an arm’s length transaction. This is often estimated using discounted post tax cash flow techniques based on detailed life-of-mine and/or production plans.

The cash flow forecasts are based on management’s best estimates of expected future revenues and costs, including the future cash costs of production, capital expenditure, closure, restoration and environmental

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(j)

Impairment of non-current assets (continued)

clean-up, which for FVLCD purposes management believe approximate those of a market participant. Forecast cash flows for impairment purposes are generally based on management’s price forecasts of commodity prices, which assume short term observable market prices will revert to the Company’s assessment of the long term price, generally over a period of three to five years. These long-term forecast commodity prices are derived from industry analyst consensus.

The discount rates applied to the future cash flow forecasts represent an estimate of the rate the market would apply having regard to the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted.

Non-current assets that have previously been impaired are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed.

(k)

Decommissioning obligations

The Company recognizes liabilities for statutory, contractual, legal or constructive obligations associated with the retirement of property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a provision for a decommissioning obligation is recognized at its net present value in the period in which it is incurred, using a discounted cash flow technique with market-based risk-free discount rates and estimates of the timing and amount of the settlement of the obligation.

Upon initial recognition of the liability, the corresponding decommissioning cost is added to the carrying amount of the related asset. Following initial recognition of the decommissioning obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to significant estimates including the current discount rate, the amount or timing of the underlying cash flows needed to settle the obligation and the requirements of the relevant legal and regulatory framework. Subsequent changes in the provisions resulting from new disturbance, updated cost estimates, changes to estimated lives of operations and revisions to discount rates are also capitalized to the related property, plant and equipment. Amounts capitalized to the related property, plant and equipment are depreciated over the lives of the assets to which they relate. The amortization or unwinding of the discount applied in establishing the net present value of provisions is charged to expense and is included within Finance costs in the consolidated statement of income (loss).

(l)

Inventories

Concentrate inventory is valued at the lower of weighted average cost and net realizable value. Cost comprises production and processing costs, which includes direct and indirect labour, operating materials

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(l)

Inventories (continued)

and supplies, applicable transportation costs and apportionment of operating overheads, including depreciation and depletion. Net realizable value is the expected average selling price of the concentrate inventory less applicable selling and transportation costs.

Stockpiles represent ore that has been extracted and is available for further processing. Stockpiles are valued at the lower of weighted average production cost and net realizable value. Production cost includes direct and indirect labour, operating materials and supplies, applicable transportation costs, and apportionment of operating overheads, including depreciation and depletion. Net realizable value is the expected average selling price of the finished product less the costs to get the product into saleable form and to the selling location. If the ore will not be processed within the 12 months after the consolidated statement of financial position date it is included within non-current assets and net realizable value is calculated on a discounted cash flow basis over the planned processing of such ore.

Mine stores and supplies are valued at the lower of the weighted average cost and net realizable value.

(m)

Taxation

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in the consolidated statement of income (loss) except to the extent that they relate to items recognized directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date.

Deferred tax is recognized in respect of unused tax losses and credits, as well as temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on enacted or substantively enacted laws at the reporting date.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, only to the extent that it is probable that future taxable profits will be available against which they can be utilized.

Deferred tax is not recognized for the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries, associates and joint arrangements to the extent that it is probable that they will not reverse in the foreseeable future.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(m)

Taxation (continued)

The Company is subject to assessments by various taxation authorities, who may interpret tax legislation differently from the Company. The final amount of taxes to be paid depends on a number of factors, including the outcomes of audits, appeals or negotiated settlements. Such differences are accounted for based on management’s best estimate of the probable outcome of these matters.

The Company must make significant estimates and judgments in respect of its provision for income taxes and the composition and measurement of its deferred income tax assets and liabilities. The Company’s operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question that may, upon resolution in the future, result in adjustments to the amount of deferred income tax assets and liabilities; those adjustments may be material.

(n)

Employee benefits

Wages, salaries, contributions to government pension and social insurance funds, compensated absences and bonuses are accrued in the year in which the employees render the associated services.

(o)

Cash and cash equivalents

For the purposes of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand, demand deposits and short term, highly liquid investments with an initial maturity of three months or less that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.

(p)

Financial instruments

(i)

Financial assets

The Company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available for sale or held-to-maturity investments. The classification depends on the purpose for which the financial assets were acquired.

Management determines the classification of the Company’s non-derivative financial assets at initial recognition. The Company has no financial assets designated at fair value through profit or loss or held-to-maturity.

Loans and receivables

Loans and receivables comprise non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, with the exception of items for which the Company may not recover substantially all of its investment for reasons other than credit

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(p)

Financial instruments (continued)

(i)

Financial assets (continued)

deterioration, which are classified as available for sale. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.

Available for sale financial assets

Available for sale financial assets are non-derivatives that are either designated as available for sale or not classified in any of the other categories. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available for sale debt instruments, are recognized in other comprehensive income. When an investment is derecognized, the cumulative gain or loss in accumulated other comprehensive income is transferred to the consolidated statement of income (loss).

The Company assesses at each statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, an evaluation is made as to whether a decline in fair value is “significant” or “prolonged” based on an analysis of indicators such as significant adverse changes in the technological, market, economic or legal environment in which the company invested in operates. Impairment losses are recorded in the consolidated statement of income (loss).

(ii)

Financial liabilities

Borrowings and other financial liabilities (including trade payables but excluding embedded derivatives) are recognized initially at fair value, net of transaction costs incurred and are subsequently stated at amortized cost. Any difference between the amounts originally received for borrowings and other financial liabilities (net of transaction costs) and the redemption value is recognized in the consolidated statement of income (loss) over the period to maturity using the effective interest method.

(iii)

Derivative financial instruments

Derivatives are initially recognized at their fair value on the date the derivative contract is entered into and transaction costs are expensed in the consolidated statement of income (loss). Derivatives are subsequently re-measured at their fair value at each consolidated statement of financial position date with changes in fair value recognized in the consolidated statement of income (loss).

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to their host contracts.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(q)

Share based payments

The Company has an Employees’ and Directors’ Equity Incentive Plan, a Performance Share Unit (“PSU”) Plan and a Director Deferred Share Unit (“DDSU”) Plan.

The fair value of stock options at the date of grant is charged to operations over the vesting period, with an offsetting credit to contributed surplus. If and when the stock options are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital.

The PSUs and DDSUs are accounted for at fair value upon issuance and remeasured each reporting period, based on the fair market value of a common share of the Company, and recognized as an expense on a straight-line basis over the vesting period.

(r)

Issued rights

Rights to acquire equity instruments for a fixed amount of any currency are accounted for as equity instruments if they are issued on a pro rata basis to existing owners of the same class of non-derivative equity instruments.

(s)

Segment reporting

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. Operating segments are reported consistently with internal information provided to the chief operating decision maker (“CODM”). The CODM, who is responsible for allocating resources and assessing performance, has been identified as Turquoise Hill’s Chief Executive Officer. Based upon management’s assessment of the above criteria, the Company has one operating segment, Oyu Tolgoi with its copper-gold mine in southern Mongolia.

(t)

New standards and interpretations not yet adopted

A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ending December 31, 2015, and have not been applied in preparing these consolidated financial statements. The following standards may have a potential effect on the consolidated financial statements of the Company:

(i)

IFRS 9, Financial Instruments, is mandatorily effective for the Company’s consolidated financial statements for the year ending December 31, 2018. IFRS 9 brings together the classification and

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

2.	Summary of significant accounting policies (continued)

(t)

New standards and interpretations not yet adopted (continued)

measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. IFRS 9 also amends some of the requirements of IFRS 7, Financial Instruments: Disclosures, including added disclosures about investments in equity instruments measured at fair value in other comprehensive income, and guidance on financial liabilities and derecognition of financial instruments. The extent of the impact of adoption has not yet been determined.

(ii)

IFRS 15, Revenue from Contracts with Customers, which will replace IAS 18, Revenue, is effective for the Company’s fiscal year ending December 31, 2018 and is available for early adoption. The standard contains a single model that applies to contracts with customers. Revenue is recognized as control is passed to the customer, either at a point in time or over time. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The extent of the impact of adoption of the standard has not yet been determined.

(iii)

IFRS 16, Leases, which will replace IAS 17, Leases, is effective for the Company’s fiscal year ending December 31, 2019 and is available for early adoption. The objective of the new standard is to report all leases on the consolidated statement of financial position and to define how leases and liabilities are measured. The extent of the impact of adoption of the standard has not yet been determined.

None of the remaining standards and amendments to standards and interpretations are expected to have a significant effect on the consolidated financial statements of the Company.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

3.	Operating segments - continuing operations


	Year Ended December 31, 2015
	Oyu Tolgoi		Corporate and other eliminations		Consolidated

Revenue	$	1,634,762	$	-	$	1,634,762
Cost of sales		(974,956)		-		(974,956)

Gross margin		659,806		-		659,806

Operating expenses		(442,603)		(9,936)		(452,539)
Corporate administration expenses		-		(17,193)		(17,193)
Other income (expenses)		4,069		(50,233)		(46,164)

Income (loss) before finance items and taxes		221,272		(77,362)		143,910

Finance items
Finance income		902		2,262		3,164
Finance costs		(458,411)		450,057		(8,354)

Income (loss) from continuing operations before taxes	$	(236,237)	$	374,957	$	138,720


Provision for income and other taxes		164,868		1,218		166,086

Income (loss) from continuing operations	$	(71,369)	$	376,175	$	304,806


Depreciation and depletion	$	356,144	$	99	$	356,243
Capital additions (Note 12)	$	136,255	$	-	$	136,255
Total assets	$	6,975,751	$	1,264,344	$	8,240,095
Net increase (decrease) in cash	$	(32,794)	$	510,129	$	477,335

(a)

During the year ended December 31, 2015, all of Oyu Tolgoi’s revenue arose from copper-gold concentrate sales to customers in China and revenue from customers in excess of 10% of Oyu Tolgoi’s revenue was $341.8 million, $318.4 million, $241.3 million, $187.1 million and $171.9 million (December 31, 2014 - $510.6 million, $377.9 million and $303.6 million) respectively. Revenue by geographic destination is based on the ultimate country of destination, if known. If the destination of the copper concentrate sold through traders is not known, then revenue is allocated to the location of the copper concentrate at the time when revenue is recognized.

All long-lived assets of the Oyu Tolgoi segment, other than financial instruments, are located in Mongolia.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

3.	Operating segments - continuing operations (continued)


	Year Ended December 31, 2014
	Oyu Tolgoi		Corporate and other eliminations		Consolidated

Revenue	$	1,735,646	$	-	$	1,735,646
Cost of sales		(1,235,113)		-		(1,235,113)

Gross margin		500,533		-		500,533

Operating expenses		(437,351)		61,501		(375,850)
Corporate administration expenses		-		(22,588)		(22,588)
Other income (expenses)		-		12,246		12,246

Income (loss) before finance items and taxes		63,182		51,159		114,341

Finance items
Finance income		2,260		6,358		8,618
Finance costs		(470,117)		455,438		(14,679)

Income (loss) from continuing operations before taxes	$	(404,675)	$	512,955	$	108,280


Provision for income and other taxes		(841)		(50,160)		(51,001)

Income (loss) from continuing operations	$	(405,516)	$	462,795	$	57,279


Depreciation and depletion	$	392,733	$	563	$	393,296
Capital additions (Note 12)	$	119,766	$	433	$	120,199
Total assets	$	7,254,828	$	814,700	$	8,069,528
Net increase in cash	$	94,270	$	694,161	$	788,431

4.	Revenue


	Year Ended December 31,
	2015		2014

Copper-gold concentrate
Copper	$	829,601	$	1,067,010
Gold		788,949		650,417
Silver		16,212		18,219

	$	1,634,762	$	1,735,646

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

5.	Cost of sales


	Year Ended December 31,
	2015		2014

Production and delivery	$	630,413	$	849,789
Depreciation and depletion		344,543		385,324

	$	974,956	$	1,235,113

6.	Operating expenses by nature


	Year Ended December 31,
	2015		2014

Oyu Tolgoi administration expenses (a)	$	167,235	$	199,740
Royalty expenses (b)		120,795		91,512
Impairment and write downs (c)		103,236		33,926
Selling expenses		24,762		31,674
Care and maintenance and underground remobilization costs (d)		23,280		4,103
Depreciation		11,700		7,972
Other		1,531		6,923

	$	452,539	$	375,850

(a)

Oyu Tolgoi administration expenses in the year ended December 31, 2015 includes a charge of $22.1 million for settlement of amounts not previously paid or provided for in relation to a Mongolian tax assessment (the “Tax Act”) received by Oyu Tolgoi in June 2014. Settlement followed signature of the Oyu Tolgoi Underground Mine Development and Financing Plan (“UDP”) on May 18, 2015.

(b)

Royalty expenses during the year ended December 31, 2015 include an adjustment of $14.5 million made for recalculation of royalties payable to the government of Mongolia relating to previous years, following signature of the UDP on May 18, 2015.

(c)

Write downs include adjustments to the carrying value of non-current copper-gold stockpile inventories, and materials and supplies; refer to Note 10.

(d)

Remobilization costs include pre-start activities underway on the underground project.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

7.	Other income (expenses)


	Year Ended December 31,
	2015		2014

Gain on sale of mineral property rights	$	-	$	15,065
Realized losses on disposal of available for sale investments (Notes 13 and 19)		(11,431)		-
Foreign exchange gains		3,137		6,861
Write off of property, plant and equipment (a)		(36,794)		-
Other, including exploration and evaluation		(1,076)		(9,680)

	$	(46,164)	$	12,246

(a)

Following signature of the UDP, a net smelter royalty, purchased in 2003 from BHP Billiton and included in property, plant and equipment at a carrying value of $36.8 million, was written off as the Company conceded that it has no entitlement to receive payment.

8.	Finance income and finance costs


	Year Ended December 31,
	2015		2014

Finance income:
Interest income on bank deposits and short-term liquid investments	$	3,164	$	4,982
Realized gains on foreign currency forward contracts		-		2,572
Other finance income		-		1,064

	$	3,164	$	8,618


Finance costs:
Interest expense and similar charges	$	(4,616)	$	(7,729)
Accretion of decommissioning obligations (Note 16)		(3,738)		(6,950)

	$	(8,354)	$	(14,679)

9.	Cash and cash equivalents


	December 31,		December 31,		January 1,
	2015		2014		2014

Cash on hand and demand deposits	$	273,949	$	141,271	$	78,112
Short-term liquid investments (a)		1,069,929		721,484		-

	$	1,343,878	$	862,755	$	78,112

(a)

At December 31, 2015, short-term liquid investments of $740.5 million (December 31, 2014 - $711.5 million) have been placed with Rio Tinto (refer to Note 23).

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

10.

Inventories


	December 31,		December 31,		January 1,
	2015		2014		2014

Current
Copper-gold concentrate	$	66,716	$	142,242	$	533,895
Copper-gold stockpiles		38,905		11,596		7,529
Materials and supplies		259,521		274,320		309,620
Coal stockpiles		-		-		8,305
Provision against carrying value of materials and supplies		(43,733)		(31,376)		(14,839)

	$	321,409	$	396,782	$	844,510


Non-current
Copper-gold stockpiles	$	124,621	$	159,246	$	118,497
Provision against carrying value		(124,082)		(106,489)		(97,268)

	$	539	$	52,757	$	21,229

During the year ended December 31, 2015, $975.0 million (December 31, 2014 - $1,235.1 million) of inventory was charged to cost of sales (Note 5) and $8.4 million (December 31, 2014 - $70.7 million) of inventory was transferred to income (loss) after tax from discontinued operations (Note 14).

During the year ended December 31, 2015, total charges of $103.2 million (December 31, 2014 - $25.8 million) relating to inventory write off and increase in provision against carrying value were recognized in the consolidated statement of income (loss). It was determined that low grade copper-gold stockpiles would no longer be recognized due to prevailing commodity prices, resulting in an amount of $73.3 million, including amounts that had previously been fully provided against, being written off during the year ended December 31, 2015.

11.

Prepaid expenses and other deposits


	December 31,		December 31,		January 1,
	2015		2014		2014

Mongolian tax prepayments (Note 13 (a))	$	20,758	$	60,000	$	-
Prepaid expenses and other deposits (a)		32,617		16,903		33,378
Standby purchaser fee prepayment (Note 18 (c))		-		-		71,710

	$	53,375	$	76,903	$	105,088

(a)

As at December 31, 2015, prepaid expenses include $26.3 million relating to fees paid on signature of the Oyu Tolgoi project finance facility on December 14, 2015 (see Note 15(c)).

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

12.

Property, plant and equipment


	Oyu Tolgoi

Year Ended December 31, 2015	Mineral property interests		Plant and equipment		Capital works in progress		Other capital assets		Total




Net book value:

January 1, 2015	$	948,372	$	3,695,939	$	1,952,772	$	312	$	6,597,395
Additions		49,561		156		86,538		-		136,255
Depreciation for the year		(112,386)		(265,535)		-		(92)		(378,013)
Disposals and write offs		(36,794)		(1,958)		-		-		(38,752)
Transfers and other movements		-		64,415		(61,313)		(4)		3,098

December 31, 2015	$	848,753	$	3,493,017	$	1,977,997	$	216	$	6,319,983


Cost		1,079,559		4,277,529		1,977,997		3,783		7,338,868
Accumulated depreciation		(230,806)		(784,512)		-		(3,567)		(1,018,885)

December 31, 2015	$	848,753	$	3,493,017	$	1,977,997	$	216	$	6,319,983


	Oyu Tolgoi

Year Ended December 31, 2014	Mineral property interests		Plant and equipment		Capital works in progress		Other capital assets		Total




Net book value:

January 1, 2014	$	984,017	$	3,856,856	$	1,961,714	$	406,866	$	7,209,453
Additions		24,788		9,092		86,318		8,351		128,549
Depreciation for the year		(60,433)		(253,198)		-		(33,218)		(346,849)
Impairments charges		-		-		(8,170)		(277)		(8,447)
Disposals and write offs		-		(3,901)		-		(799)		(4,700)
Transfers and other movements		-		87,090		(87,090)		-		-
Transfer to assets held for sale		-		-		-		(380,611)		(380,611)

December 31, 2014	$	948,372	$	3,695,939	$	1,952,772	$	312	$	6,597,395


Cost		1,066,998		4,216,137		1,952,772		3,783		7,239,690
Accumulated depreciation		(118,626)		(520,198)		-		(3,471)		(642,295)

December 31, 2014	$	948,372	$	3,695,939	$	1,952,772	$	312	$	6,597,395

As at the date on which the Oyu Tolgoi project finance facility was signed (December 14, 2015), a substantial part of the non-current assets related to Oyu Tolgoi were deemed to be pledged. However, as at December 31, 2015, no amounts under the project financing facility have been drawn down.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

13. Financial assets


	December 31, 2015		December 31, 2014		January 1, 2014

Mongolian tax prepayments (a)	$	-	$	19,886	$	157,983
Available for sale investments (b)		18,902		34,325		70,254
Mongolian treasury bill (c)		-		-		109,294
Interests in joint ventures (d)		-		-		24,205
Other		1,176		6,342		8,735

	$	20,078	$	60,553	$	370,471

(a)

Mongolian tax prepayments

The Company made tax prepayments to the Mongolian Government of $50.0 million and $100.0 million on April 7, 2010 and June 7, 2011, respectively. The after-tax rate of interest on the tax prepayments is 1.59% compounding annually. During 2014, the Company reached an agreement with the Government of Mongolia to apply up to $5.0 million per month of the tax prepayments against Mongolian taxes owing since September 2013. Unless already off-set fully against Mongolian taxes, the Mongolian Government is required to repay any remaining tax prepayment balance, including accrued interest, on the fifth anniversary of the date the tax prepayment was made. The Company initially recognized the tax prepayments at their fair value ($125.4 million) and subsequently carried them at amortized cost with interest income recognized in income using the effective interest method.

During the year ended December 31, 2015, the Company offset $60.0 million (2014 - $80.0 million) of tax prepayments against Mongolian taxes and recognized $0.9 million (2014 - $1.9 million) of interest income. The expected application against Mongolian taxes for the next 12 months of $20.8 million is recorded as current in Prepaid expenses and other deposits (Note 11).

The total prepayment outstanding at December 31, 2015 was $20.8 million and is recorded in the consolidated financial statements at amortized cost. The fair value of the outstanding prepayment at December 31, 2015 was $20.2 million (December 31, 2014: $75.4 million; January 1, 2014: $145.0 million). The fair value of the tax prepayments was estimated based on available public information regarding what market participants would consider paying for such investments.

(b)

Available for sale equity securities


	December 31, 2015								December 31, 2014								January 1, 2014

	Equity Interest		Cost Basis		Unrealized Gain (Loss)		Fair Value		Equity Interest		Cost Basis		Unrealized Loss		Fair Value		Equity Interest		Cost Basis		Unrealized Gain (Loss)		Fair Value

SouthGobi Resources (i)		19.2%	$	11,059	$	3,398	$	14,457		-	$	-	$	-	$	-		-	$	-	$	-	$	-
Entrée Gold Inc.		9.4%		4,723		(1,840)		2,883		9.4%		4,723		(2,283)		2,440		9.4%		4,723		(696)		4,027
Ivanhoe Mines Ltd. (ii)		0.5%		3,191		(1,661)		1,530		5.4%		34,057		(2,206)		31,851		6.4%		34,057		25,953		60,010
Other		-		50		(18)		32		-		50		(16)		34		-		5,710		507		6,217

			$	19,023	$	(121)	$	18,902			$	38,830	$	(4,505)	$	34,325			$	44,490	$	25,764	$	70,254

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

13.

Financial assets (continued)

(b)

Available for sale equity securities (continued)

(i)

At December 31, 2015, the Company held 49.3 million Class A common shares of SouthGobi Resources Ltd. (“SouthGobi”) - see Note 14 for further information.

(ii)

At December 31, 2015, the Company held 0.4 million freely tradable Class A common shares (December 31, 2014 – 22.4 million, January 1, 2014 – 11.7 million) of Ivanhoe Mines Ltd. (“Ivanhoe”) and 3.0 million Class A common shares (December 31, 2014 – 14.7 million, January 1, 2014 – 25.4 million) that are subject to certain trading restrictions that are lifted on a portion every three months, with all the common shares becoming freely tradable by January 23, 2016.

In the year ended December 31, 2015, Turquoise Hill disposed of 33.7 million shares in Ivanhoe at a weighted average price of Cdn$0.74 per share resulting in a realized loss on disposal of $11.4 million.

(c)

Mongolian treasury bill

On October 20, 2009, Turquoise Hill purchased a Treasury Bill (“T-Bill”) from the Mongolian Government, having a face value of $115.0 million, for $100.0 million. The annual rate of interest on the T-Bill was set at 3.0%. The maturity date of the T-Bill was October 20, 2014 and the $115.0 million face value was repaid by the Mongolian Government on October 17, 2014.

(d)

Interests in joint ventures

Interests in joint ventures comprise SouthGobi’s 40% investment in RDCC LLC. The investment in joint venture was classified as held for sale within the SouthGobi disposal group from July 29, 2014 to April 23, 2015, when SouthGobi ceased to be a consolidated subsidiary.

14.

Assets held for sale and discontinued operations

2014 sale and purchase agreement and impairment charge

During the third quarter of 2014, upon entering into an agreement to sell SouthGobi, the reporting segment for SouthGobi was considered to be a disposal group held for sale and a discontinued operation.

Upon classification of SouthGobi as held for sale, the Company remeasured SouthGobi at the lower of its carrying value and fair value less cost to sell (“FVLCS”). The Company consequently recorded an impairment charge of $210.2 million ($117.7 million after non-controlling interests) against property, plant and equipment (including deferred stripping balances recognized on transition to IFRS) within the disposal group for the year ended December 31, 2014.

The estimate of FVLCS giving rise to the impairment was based upon a quoted share price of Cdn$0.50 at December 31, 2014 and included adjustments for amounts receivable from SouthGobi which eliminated on consolidation prior to divestment.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

14.

Assets held for sale and discontinued operations (continued)

2015 impairment reversal

As a result of an increase in SouthGobi’s quoted share price prior to divestment on April 23, 2015, the Company recorded an impairment reversal of $73.6 million ($35.2 million after non-controlling interests) against property, plant and equipment. The estimate of FVLCS giving rise to the reversal of impairment was based upon a quoted share price of Cdn$0.90 at March 31, 2015 and included adjustments for amounts receivable from SouthGobi which eliminated on consolidation prior to divestment.

Divestment to Novel Sunrise Investments Limited

On April 23, 2015, the Company completed the sale of 48.7 million shares in SouthGobi to Novel Sunrise Investments Limited (“NSI”) at a price of Cdn$0.35 per common share. Cash proceeds of Cdn$8.5 million were received on completion, with a balance of Cdn$8.5 million received by the Company on August 4, 2015. A further 1.7 million shares were sold to NSI on June 3, 2015 at a price of Cdn$0.35 per common share.

A loss on sale of $20.2 million was recorded within discontinued operations, as a result of the price per share divested being below the quoted share price on which the estimate of FVLCS was based.

Income and cash flows of SouthGobi up to April 23, 2015 are presented as discontinued operations in the consolidated statements of income (loss) and the consolidated statements of cash flows, respectively.

Subsequent re-measurement and presentation

Following completion of the transactions with NSI, the Company’s remaining 22.6% investment in SouthGobi was classified as an investment in an associate and recognized within current assets held for sale at an initial carrying value of $36.2 million, being an estimate of FVLCS based on the quoted share price at April 23, 2015. Charges and credits relating to subsequent changes in the FVLCS of the investment in associate, based on the quoted stock price, were included within other expenses in discontinued operations, together with gains or losses arising from general market divestment and other adjustments for transactions relating to SouthGobi.

On November 30, 2015, the Company’s ownership reduced to 19.9% (51.5 million shares), following the acquisition of 11,957,738 SouthGobi shares by China Investment Corporation in satisfaction of the paid in kind component of interest accrued on a $250.0 million convertible debenture (Note 15(d)). SouthGobi ceased to be an investment in an associate within assets held for sale on November 30, 2015 and became an available for sale investment recognized within financial assets (Note 13).

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

14.

Assets held for sale and discontinued operations (continued)

The Company continues to pursue a strategy of divesting its interest in SouthGobi through general market transactions.

The carrying amounts of assets and liabilities included in the disposal group are as follows:


	December 31, 2015		December 31, 2014

Cash and cash equivalents	$	-	$	3,788
Inventories		-		31,256
Trade and other receivables		-		461
Prepaid expenses and other assets		-		4,194
Property, plant and equipment		-		163,216
Financial assets		-		26,574

Assets of disposal groups held for sale	$	-		$ 229,489


Borrowings and other financial liabilities		-		2,301
Trade and other payables		-		10,324
Deferred revenue		-		11,898
Payable to related parties		-		771
Convertible credit facility		-		92,873
Decomissioning obligations		-		2,704

Liabilities of disposal groups held for sale	$	-		$ 120,871

The net income (loss) reported in discontinued operations for all periods presented is as follows:


	Year Ended December 31,
	2015		2014

Revenue	$	2,392	$	28,872
Cost of sales		(8,364)		(70,687)
(Write down) / reversal of write down of property, plant and equipment		73,638		(210,243)
Loss on sale of discontinued operations		(20,167)		-
Other expenses (a)		(45,215)		(45,105)

Income (loss) after tax from discontinued operations	$	2,284	$	(297,163)

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

14.

Assets held for sale and discontinued operations (continued)

(a)

Other expenses in the year ended December 31, 2015 include a charge of $23.9 million relating to changes in fair value less cost to sell of the Company’s investment in SouthGobi from April 23, 2015 to November 30, 2015.

15.

Borrowings and other financial liabilities


	December 31, 2015		December 31, 2014		January 1, 2014

Current
Interim funding facilities (a)	$	-	$	-	$	1,789,787
Bridge funding facilities (a)		-		-		339,475
Interest payable		-		-		15,831

	$	-	$	-	$	2,145,093


Non-current
Capital lease payable	$	13,574	$	14,086	$	14,564
Convertible debenture (d)		-		-		94,302

	$	13,574	$	14,086	$	108,866

(a)

Interim and bridge funding facilities

All amounts owing under the Interim and Bridge funding facilities provided by Rio Tinto to the Company were repaid by January 14, 2014 with proceeds from the 2013 rights offering (Note 18(c)). The facilities were then cancelled.

(b)

Revolving credit facility

On March 19, 2015, Oyu Tolgoi signed a secured $200.0 million revolving credit facility with five banks, replacing an unsecured $200.0 million facility signed on February 24, 2014 which matured on February 24, 2015. Amounts drawn under the credit facility are required to be used by Oyu Tolgoi for working capital purposes. The credit facility bears interest at a fixed margin over LIBOR on any drawn amounts together with a utilization fee, which varies according to the utilized portion of the facility, and a commitment fee on undrawn amounts. The credit facility matures on March 19, 2016. At December 31, 2015, no amounts had been drawn down on the facility.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

15.

Borrowings and other financial liabilities (continued)

(c)

Project finance facility

On December 14, 2015, Oyu Tolgoi signed a $4.4 billion project finance facility. The facility is being provided by a syndicate of international financial institutions and export credit agencies representing the governments of Canada, the United States and Australia (“Export Credit Agencies”), along with 15 commercial banks (the “Commercial Banks”).

The facility consists of the following components:


Facility	Amount	Term	Annual interest rate
			Pre-completion	Post-completion
Commercial Banks - A Loan	$0.8 billion	15 years	LIBOR + 3.78%	LIBOR + 4.78%
Export Credit Agencies Loan	$0.9 billion	14 years	LIBOR + 3.65%	LIBOR + 4.65%
Export Credit Agencies Loan	$0.4 billion	13 years	US Ex-Im at fixed rate of Commercial Interest Reference Rate based on US Treasury rates; determined at time of first disbursement
MIGA Insured Loan	$0.7 billion	12 years	LIBOR + 2.65 %	LIBOR + 3.65%
Commercial Banks - B Loan	$1.6 billion	12 years	LIBOR + 3.4%	LIBOR + 4.4%
Commercial Banks - B Loan	$1.6 billion	12 years	Includes $50 million 15-year loan at A Loan rate

Draw down of the $4.4 billion facility by Oyu Tolgoi is subject to satisfaction of certain conditions precedent and to approval of a formal ‘notice to proceed’ by the boards of Turquoise Hill, Rio Tinto plc and Oyu Tolgoi. Steps prerequisite to the boards’ approval comprise: completion of the 2015 feasibility study, including the updated capital estimate; and securing all necessary permits for the development of the underground mine. Net proceeds from the project finance facility shall be used by Oyu Tolgoi to pay down shareholder loans payable to Turquoise Hill and will be available to be re-drawn by Oyu Tolgoi for the development of the underground mine.

The parties to the project finance facility have agreed to a total debt cap of $6.0 billion for Oyu Tolgoi, providing potential for a further $1.6 billion of supplemental debt in the future.

As part of the project finance agreements, Rio Tinto plc has agreed to provide a guarantee, known as the completion support undertaking (“CSU”) in favour of the Commercial Banks and the Export Credit Agencies. In consideration for providing the CSU, Oyu Tolgoi and Turquoise Hill have agreed to pay Rio Tinto (as defined in Note 23) a fee equal to 2.5% of the amounts drawn under the facility, of which 1.9% is payable by Oyu Tolgoi and 0.6% is payable by Turquoise Hill. The fee payment obligation will terminate on the date Rio Tinto’s CSU obligations to the project lenders terminate.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

15.

Borrowings and other financial liabilities (continued)

(c)

Project finance facility (continued)

Following successful fulfilment of completion tests, as outlined in the project finance facility, the Rio Tinto CSU will terminate and the facility interest rates will shift to post-completion rates. The project financing facility provides for interest only payments for the first five years and is then structured on a stepped amortization schedule for the remaining life of the facility.

As part of the project finance agreements, Turquoise Hill has agreed to provide a guarantee, known as the sponsor debt service undertaking (“the Sponsor DSU”) in favour of Rio Tinto, the Bank Syndicate and the Export Agencies and agents representing such lenders, whereby Turquoise Hill will guarantee to the finance parties payment of principal, interest and fees owed by Oyu Tolgoi to the senior lenders under the project financing payable prior to completion. The obligations of Turquoise Hill under the Sponsor DSU terminate upon the earliest of (i) completion of the project, (ii) the termination of the Sponsor DSU as a result of the occurrence of certain force majeure circumstances (described in the agreements as suspensive events), and (iii) the date on which all senior debt obligations have been irrevocably and unconditionally paid or discharged and the commitments have terminated or expired.

In connection with the project finance facility and in consideration of Rio Tinto’s CSU, Turquoise Hill has entered into a number of agreements with Oyu Tolgoi and Rio Tinto which contain provisions that may be triggered in the event of default or similar circumstances. These provisions include, among other covenants and restrictions: the right by Rio Tinto to require that Turquoise Hill effect an equity contribution by private placement of Turquoise Hill shares to Rio Tinto, or a rights offering similar in form and structure to the rights offering which closed in January 2014; and the right by Rio Tinto to require that Oyu Tolgoi borrow funds from Rio Tinto or an alternate third party senior lender in order to repay amounts due and owing to the Bank Syndicate and the Export Credit Agencies.

In addition, Turquoise Hill has appointed 9539549 Canada Inc., a wholly owned subsidiary of Rio Tinto, as service provider to provide post-drawdown cash management services in connection with the net proceeds from the project finance facility, which shall be placed with 9539549 Canada Inc. and returned to Turquoise Hill as required for purposes of funding the Oyu Tolgoi underground mine. Rio Tinto International Holdings Limited, a wholly owned subsidiary of Rio Tinto, has agreed to guarantee the obligations of the service provider under this agreement.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

15.

Borrowings and other financial liabilities (continued)

(d)

Convertible debenture

On November 19, 2009, SouthGobi issued a convertible debenture to a wholly owned subsidiary of China Investment Corporation (“CIC”) for $500.0 million with an interest coupon of 8.0% (6.4% payable semi-annually in cash and 1.6% payable annually in the common shares of SouthGobi). Pursuant to the convertible debenture’s terms, on March 29, 2010, SouthGobi exercised its right to call for conversion of $250.0 million of the convertible debenture into 21.5 million shares.


	December 31, 2015		December 31, 2014		January 1, 2014

Principal amount of convertible debenture	$	-	$	250,000	$	250,000

(Deduct) add:
Transaction costs		-		(2,801)		(2,801)
Bifurcation of embedded derivative liability		-		(156,646)		(156,646)
Accretion of discount		-		486		354

Carrying amount of debt host contract	$	-	$	91,039	$	90,907
Embedded derivative liability		-		1,834		3,395

Convertible credit facility	$	-	$	92,873	$	94,302

Less amount classified as liabilities held for sale		-		(92,873)		-

Net carrying amount of convertible credit facility	$	-	$	-	$	94,302

The debenture was classified as held for sale within the SouthGobi disposal group from July 29, 2014 until April 23, 2015, when the Company’s interest in SouthGobi became an investment in an associated company within assets held for sale (see Note 14).

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

16.

Decommissioning obligations


	December 31, 2015		December 31, 2014		January 1, 2014

Oyu Tolgoi	$	104,421	$	93,004	$	116,254
SouthGobi		-		-		2,308

	$	104,421	$	93,004	$	118,562


			Year Ended December 31,
			2015		2014

Opening carrying amount			$	93,004	$	118,562
Changes in estimates and new estimated cash flows				7,679		(29,804)
Accretion of present value discount				3,738		6,950
Transfer to assets and liabilities held for sale				-		(2,704)

			$	104,421	$	93,004

Reclamation and closure costs have been estimated based on the Company’s interpretation of current regulatory requirements and other commitments made to stakeholders, and are measured as the net present value of future cash expenditures upon reclamation and closure.

Estimated future cash expenditures of $230.6 million have been discounted from an anticipated closure date of 2055 to their present value at a real rate of 2.0% (December 31, 2014 – 2.0%, January 1, 2014 – 2.0%).

17.

Income taxes

(a)

Tax expense / (benefit)


	Year Ended December 31,
	2015		2014


Current (i)	$	68,440	$	19,938

Deferred
Temporary differences related to accrued interest (ii)	$	(165,000)	$	-
Withholding taxes (iii)		(69,526)		31,063

	$	(234,526)	$	31,063



Net income statement (benefit) expense for income taxes	$	(166,086)	$	51,001

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

17.

Income taxes (continued)

(a)

Tax expense / (benefit) (continued)

(i)

Current taxes

In 2015, a cash payment of $65.8 million was made in respect of withholding tax, in addition to other current taxes payable. Deferred tax liabilities for withholding taxes are reclassified to current tax either on or immediately prior to settlement.

(ii)

Deferred tax asset recognized in 2015

A deferred tax asset of $165.0 million (2014: nil) has been recognized at December 31, 2015, in relation to accrued but unpaid interest expense following a reassessment of recoverability. The interest expense is tax deductible when paid; tax losses are subject to an eight year carry-forward limit. Deferred tax arising on unpaid interest expense accrued at December 31, 2015 has been recognized to the extent that recovery is considered probable. Recognition of this deferred tax includes adjustments to previously unrecognized amounts and is based on Oyu Tolgoi LLC’s income tax rate in Mongolia.

(iii)

Withholding taxes

Withholding tax is accrued and recognized within deferred tax liabilities. Following agreement with the Government of Mongolia in 2015, adjustments were made to prior period withholding tax obligations in order to reflect them in proportion to Turquoise Hill’s 66% ownership of Oyu Tolgoi LLC. Deferred tax liabilities for withholding taxes are reclassified to current tax either on or immediately prior to settlement.

(b)

Reconciliation of income taxes calculated at the statutory rates to the actual tax provision


	Year Ended December 31,
	2015		2014

Income from continuing operations before taxes	$	138,720	$	108,280
Tax payable at Canadian combined federal and provincial income tax rate (26%)		36,067		28,153
Tax effect of:
Change in deferred tax not recognized		(126,683)		73,023
Difference in tax rates in foreign jurisdictions		(112,973)		(115,477)
Withholding taxes		30,694		48,396
Non deductible amounts / other		6,809		16,906

	$	(166,086)	$	51,001

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

17.

Income taxes (continued)

(c)

Temporary differences giving rise to deferred income tax assets and liabilities


	December 31, 2015		December 31, 2014		January 1, 2014

Deferred tax assets: accrued interest	$	165,000	$	-	$	-
Deferred tax liabilities: withholding tax (i)		(52,916)		(122,820)		(91,380)

	$	112,084	$	(122,820)	$	(91,380)

(i)

Recognized deferred tax liabilities of $52.9 million (2014: nil) are expected to reverse within a year from the balance sheet date.

(d)

Deferred tax assets not recognized

At December 31, 2015, the Company has $772.2 million of losses carried forward as a result of the Oyu Tolgoi copper mine operations; the losses were generated in 2012 and 2013 and expire in 2020 and 2021. In addition, the Company has $433.1 million of Canadian federal net operating losses carried forward that expire between 2032 and 2035, and $541.2 million of Canadian capital losses carried forward. Deferred tax assets arising from these amounts have not been recognized as recovery is not considered probable.

At December 31, 2015, the Company has not recognized $514.0 million of potential deferred tax assets in jurisdictions where the ability to utilize losses is not probable. In addition, the Company has generated $856.7 million of investment tax credits; no deferred tax asset has been recognized in respect of these credits, in accordance with the initial recognition exception in IAS 12 Income taxes for transactions that are not a part of a business combination.

(e)

Deferred tax liabilities not recognized

Deferred tax is not recognized on the unremitted earnings of subsidiaries where the Company is able to control the timing of the remittance and it is probable that there will be no remittance in the foreseeable future. At December 31, 2015, there were no unremitted earnings for which deferred tax liabilities had not been recognized (2014: nil).

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

18.

Share capital


	Year Ended December 31, 2015
	Number of Common Shares		Amount

Balances, January 1, 2015		2,012,298,797		$11,432,060
Shares issued for:
Exercise of stock options (b)		15,672		62

Balances, December 31, 2015		2,012,314,469		$11,432,122


	Year Ended December 31, 2014
	Number of Common Shares		Amount

Balances, January 1, 2014		1,006,116,602		$9,150,621
Shares issued for:
Rights offering net of issue costs of $79,775 (c)		1,006,116,602		2,281,175
Exercise of stock options (b)		59,840		245
Share purchase plan		5,753		19

Balances, December 31, 2014		2,012,298,797		$11,432,060

(a)

Rio Tinto interests

As at December 31, 2015, Rio Tinto’s equity ownership in the Company was 50.8% (December 31, 2014 – 50.8%, January 1, 2014 – 50.8%). The Company’s Series D and Anti-Dilution Series D Warrants (the Warrants) expired on May 22, 2015 unexercised.

The Warrants were acquired by Rio Tinto in conjunction with the 2012 Memorandum of Agreement. The Series D Warrants were exercisable to purchase 74,247,460 common shares of the Company at a price of $8.20 per common share. The Anti-Dilution Series D Warrants were exercisable to purchase 74,247,460 common shares of the Company at a price of $4.31 per common share.

(b)

Share Options

During the year ended December 31, 2015, 15,672 options were exercised, 1,972,009 options expired, no options were cancelled, no options were granted and $0.1 million was charged to operations.

(c)

2013 Rights Offering

In November 2013, the Company filed a final short form prospectus for a rights offering open to all shareholders on a dilution-free, equal participation basis. In accordance with the terms of the rights offering, each shareholder of record as at December 6, 2013 received one right for each common share

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

18.

Share capital (continued)

(c)

2013 Rights Offering (continued)

held. Every right held entitled the holder thereof to purchase one common share of the Company at $2.40 per share or Cdn$2.53 per share, at the election of the holder. The rights traded on the TSX, NYSE and NASDAQ and expired on January 7, 2014.

Under the 2013 Memorandum of Agreement (“MOA”) and the November 14, 2013 amendment thereto, Rio Tinto agreed, subject to certain terms, conditions and limitations, to exercise its basic subscription privilege in full and to provide a standby commitment to acquire all common shares not otherwise taken up under the 2013 Rights Offering in exchange for a standby purchaser fee equal to 3% of the gross rights offering proceeds. Because the rights offering was oversubscribed, Rio Tinto did not purchase any shares under its standby commitment.

The pro rata distribution of rights to the Company’s shareholders was accounted for as an equity instrument. Upon the closing of the rights offering in January 2014, the Company issued a total of 1,006,116,602 common shares for gross proceeds of $2.4 billion. Expenses and fees relating to the rights offering totalled approximately $79.8 million, including the $70.8 million standby purchaser fee paid to Rio Tinto, and reduced the gross proceeds recorded as share capital.

The standby purchaser fee liability contained an embedded derivative as it was equal to 3% of the Canadian and U.S. dollar proceeds received upon the rights offering close. Therefore, the embedded derivative was measured at fair value, which was estimated using the optimal currency of exercise for a right at each measurement date. On December 3, 2013, the Company recognized a standby purchaser fee liability of $71.7 million and a deferred charge for the same amount, which was classified as a prepaid expense in the consolidated balance sheet. Upon closing the rights offering in January 2014, the deferred charge was reclassified from other assets to share capital to reflect a cost of the rights offering. During the year ended December 31, 2014, the Company recognized a derivative gain of $1.1 million associated with the remeasurement of the standby purchaser fee liability.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

19.

Accumulated other comprehensive income (loss)


	Unrealized Gain (Loss) on Available For Sale Equity Securities		Unrealized (Loss) Gain on Available For Sale Debt Securities		Noncontrolling Interests		Total Attributable to the Company

Balance, January 1, 2015	$	(4,505)	$	-	$	-	$	(4,505)

Change in other comprehensive loss before reclassifications		(6,940)		-		-		(6,940)
Reclassifications from accumulated other comprehensive income (Note 13 (b))		11,431		-		-		11,431

Net other comprehensive income		4,491		-		-		4,491

Balance, December 31, 2015	$	(14)	$	-	$	-	$	(14)


	Unrealized Gain (Loss) on Available For Sale Equity Securities		Unrealized (Loss) Gain on Available For Sale Debt Securities		Noncontrolling Interests		Total Attributable to the Company

Balance, January 1, 2014	$	25,764	$	(3,171)	$	(246)	$	22,347

Change in other comprehensive (loss) income before reclassifications		(30,534)		3,171		246		(27,117)
Reclassifications from accumulated other comprehensive income		265		-		-		265

Net other comprehensive (loss) income		(30,269)		3,171		246		(26,852)

Balance, December 31, 2014	$	(4,505)	$	-	$	-	$	(4,505)

20.

Non-controlling interests

At December 31, 2015, there were non-controlling interests in subsidiaries as follows:


	Non-controlling Interests
	SouthGobi		Oyu Tolgoi (a)		Total

Balance, January 1, 2015	$	56,590	$	(683,061)	$	(626,471)
Non-controlling interests’ share of income (loss)		29,635		(35,848)		(6,213)
Changes in equity interests held by Turquoise Hill		1,823		-		1,823
Disposal of subsidiary		(88,048)		-		(88,048)

Balance, December 31, 2015	$	-	$	(718,909)	$	(718,909)

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

20.

Non-controlling interests (continued)


	Non-controlling Interests
	SouthGobi		Oyu Tolgoi (a)		Total

Balance, January 1, 2014	$	171,348	$	(541,511)	$	(370,163)
Non-controlling interests’ share of loss		(125,263)		(141,550)		(266,813)
Non-controlling interests’ share of other comprehensive income		(246)		-		(246)
Changes in equity interests held by Turquoise Hill		10,751		-		10,751

Balance, December 31, 2014	$	56,590	$	(683,061)	$	(626,471)

(a)

Common share investments funded on behalf of non-controlling interests

Since 2011, the Company has funded common share investments in Oyu Tolgoi on behalf of Erdenes Oyu Tolgoi LLC (“Erdenes”). In accordance with the Amended and Restated Shareholders Agreement dated June 8, 2011, such funded amounts earn interest at an effective annual rate of LIBOR plus 6.5% and are repayable to the Company via a pledge over Erdenes’ share of future Oyu Tolgoi common share dividends. Erdenes also has the right to reduce the outstanding balance by making payments directly to the Company.

Common share investments funded on behalf of Erdenes are recorded as a reduction to the net carrying value of non-controlling interest. As at December 31, 2015, the cumulative amount of such funding was $751.1 million (December 31, 2014—$751.1 million; and January 1, 2014—$751.1 million). Accrued interest of $231.1 million (December 31, 2014—$168.6 million; and January 1, 2014—$110.5 million), has not been recognized in these consolidated financial statements, as payment will be triggered on common share dividend distribution by Oyu Tolgoi, the timing of which cannot currently be reliably determined.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

21.

Cash flow information

(a)

Reconciliation of net income to net cash flow generated from operating activities


	Year Ended December 31,
	2015		2014

Income from continuing operations	$	304,806	$	57,279

Adjustments for:
Concentrate prepayment facility offsets		-		(53,826)
Depreciation and amortization		356,243		393,296
Finance items:
Interest income		(3,164)		(4,460)
Interest and accretion expense		8,354		19,899
Realized and unrealized losses on financial instruments		11,431		-
Unrealized foreign exchange losses		913		105
Inventory write downs net of reversals		103,236		25,757
Write down of carrying value of property, plant and equipment		38,341		8,170
Tax prepayment offset		60,000		80,013
Gains on sale of mineral property rights and other assets		-		(15,065)
Income and other taxes		(166,086)		46,628
Other items		779		1,881

Net change in non-cash operating working capital items:
Decrease (increase) in:
Inventories		29,444		253,040
Trade, other receivables and prepaid expenses		17,625		(22,887)
Amounts receivable from related parties		4,241		(13,980)
Increase (decrease) in:
Trade and other payables		(22,620)		(40,188)
Deferred revenue		(68,131)		33,336
Amounts payable to related parties		(18,983)		(37,136)

Cash generated from operating activities of continuing operations before interest and tax		656,429		731,862

Cash used in operating activities of discontinued operations before interest and tax		(5,911)		(13,319)


Cash generated from operating activities before interest and tax	$	650,518	$	718,543

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

21.

Cash flow information (continued)

(b)

Supplementary information regarding other non-cash transactions

The non-cash investing and financing activities relating to continuing operations not already disclosed in the consolidated statements of cash flows were as follows:


	Year Ended December 31,
	2015		2014

Investing activities
Tax prepayment (Note 13)	$	60,000	$	80,013
Change in accounts payable and accrued liabilities related to property, plant and equipment (Note 12)		20,044		(113,626)

Financing activities
Repayment of credit facility	$	-	$	(53,826)

22.

Earnings (loss) per share

The basic earnings (loss) per share is computed by dividing the net income (loss) attributable to common stock by the weighted average number of common shares outstanding during the period. All stock options and share purchase warrants outstanding at each period end have been excluded from the weighted average share calculation.

The potentially dilutive shares excluded from the earnings (loss) per share calculation due to anti-dilution are as follows:


	Year Ended December 31,
	2015		2014

Options		1,384,103		3,742,974
Series D warrants		-		74,247,460
Anti-diultive Series D warrants		-		74,247,460

		1,384,103		152,237,894

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

23.

Related parties

(a)

Related party transactions with Rio Tinto

As at December 31, 2015, Rio Tinto plc’s indirect equity ownership in the Company was 50.8% (December 31, 2014 and January 1, 2014: 50.8%).

The following table presents the consolidated balance sheet line items which include deposits with, amounts due from, and amounts payable to a Rio Tinto entity or entities (“Rio Tinto”). Rio Tinto entities comprise Rio Tinto plc, Rio Tinto Limited and their respective subsidiaries other than Turquoise Hill Resources and its subsidiaries.


	December 31, 2015		December 31, 2014		January 1, 2014

Cash equivalents (i)	$	740,537	$	711,468	$	-
Due from related parties		3,623		7,864		5,070
Payable to related parties:
Management service payments (ii)		(5,972)		(7,729)		(100,569)
Cost recoveries (iii)		(28,829)		(46,055)		(75,237)
Standby purchaser fee		-		-		(71,886)
Interest payable on long-term debt		-		-		(13,530)
Interim funding facility (Note 15)		-		-		(1,789,787)
New bridge facility (Note 15)		-		-		(339,475)

	$	709,359	$	665,548	$	(2,385,414)

The following table summarizes transactions with Rio Tinto by their nature:


	Year Ended December 31,
	2015		2014

Interest income on cash and cash equivalents (i)	$	1,393	$	29
Cost recoveries - Turquoise Hill		3,723		4,017

Financing costs:
Commitment fees (iv)		-		(224)
Interest expense (iv)		-		(4,903)
Management services payment (ii)		(24,054)		(27,745)
Cost recoveries - Rio Tinto (iii)		(49,322)		(78,630)

	$	(68,260)	$	(107,456)

(i)

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

23.

Related parties (continued)

(a)

Related party transactions with Rio Tinto (continued)

invest funds with Rio Tinto in accordance with an agreed upon policy and strategy for the management of liquid resources. At December 31, 2015, cash equivalents deposited with wholly owned subsidiaries of Rio Tinto totalled $740.5 million, earning interest at rates equivalent to those offered by financial institutions.

(ii)

In accordance with the Amended and Restated Shareholders Agreement, which was signed on June 8, 2011, and other related agreements, Turquoise Hill is required to pay a management services payment to Rio Tinto equal to a percentage of all capital costs and operating costs incurred by Oyu Tolgoi from March 31, 2010 onwards. Until the Oyu Tolgoi open pit mine achieved Commencement of Production, as defined in the Investment Agreement, on September 1, 2013, the percentage of costs used to calculate the management services payment was 1.5%. Thereafter, the percentage increased to 3.0% for open pit operations and, in accordance with the UDP signed on May 18, 2015, is 1.5% for Underground capital costs.

(iii)

Rio Tinto recovers the costs of providing general corporate support services and mine management services to Turquoise Hill. Mine management services are provided by Rio Tinto in its capacity as the manager of the Oyu Tolgoi mine.

(iv)

The Rio Tinto credit facilities included gross-up provisions for withholding taxes. Accordingly, front end fees, commitment fees and interest expense include gross-ups for withholding taxes where applicable.

The above noted transactions were carried out in the normal course of operations and were measured at the transaction amount, which is the amount of consideration established and agreed to by the related parties.

Turquoise Hill has entered into a number of transactions with Rio Tinto in relation to the Oyu Tolgoi signing of project finance on December 14, 2015; refer to Note 15 for information relating to these arrangements.

(b) Related party transactions with SouthGobi

The following table summarizes transactions with SouthGobi which were primarily incurred on a cost-recovery basis with companies related by way of directors, officers or shareholders in common:


	Year Ended December 31,
	2015		2014

SouthGobi - from April 23, 2015 to November 30, 2015 (i)	$	436	$	-

	$	436	$	-

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

23.

Related parties (continued)

(b)

Related party transactions with SouthGobi (continued)

The above noted transactions were in the normal course of operations and measured at the transaction amount, which is the amount of consideration established and agreed to by the related parties.

(i)

SouthGobi became an investment in a company subject to significant influence on April 23, 2015 (see Note 14 for further information); prior to this SouthGobi was a consolidated subsidiary of Turquoise Hill and transactions between the Company and SouthGobi were eliminated upon consolidation.

On November 30, 2015, the Company’s ownership reduced to 19.9% (Note 14). From this point, SouthGobi ceased to be an investment in an associate and became an available for sale investment recorded within financial assets. Transactions occurring from April 23, 2015 to November 30, 2015 between the Company and SouthGobi are disclosed as related party transactions.

24. Commitments and contingencies

(a) Project finance fee commitments

At December 31, 2015, the Company had commitments for $24.4 million of project finance fees that will be incurred in 2016 (see Note 15).

(b) Operating lease commitments

The following table presents the future aggregate minimum lease payments under non-cancellable operating leases as at December 31, 2015:


	Year Ended December 31,
	2015		2014

Less than one year	$	120,196	$	210,997
1 to 5 years		60,123		206,324
More than 5 years		-		-

	$	180,319	$	417,321

Due to the size, complexity and nature of Turquoise Hill’s operations, various legal and tax matters arise in the ordinary course of business. Turquoise Hill recognizes a liability with respect to such matters when an outflow of economic resources is assessed as probable and the amount can be reliably estimated. In the opinion of management, these matters will not have a material effect on the consolidated financial statements of the Company.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

25. Financial instruments and fair value measurements

Certain of the Company’s financial assets and liabilities are measured at fair value on a recurring basis and classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Certain non-financial assets and liabilities may also be measured at fair value on a non-recurring basis.

The fair value of financial assets and financial liabilities measured at amortized cost is determined in accordance with generally accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions. Except as otherwise specified, the Company considers that the carrying amount of trade and other receivables, trade payables and other financial assets measured at amortized cost approximates their fair value because of the demand nature or short-term maturity of these instruments.

The following tables provide an analysis of the Company’s financial assets that are measured subsequent to initial recognition at fair value on a recurring basis, grouped into Level 1 to 3 based on the degree to which the inputs used to determine the fair value are observable.

•

Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities.

•

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1, that are observable either directly or indirectly.

•

Level 3 fair value measurements are those derived from valuation techniques that include inputs that are not based on observable market data.


	Fair Value at December 31, 2015
	Total		Level 1		Level 2		Level 3
Assets:
Available for sale investments	$	18,902	$	17,579	$	1,323	$	-

	$	18,902	$	17,579	$	1,323	$	-


	Fair Value at December 31, 2014
	Total		Level 1		Level 2		Level 3
Assets:
Available for sale investments	$	34,325	$	22,215	$	12,110	$	-

	$	34,325	$	22,215	$	12,110	$	-

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

25.

Financial instruments and fair value measurements (continued)


	Fair Value at January 1, 2014
	Total		Level 1		Level 2		Level 3
Assets:
Available for sale investments	$	70,254	$	30,899	$	39,355	$	-

Mongolian treasury bill		109,294		-		-		109,294

	$	179,548	$	30,899	$	39,355	$	109,294

Liabilities:
Payable to related parties	$	71,886	$	-	$	71,886	$	-

	$	71,886	$	-	$	71,886	$	-

The Company’s freely tradable available for sale investments are classified within level 1 of the fair value hierarchy as they are valued using quoted market prices. Available for sale investments with trading restrictions are classified within level 2 as they are valued by applying a liquidity discount to quoted market prices.

(a)

Financial risk management

Certain of the Company’s activities expose it to a number of financial risks, which include liquidity risk, foreign exchange risk, interest rate risk, credit risk and commodity price risk. The Company does not currently have in place any active hedging or derivative trading policies to manage these risks, since in the opinion of management, the potential exposure is not significant.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company manages liquidity by maintaining cash and cash equivalent balances available to meet its anticipated operational needs. Liquidity requirements are managed based upon expected cash flow to ensure that there is adequate capital to meet short-term and long-term obligations. At December 31, 2015, the Company’s trade and other payables were $166.8 million all of which are due for payment within twelve months. In addition, the Company has a capital lease payable of $13.6 million.

Foreign exchange risk

The Company operates on an international basis and therefore foreign exchange risk exposures arise from transactions not denominated in U.S. dollars, its functional currency. The Company does not have a material exposure to foreign exchange risk since the amount of financial instruments not denominated in U.S. dollar is insignificant; other foreign exchange risk arises primarily with respect to operating costs that are incurred in non-U.S. dollar local currencies and to its cash and cash equivalents that are not held in U.S. dollars.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

25.

Financial instruments and fair value measurements (continued)

(a)

Financial risk management (continued)

Interest rate risk

Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. The Company is exposed to interest rate risk on its cash and cash equivalents. Cash and cash equivalents have limited interest rate risk due to their short-term nature and receive interest based upon market interest rates or rates equivalent to those offered by financial institutions.

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily from customer receivables) and from its financing activities, including deposits with banks, other financial institutions and Rio Tinto, other short term liquid investments and other financial instruments. The Company manages its customer credit risk subject to the Company’s established policy, procedures and controls relating to customer credit risk management. Credit limits are established for all customers based on internal or external rating criteria. The Company deposits its cash and cash equivalents with high credit quality counterparties as referenced by ratings agencies. The Company’s maximum exposure to credit risk at December 31, 2015 is the carrying value of its cash and cash equivalents and its trade and other receivables.

Commodity price risk

The Company is exposed to commodity price risk from fluctuations in market prices of the commodities that the Company produces. Certain products are “provisionally priced” whereby the selling price is subject to final adjustment at the end of a period normally ranging from 30 to 180 days after delivery to the customer as defined in the sales contract. Revenue is recognized on provisionally priced sales based on estimates of fair value of the consideration receivable which is based upon forward market prices. At each reporting date, the provisionally priced metal is marked to market based on the forward selling price for the period stipulated in the contract. For this purpose, the selling price can be measured reliably for those products, such as copper, gold, and silver, for which there exists an active and freely traded commodity market such as the London Metals Exchange and the value of product sold by the Company is directly linked to the form in which it is traded on that market. The marking to market of provisionally priced sales contracts is classified as a component of sales revenue.

(b)

Capital risk management

The Company’s objectives when managing capital risk are to safeguard its ability to continue as a going concern, to provide an adequate return to shareholders and to support any growth plans.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

25.

Financial instruments and fair value measurements (continued)

(b)

Capital risk management (continued)

The Company considers its capital to be share capital and cash and cash equivalents. To effectively manage capital requirements, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating needs. The Company ensures that there is sufficient cash to meet its short term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents.

26.

Key management compensation

The compensation for key management, which comprises Turquoise Hill’s directors, Chief Financial Officer, and Vice President, Operations and Development, in respect of employee services is as follows:


	Year Ended December 31,
	2015		2014

Salaries, director fees and other short term benefits	$	2,252	$	4,285
Post-employment benefits		82		168
Share based payment		650		990

	$	2,984	$	5,443

27.

First time adoption of IFRS

These are the Company’s first consolidated financial statements prepared in accordance with IFRS.

The accounting policies set out in Note 2 have been consistently applied in preparing consolidated financial statements for the year ended December 31, 2015, and in the preparation of an opening IFRS statement of financial position at January 1, 2014 (the “Transition Date”).

In preparing its opening IFRS statement of financial position, Turquoise Hill has adjusted amounts reported previously in financial statements prepared in accordance with US GAAP (its previous GAAP). Explanations of how the transition from its previous GAAP to IFRS has affected the Company’s equity and its comprehensive income (loss) are set out in the following reconciliations and the notes that accompany them.

Changes made to the consolidated statements of income (loss), comprehensive income (loss) and the consolidated statements of financial position have resulted in reclassification of various amounts on the statements of cash flows; however as there have been no changes to the net cash flows, no reconciliations have been prepared.

Pursuant to IFRS 1 First-time Adoption of International Financial Reporting Standards, Turquoise Hill has applied IFRS on a retrospective basis, subject to the following relevant mandatory exceptions and voluntary exemptions to retrospective application of IFRS.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

27.

First time adoption of IFRS (continued)

Turquoise Hill has applied the following mandatory exceptions in its first IFRS financial statements:

(a)

Estimates

IFRS 1 provides that estimates in accordance with IFRS at the date of transition shall be consistent with estimates made in accordance with previous GAAP (after adjustment to reflect differences in accounting policies), unless there is objective evidence those estimates were in error. There were no adjustments made to previous GAAP estimates.

(b)

Non-controlling interests (NCI)

IFRS 1 provides that the following requirements be applied prospectively from the date of transition:

(i)

The requirement that total comprehensive income (loss) is attributed to owners of the parent and non-controlling interests even if this results in NCI having a deficit balance;

(ii)

The requirements for changes in the parent’s ownership interest that do not result in a loss of control; and

(iii)

The requirements for accounting for a loss of control over a subsidiary and the related requirements of IFRS 5 Non-current Assets Held-For-Sale and Discontinued Operations.

In accordance with IFRS 1, Turquoise Hill has applied the following voluntary exemptions in the conversion from its previous GAAP to IFRS.

(a)

Exemption for business combinations

IFRS 1 provides the option to apply IFRS 3, Business Combinations, prospectively from the Transition Date or from a specific date prior to the Transition Date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the Transition Date. The Company elected to apply IFRS 3 prospectively to business combinations occurring after its Transition Date. As a result, business combinations occurring prior to the Transition Date have not been restated.

(b)

Exemption for share-based payment transactions

An IFRS 1 exemption allows the Company to not apply IFRS 2, Share-based Payment, to equity instruments granted after November 7, 2002 that vested before the date of transition to IFRS. The Company has elected to apply the exemption and, as a result, has not recalculated the impact on any share based payments that have vested at the Transition Date.

(c)

Exemption for borrowing costs

IFRS 1 allows a first time adopter to apply the transitional provisions set out in IAS 23, Borrowing Costs. The Company has elected to apply IAS 23 prospectively from the Transition Date.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

27.

First time adoption of IFRS (continued)

(d)

Exemption for assets and liabilities of subsidiaries, associates and joint ventures

The Company became a first-time adopter of IFRS after its subsidiaries, Oyu Tolgoi and SouthGobi, and is therefore required to measure the assets and liabilities of Oyu Tolgoi and SouthGobi at the same carrying amounts as in the subsidiaries’ own financial statements, after adjusting for consolidation accounting adjustments and differences in accounting policy. Where an asset is affected by policy differences between the Company and its subsidiaries, the Company has applied relevant IFRS 1 voluntary exemptions described elsewhere in this note.

The Company also became a first-time adopter after its controlling shareholder, Rio Tinto; however, IFRS 1 allows a first time adopter that adopts IFRS later than its parent to measure assets and liabilities in its financial statements at either:

(i)

the carrying amounts included in the parent’s consolidated financial statements, based on the parent’s IFRS transition date, if no adjustments were made for consolidation procedures and effects of the business combination in which the parent acquired the subsidiary; or

(ii)

the carrying amounts based on the Company’s own transition date, which could differ from (i) when exemptions result in measurements that depend on transition date or when accounting policies used differ from those used by the parent.

The Company has elected to use the carrying value of its assets and liabilities based upon its Transition Date and has not recorded assets and liabilities in its financial statements based on transition date elections made by Rio Tinto.

(e)

Exemption for compound financial instruments

IFRS 1 allows a first time adopter to not reassess the split of a compound financial instrument at inception into its separate liability and equity components when the liability component is no longer outstanding. The Company has elected to take this exemption with respect to financial instruments no longer outstanding at the Transition Date.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

27.

First time adoption of IFRS (continued)

(e)

Exemption for compound financial instruments (continued)

The Company has not elected to adopt the remaining voluntary exemptions under IFRS 1 or has determined that they do not apply to the Company.


Reconciliation of equity		December 31, 2014		January 1, 2014
	Note	December 31, 2014		January 1, 2014

Equity under U.S. GAAP		$	7,576,725	$	4,578,086
IFRS adjustments to equity:
Non-current inventories	a		(110,330)		(103,892)
Deferred stripping costs (Oyu Tolgoi)	b		42,395		9,442
Deferred stripping costs (SouthGobi)	b		-		96,063
Available for sale equity investments	c		873		14,331
Loans receivable	d		4,509		13,024
Decommissioning obligations	e		(1,703)		(1,614)
Income taxes	f		-		4,547
Rights offering	g		-		928,280
Consolidation and classification of SouthGobi	h		55,986		-
Other			10		735

Total IFRS adjustments to equity		$	(8,260)	$	960,916

Total equity under IFRS		$	7,568,465	$	5,539,002


Reconciliation of total comprehensive loss		Year Ended December 31, 2014
	Note	Year Ended December 31, 2014

Comprehensive loss under U.S. GAAP		$	(208,884)
IFRS adjustments to income (loss):
Non-current inventories	a		(6,439)
Deferred stripping costs	b		37,234
Decommissioning obligations	e		953
Income taxes	f		(10,087)
Rights offering	g		34,034
Consolidation and classification of SouthGobi	h		(99,758)
Other			2,398
IFRS adjustments to comprehensive income (loss)
Investments in securities available for sale	c		(13,458)
Loans receivable	d		(8,514)
Income taxes	f		5,539

Total IFRS adjustments to comprehensive loss		$	(58,098)

Comprehensive loss under IFRS		$	(266,982)

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

27.

First time adoption of IFRS (continued)

Notes to the reconciliations

The following notes should be read in conjunction with the accounting policies contained in Note 2.

(a) Non-current inventories

Under US GAAP, the Company valued copper-gold stockpiles expected to be processed and sold in greater than one year at the lower of weighted average cost and undiscounted net realizable value. Under IFRS, the Company has elected to value inventory at the lower of cost and net realizable value, calculated on a discounted cash flow basis when the inventory is expected to be sold in greater than one year.

(b) Deferred stripping costs

Under US GAAP, production phase stripping costs for open pit mines are treated as current production costs. Under IFRS, stripping costs in the production phase are capitalized to mineral properties if the stripping activities provide a probable future economic benefit.

(c) Available for sale equity investment - Ivanhoe Mines Ltd.

Under US GAAP, the Company’s investment in Class A common shares of Ivanhoe Mines Ltd., including those which were restricted from trading for less than a year, were accounted for as an available for sale investment. Class A common shares restricted for over a year were accounted for using the cost method. Under IFRS, all Class A common shares of Ivanhoe Mines Ltd. are accounted for as available for sale investments.

(d) Loans and receivables - Mongolian Tax Prepayments

Under US GAAP, the Company treated the tax prepayments as available for sale financial assets. Under IFRS, the Company has classified these prepayments as loan receivables and carries them at amortized cost, reduced by amounts applied to tax prepayments.

(e) Decommissioning Obligations

Under US GAAP, provisions for decommissioning obligations are discounted using a credit-adjusted risk-free rate for the entity and the liability is remeasured only for changes to the estimated cash flows. Under IFRS, provisions for decommissioning obligations are discounted using a discount rate that reflects the specific risks of the liability but excludes the entity’s own credit risk. The entire provision is remeasured each reporting period, reflecting changes in risk-free discount rates where applicable and estimated cash flows.

TURQUOISE HILL RESOURCES LTD.

Notes to the Consolidated Financial Statements

(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands unless otherwise noted)

27.

First time adoption of IFRS (continued)

(f) Income Taxes

Under IFRS, deferred taxes are not recognized upon the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transition, affects neither accounting profit nor taxable profit. This exception to the recognition of deferred taxes does not exist under US GAAP. Accordingly, deferred taxes arising from such items have been derecognized upon the adoption of IFRS.

(g) Rights Offering

Under US GAAP, the Company recognized a derivative financial liability for the 2013 rights offering because the rights included a foreign currency option, as each holder was able to elect to exercise its rights in US or Canadian dollars. Under US GAAP, changes in the fair value of the derivative financial liability were recorded in the statement of operations. Under IFRS, the Company has recorded these rights as an equity instrument and therefore no derivative has been recorded.

(h) Consolidation and classification of SouthGobi

Under US GAAP, the Company classified SouthGobi as held for sale and a discontinued operation during the three months ended September 30, 2014 and as a result restated previous periods presented to reflect the classification as held for sale and a discontinued operation. Following completion of a private placement by SouthGobi on December 3, 2014, Turquoise Hill’s ownership fell to 47.9% and the Company classified SouthGobi as an investment subject to significant influence and no longer consolidated. The Company’s investment in SouthGobi at December 31, 2014 was recognized at fair value as an investment within non-current assets held for sale in the Company’s consolidated balance sheet.

Under IFRS, the Company determined that at the time of the private placement on December 3, 2014 and at December 31, 2014, although the Company did not have the majority of voting rights, the Company concluded that, considering the size and dispersion of other vote holders, it continued to retain the de facto ability to direct the relevant activities of SouthGobi and accordingly continued to consolidate SouthGobi in the Company’s consolidated financial statements as held for sale and discontinued operations. Under IFRS, the assets and liabilities of SouthGobi are not reclassified as held for sale in comparative information for periods ending before the classification as held for sale on July 29, 2014.

Exhibit 99.3

LOGO

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

December 31, 2015

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

INTRODUCTION

This management discussion and analysis of the financial condition and results of operations (MD&A) of Turquoise Hill Resources Ltd. should be read in conjunction with the audited consolidated financial statements of Turquoise Hill Resources Ltd. and the notes thereto for the year ended December 31, 2015. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. In this MD&A, unless the context otherwise dictates, a reference to the Company refers to Turquoise Hill Resources Ltd. and a reference to Turquoise Hill refers to Turquoise Hill Resources Ltd. together with its subsidiaries. Additional information about the Company, including its Annual Information Form (AIF), is available under the Company’s profile on SEDAR at www.sedar.com.

References to “C$” refer to Canadian dollars and “$” to United States dollars.

This MD&A contains certain forward-looking statements and certain forward-looking information. Please refer to the cautionary language commencing on page 45.

All readers of this MD&A are advised to review and consider the risk factors discussed under the heading “Risk and Uncertainties” in this MD&A commencing on page 25.

The effective date of this MD&A is March 17, 2016.


December 31, 2015			Page \| 2

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

TABLE OF CONTENTS


		Page
1.	Selected Annual Financial Information		4

2.	Review of Operations		4

	A. Oyu Tolgoi		6

	B. Other Assets		13

	C. Corporate Activities		14

	D. Corporate Administrative Expenses		14

3.	Selected Quarterly Data		15

4.	Liquidity and Capital Resources		15

5.	Share Capital		17

6.	Outlook		17

7.	Off-Balance Sheet Arrangements		18

8.	Contractual Obligations		18

9.	Changes in Accounting Policies		18

10.	Critical Accounting Estimates		19

11.	Recent Accounting Pronouncements		22

12.	International Financial Reporting Standards		22

13.	Risks and Uncertainties		25

14.	Related-Party Transactions		41

15.	Non-GAAP Measures		42

16.	Disclosure Controls and Procedures		44

17.	Management’s Report on Internal Controls over Financial Reporting		44

18.	Oversight of the Audit Committee		45

19.	Qualified Person		45

20.	Cautionary Statements		45

21.	Forward-Looking Statements and Forward-Looking Information		46

22.	Management’s Report to Shareholders		49


December 31, 2015			Page \| 3

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

1.	SELECTED ANNUAL FINANCIAL INFORMATION


($ in millions of dollars, except per share information)	Year Ended December 31,
	2015			2014			2013^(a)
Revenue
Copper-gold concentrate	$	1,634.8		$	1,735.6			$51.5
Total revenue	$	1,634.8		$	1,735.6			$51.5

Net income from continuing operations attributable to owners of Turquoise Hill	$	340.7		$	198.8			$97.7
Loss from discontinued operations attributable to owners of Turquoise Hill		(27.4	)		(171.9	)		(209.7)
Net income (loss) attributable to owners of Turquoise Hill	$	313.3		$	26.9			$ (112.0)

Basic income (loss) per share attributable to owners of Turquoise Hill
Continuing operations	$	0.17		$	0.10			$0.07
Discontinued operations		(0.01	)		(0.09	)		(0.16)
Total	$	0.16		$	0.01			$(0.09)
Diluted income (loss) per share attributable to owners of Turquoise Hill
Continuing operations	$	0.17		$	0.10			$0.07
Discontinued operations		(0.01	)		(0.09	)		(0.16)
Total	$	0.16		$	0.01			$(0.09)

Total assets	$	8,240.1		$	8,299.0			$8,177.6
Long term liabilities
Financial liabilities	$	13.6		$	14.1			$928.3
Decommissioning obligations and deferred income tax liabilities	$	157.3		$	215.8			$189.6

^(a)	Financial information for 2015 and 2014 has been prepared under IFRS; financial information for 2013 was prepared under U.S. GAAP and has not been restated in the above table. Please refer to Section 12 – INTERNATIONAL FINANCIAL REPORTING STANDARDS – on page 20 on this MD&A.

2.	REVIEW OF OPERATIONS

Turquoise Hill is an international mining company focused on the operation and further development of the Oyu Tolgoi copper-gold mine in southern Mongolia, which is the Company’s principal and only material mineral resource property. The Oyu Tolgoi mine is held through a 66% interest in Oyu Tolgoi LLC (Oyu Tolgoi); the remaining 34% interest is held by Erdenes Oyu Tolgoi LLC (Erdenes).

As at December 31, 2015, Turquoise Hill held a 19.2% interest in SouthGobi Resources Ltd. (SouthGobi), which owns the Ovoot Tolgoi coal mine in southern Mongolia and is listed in Canada and Hong Kong.

In 2015, the Company recorded net income attributable to owners of Turquoise Hill of $313.3 million or $0.16 per share compared with net income of $26.9 million or $0.01 per share in 2014, an increase of $286.4 million. The increase is mainly attributable to a $210.2 million non-cash impairment charge recorded in 2014 on reclassification of SouthGobi to assets held for sale, and a deferred tax asset of $165.0 million recognized in 2015, partially offset by adjustments for inventory write-down of $103.2 million.

Operating cash flows before interest and taxes in 2015 were $650.5 million compared with $718.5 million in 2014, reflecting the impact of lower commodity prices on sales revenue, offset by the continued production and delivery cost improvements and effective working capital management.

Capital expenditure on property, plant and equipment was $116.2 million on a cash basis in 2015, primarily attributed to sustaining capital activities.

Turquoise Hill’s cash and cash equivalents at December 31, 2015 were approximately $1.3 billion.


December 31, 2015			Page \| 4

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Financial Results and Review of Operations for 2015

•

Oyu Tolgoi achieved an excellent safety performance for 2015 with an All Injury Frequency Rate of 0.33 per 200,000 hours worked.

•

In May 2015, the Oyu Tolgoi Underground Mine Development and Financing Plan was signed addressing key outstanding shareholder matters and setting out long-term funding of the project.

•

In August 2015, Oyu Tolgoi filed revised schedules for the statutory feasibility study with the Mongolian Minerals Council.

•

In December 2015, Oyu Tolgoi signed a $4.4 billion project financing facility provided by a syndicate of international financial institutions, export credit agencies and 15 commercial banks.

•

Underground pre-start activities are underway in parallel with an update to the feasibility study capital estimate, which is expected to be complete in Q1’16.

•

Turquoise Hill continues to expect approval of the updated 2016 feasibility study and notice to proceed decisions by the various boards for underground construction in Q2’16.

•

Oyu Tolgoi recorded revenue of $1.6 billion in 2015 on record concentrate sales of 819,800 tonnes reflecting higher concentrate sales volumes partially offset by lower copper and gold prices.

•

In Q4’15, Oyu Tolgoi recorded revenue of $355.6 million on concentrate sales of 236,200 tonnes reflecting lower copper and gold prices combined with lower sales of metal in concentrate.

•

Turquoise Hill generated operating cash flow before interest and taxes of $650.5 million in 2015.

•

In 2015, cash operating costs¹ at Oyu Tolgoi were $962.6 million including $59.9 million in non-recurring charges for the May 18 underground agreement and underground early works expensed.

•

For 2015, Oyu Tolgoi generated C1¹ costs of $0.57 per pound of copper and all-in sustaining costs¹ of $1.37 per pound of copper, a decrease of 50.0% and 29.7% respectively over 2014.

•

Capital expenditure on a cash basis for 2015 was $116.2 million, primarily attributed to sustaining activities.

•

For 2015, Oyu Tolgoi’s second full year of production, the mine operated at record levels.

•

Productivity improvements in the concentrator implemented throughout 2015 led to throughput exceeding nameplate capacity by year end and increasing by 23.9% over 2014.

•

For Q4’15, concentrator throughput increased 8.5% over Q3’15 reaching an all-time quarterly high.

•

In 2015, copper production of 202,200 tonnes exceeded the Company’s guidance and annual gold production of 653,000 ounces met guidance.

•

Compared to 2014, 2015 mined production increased 19.3%, concentrate production increased 39.9%, copper production increased 36.3% and gold production increased 10.9%.

¹ Refer to section 15 – NON-GAAP MEASURES – on page 42 of this MD&A for a description of non-GAAP measures and reconciliation to financial statement disclosures.


December 31, 2015			Page \| 5

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

•

Oyu Tolgoi is expected to produce 175,000 to 195,000 tonnes of copper and 210,000 to 260,000 ounces of gold in concentrates for 2016.

•

Sales contracts have been signed for approximately 90% of Oyu Tolgoi’s expected 2016 concentrate production.

•

In September 2015, Oyu Tolgoi surpassed 1.5 million tonnes of concentrate shipped.

•

Turquoise Hill’s cash and cash equivalents at December 31, 2015 were approximately $1.3 billion.

A.	OYU TOLGOI

The Oyu Tolgoi mine is approximately 550 kilometres south of Ulaanbaatar, Mongolia’s capital city, and 80 kilometres north of the Mongolia-China border. Mineralization on the property consists of porphyry-style copper, gold, silver and molybdenum contained in a linear structural trend (the Oyu Tolgoi Trend) that has a strike length extending over 26 kilometres. Mineral resources have been identified in a series of deposits throughout this trend. They include, from south to north, the Heruga Deposit, the Southern Oyu deposits (Southwest Oyu, South Oyu, Wedge and Central Oyu) and the Hugo Dummett deposits (Hugo South, Hugo North and Hugo North Extension).

The Oyu Tolgoi mine has initially been developed as an open-pit operation. A copper concentrator plant, with related facilities and necessary infrastructure to support a nominal throughput of 100,000 tonnes of ore per day, has been constructed to process ore mined from the Southern Oyu open pit. Long term development plans for Oyu Tolgoi are based on a 95,000-tonne-per-day underground block-cave mine. In August 2013, development of the underground mine was suspended pending resolution of matters with the Government of Mongolia. On May 18, 2015, Turquoise Hill, the Government of Mongolia and Rio Tinto signed the Oyu Tolgoi Underground Mine Development and Financing Plan, which addressed key outstanding shareholder matters and set out an agreed basis for the funding of the project.

Oyu Tolgoi Underground Mine Development and Financing Plan

On May 18, 2015, Turquoise Hill, the Government of Mongolia and Rio Tinto signed the Oyu Tolgoi Underground Mine Development and Financing Plan (Underground Plan), which addressed key outstanding shareholder matters and set out an agreed basis for the funding of the project. The Underground Plan confirmed the project cost for Oyu Tolgoi’s initial construction and development and reinforced the principles set out in the Investment Agreement and the Amended and Restated Shareholders Agreement (ARSHA).

The agreements addressed 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 addressed 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 presented in the 2014 Oyu Tolgoi Technical Report. The components of the variance are outlined in the following paragraphs.

In 2003, Turquoise Hill acquired a 2% net smelter royalty from BHP Billiton. The enforceability of the royalty was challenged by the Assistant General Prosecutor of Mongolia under Mongolian law. The Company determined, as part of the Underground Plan negotiated, that it would not contest its right to receive payment and consequently recognized a charge of $36.8 million in Q2’15 for write-off of the original royalty acquisition cost.


December 31, 2015			Page \| 6

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

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 $127.0 million to approximately $30.0 million. In a separate agreement with the Government of Mongolia, Oyu Tolgoi 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. A final charge of $22.1 million has been recognized in Q2’15 for settlement of amounts not previously paid or provided for in relation to the Tax Assessment.

The parties 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 recalculated royalties payable accordingly since the commencement of sales and submitted an additional amount payable in Q2’15 of approximately $17.1 million to the Government, which includes approximately $14.5 million on previous years’ sales.

Notwithstanding the terms of the ARSHA, the parties 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%. In accordance with the ARSHA, 50% of the MSP is payable to Turquoise Hill and 50% to Rio Tinto.

Turquoise Hill continues to work with Oyu Tolgoi LLC on possible support of Oyu Tolgoi LLC’s obligations under a potential power purchase arrangement from the Tavan Tolgoi power plant project.

Signing of project finance

On December 14, 2015, Oyu Tolgoi signed a $4.4 billion project finance facility, one of the largest in the mining industry. The facility was provided by a syndicate of international financial institutions and export credit agencies representing the governments of Canada, the United States and Australia, along with 15 commercial banks.

The facility consists of the following components:


Facility	Amount		Term		Annual interest rate
Commercial Banks –A Loan		$0.8 billion		15 years	LIBOR + 3.78% pre-completion; LIBOR + 4.78% post-completion
Export Credit Agencies Loan		$0.9 billion $0.4 billion		14 years 13 years	LIBOR + 3.65% pre-completion; LIBOR + 4.65% post-completion US Ex-Im at fixed rate of Commercial Interest Reference Rate based on US Treasury rates; determined at time of first disbursement
MIGA Insured Loan		$0.7 billion		12 years	LIBOR + 2.65 % pre-completion; LIBOR + 3.65% post-completion
Commercial Banks – B Loan		$1.6 billion		12 years	LIBOR + 3.4% pre-completion; LIBOR + 4.4% post-completion Includes $50 million 15-year loan at A Loan rate

The project finance facility will be funded by Export Development Canada, the European Bank for Reconstruction and Development, the International Finance Corporation, the Export-Import Bank of the United States, the Export Finance and Insurance Corporation of Australia and commercial lenders comprising BNP Paribas, ANZ, ING, Société Générale Corporate & Investment Banking, Sumitomo Mitsui, Standard Chartered Bank, Canadian Imperial Bank of Commerce, Crédit Agricole, Intesa


December 31, 2015			Page \| 7

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Sanpaolo, National Australia Bank, Natixis, HSBC, The Bank of Tokyo-Mitsubishi UJF, KfW IPEX-Bank and Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden. The Multilateral Investment Guarantee Agency (MIGA) provided political risk insurance for the commercial banks.

Turquoise Hill, Rio Tinto and Oyu Tolgoi continue to work towards completing the 2016 feasibility study, including the updated capital estimate and securing all necessary permits for the development of the underground mine. Once these steps have been completed and subject to the boards of Turquoise Hill, Rio Tinto and Oyu Tolgoi approving a formal ‘notice to proceed’ (Notice to Proceed), the full $4.4 billion facility will be drawn down by Oyu Tolgoi subject to satisfaction of certain conditions precedent typical for a financing of this nature. Net proceeds from the project finance facility (Net PF Proceeds), after fees and taxes, are anticipated to be approximately $4.1 billion. The Net PF Proceeds will be used by Oyu Tolgoi to pay down shareholder loans payable to Turquoise Hill. The Net PF Proceeds will be available to be re-drawn by Oyu Tolgoi for the development of the underground mine.

As part of the project finance agreements, Rio Tinto has agreed to provide a guarantee, known as the completion support undertaking, in favour of the project finance lenders. In consideration for providing completion support, and as contemplated by previous agreements, Oyu Tolgoi and Turquoise Hill have agreed to pay Rio Tinto an annual completion support fee equal to 2.5% of the amounts drawn under the facility, of which 1.9% is payable by Oyu Tolgoi and 0.6% is payable by Turquoise Hill. The annual completion support fee will apply to funding used for facility fees and taxes at initial drawdown as well as amounts used to fund development. The obligation to pay a completion support fee will terminate on the date Rio Tinto’s completion support obligations to the project lenders terminate.

Following successful fulfilment of the completion tests outlined in the project finance facility, the Rio Tinto completion support undertaking will terminate and the facility interest rates will shift to post-completion rates. The project financing facility provides for interest only payments for the first five years and is then structured on a stepped amortization schedule for the remaining life of the facility.

The parties to the project finance facility have agreed to a debt cap of $6.0 billion for Oyu Tolgoi, providing the option for an additional $1.6 billion of supplemental debt in the future.

In its capacity as project sponsor, Turquoise Hill will enter into a guarantee, known as the sponsor debt service undertaking, with Rio Tinto, the project lenders and agents representing such lenders (Sponsor DSU). Under the Sponsor DSU, Turquoise Hill guarantees to the finance parties payment of principal, interest and fees owed by Oyu Tolgoi to the senior lenders under the project financing payable prior to completion. The obligations of Turquoise Hill under the Sponsor DSU terminate upon the earliest of (i) completion of the project, (ii) the termination of the Sponsor DSU as a result of the occurrence of certain force majeure circumstances (described in the agreements as suspensive events), and (iii) the date on which all senior debt obligations have been irrevocably and unconditionally paid or discharged and the commitments have terminated or expired.

Additionally, in connection with the signing of the project finance agreements with the project lenders and in consideration of Rio Tinto’s completion support undertaking, Turquoise Hill has entered into a number of agreements, including: a financing support agreement with Rio Tinto (Company Financing Support Agreement); a financing support agreement with Oyu Tolgoi and Rio Tinto (Oyu Tolgoi Financing Support Agreement) and a cash management services agreement with wholly-owned subsidiaries of Rio Tinto, 9539549 Canada Inc. and Rio Tinto International Holdings Limited (RTIH) (Cash Management Services Agreement). The following briefly summarizes certain provisions in the foregoing agreements, each of which have been filed with the System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com.


December 31, 2015			Page \| 8

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

The provisions contained in the Company Financing Support Agreement, including those referred to below, are broadly in line with the principles and provisions established under the Memorandum of Agreement between Turquoise Hill and Rio Tinto entered into in 2012:

•

Under the Company Financing Support Agreement, in the event a fact or circumstance occurs which affects or could reasonably be expected to affect Turquoise Hill’s ability to meet its obligations under the Sponsor DSU or give rise to an event of default or completion default under the project finance agreements, Rio Tinto shall have the right to require that Turquoise Hill effect an equity contribution by way of private placement of Turquoise Hill shares to Rio Tinto or a rights offering similar in form and structure to the rights offering which closed in January 2014. Turquoise Hill will also have the right to propose an alternative financing proposal to Rio Tinto which, depending on the nature of such proposal, may require Rio Tinto’s consent. The parties have agreed that the aggregate amount of any such funding mechanisms shall not exceed 25% of Turquoise Hill’s market capitalization as of the date of the Company Financing Support Agreement. Any such transaction shall also be subject to applicable securities laws.

•

The Company Financing Support Agreement also contains certain restrictions relating to the conduct of the Company’s business and operations and to the implementation of certain corporate transactions until the later of (i) the date Rio Tinto’s completion support obligations terminate, (ii) the date that all senior loan advances under the project finance agreements are repaid in full, and (iii) the date that all subordinated debt advances by Rio Tinto have been repaid in full, which shall be deemed to be the date on which Rio Tinto’s completion support obligations terminate if, as of such date, the aggregate amount of subordinated debt advances by Rio Tinto has not exceeded $500 million.

Under the Oyu Tolgoi Financing Support Agreement, in the event a fact or circumstance occurs which affects or could reasonably be expected to affect Oyu Tolgoi’s ability to meet its obligations under the project finance agreements or give rise to an event of default thereunder, Rio Tinto shall have the right to require that Oyu Tolgoi borrow funds from Rio Tinto (or an affiliate thereof) by way of a senior debt advance or a subordinated debt advance, or borrow funds from a third party senior lender. The proceeds of any such advances shall be used to repay amounts due and owing to the project lenders.

Under the Cash Management Services Agreement, Turquoise Hill has appointed 9539549 Canada Inc., a wholly-owned subsidiary of Rio Tinto, as service provider to provide post-drawdown cash management services in connection with the Net PF Proceeds, which shall be placed with 9539549 Canada Inc. and returned to Turquoise Hill as required for purposes of funding the Oyu Tolgoi underground mine. Turquoise Hill is also entitled to the return of any outstanding balance of such managed funds upon the termination of Rio Tinto’s completion support obligations. RTIH has agreed to guarantee the obligations of the service provider under this agreement.

Preparation for underground development

Following the filing of revised schedules for the statutory feasibility study with the Mongolian Minerals Council in August 2015, pre-start activities began in parallel with an update to the capital estimate, which is expected to be complete in Q1’16. Pre-start activities include ramp-up of the owners and EPCM team, re-estimate activities, detailed engineering and early procurement for equipment and materials required for necessary critical works that are key enablers for recommencement of underground lateral development mining activity. Care and maintenance activities have continued for


December 31, 2015			Page \| 9

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Shaft #1, facilities and mobile equipment. Appointments to key roles in the underground team are well underway, with key staff starting in Q1’16. Turquoise Hill expects the Notice to Proceed decision for underground construction in Q2’16.

Prior to the suspension in August 2013, underground lateral development at Hugo North had advanced approximately 16 kilometres off Shaft #1. Sinking of Shaft #2, the primary operations access and initial production hoisting shaft, had reached a depth of 1,168 metres below surface, 91% of its final depth of 1,284 metres. The 96 metre-high Shaft #2 concrete headframe has been constructed. Sinking of Shaft #5, a dedicated exhaust ventilation shaft, had reached a depth of 208 metres, 17% of its final depth of 1,174 metres. Surface facilities, including offices, mine dry, and workshop, are in place to support initial pre-production development and construction.

Full-year 2015 and Q4’15 performance

Safety continues to be a major focus throughout Oyu Tolgoi’s operations and the mine’s management is committed to reducing risk and injury. Oyu Tolgoi achieved an excellent safety performance for 2015 with an All Injury Frequency Rate of 0.33 per 200,000 hours worked.

Key financial metrics for 2015 and Q4’15 are as follows:

Oyu Tolgoi Key Financial Metrics*


	4Q 2014		1Q 2015		2Q 2015		3Q 2015		4Q 2015		Full Year 2015		Full Year 2014

Revenue ($ in millions of dollars)		670.6		426.2		421.3		431.7		355.6		1,634.8		1,735.6
Concentrates sold (‘000 tonnes)		262.7		167.7		189.8		226.0		236.2		819.8		733.7
Revenue by metals in concentrates ($ in millions of dollars)
Copper		368.5		190.2		220.3		224.5		194.6		829.6		1,066.9
Gold		296.4		232.3		197.4		202.8		156.4		788.9		650.5
Silver		5.7		3.6		3.6		4.4		4.6		16.2		18.2
Cost of sales ($ in millions of dollars)		402.8		257.9		225.7		252.2		239.2		975.0		1,235.1
Production and delivery costs		279.5		173.9		147.4		159.4		149.7		630.4		849.8
Depreciation and depletion		123.3		83.9		78.2		92.8		89.6		344.5		385.3
Capital expenditure on cash basis (cash flows $ in millions of dollars)		18.5		24.3		35.1		29.3		27.5		116.2		242.2
Royalties		36.6		21.9		49.8		24.1		25.0		120.8		91.5
Cash operating costs ($ in millions of dollars)**				218.9		284.6		222.5		236.6		962.6		958.4
Unit costs ($ per pound of copper)**
C1				0.09		0.73		0.40		0.88		0.57		1.14
All-in sustaining				0.96		1.26		1.52		1.56		1.37		1.95

* Beginning on January 1, 2015, Turquoise Hill began preparing its financial statements in accordance with IFRS; all financial metrics included in the above table are prepared on the newly adopted IFRS basis. Any financial information in this MD&A should be reviewed in consultation with the Company‘s consolidated financial statements.

** Please refer to Section 15 – NON-GAAP MEASURES – on page 42 of this MD&A for reconciliation of these metrics, including total cash operating costs, to the financial statements.

Revenue of $1.6 billion in 2015 decreased 5.8% over 2014 reflecting lower copper and gold prices partially offset by higher volumes of copper-gold concentrate sales. Concentrate sold in 2015 of 819,800 tonnes increased 11.7% over 2014 reaching an all-time annual high.

Revenue of $355.6 million in Q4’15 decreased 17.6% over Q3’15 reflecting lower copper and gold prices combined with lower metals in concentrate sales. Fourth quarter concentrate sold of 236,200 tonnes increased 4.5% over Q3’15.


December 31, 2015			Page \| 10

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Production and delivery costs include primarily the cash costs in inventory sold as well as allocated mine administration costs. Depreciation and depletion includes the depreciation and depletion in inventory sold as well as any depreciation of assets used in the selling and delivery process, including the depreciation of capitalized production phase stripping costs.

A charge of $90.9 million was recorded in 2015, within operating expenses, for provision against, and write-off of, non-current ore stockpiles. The charge followed a re-estimation of realizable value to reflect lower copper and gold prices and updated assumptions for timing of processing.

Capital expenditure, on a cash basis, for 2015 was $116.2 million (2014: $242.2 million) primarily attributed to sustaining activities, including the tailings storage facility and deferred stripping (2014 included payments relating to 2013 underground development prior to suspension).

Total cash operating costs at Oyu Tolgoi in 2015 were $962.6 million inclusive of non-recurring charges following agreement of the Underground Plan (tax settlement: $22.1 million; recalculation of royalties: $14.5 million) and costs relating to underground remobilization and early works expensed ($23.3 million). Throughout 2015, Oyu Tolgoi improved and optimized operations in order to reduce costs across the mine’s operation. Following transition to IFRS, the 5% royalty payable to the Government of Mongolia, previously deducted from revenue, is reflected as a cash operating expense, and production phase stripping costs, previously included within cash operating expense, are capitalized where appropriate and depreciated. Please refer to Section 12 – INTERNATIONAL FINANCIAL REPORTING STANDARDS – on page 22 of this MD&A.

Oyu Tolgoi’s C1 costs in 2015 were $0.57 per pound, compared with $1.14 per pound in 2014. The decrease was mainly due to production volume increases and cost optimization, partly offset by reduced gold and silver credits per pound of copper produced. Oyu Tolgoi’s open-pit mine has a high-grade zone containing a large proportion of gold in addition to copper; Turquoise Hill anticipates quarterly fluctuation of C1 costs as the quantity of gold in concentrates sold varies.

Oyu Tolgoi’s C1 costs in Q4’15 were $0.88 per pound, compared with $0.40 per pound in Q3’15. The increase was mainly due to a drop in gold revenues and lower grades.

All-in sustaining costs in 2015 were $1.37 per pound, compared with $1.95 per pound in 2014. The decrease was mainly due to volume increases, cost optimization and operational efficiencies, partly offset by reduced gold and silver credits per pound of copper produced, combined with impact of non-recurring and non-cash items.

All-in sustaining costs in Q4’15 were $1.56 per pound, compared with $1.52 per pound in Q3’15. The increase was mainly due to a drop in gold revenues and lower grades.


December 31, 2015			Page \| 11

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Key operational metrics for 2015 and Q4’15 are as follows:

Oyu Tolgoi Production Data

All data represents full production and sales on a 100% basis


	4Q 2014		1Q 2015		2Q 2015		3Q 2015		4Q 2015		Full Year 2015		Full Year 2014

Open pit material mined (‘000 tonnes)		18,944		21,999		22,094		23,969		23,708		91,771		76,919
Ore treated (‘000 tonnes)		7,505		7,512		9,025		8,632		9,369		34,537		27,872
Average mill head grades:
Copper (%)		0.74		0.52		0.69		0.75		0.69		0.67		0.60
Gold (g/t)		1.46		0.48		1.09		0.56		0.92		0.78		0.86
Silver (g/t)		1.65		1.16		1.46		1.90		1.67		1.56		1.60
Concentrates produced (‘000 tonnes)		186.7		130.9		215.5		210.3		231.8		788.5		563.6
Average concentrate grade (% Cu)		26.9		25.7		25.6		26.6		24.7		25.6		26.3
Production of metals in concentrates:
Copper (‘000 tonnes)		50.3		33.6		55.3		56.0		57.3		202.2		148.4
Gold (‘000 ounces)		278		86		238		123		207		653		589
Silver (‘000 ounces)		286		184		297		388		355		1,223		893
Sales of metals in concentrates:
Copper (‘000 tonnes)		67.6		42.1		46.3		58.2		54.7		201.3		185.8
Gold (‘000 ounces)		263		200		177		200		160		737		561
Silver (‘000 ounces)		383		219		245		334		360		1,158		1,093
Metal recovery (%)
Copper		90.7		86.8		88.6		86.4		88.4		87.6		89.1
Gold		78.6		71.6		75.6		76.4		74.2		74.4		76.6
Silver		71.6		65.4		70.6		73.0		70.8		69.9		62.3

For 2015, Oyu Tolgoi’s second full year of production, the mine operated at record levels. Productivity improvements in the concentrator implemented throughout the year led to throughput exceeding nameplate capacity by year end. Copper production for 2015 of 202,200 tonnes exceeded the Company’s guidance of 175,000 to 195,000 tonnes and annual gold production of 653,000 ounces met 2015 guidance of 600,000 to 700,000 ounces. Compared to 2014 results, 2015 mined production increased 19.3%, concentrator throughput increased 23.9%, concentrate production increased 39.9%, copper production increased 36.3% and gold production increased 10.9%.

For Q4’15, throughput increased 8.5% over Q3’15 reaching an all-time high. Copper production for the quarter increased 2.3% over Q3’15 due to higher volumes offset by lower grades. As a result of mining higher grades from Phase 2 and higher volumes, Q4’15 gold production increased 68.3% over Q3’15.

Funding of Oyu Tolgoi by Turquoise Hill

In accordance with the ARSHA dated June 8, 2011, Turquoise Hill has funded Oyu Tolgoi’s cash requirements beyond internally generated cash flows by a combination of equity investment and shareholder debt.

For amounts funded by debt, Oyu Tolgoi must repay such amounts, including accrued interest, before it can pay common share dividends. At December 31, 2015, the aggregate outstanding balance of shareholder loans extended by subsidiaries of the Company to Oyu Tolgoi was $6.9 billion, including accrued interest of $0.8 billion. These loans bear interest at an effective annual rate of LIBOR plus 6.5%. During 2015, Oyu Tolgoi repaid a total amount of $482.0 million with respect to these loans, including accrued interest of $150.3 million.

In accordance with the ARSHA, a subsidiary of the Company has funded the common share investments in Oyu Tolgoi on behalf of Erdenes. These funded amounts earn interest at an effective


December 31, 2015			Page \| 12

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

annual rate of LIBOR plus 6.5% and are repayable, by Erdenes to a subsidiary of the Company, via a pledge over Erdenes’ share of Oyu Tolgoi common share dividends. Erdenes also has the right to reduce the outstanding balance by making cash payments at any time. As at December 31, 2015, the cumulative amount of such funding was $751.1 million, representing approximately 34% of invested common share equity; unrecognized interest on the funding amounted to $231.1 million.

Operational outlook

Oyu Tolgoi is expected to produce 175,000 to 195,000 tonnes of copper and 210,000 to 260,000 ounces of gold in concentrates for 2016. Open-pit operations are expected to mine in phases 2, 3 and 6 during the year as well as begin stripping for phase 4. In addition, stockpiled ore is anticipated to be processed during the year. The reduction in gold compared to 2015 is expected to result from mining in lower-grade gold areas and processing lower-grade stockpiled ore. The majority of 2016 gold production is expected in the first half of the year.

Operating cash costs for 2016 are expected to be approximately $800 million. The reduction compared to 2015 operating cash costs is mainly related to additional capitalization of phase 4 stripping costs.

Capital expenditures for 2016 on a cash-basis, excluding underground development, are expected to be approximately $300 million, of which approximately $280 million relates to sustaining capital. Sustaining capital reflects increased capitalization of phase 4 deferred stripping costs.

For underground development, Turquoise Hill will provide capital guidance for 2016 once a final Notice to Proceed decision is confirmed.

Sales contracts have been signed for approximately 90% of Oyu Tolgoi’s expected 2016 concentrate production.

Exploration during 2015

Oyu Tolgoi’s exploration program focused on near surface targets using geochemical surveys and detailed ground magnetic surveys to identify porphyry style mineralisation. In December 2015, Turquoise Hill acquired a second exploration licence within 50 kilometers of Oyu Tolgoi.

B. OTHER ASSETS

SouthGobi

During 2015, the Company pursued a strategy of divesting its holding in SouthGobi, which amounted to 104.8 million shares (47.9%) at January 1, 2015. Sale of 50.4 million shares in SouthGobi to Novel Sunrise Investments Limited (NSI) was completed between April 23 and June 3, 2015 at a price of C$0.35 per share.

At December 31, 2015, following dilution of the Company’s interest on November 30 as the result of issuance to the China Investment Corporation (CIC) of 11.9 million new SouthGobi shares, and general market sales in accordance with the Company’s ongoing divestment strategy, Turquoise Hill owned 49.3 million shares (19.2%). The Company’s remaining interest in SouthGobi is recorded as an available for sale investment within financial assets, with a fair value (based on the quoted share price) of $14.5 million at December 31, 2015.


December 31, 2015			Page \| 13

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

See Note 14 to the annual consolidated financial statements for the year ended December 31, 2015 for more information.

C. CORPORATE ACTIVITIES

Statutory feasibility study

On March 18, 2015, Oyu Tolgoi filed a statutory feasibility study with the Mongolian Minerals Council. Under Mongolian law, Oyu Tolgoi is required to submit an update to the feasibility study at least every five years.

MIGA host country approval signing

In September 2015, the Government of Mongolia signed the request of the Multilateral Investment Guarantee Agency (MIGA) for host country approval (HCA) with respect to guarantees to be issued by MIGA in connection with the Oyu Tolgoi project financing. The signing of the HCA was a significant milestone in the project financing timeline.

Management changes

In September 2015, Turquoise Hill announced the resignation of Stewart Beckman, Senior Vice President, Operations and Technical Development, effective October 1, 2015 due to Mr. Beckman having accepted a new position within Rio Tinto.

In January 2016, Turquoise Hill announced the appointment of Brendan Lane as Vice President, Operations and Development effective February 1, 2016. Mr. Lane brings 25-years of industry experience including metallurgical, mine engineering and commercial roles at Rio Tinto, Anglo American and BHP Billiton.

D. CORPORATE ADMINISTRATIVE EXPENSES

Corporate administrative expenses. Corporate administrative costs in 2015 were $17.2 million, a decrease of $5.4 million from 2014, mainly due to lower employee and consulting costs as the Company continued to focus on core operations.


December 31, 2015			Page \| 14

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

3. SELECTED QUARTERLY DATA

The Company’s interim financial statements are reported under IFRS applicable to interim financial statements, including IAS 34 Interim Financial Reporting. The following table sets forth selected unaudited quarterly financial information derived from financial information for each of the eight most recent quarters.


($ in millions of dollars, except per share information)	Quarter Ended
		Dec-31 2015			Sep-30 2015			Jun-30 2015			Mar-31 2015
Revenue
Copper-gold concentrate	$	355.6		$	431.7		$	421.3		$	426.2
Total revenue	$	355.6		$	431.7		$	421.3		$	426.2

Net income from continuing operations attributable to owners	$	179.7		$	44.0		$	49.9		$	67.1
Income (loss) from discontinued operations attributable to owners		(8.7	)		(22.8	)		(25.0	)		29.1
Net income (loss) attributable to owners of Turquoise Hill	$	171.0		$	21.2		$	24.9		$	96.2

Basic income (loss) per share attributable to owners of Turquoise Hill
Continuing operations	$	0.10		$	0.02		$	0.02		$	0.03
Discontinued operations		-			(0.01	)		(0.01	)		0.01
Total	$	0.10		$	0.01		$	0.01		$	0.04
Diluted income (loss) per share attributable to owners of Turquoise Hill
Continuing operations	$	0.10		$	0.02		$	0.02		$	0.03
Discontinued operations		-			(0.01	)		(0.01	)		0.01
Total	$	0.10		$	0.01		$	0.01		$	0.04

		Dec-31 2014			Sep-30 2014			Jun-30 2014			Mar-31 2014
Revenue
Copper-gold concentrate	$	670.6		$	491.6		$	459.5		$	113.9
Total revenue	$	670.6		$	491.6		$	459.5		$	113.9

Net income (loss) from continuing operations attributable to owners	$	144.2		$	43.9		$	20.1		$	(9.4)
Loss from discontinued operations attributable to owners		(9.6	)		(137.9	)		(12.2	)		(12.2)
Net income (loss) attributable to owners of Turquoise Hill	$	134.6		$	(94.0	)	$	7.9		$	(21.6)

Basic income (loss) per share attributable to owners of Turquoise Hill
Continuing operations	$	0.07		$	0.02		$	0.01		$	(0.01)
Discontinued operations		-			(0.07	)		(0.01	)		(0.01)
Total	$	0.07		$	(0.05	)	$	-		$	(0.02)

Diluted income (loss) per share attributable to owners of Turquoise Hill
Continuing operations	$	0.07		$	0.02		$	0.01		$	(0.01)
Discontinued operations		-			(0.07	)		(0.01	)		(0.01)
Total	$	0.07		$	(0.05	)	$	-		$	(0.02)

4. LIQUIDITY AND CAPITAL RESOURCES

As at December 31, 2015, Turquoise Hill held consolidated cash and cash equivalents of approximately $1.3 billion, consolidated working capital (inclusive of cash and cash equivalents) of $1.5 billion and an accumulated deficit of $4.5 billion.


December 31, 2015			Page \| 15

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Cash flow

Operating activities. A total of $650.5 million of cash was generated from operating activities before interest and tax in 2015, reflecting cost improvements as Oyu Tolgoi continued to optimize operations and working capital efficiencies. Net cash generated from operating activities in 2015 was $582.5 million.

Investing activities. Cash used in investing activities totalled $81.6 million in 2015. Property, plant and equipment purchases of $116.2 million related mainly to Oyu Tolgoi sustaining activities (including deferred stripping and construction of tailings storage facility). Capital expenditure was partly offset by proceeds from divestment of shares in SouthGobi and Ivanhoe Mines Ltd.

Financing activities. There was no significant financing activity during 2015.

Liquidity and capital resources

On March 19, 2015, Oyu Tolgoi signed a secured $200.0 million revolving credit facility with five banks, replacing an unsecured $200.0 million revolving facility signed on February 24, 2014, which matured on February 24, 2015. Amounts drawn under the facility are required to be used by Oyu Tolgoi for working capital purposes. The credit facility bears interest at a fixed margin over LIBOR on any drawn amounts together with a utilization fee which varies according to the utilized portion of the facility, and a commitment fee on undrawn amounts. The revolving credit facility matures on March 19, 2016 and is expected to be renewed with effect from that date until draw down of project finance subject to the Oyu Tolgoi board’s approval. At December 31, 2015, no amounts had been drawn down on the facility.

Turquoise Hill believes that, based on its current cash position, cash generated from operation of Oyu Tolgoi, and the $200.0 million revolving credit facility, it will have sufficient funds to meet its minimum obligations, including general corporate activities, for at least the next 12 months. As of December 31, 2015, Oyu Tolgoi has signed a $4.4 billion project finance facility for the purposes of developing the underground mine. Please refer to Section 2.A – OYU TOLGOI – on page 6 of this MD&A.

Financial instruments

The carrying value of Turquoise Hill’s financial instruments was as follows:


(Stated in $000’s of dollars)	December 30, 2015		December 31, 2014
Financial Assets

Cash and cash equivalents	$	1,343,878	$	862,755
Available for sale: Long-term investments		18,902		34,325
Cost method: Long-term investments		115		115
Loans and receivables:
Trade and other receivables		12,210		14,519
Due from related parties		3,623		7,864

Financial Liabilities
Trade and other payables		166,766		185,852
Payable to related parties		34,801		53,784


December 31, 2015			Page \| 16

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Certain of the above financial instruments are carried at fair value. Their fair values were determined as follows:

•

Long-term investments – Fair values of freely tradable long-term investments were determined by reference to published market quotations, which may not be reflective of future values. Fair values of long-term investments with trading restrictions have been determined by applying a liquidity discount to published market quotations, which may not be reflective of future values.

Turquoise Hill is exposed to credit risk with respect to its accounts receivable, other long-term investments and cash and cash equivalents. The significant concentrations of credit risk are with counterparties situated in Mongolia, China, Canada and Europe.

Turquoise Hill is exposed to United States interest-rate risk with respect to the variable rates of interest receivable on cash and cash equivalents.

5. SHARE CAPITAL

As at March 17, 2016, the Company had a total of:

•

2,012,314,469 common shares outstanding;

•

1,771,965 incentive stock options outstanding, with a weighted average exercise price of C$14.51 per share. Each option is exercisable to purchase a common share of the Company at prices ranging from C$6.83 to C$23.75 per share.

6. OUTLOOK

The information below is in addition to disclosures already contained in this report regarding the Company’s operations and activities.

Turquoise Hill’s financial performance and its ability to advance its future operations and development plans are heavily dependent on the availability of funding, base and precious metal prices and foreign-exchange rates. Volatility in these markets continues to be high.

For further details on the Company’s financing plans, please refer to Section 4 – LIQUIDITY AND CAPITAL RESOURCES – on page 15 of this MD&A.

Copper market

Commodity prices are a key driver of Turquoise Hill’s earnings. In Q1’16, copper prices slumped on renewed fears of slow global growth and financial market instability. By early March, prices rebounded to approximately $2.20 per pound as sentiment improved following the Chinese New Year. Chinese stimulus measures and the possible delay of further monetary tightening in the US aided a broad commodity market recovery in early March, supported by relatively stable oil prices. The near-term outlook is well-balanced in anticipation of post-Chinese New Year restocking and improved sentiment; however there is limited visibility on overall demand.


December 31, 2015			Page \| 17

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Spot treatment and refining charges into China continue to trend downward (reaching 75/7.5-85/8.5, below the 2016 benchmark of 97.35/9.375), reflecting solid demand from smelters following domestic and ex-China mine cutbacks and tight scrap availability. Visible stocks in February have risen by approximately 75,000 tonnes to approximately 945,000 tonnes, due in part to flows into bonded warehouses in China (up approximately 50,000 tonnes). The positive arbitrage opportunity for Chinese importers has also resulted in an increase in Shanghai Futures Exchange stocks (up approximately 65,000 tonnes) at the expense of London Metal Exchange stocks (down approximately 42,000 tonnes). Overall, stocks remain balanced-to-low, relative to demand.

By early March 2016, gold surged as high as $1,279 per ounce as financial market turmoil prompted safe-haven demand.

Exchange Rates

Oyu Tolgoi’s sales are settled in U.S. dollars, and a portion of its expenses are incurred in local currencies. Foreign exchange fluctuations could have an effect on Turquoise Hill’s operating margins; however in view of the proportion of locally incurred expenditures, such fluctuations are not expected to have a significant impact.

7. OFF-BALANCE SHEET ARRANGEMENTS

During the year ended December 31, 2015, Turquoise Hill was not a party to any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations, financial condition, revenues or expenses, liquidity, capital expenditures or capital resources of the Company.

8. CONTRACTUAL OBLIGATIONS

The following table summarizes Turquoise Hill’s contractual obligations as at December 31, 2015:


(Stated in $000’s of dollars)	Payments Due by Period
		Less than 1
		year		1 - 3 years		4 - 5 years		After 5 years		Total

Purchase obligations ⁽¹⁾	$	144,400	$	60,000	$	-	$	-	$	204,400
Operating leases		196		123		-		-		319
Finance leases		-		12,737		-		-		12,737
Decommissioning obligations		-		-		-		230,566		230,566
Total		144,596		72,860		-		230,566		448,022

⁽¹⁾	These amounts mainly represent various long-term contracts that include commitments for future operating payments for supply of power, drilling, engineering, equipment rentals and other arrangements. Purchase obligations include $24.4 million of project finance fees that will be incurred in 2016.

9. CHANGES IN ACCOUNTING POLICIES

The Company adopted IFRS in its annual consolidated financial statements for the year ended December 31, 2015. Please refer to Section 12 – INTERNATIONAL FINANCIAL REPORTING STANDARDS – on page 22 of this MD&A.


December 31, 2015			Page \| 18

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Since the adoption of IFRS, for which the transition date is January 1, 2014, there have been no significant changes in the Company’s accounting policies.

10. CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with IFRS requires Turquoise Hill to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.

A detailed summary of all of the Company’s significant accounting policies and the estimates derived therefrom is included in Note 2 to the annual consolidated financial statements for the year ended December 31, 2015. While all of the significant accounting policies are important to the Company’s consolidated financial statements, the following accounting policies and the estimates derived therefrom have been identified as being critical:

•

Reserves and resources;

•

Recoverable amount of property, plant and equipment;

•

Depletion and depreciation of property, plant and equipment;

•

Decommissioning obligations

•

Deferred stripping

•

Income taxes; and

•

Net realizable value of inventories.

Reserves and resources

Recoverable amount of property, plant and equipment

Recoverable amount is assessed at the level of the cash-generating units which are identified as the smallest identifiable group of assets capable of generating cash inflows which are largely independent from the cash inflows from other assets. When an impairment review is undertaken, the recoverable


December 31, 2015			Page \| 19

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

amount is estimated by reference to the higher of value in use and fair value less costs of disposal (FVLCD). FVLCD is usually estimated either from the value obtained from an active market where applicable, or by using discounted cash flow techniques based on detailed life-of-mine and/or production plans.

The estimates used by management in arriving at its estimate of recoverable amount are subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of Turquoise Hill’s investments in property, plant and equipment.

Depletion and depreciation of property, plant and equipment

Property, plant and equipment comprise one of the largest components of Turquoise Hill’s assets and, as such, the amortization of these assets has a significant effect on Turquoise Hill’s financial statements.

Capital works in progress are not categorized as mineral property interests, mining plant and equipment or other capital assets until the capital asset is in the condition and location necessary for its intended use. Mining plant and equipment and other capital assets are depreciated over their expected economic lives using either the units-of-production method or the straight-line method. Depletion of each mineral property interest is provided on the units-of-production basis using estimated proven and probable reserves as the depletion basis.

Significant judgment is involved in the determination of the useful lives and residual values of long-lived assets. A change in the estimated useful life or residual value of a long-lived asset would result in a change in the rate of depreciation for that asset. For long-lived assets that are depleted or depreciated over proven and probable reserves using the units-of-production method, a change in the original estimate of proven and probable reserves would result in a change in the rate of depletion or deprecation.

Decommissioning obligations

Turquoise Hill has obligations for site restoration and decommissioning related to its mining properties. Turquoise Hill, using mine closure plans or other similar studies that outline the requirements planned to be carried out, estimates the future obligations for mine closure activities. Because the obligations are dependent on the laws and regulations of the countries in which the mines operate, the requirements could change as a result of amendments in those laws and regulations relating to environmental protection and other legislation affecting resource companies. In addition, the estimate includes liabilities arising from constructive obligations made by the Company. Such obligations may arise from established patterns or practice by Turquoise Hill or its affiliates (including other member companies of the Rio Tinto Group), published policies or statements of intent, or other commitments, whether contractual or informal. As a result of future reviews of its constructive obligations with respect to asset retirement, there could be adjustments to the Company’s accounting provision for site restoration and decommissioning affecting future results.

Turquoise Hill recognizes liabilities for statutory, contractual, legal and constructive obligations associated with the retirement of property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of


December 31, 2015			Page \| 20

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

that asset and the cost is amortized as an expense over the economic life of the related asset. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.

Because the estimate of obligations is based on future expectations in the determination of closure provisions, management makes a number of assumptions and judgments including estimating the amount of future reclamation costs and their timing, risk-free inflation rates and risk-free discount rates. The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods in relation to the remediation of Turquoise Hill’s existing assets could differ materially from their estimated undiscounted future value.

Deferred stripping

Stripping of waste material takes place throughout the production phase of a surface mine or pit. Identification of components within a mine and of life of component strip ratios is dependent on the mine’s design. Changes to that design may introduce new components and/or change the life of component strip ratios. Changes in other technical or economic parameters having an impact on ore reserves may also have an impact on the life of component strip ratios even if they do not affect the mine’s design. Changes to the life of component strip ratio are accounted for prospectively.

Income taxes

Turquoise Hill must make significant estimates in respect of the provision for income taxes and the composition of its deferred income tax assets and deferred income tax liabilities. Turquoise Hill’s operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question which may, on resolution in the future, result in adjustments to the amount of deferred income tax assets and deferred income tax liabilities, and those adjustments may be material to Turquoise Hill’s financial position and results of operations.

Turquoise Hill computes the provision for deferred income taxes under the liability method. Deferred taxes arise from the recognition of the tax consequences of temporary differences by applying statutory tax rates applicable to future years to differences between the financial statement’s carrying amounts and the tax bases of certain assets and liabilities. Turquoise Hill recognizes deferred tax assets for unused tax losses, tax credits and deductible temporary differences, only to the extent it is probable that future taxable profits will be available against which they can be utilized.

The determination of the ability of Turquoise Hill to utilize tax losses carried forward to offset income taxes payable in the future requires management to exercise judgment and make assumptions about Turquoise Hill’s future performance. Management is required to assess whether Turquoise Hill is more likely than not able to benefit from these tax losses. Changes in economic conditions, metal prices, timing of taxable income streams and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.

Net realizable value of inventories


December 31, 2015			Page \| 21

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

value is calculated on a discounted cash flow over the planned processing timeframe for such ore. Evaluating net realizable value requires management judgment in the selection of estimates for, among other inputs, discount rate, price assumptions, timing of processing, and associated costs.

11.

RECENT ACCOUNTING PRONOUNCEMENTS

A number of new standards, amendments to standards and interpretations are not yet effective, or are not mandatory for adoption, for the year ending December 31, 2015 and have therefore not been applied in preparing the annual consolidated financial statements.

The following standards may have a potential effect on the consolidated financial statements of the Company:

•

IFRS 9, Financial Instruments, is mandatorily effective for the Company’s consolidated financial statements for the year ending December 31, 2018. IFRS 9 brings together the classification and measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. IFRS 9 also amends some of the requirements of IFRS 7, Financial Instruments: Disclosures, including added disclosures about investments in equity instruments measured at fair value in other comprehensive income, and guidance on financial liabilities and derecognition of financial instruments. The extent of the impact of adoption has not yet been determined.

•

None of the remaining standards and amendments to standards and interpretations are expected to have a significant effect on the consolidated financial statements of the Company.

12.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

The annual consolidated financial statements for the year ended December 31, 2015 are the Company’s first consolidated financial statements prepared in accordance with IFRS. Due to the requirement to present comparative financial information, the transition date is January 1, 2014 (Transition Date).


December 31, 2015			Page \| 22

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

The following outlines the key IFRS transitional impacts on the Company’s financial statements and the impact of the IFRS transition on systems, process, business activities and controls.

Note 27 to the annual consolidated financial statements for the year ended December 31, 2015 provides more detail on the key U.S. GAAP to IFRS differences, the accounting policy decisions and the application of IFRS 1 – First Time Adoption of International Financial Reporting Standards.

Transitional financial impact

On adoption of IFRS, the Company has adjusted amounts reported previously in financial statements prepared in accordance with U.S. GAAP.

The impact of the transition to IFRS on total equity is outlined in the table below for the comparative period end dates presented:


Reconciliation of equity	December 31, 2014		January 1, 2014
(Stated in $000’s of dollars)

Equity under U.S. GAAP	$	7,576,725	$	4,578,086
IFRS adjustments to equity:
Non-current inventories		(110,330)		(103,892)
Deferred stripping costs (Oyu Tolgoi)		42,395		9,442
Deferred stripping costs (SouthGobi)		-		96,063
Available for sale equity investments		873		14,331
Loans receivable		4,509		13,024
Decommissioning obligations		(1,703)		(1,614)
Income taxes		-		4,547
Rights offering		-		928,280
Consolidation and classification of SouthGobi		55,986		-
Other		10		735

Total IFRS adjustments to equity	$	(8,260)	$	960,916

Total equity under IFRS	$	7,568,465	$	5,539,002


December 31, 2015			Page \| 23

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

The impact of the transition on comprehensive income is outlined in the table below for the comparative periods presented:


Reconciliation of total comprehensive income (loss) (Stated in $000’s of dollars)	Year ended December 31, 2014

Comprehensive loss under U.S. GAAP	$	(208,884)
IFRS adjustments to income (loss):
Non-current inventories		(6,439)
Deferred stripping costs		37,234
Decommissioning obligations		953
Income taxes		(10,087)
Rights offering		34,034
Consolidation and classification of SouthGobi		(99,758)
Other		2,398
IFRS adjustments to comprehensive income (loss)
Investments in securities available for sale		(13,458)
Loans receivable		(8,514)
Income taxes		5,539

Total IFRS adjustments to comprehensive loss	$	(58,098)

Comprehensive loss under IFRS	$	(266,982)

As there has been no change in the net cash flows, no reconciliations have been prepared. The changes made to the consolidated statements of income (loss), comprehensive income (loss) and the consolidated statements of financial position have resulted in reclassification of various amounts on the statements of cash flows.

Financial statement presentation changes

The Company has also changed the presentation of certain items in its consolidated financial statements for the year ended December 31, 2015 as compared to its financial statements previously published in accordance with U.S. GAAP.

•

Mining royalties are now included within operating expenses where previously they were netted against revenues.

•

Accretion expense for decommissioning obligations is included within finance costs where previously it was shown separately on the face of the statement of operations.

•

Deferred income tax liabilities for withholding taxes on intercompany interest payments is now classified as deferred income taxes where previously they were included in accounts payable and accrued liabilities as withholding tax payable.

Systems, processes and business activities

The Company has assessed the impact of the IFRS transition on systems and processes, including an assessment on information technology systems and internal controls and implemented changes required as a result. These changes were not significant.

The Company applied its existing control framework to the IFRS changeover process. All accounting policy changes and transitional financial position impacts were subject to review by senior management and the Company’s Audit Committee.


December 31, 2015			Page \| 24

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Post-implementation

During post-implementation, the Company will continue to monitor the changes to IFRS in future periods. The Company notes that the standard-setting bodies that determine IFRS have significant ongoing projects that could impact the IFRS accounting policies that Turquoise Hill has selected. The Company has processes in place to ensure that potential changes are monitored and evaluated. The impact of any new IFRSs and IFRIC Interpretations will be evaluated as they are drafted and published.

13.

RISK AND UNCERTAINTIES

Turquoise Hill is subject to a number of risks due to the nature of the industry in which it operates and the present state of development of its business and the foreign jurisdictions in which it carries on business. The following is a summary description of the material risks and uncertainties to which Turquoise Hill is subject. Some of the following statements are forward-looking and actual results may differ materially from the results anticipated in these forward-looking statements. Please refer to Section 21, “Forward-Looking Statements and Forward-Looking Information” on page 46 of this MD&A. If any of such risks or risks not currently known to Turquoise Hill actually occurs or materializes, Turquoise Hill’s business, financial condition or results of operations could be adversely affected, even materially adversely affected. For the purpose of Section 13 of this MD&A, a reference to the Company refers to Turquoise Hill Resources Ltd. and, where the context so requires, includes its subsidiaries.

The Company may be limited in its ability to enforce the Investment Agreement and the Underground Plan against Mongolia, a sovereign government.

The Investment Agreement and the Underground Plan impose numerous obligations and commitments upon the Government of Mongolia that provide clarity and certainty in respect of the development and operation of Oyu Tolgoi. The Investment Agreement also includes a dispute resolution clause that requires the parties to resolve disputes through international commercial arbitration procedures. Nevertheless, if and to the extent that the Government of Mongolia does not observe the terms and conditions of the Investment Agreement and the Underground Plan, there may be limitations on the Company’s ability to enforce the terms of the Investment Agreement and the Underground Plan against the Government of Mongolia, which is a sovereign nation, regardless of the outcome of any arbitration proceeding. If the terms of the Investment Agreement and/or the Underground Plan cannot be enforced effectively, Turquoise Hill could be deprived of substantial rights and benefits arising from its investment in Oyu Tolgoi with little or no recourse against the Government of Mongolia for fair and reasonable compensation. Irrespective of the ultimate outcome of any potential dispute, any requirement to engage in discussions or proceedings with the Government of Mongolia, whether or not formal, would result in significant delays, expense and diversion of management’s attention. Such an outcome would have a material adverse impact on the Company and its share price.

There can be no assurance that the Company will be able to access the funding that it needs to continue development of Oyu Tolgoi. In particular, there can be no assurance that the conditions for one or more drawdowns under the Oyu Tolgoi project financing will be satisfied in a timely manner or at all, or that the corporate, governmental and other approvals required for the initial drawdown under Oyu Tolgoi project financing will be obtained.

Development of the open pit mine at Oyu Tolgoi has been completed and Oyu Tolgoi is now operational. On December 15, 2015, the Company announced that Oyu Tolgoi LLC had entered into the $4.4 billion project finance facility to fund development of the underground mine. The Company is


December 31, 2015			Page \| 25

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

working towards completion of the drawdown conditions under the project finance facility, which included the completion of the statutory feasibility study, which was filed in August 2015, and the updated capital estimates required in connection therewith, securing all necessary permits, the approval of the Board of Directors and each of the boards of directors of RTIH and Oyu Tolgoi LLC of a formal Notice to Proceed and certain other conditions precedent. The full project finance facility will be available for drawdown upon completion of the aforementioned conditions.

However, to the extent the drawdown conditions under the project finance facility are not satisfied in a timely manner or at all, funding under the project finance facility may be delayed or may not be available. Furthermore, additional funding may be required to complete the development of the underground mine. If project financing is not available or obtainable on reasonable commercial terms for such purposes, the Company could seek to issue common shares or instruments convertible into equity, including through future rights offerings, which issuances could result in dilution to the holders of common shares and have a material adverse effect upon the market price of common shares. Under the terms of the covenants forming part of the Company Financing Support Agreement, Turquoise Hill is prohibited from creating, incurring or permitting to remain outstanding any indebtedness, other than certain permitted indebtedness, and from amending its constating documents to create and issue preferred shares. As a result of these restrictions, in seeking to raise additional capital, the Company may not incur indebtedness for borrowed money or issue debt securities, other securities convertible into debt securities or preferred shares while the covenants forming part of the Company Financing Support Agreement are in force and effect unless it obtains a waiver or consent from RTIH permitting the incurrence of such indebtedness or the issuance of such securities.

The Government of Mongolia holds a significant stake in the Oyu Tolgoi Mine.

Although the ARSHA contemplates that the Company will maintain a controlling interest in Oyu Tolgoi, the Government of Mongolia also holds a significant stake in Oyu Tolgoi LLC which holds the Oyu Tolgoi mine property. In addition, a portion of the Oyu Tolgoi mine property is held subject to an agreement with Entrée Gold, a Canadian exploration stage resource company in which the Company directly holds a 9.4% interest and RTIH directly holds an 11.3% interest. Therefore, the Company will be subject to risks to which shareholders are typically exposed. Such risks include the potential for disputes respecting development, operation and financing matters (including Oyu Tolgoi LLC board and Mongolian governmental approvals in respect of the Oyu Tolgoi project financing) resulting from multiple levels of corporate and/or governmental approvals and differing sophistication in relevant business and technical matters, inequality of bargaining power and incompatible strategic and economic objectives (both in the short term and the longer term) among the shareholders.

The Company’s ability to carry on business in Mongolia is subject to legal and political risks.

Although Turquoise Hill expects that the Investment Agreement and the Underground Plan will continue to bring significant stability and clarity to the legal, political and operating environment in which the Company will develop and operate Oyu Tolgoi, the Company remains subject to potential legal and political risks in Mongolia.

There can be no absolute assurance that the Company’s assets will not be subject to nationalization, requisition, expropriation or confiscation, whether legitimate or not, by any authority or body. In addition, there can be no assurance that neighbouring countries’ political and economic policies in relation to Mongolia will not have adverse economic effects on the development of the Company’s mining projects, including its ability to access power, transport and sell its products and access construction labour, supplies and materials.


December 31, 2015			Page \| 26

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

There is no assurance that provisions under Mongolian law for compensation and reimbursement of losses to investors under such circumstances would be effective to restore the full value of the Company’s original investment or to compensate for the loss of the current value of the Mongolian projects. Insofar as the Government of Mongolia is a sovereign entity against which the terms of the Investment Agreement and the Underground Plan may take considerable time to enforce (if enforceable at all), this risk applies to Oyu Tolgoi despite the provisions of the Investment Agreement respecting nationalization and expropriation. There can be no assurance that Mongolian laws protecting foreign investments will not be amended or abolished or that existing laws will be enforced or interpreted to provide adequate protection against any or all of the risks described above.

The legal framework in Mongolia is, in many instances, based on recent political reforms or newly enacted legislation, which may not be consistent with long-standing conventions and customs. Although legal title risks in respect of the Oyu Tolgoi mine are believed to be significantly mitigated by the terms of the Investment Agreement, there may still be ambiguities, inconsistencies and anomalies in the other agreements, licences and title documents through which the Company holds its direct or indirect interests in other mineral resource properties in Mongolia, or the underlying legislation upon which those interests are based, which are atypical of more developed legal systems and which may affect the interpretation and enforcement of the Company’s rights and obligations. Many laws have been enacted, but in many instances they are neither understood nor enforced and may be applied in an inconsistent, arbitrary and unfair manner, while legal remedies may be uncertain, delayed or unavailable. These laws or their enforcement by national, regional or local authorities can adversely affect, among other things, water access rights, operating costs resulting from unanticipated increases in tariff rates and overall assessment of risk. Accordingly, while the Company believes that it has taken the legal steps necessary to obtain and hold its property and other interests in Mongolia, there can be no guarantee that such steps will be sufficient to preserve those interests.

Recent and future amendments to Mongolian laws could adversely affect the Company’s mining rights in Oyu Tolgoi, or make it more difficult or expensive to develop such project and carry out mining in Mongolia.

The Government of Mongolia has put in place a framework and environment for foreign direct investment. However, there are political constituencies within Mongolia that have espoused ideas that would not be regarded by the international mining industry as conducive to foreign investment if they were to become law or official government policy. This was evidenced by revisions to Mongolia’s minerals laws in 2006 (and some of the revisions passed in 2014) and the enactment of a windfall profits tax that same year (that has since been repealed) as well as by the passage of legislation to control foreign direct investment in strategic sectors of the Mongolian economy, including mining (since amended to relax the controls imposed). There can be no assurance that the present or future Parliament will refrain from enacting legislation that undermines the Investment Agreement or otherwise adversely impacts Oyu Tolgoi or that the present or a future government will refrain from adopting government policies or seeking to renegotiate the terms of the Investment Agreement (which was threatened in both 2011 and 2012 and aspects of the agreement were part of ongoing shareholder discussions with the Government of Mongolia that were resolved in 2015) in ways that are adverse to the Company’s interests or that impair Turquoise Hill’s ability to develop and operate Oyu Tolgoi or other projects on the basis presently contemplated, which may have a material adverse impact on the Company and its share price.


December 31, 2015			Page \| 27

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

The Investment Agreement and the Underground Plan include a number of future covenants that may be outside of the control of the Company to perform.

The Investment Agreement and the Underground Plan commit the Company to perform many obligations in respect of the development and operation of Oyu Tolgoi. While performance of many of these obligations is within the effective control of the Company, the scope of certain obligations may be open to interpretation. Further, the performance of other obligations may require co-operation from third parties or may be dependent upon circumstances that are not necessarily within the control of the Company. For example:

•

Mongolian nationals must represent at least 90% of Oyu Tolgoi’s employees now that commercial production has been attained, and 50% of Oyu Tolgoi’s engineers must be Mongolian nationals within five years, increasing to 70% after ten years. Achieving or maintaining these targets is contingent upon the availability of a sufficient number of qualified personnel, which is not wholly within the Company’s control.

•

Oyu Tolgoi LLC is obligated, on a priority basis, to purchase and utilize services supplied by Mongolian citizens and/or legal entities, and equipment, raw materials, materials and spare parts manufactured in Mongolia, to the extent such services and materials are available on a competitive time, cost, quantity and quality basis, and to give preference to Mongolian suppliers of freight and transportation services required for Oyu Tolgoi. Such services and facilities may not be available to the extent required or may be available upon commercial terms that are less advantageous than those available from other sources.

•

The extension of the term of the Investment Agreement from 30 years to 50 years and then to 70 years is subject to a number of conditions, including the Company having demonstrated that Oyu Tolgoi has been operated in accordance with industry best practices in terms of national and community benefits, environment and health and safety practices. The inherently subjective nature of these criteria creates the risk that the Company and the Government of Mongolia may disagree as to whether the conditions for extending the term of the Investment Agreement have been met.

Despite the Company’s best efforts, such provisions are not necessarily within its control and non-fulfilment of any such provision may result in a default or breach under the Investment Agreement and the Underground Plan. Such a default or breach could result in termination of the Investment Agreement and the Underground Plan or damages accruing, which may have a material adverse impact on the Company and its share price.


December 31, 2015			Page \| 28

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

The Investment Agreement commits Oyu Tolgoi LLC to utilize only Mongolian power sources within four years of commencing commercial production.

The Investment Agreement commits Oyu Tolgoi LLC to utilize only Mongolian power sources. Such sources of power may not be available or may be available upon commercial terms that are less advantageous than those available from other potential power suppliers. Despite Turquoise Hill’s best efforts, such an obligation is not necessarily within the Company’s control and non-fulfilment of such requirement may result in a default under the Investment Agreement. Such default could result in termination of the Investment Agreement or damages accruing, which may have a material adverse impact on the Company and its share price.

RTIH, as the holder of a majority of the common shares, and as manager of the Oyu Tolgoi Mine, has the ability to exert a significant degree of control over the Company, Oyu Tolgoi LLC and the Oyu Tolgoi mine.

RTIH, a wholly-owned subsidiary of Rio Tinto, together with other Rio Tinto affiliates, owns a majority of the outstanding common shares and can exercise its voting power to elect all of the members of the Board of Directors, subject to applicable securities legislation. RTIH can also exercise its majority voting power to unilaterally pass any ordinary resolution submitted to a vote of the Company’s shareholders, except for resolutions in respect of which RTIH is an interested party and for which disinterested shareholder approval is required. In addition, under the HoA, RTIH was appointed as manager of Oyu Tolgoi which provides RTIH with responsibility for the management of Oyu Tolgoi. The Company’s Chief Executive Officer and Chief Financial Officer were nominated by RTIH. Such persons, together with the rest of the Company’s senior management team, are employed by affiliates of RTIH and are seconded to the Company.

RTIH is also able to exert a significant degree of control over the management, development and operation of Oyu Tolgoi through a series of governance mechanisms established under the Private Placement Agreement and the HoA. These include the Technical Committee established under the Private Placement Agreement and the Operating Committee established under the HoA, through which RTIH is able to control decisions respecting the business of Oyu Tolgoi LLC subject to a veto of the Company in respect of certain special matters.

The interests of RTIH and the interests of the Turquoise Hill’s other shareholders may not necessarily be aligned in all respects and there can be no assurance that RTIH, together with other Rio Tinto affiliates, will exercise its rights as the Company’s majority shareholder and its other contractual rights under the Private Placement Agreement, the HoA, the 2012 Memorandum of Agreement and the 2013 Memorandum of Agreement in a manner that is consistent with the best interests of either Turquoise Hill or the Company’s other shareholders.

A substantial portion of Turquoise Hill’s liquid assets are deposited with or managed by affiliates of Rio Tinto.

On December 15, 2015, the Company entered into the Cash Management Services Agreement with 9539549 Canada Inc., a wholly-owned subsidiary of Rio Tinto, pursuant to which the Net PF Proceeds are to be deposited with and managed by 9539549 Canada Inc. until they are returned to Turquoise Hill for purposes of funding the underground at Oyu Tolgoi. Although RTIH has guaranteed the obligations of 9539549 Canada Inc. under the Cash Management Services Agreement, a delay in the return of such funds when requested by Turquoise Hill, or the unavailability of such funds for any


December 31, 2015			Page \| 29

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

reason, could result in a material adverse effect on the Company. In December 2014, Movele S.à.r.l., a wholly-owned subsidiary of the Company, entered into a deposit agreement with Rio Tinto Finance plc (RTF), which has subsequently been renewed, pursuant to which Movele S.à.r.l. has deposited funds with RTF, which are invested or deposited by RTF for fixed terms. The inability of Movele S.à.r.l. to access cash and cash equivalent investments on deposit with RTF under the deposit agreement, in a timely manner or at all due to circumstances which limit RTF’s ability to return such funds to Movele S.à.r.l. could have a material adverse impact on Turquoise Hill and its business.

The actual cost of developing Oyu Tolgoi may differ materially from the Company’s estimates and involve unexpected problems or delays.

Turquoise Hill’s estimates regarding the cost of development and operation of Oyu Tolgoi are estimates only and are based on many assumptions and analyses made by the Company’s management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These estimates and the assumptions upon which they are based are subject to a variety of risks and uncertainties and other factors that could cause actual expenditures to differ materially from those estimated. If these estimates prove incorrect, the total capital expenditures required to complete development of the underground component of Oyu Tolgoi may increase, which may have a material adverse impact on the Company, its results of operations, financial condition and share price.

There are also a number of uncertainties inherent in the development and construction of any new or existing mine, including the Oyu Tolgoi mine. These uncertainties include the timing and cost, which can be considerable, of the construction of mining and processing facilities; the availability and cost of skilled labour, the impact of fluctuations in commodity prices, process water, power and transportation, including costs of transport for the supply chain for Oyu Tolgoi, which requires routing approaches which have not been fully tested; the annual usage fees payable to the local province for sand, aggregate and water; the availability and cost of appropriate smelting and refining arrangements; and the need to obtain necessary environmental and other government permits, such permits being on reasonable terms, and the timing of those permits. The cost, timing and complexities of mine construction and development are increased by the remote location of a property such as Oyu Tolgoi.

It is common in new mining operations and in the development or expansion of existing facilities to experience unexpected problems and delays during development, construction and mine start-up, which may cause delays in the commencement or expansion of mineral production. In particular, funding and development of the underground component of Oyu Tolgoi was delayed until matters with the Government of Mongolia were addressed with the signing of the Underground Plan. Such delays could have unforeseen impacts on disclosed project economics. Accordingly, there is no assurance that the current or future development, construction or expansion activities will be successfully completed within cost estimates, on schedule or at all and, if completed, there is no assurance that such activities will result in profitable mining operations.

Changes in, or more aggressive enforcement of, laws and regulations could adversely impact the Company’s activities.

Mining operations, exploration and related financing activities are subject to extensive laws and regulations. These relate to production, development, exploration, exports, imports, taxes and


December 31, 2015			Page \| 30

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

royalties, labour standards, occupational health, waste disposal, protection and remediation of the environment, access to water, mine decommissioning and reclamation, mine safety, toxic substances, transportation safety and emergency response and other matters.

Compliance with these laws and regulations increases the costs of exploring, drilling, developing, constructing, operating and closing mines and other facilities. It is possible that the costs, delays and other effects associated with these laws and regulations may impact the Company’s decision as to whether to continue to operate in a particular jurisdiction or whether to proceed with exploration or development of properties. Since legal requirements change frequently, are subject to interpretation and may be enforced to varying degrees in practice, the Company is unable to predict the ultimate cost of compliance with these requirements or their effect on operations. Furthermore, changes in governments, regulations and policies and practices could have an adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition, which may have a material adverse impact on the Company and its share price.

The Company is exposed to risks of changing political stability and government regulation in the countries in which it carries out its activities.

The Company carries out its activities in countries which may be affected in varying degrees by political stability, government regulations related to the mining industry and foreign investment therein, and by the policies of other nations in respect of these countries. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its business. The Company’s activities may be affected to varying degrees by government regulations, including those with respect to restrictions on production, price controls, export controls, income and other taxes, expropriation of property, employment, land use, water use, environmental legislation and mine safety. Turquoise Hill may be subject to disputes or issues with customs officials affecting the shipment of the Company’s products in jurisdictions in which it operates, and the ability of its customers to collect such products may arise and could have an adverse effect on Turquoise Hill’s ability to collect and/or recognize revenue. The Company’s activities may also be affected to varying degrees by political and economic instability, economic, investment or other sanctions imposed by other nations, terrorism, military repression, crime, extreme fluctuations in currency exchange rates and high inflation.

In certain areas where the Company is active, the regulatory environment is in a state of continuing change, and new laws, interpretations, regulations and requirements may be retroactive in their effect and implementation. The laws of certain of the countries in which the Company carries out its activities also have the potential to be applied in an inconsistent manner due to the substantial administrative discretion granted to the responsible government officials or agencies. As such, even Turquoise Hill’s best efforts to comply with the laws and regulations may not result in effective compliance in the determination of government bureaucrats, which may have a material adverse impact on the Company and its share price.

The disclosed resource and reserve estimates are estimates only and are subject to change based on a variety of factors, some of which are beyond the Company’s control. The Company’s actual production, revenues and capital expenditures may differ materially from these estimates.

The disclosed estimates of reserves and resources in the AIF, including the anticipated tonnages and grades that will be achieved or the indicated level of recovery that will be realized, are estimates and no assurances can be given as to their accuracy. Such estimates are, in large part, based on interpretations of geological data obtained from drill holes and other sampling techniques, and large


December 31, 2015			Page \| 31

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

scale continuity and character of the deposits will only be determined once significant additional drilling and sampling has been completed and analyzed. Actual mineralization or formations may be different from those predicted. Reserve and resource estimates are materially dependent on prevailing metal prices and the cost of recovering and processing minerals at the individual mine sites. Market fluctuations in the price of metals or increases in the costs to recover metals from Turquoise Hill’s mining projects may render mining of ore reserves uneconomical and affect the Company’s operations in a materially adverse manner. Moreover, various short-term operating factors may cause a mining operation to be unprofitable in any particular accounting period.

Prolonged declines in the market price of metals may render reserves containing relatively lower grades of mineralization uneconomic to exploit and could materially reduce the Company’s reserves and resources. Should such reductions occur, material write-downs of the Company’s investments in mining properties or the discontinuation of development or production might be required, and there could be cancellations of or material delays in the development of new projects, increased net losses and reduced cash flow. The estimates of mineral reserves and resources attributable to a specific property are based on internationally accepted engineering and evaluation principles. The estimated amount of contained metals in Proven mineral reserves and Probable mineral reserves does not necessarily represent an estimate of a fair market value of the evaluated properties.

The financial modeling for Oyu Tolgoi is based on projected future metal prices. The prices used reflected organizational consensus pricing views and opinions and are subjective in nature. It should be expected that actual prices will be different than the prices used for such modelling (either higher or lower), and the differences could be significant.

There are numerous uncertainties inherent in estimating quantities of mineral reserves and resources. The estimates referenced in the AIF are based on various assumptions relating to commodity prices and exchange rates during the expected life of production, mineralization of the area to be mined, the projected cost of mining, and the results of additional planned development work. Actual future production rates and amounts, revenues, taxes, operating expenses, environmental and regulatory compliance expenditures, development expenditures, and recovery rates may vary substantially from those assumed in the estimates. Many of the projections and estimates are based on subjective views and assumptions. Any significant change in these assumptions, including changes that result from variances between projected and actual results, could result in material downward revision to current estimates, which may have a material adverse impact on the Company and its share price.

A number of the uncertainties relate to the costs and availability of smelting services for the metals mined from Oyu Tolgoi, which require arrangements with third parties and involve the potential for fluctuating costs to transport the metals and fluctuating costs and availability of such services. These costs can be significantly impacted by a variety of industry-specific and also regional and global economic factors (including, among others, those which affect commodity prices). Many of these factors are beyond the Company’s control.

Mining projects are sensitive to the volatility of metal prices.

The long-term viability of Oyu Tolgoi depends in large part on the world market prices of copper, gold and silver. The market prices for these metals are volatile and are affected by numerous factors beyond the Company’s control. These factors include international economic and political trends, expectations of inflation, global and regional demand, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities, increased production due to


December 31, 2015			Page \| 32

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

improved mining and production methods and economic events, including the performance of Asia’s economies. Ongoing worldwide economic uncertainty could lead to prolonged recessions in many markets which may, in turn, result in reduced demand for commodities, including base and precious metals. In 2015 and year-to-date in 2016, copper, gold and silver prices have declined significantly as a result of various macroeconomic factors and it is anticipated that there will be continued volatility in metal prices.

The aggregate effect of these factors on metal prices in the medium or long term is impossible to predict. Should prevailing metal prices be depressed or below variable production costs of the Company’s current and planned mining operations for an extended period, losses may be sustained and, under certain circumstances, there may be a curtailment or suspension of some or all of the Company’s mining, development and exploration activities. Turquoise Hill would also have to assess the economic impact of any sustained lower metal prices on recoverability and, therefore, the cut-off grade and level of the Company’s reserves and resources. These factors could have an adverse impact on Turquoise Hill’s future cash flows, earnings, results of operations, stated reserves and financial condition, which may have a material adverse impact on the Company and its share price.


Year	Copper						Gold						Silver
	High		Low		Average		High		Low		Average		High		Low		Average
2011		$4.62		$3.05		$4.00		$1,895		$1,319		$1,572		$48.70		$26.16		$35.12
2012		$3.93		$3.29		$3.61		$1,792		$1,540		$1,669		$37.23		$26.67		$31.15
2013		$3.77		$3.04		$3.34		$1,694		$1,192		$1,411		$32.23		$18.61		$23.79
2014		$3.37		$2.84		$3.10		$1,385		$1,142		$1,266		$22.05		$15.28		$19.08
2015		$2.94		$2.04		$2.49		$1,296		$1,049		$1,160		$18.36		$13.67		$15.66

In June 2011, the Government of Mongolia passed Resolution No. 175, the purpose of which is to authorize the designation of certain land areas for “special government needs” with certain defined areas in proximity to Oyu Tolgoi. These special government needs areas are to be used for infrastructure facilities for the development of the Oyu Tolgoi mine, if required.

Most of the areas designated for special government needs are subject to existing mineral exploration and mining licences issued by the Government of Mongolia to third parties and, in certain cases, a mineral resource has been declared and registered with the applicable governmental authorities in respect of such licences. It is not clear at this time what areas of land covered by Resolution No. 175 may be required for the purposes of infrastructure for Oyu Tolgoi and, if required, what level of impact that may have, if any, on third parties holding mineral exploration and mining licenses over such areas. Oyu Tolgoi LLC has entered into certain consensual arrangements with some of the affected third parties; however, such arrangements have not been completed with all affected third parties. If Oyu Tolgoi LLC cannot enter into consensual arrangements with an affected third party and such third


December 31, 2015			Page \| 33

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

party’s rights to use and access the subject land area are ultimately adversely affected by application of Resolution No. 175, compensation to such third parties will be payable under Mongolian legislation as indicated by Resolution No. 175.

The Company is subject to substantial environmental and other regulatory requirements and such regulations are becoming more stringent. Non-compliance with such regulations, either through current or future operations or a pre-existing condition, could materially adversely affect the Company.

All phases of the Company’s operations are subject to environmental regulations in the various jurisdictions in which it operates and has operated. For example, Oyu Tolgoi is subject to a requirement to meet environmental protection obligations. The Company must complete an Environmental Protection Plan for approval by the Government of Mongolia and complete a report prepared by an independent expert on environmental compliance every three years.

Environmental legislation is evolving in a manner which will likely require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s operations. Environmental hazards may exist on the properties in which Turquoise Hill holds interests which are presently unknown to the Company and which have been caused by previous or existing third party owners or operators of the properties. Government approvals and permits are also often required in connection with various aspects of the Company’s operations. To the extent such approvals are required and not obtained, Turquoise Hill may be delayed or prevented from proceeding with planned exploration or development of its mineral properties, which may have a material adverse impact on the Company and its share price.

Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on


December 31, 2015			Page \| 34

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Turquoise Hill and cause increases in capital expenditures or production costs or reductions in levels of production at producing properties or require abandonment or delays in development of new mining properties, which may have a material adverse impact on the Company and its share price.

Previous mining operations may have caused environmental damage at former mining projects of the Company, and if Turquoise Hill cannot prove that such damage was caused by other operators, its indemnities and exemptions from liability may not be effective.

Turquoise Hill has received exemptions from liability from relevant governmental authorities for environmental damage caused by previous mining operations at former mining projects. There is a risk, however, that, if an environmental accident occurred at those sites, it may be difficult or impossible to assess the extent to which environmental damage was caused by the Company’s activities or the activities of other operators. In that event, the liability exemptions could be ineffective and possibly worthless, which may have a material adverse impact on Turquoise Hill and its share price.

The Company’s ability to obtain dividends or other distributions from its subsidiaries may be subject to restrictions imposed by law, foreign currency exchange regulations and financing arrangements.

The Company conducts its operations through subsidiaries. Its ability to obtain dividends or other distributions from its subsidiaries may be subject to restrictions on dividends or repatriation of earnings under applicable local law, including any tax obligations, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which the subsidiaries operate or are incorporated. The ability of Turquoise Hill’s subsidiaries to pay dividends or to make other distributions to the Company is also subject to their having sufficient funds to do so. If its subsidiaries are unable to pay dividends or to make other distributions, the Company’s growth may be inhibited unless it is able to obtain additional equity or debt financing on acceptable terms. In the event of a subsidiary’s liquidation, the Company may lose all or a portion of its investment in that subsidiary. The Company expects to be able to rely on the terms of the Investment Agreement to pay dividends out of Mongolia, subject to certain restrictions contained in the Investment Agreement, but will be unable to do so in respect of projects that are not covered by the terms of the Investment Agreement, which may have a material adverse impact on Turquoise Hill and its share price.

The Company is subject to anti-corruption legislation.

Turquoise Hill is subject to the United States’ Foreign Corrupt Practices Act and other similar legislation, such as, but not necessarily limited to, Canada’s Corruption of Foreign Public Officials Act (collectively, Anti-Corruption Legislation), which prohibits the Company or any officer, director, employee or agent of Turquoise Hill or any shareholder of the Company acting on its behalf from giving, paying, offering to give or pay, or authorizing the giving or payment of any reward, advantage, benefit or anything of value to any foreign government or public official, government staff member, political party, or political candidate in an attempt to obtain or retain business, obtain an advantage in the course of business, or to otherwise induce or influence a person working in an official capacity. The Anti-Corruption Legislation also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls. The Company’s international activities create the risk of unauthorized payments or offers of payments by its employees, consultants or agents, even though they may not always be subject to its control. The Company strictly prohibits these practices by its employees and


December 31, 2015			Page \| 35

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

agents. However, Turquoise Hill’s existing safeguards and any future improvements may prove to be less than effective, and its employees, consultants or agents may engage in conduct for which the Company might be held responsible. Any failure by the Company to adopt appropriate compliance procedures and ensure that its employees and agents comply with the Anti-Corruption Legislation and applicable laws and regulations in foreign jurisdictions could result in substantial penalties or restrictions on its ability to conduct its business, which may have a material adverse impact on Turquoise Hill and its share price.

There can be no assurance that the interests held by Turquoise Hill in its exploration, development and mining properties are free from defects or that material contractual arrangements between the Company and entities owned or controlled by foreign governments will not be unilaterally altered or revoked.

Turquoise Hill has investigated its rights to explore and exploit its various properties and, to the best of its knowledge, those rights are in good standing, but no assurance can be given that such rights will not be revoked, or significantly altered, to the detriment of the Company. There can also be no assurance that the Company’s rights will not be challenged or impugned by third parties. Turquoise Hill has also applied for rights to explore, develop and mine various properties, but there is no certainty that such rights, or any additional rights applied for, will be granted on terms satisfactory to the Company or at all, which may have a material adverse impact on Turquoise Hill and its share price.

The Company is currently engaged in an U.S. Securities and Exchange Commission (the SEC) comment letter process relating to revenue recognition accounting treatment regarding certain sales of coal by SouthGobi, which process could result in a requirement to file future supplements to or further restatements of Turquoise Hill’s financial disclosure.

The Company has received comment letters from the staff (the Staff) of the SEC relating to the Annual Report on Form 40-F for the year ended December 31, 2012 filed with the SEC on March 25, 2013. The Staff’s comments addressed accounting and disclosure matters primarily related to revenue recognition accounting under U.S. GAAP in respect of certain sales of coal by the Company’s then majority-owned subsidiary, SouthGobi. On November 14, 2013, the Company filed restated consolidated financial statements for the year ended December 31, 2012 as well as restated management’s discussion and analysis for such year, including comparative periods presented therein, and has concluded that such restatement appropriately addresses the timing of revenue recognition for these transactions. However, as of the date of the AIF, the Staff’s comments remain unresolved, and until these comments are resolved, the Company cannot predict whether the Staff will agree with the Company’s conclusion or whether it will require the Company to supplement its disclosures or further restate or make other changes to its historical consolidated financial statements, including with respect to the financial information contained in the Company’s previously filed annual and quarterly reports. If the Company is required to supplement its disclosures or further restate its previously reported financial statements in any way, it could have an impact on the portion of the Company’s results represented by SouthGobi’s operations in previous periods. Since 2012, the Company has reduced its ownership of SouthGobi’s common shares, and as at December 31, 2015, the Company held 49,348,915 common shares of SouthGobi, representing a 19.2% equity interest in SouthGobi. For more information see General Description of the Business – Three Year History – 2015 in the AIF.

The Company does not expect to pay dividends for the foreseeable future.

The Company has not paid any dividends on its Common Shares to date and it does not intend to declare or pay dividends for the foreseeable future, as it anticipates that it will reinvest future earnings, if any, in the development and growth of Oyu Tolgoi and its business generally. Therefore, investors will not receive any


December 31, 2015			Page \| 36

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

funds unless they sell their common shares, and investors may be unable to sell their common shares on favourable terms or at all. The Company cannot give any assurance of a positive return on investment or that investors will not lose the entire amount of their investment in common shares. Prospective investors seeking or needing dividend income or liquidity should not purchase common shares.

There is no assurance that the Company will be capable of consistently producing positive cash flows.

The open pit at Oyu Tolgoi generated positive operating cash flows in 2015. However, there is no assurance that the Company will be capable of producing positive cash flow on a consistent basis or for a sustained period of time or arranging for additional capital, whether through project debt financing or otherwise, if required, to continue the open pit operations as currently planned or in respect of additional funding requirements for the underground mine. If such additional capital is required but not available on commercially reasonable terms or at all, it may have a material adverse impact on the value of Oyu Tolgoi and, consequently, on the Company and its share price.

There is no guarantee that any exploration or development activity will result in additional commercial production.

Development of a mineral property is contingent upon obtaining satisfactory exploration results. Mineral exploration and development involves substantial expenses and a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to adequately mitigate. There is no assurance that additional commercial quantities of ore will be discovered on any of the Company’s exploration properties. There is also no assurance that, even if commercial quantities of ore are discovered, a mineral property will be brought into commercial production. The discovery of mineral deposits is dependent upon a number of factors, not the least of which is the technical skill of the exploration personnel involved. The commercial viability of a mineral deposit, once discovered, is also dependent upon a number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to infrastructure, metal prices and government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection. In addition, assuming discovery of a commercial ore body, depending on the type of mining operation involved, several years can elapse from the initial phase of drilling until commercial operations are commenced. Most of the above factors are beyond the control of the Company.

The Company cannot insure against all of the risks associated with mining.


December 31, 2015			Page \| 37

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

It is not always possible to obtain insurance (or to fully insure) against all such risks and the Company may decide not to insure against certain risks as a result of high premiums or other reasons. The occurrence of an event that is not fully covered or covered at all, by insurance, could have a material adverse effect on the Company’s financial condition, results of operations and cash flows and could lead to a decline in the value of the securities of Turquoise Hill. The Company does not maintain insurance against political or environmental risks, which may have a material adverse impact on Turquoise Hill and its share price.

The loss of, or a substantial decline in sales to, a top customer could have a material adverse effect on the Company’s revenues and profitability.

A reduction or delay in orders from leading customers, including reductions or delays due to market, economic or competitive conditions, could have a material adverse effect upon the Company’s results of operations. Customers that previously accounted for significant revenue may not necessarily generate similar levels of or any revenue in any future period. The failure to obtain new customers or repeat orders from existing customers may materially affect the Company’s operating results. The Company anticipates that its exposure to a group of key customers in any given fiscal year will continue for the foreseeable future. There is a risk that existing customers will elect not to do business with the Company in the future or will experience financial or other difficulties.

The Company faces risks associated with enforcement of its contractual rights.

Enforcement of existing and future laws and contracts in jurisdictions in which the Company carries out its activities is subject to uncertainty, and the implementation and interpretation of them may be inconsistent. The promulgation of new laws and changes to existing laws may adversely affect foreign companies, such as the Company, with activities in or contracts with counterparties in such jurisdictions. These uncertainties could limit the legal protections available to the Company. The Company’s inability to enforce its contractual rights could have a material adverse effect on its business and profitability. In addition, the Company is exposed to risks of political instability and government regulation in the countries in which it carries out its activities. See also the risk factor titled The Company may be limited in its ability to enforce the Investment Agreement and the Underground Plan against Mongolia, a sovereign government.

The Company’s prospects depend on its ability to attract and retain key personnel.

Recruiting and retaining qualified personnel is critical to the Company’s success. The number of persons skilled in the acquisition, exploration and development of mining properties is limited and competition for such persons is intense. The Company believes that it has been successful in recruiting the necessary personnel to meet its corporate objectives but, to the extent the Company’s business activity grows and it commences development of the underground component of Oyu Tolgoi, it will require additional key financial, operational, mining and management personnel, as well as additional staff on the operations side. The Company is also dependent on Rio Tinto for the secondment of skilled labour at Oyu Tolgoi, particularly in the construction and early development phases. Although the Company believes that it will be successful in attracting and retaining qualified personnel, including qualified secondees from Rio Tinto, there can be no assurance of such success.

In addition, pursuant to the terms of the Investment Agreement, the Company is obligated to hire a specific number of Mongolian nationals as Oyu Tolgoi continues in commercial production. Among other obligations, the Company must use its best endeavours to ensure that within five years of Oyu


December 31, 2015			Page \| 38

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Tolgoi attaining commercial production, at least 50%, and within ten years of Oyu Tolgoi attaining commercial production, at least 70% of the engineers employed at Oyu Tolgoi are Mongolian nationals (and failure to meet these levels will result in financial penalties).

Capital markets are volatile, and capital may not at all times be available on terms acceptable to the Company or at all.

Securities markets throughout the world are cyclical and, over time, tend to undergo high levels of price and volume volatility, and the market price of securities of many companies, particularly those in the resource sector, can experience wide fluctuations which are not necessarily related to the operating performance, underlying asset values or prospects of such companies. Increased levels of volatility and resulting market turmoil could adversely impact the Company and its share price. In addition, in the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. The Company cannot assure you that similar litigation will not occur in the future with respect to it. Such litigation could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect upon the Company’s business, operating results, and financial condition.

If Turquoise Hill is required to access credit markets to carry out its development objectives, the state of domestic and international credit markets and other financial systems could affect the Company’s access to, and cost of, capital. If these credit markets were significantly disrupted, as they were in 2007 and 2008, such disruptions could make it more difficult for the Company to obtain, or increase its cost of obtaining, capital and financing for its operations. Such capital may not be available on terms acceptable to the Company or at all, which may have a material adverse impact on Turquoise Hill its share price.

The Company may be a passive foreign investment Company (PFIC), which could have adverse U.S. federal income tax consequences to U.S. holders of common shares.

Based on the scope of its past, current and projected operations, the Company does not believe that it was a PFIC for the 2015 tax year. However, the determination of the Company’s PFIC status for any year is very fact-specific, and there can be no assurance in this regard for future years. If the Company is classified as a PFIC, U.S. holders of common shares could be subject to adverse U.S. federal income tax consequences, including increased tax liabilities and possible additional reporting requirements, which may have a material adverse impact on Turquoise Hill and its share price.

The Company may from time to time hold substantial funds in cash and cash equivalents and there is a risk that financial market turmoil or other extraordinary events could prevent Turquoise Hill from obtaining timely access to such funds or result in the loss of such funds.

The Company may from time to time hold substantial funds in cash and cash equivalents, including treasury bills, money market funds and bank deposits. Management has adopted a conservative investment philosophy with respect to such funds, as the Company may require that these funds be used on short notice to support its business objectives. Nevertheless, there is a risk that an extraordinary event in financial markets generally or with respect to an obligor under an investment individually will occur that prevents the Company from accessing its cash and cash equivalent investments. Such an event could, in the case of delayed liquidity, have a negative impact on the implementation of time sensitive business objectives that require access to such funds or such an event could, in extreme circumstances, result in the loss of some or all of such funds.


December 31, 2015			Page \| 39

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

The Company’s business could be materially and adversely affected by litigation proceedings.

The Company is subject to litigation risks. All industries, including the mining industry, are subject to legal claims, with and without merit. The Company may be required to defend against any such claims that are asserted against it, or may deem it necessary or advisable to initiate legal proceedings to protect its rights. The expense and distraction of any claims or proceedings, even with respect to claims that have no merit and whether or not resolved in the Company’s favour, could materially and adversely affect its business, operating results, and financial condition. Further, if a claim or proceeding were resolved against Turquoise Hill or if it were to settle any such dispute, the Company may be required to pay damages and costs or refrain from certain activities, any of which could have a material adverse impact on Turquoise Hill’s business, operating results, and financial condition. The Company at one time conducted exploration and mining operations in a number of jurisdictions and, as a result of such activities and operations, it may be subject to governmental or regulatory investigations and claims even in those jurisdictions in which it is not currently active.

Certain directors of Turquoise Hill are directors or officers of, or have shareholdings or other interests in, other mineral resource companies and there is the potential that such directors will encounter conflicts of interest with the Company.

Certain of the directors of the Company are directors, officers or employees of, or have shareholdings or other interests in, other mineral resource companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In all cases where directors and officers have an interest in another resource company, such directors and officers may have conflicts of interest, such as where such other companies may also compete with the Company for the acquisition of mineral property rights.

In the event that any such conflict of interest arises, a director who has such a conflict is required to disclose the conflict to a meeting of the directors of the Company and will generally abstain from voting for or against the approval of such participation or such terms. In appropriate cases, the Company will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict. In accordance with the Business Corporations Act (Yukon), the directors of Turquoise Hill are required to act honestly, in good faith and in the best interests of the Company. In determining whether or not Turquoise Hill will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the potential benefits to the Company, the degree of risk to which Turquoise Hill may be exposed and its financial position at that time.


December 31, 2015			Page \| 40

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

14.

RELATED-PARTY TRANSACTIONS

Transactions with Rio Tinto

As at December 31, 2015, Rio Tinto’s equity ownership in the Company was 50.8% (December 31, 2014: 50.8%).

The following table presents the consolidated balance sheet line items which include amounts due from or payable to Rio Tinto:


(Stated in $000’s of dollars)	December 31 2015			December 31, 2014			January 1, 2014

Cash and cash equivalents (i)	$	740,537		$	711,468		$	-
Due from related parties		3,623			7,864			5,070
Payable to related parties:
Management services payment (ii)		(5,972	)		(7,729	)		(100,569)
Cost recoveries (iii)		(28,829	)		(46,055	)		(75,237)
Standy purchaser fee (iv)		-			-			(71,886)
Interest payable on long-term debt (v)		-			-			(13,530)
Interim funding facility (v)		-			-			(1,789,787)
New bridge facility (v)		-			-			(339,475)
		709,359			665,548			(2,385,414)

The following table summarizes transactions with Rio Tinto by their nature:


(Stated in $000’s of dollars)	Year ended December 31,
	2015			2014

Interest income on demand deposits (i)	$	1,393		$	29
Costs recoveries - Turquoise Hill		3,724			4,017

Financing costs:
Commitment fees		-			(224)
Interest expense (vi)		-			(4,903)
Management services payment (ii)		(24,054	)		(27,745)
Costs recoveries - Rio Tinto (iii)		(49,322	)		(78,630)
	$	(68,259	)	$	(107,456)

(i)

In addition to placing cash and cash equivalents on deposit with banks or investing funds with other financial institutions, Turquoise Hill may, from time to time, deposit cash and cash equivalents or invest funds with Rio Tinto in accordance with an agreed upon policy and strategy for the management of liquid resources. Cash and cash equivalents at December 31, 2015 included short term deposits, net of withdrawals, made between December 2014 and December 2015 with wholly owned subsidiaries of Rio Tinto totalling $740.5 million. During the year ended December 31, 2015, these deposits earned interest at rates equivalent to those offered by financial institutions.

(ii)

In accordance with the ARSHA, which was signed on June 8, 2011, and other related agreements, Turquoise Hill is required to pay a management services payment (MSP) to Rio Tinto equal to a percentage of all capital costs and operating costs incurred by Oyu Tolgoi from March 31, 2010 onwards. After signing of the Underground Plan on May 18, 2015, the percentage applied to capital costs of the underground development is 1.5%, and the percentage applied to operating costs and capital related to current operations is 3%. Adjustments for the impact of these percentages to MSP made in previous periods are included in the amount for the year ended December 31, 2015.

(iii)


December 31, 2015			Page \| 41

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

(iv)	In Q1’14, the Company recognized a derivative gain of $1.1 million associated with re-measuring the standby purchaser fee liability.

(v)	In Q1’14, the Company used $2.2 billion of the net proceeds from the rights offering that closed in January 2014 to repay all amounts outstanding on the Interim Funding Facility ($1.8 billion) and the New Bridge Facility ($402.6 million).

(vi)	The terms of the Rio Tinto credit facilities include gross-up provisions for withholding taxes. Accordingly, commitment fees and interest expense include gross-ups for withholding taxes where applicable.

Transactions with SouthGobi

Prior to the sale of 48.7 million shares on April 23, 2015, SouthGobi was classified as a consolidated subsidiary, and transactions between the Company and SouthGobi were eliminated on consolidation and were therefore not reported as related party transactions.

On November 30, 2015, the Company’s ownership reduced to 19.9%. From this point, SouthGobi ceased to be an investment in an associate and became an available for sale investment recorded within financial assets. Transactions occurring from April 23, 2015 to November 30, 2015 between the Company and SouthGobi are disclosed as related party transactions and totalled $0.4 million.

The above noted transaction was in the normal course of operations and was measured at the transaction amount, which is the amount of consideration established and agreed to by the related parties.

15.

NON-GAAP MEASURES

The Company’s financial results are prepared in accordance with IFRS. In addition, the Company presents and refers to the following measures (non-GAAP measures) which are not defined in IFRS. A description and calculation of these measures is given below, and may differ from equivalent measures provided by other issuers.

Cash operating costs

This measure comprises Oyu Tolgoi cash operating costs, and is presented in order to provide investors and other stakeholders in the Company with a greater understanding of performance and operations at Oyu Tolgoi. The measure of cash operating costs excludes: depreciation and depletion; exploration and evaluation; charges for asset write-down (including write-down of materials and supplies inventory), and includes management services payments to Rio Tinto, and management services payments to Turquoise Hill which are eliminated in the consolidated financial statements of the Company.

C1 cash costs

C1 cash costs is a metric representing the cash cost per unit of extracting and processing the Company’s principal metal product to a condition in which it may be delivered to customers, net of by-product credits. It is provided in order to support peer group comparability and to provide investors and other stakeholders useful information about the underlying cash costs of Oyu Tolgoi and the impact of by-product credits on the operations’ cost structure. C1 cash costs are relevant to understanding the Company’s operating profitability and ability to generate cash flow. When calculating costs associated with producing a pound of copper, the Company includes gold and silver revenue credits as the production cost is reduced as a result of selling these by-products.


December 31, 2015			Page \| 42

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Turquoise Hill’s principal metal product is copper, and C1 cash costs are reported for Oyu Tolgoi only.

All-in sustaining costs

All-in sustaining costs (AISC) is an extended cash based cost metric, providing further information on the aggregate cash, capital and overhead outlay per unit, and is intended to reflect the costs of producing the Company’s principal metal product over the life-cycle of its operations. The measure seeks to reflect the full cost of copper production from current operations and as a result development project capital is not included. AISC allows Turquoise Hill to assess the ability of Oyu Tolgoi to support sustaining capital expenditures for future production from the generation of operating cash flows.

A reconciliation of total cash operating costs, C1 cash costs and all-in sustaining costs, is provided below.


	Operating and unit costs
	(Three Months Ended)		(Years Ended)
*C1 costs (Stated in $000’s of dollars)*	December 31, 2015	September 30, 2015	December 31, 2015	December 31, 2014^3.
Production and delivery	149,648	159,375	630,413	849,789
Change in inventory	7,182	(17,075)	(29,444)	(253,040)
Other operating expenses	113,209	151,721	452,539	375,850
Less:
- Impairment / write-down of inventory	(36,033)	(76,448)	(103,236)	(33,926)
- Depreciation	(2,782)	(2,610)	(11,700)	(7,972)
Management services payment to Turquoise Hill	5,327	7,572	24,054	27,745

Cash operating costs	236,551	222,535	962,626^2.	958,446
Cash operating costs: $/lb of copper produced	1.87	1.80	2.16	2.93
Adjustments to cash operating costs^1.	35,439	33,736	98,054	83,152
Less: Gold and silver revenues	(161,049)	(207,199)	(805,162)	(668,636)

C1 costs ($‘000)	110,941	49,072	255,518	372,962

C1 costs: $/lb of copper produced	0.88	0.40	0.57	1.14

*All-in sustaining costs (Stated in $000’s of dollars)*
Corporate administration	4,995	2,899	17,193	22,588
Asset retirement expense	1,428	1,395	5,280	9,458
Royalty expenses	25,014	24,126	120,795	91,512
Non-current stockpile and stores write-down (reversal)	36,033	76,448	103,236	33,926
Other expenses	(1,396)	1,116	2,607	14,706
Sustaining cash capital including deferred stripping	20,235	32,792	105,808	93,489

All-in sustaining costs ($‘000)	197,250	187,848	610,437	638,641

All-in sustaining costs: $/lb of copper produced	1.56	1.52	1.37	1.95

^1.Adjustments to cash operating costs include: treatment, refining and freight differential charges less the 5% Government of Mongolia royalty and other expenses not applicable to the definition of C1 cost.

^2.Cash operating costs for 2015 include non-recurring charges of $59.9 million, following agreement of the Underground Plan (tax settlement: $22.1 million; recalculation of royalties: $14.5 million) and costs relating to underground remobilization and early works expensed ($23.3 million).

^3.Financial information has been extracted from the Company’s annual consolidated financial statements for the year ended December 31, 2015. Comparative amounts have been restated for adjustments resulting from transition to IFRS from U.S. GAAP. Please refer to Section 12 – INTERNATIONAL FINANCIAL REPORTING STANDARDS – on page 22 on this MD&A.


December 31, 2015			Page \| 43

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

16.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company under applicable securities legislation is gathered and reported to senior management, including the Company’s CEO and CFO, on a timely basis so that appropriate decisions can be made regarding public disclosures.

As of the end of the Company’s fiscal year ended December 31, 2015, an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a – 15(e) and 15d – 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and under National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109)) was carried out by the Company’s management with the participation of the CEO and CFO. Based upon that evaluation, the Company’s CEO and CFO concluded that as of the end of the fiscal year, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under applicable U.S. and Canadian securities legislation is (i) recorded, processed, summarized and reported within the time periods specified in such legislation and (ii) accumulated and communicated to the Company’s management, including its CEO and CFO, to allow timely decisions regarding required disclosure.

The Company’s management, including the CEO and CFO, believe that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide only a reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system reflects the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls is also based in part on certain assumptions about the likelihood of certain events, and there can be no assurance that any design can achieve its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

17.

MANAGEMENT’S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal controls over financial reporting of the Company (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act and in NI 52-109). Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS and the requirements of applicable U.S. and Canadian securities legislation.

The Company’s CEO and CFO have assessed the effectiveness of the Company’s internal controls over financial reporting as at December 31, 2015 in accordance with Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on this assessment, the Company’s CEO and CFO have determined that the Company’s internal controls over financial reporting were effective as of December 31, 2015 and have certified the Company’s annual filings with the U.S. Securities and Exchange Commission on Form 40-F as required by the U.S. Sarbanes-Oxley Act and with Canadian securities regulatory authorities.


December 31, 2015			Page \| 44

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Management reviewed the results of management’s assessment with the Audit Committee of the Company’s Board of Directors. PricewaterhouseCoopers LLP, independent auditor, has been engaged to audit and provide independent opinions on the Company’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. PricewaterhouseCoopers LLP has expressed an unqualified opinion on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting as of December 31, 2015.

Changes in internal controls over financial reporting

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

18.

OVERSIGHT OF THE AUDIT COMMITTEE

The Audit Committee reviews, with management and the external auditors, the Company’s MD&A and related consolidated financial statements and approves the release of such information to shareholders. For each audit or quarterly review, the external auditors prepare a report for members of the Audit Committee summarizing key areas, significant issues and material internal control weaknesses encountered, if any.

19.

QUALIFIED PERSON

Disclosure of a scientific or technical nature in this MD&A in respect of the Oyu Tolgoi mine was prepared under the supervision of Bernard Peters (responsibility for overall preparation and mineral reserves), B. Eng. (Mining), FAusIMM (201743), employed by OreWin as Technical Director – Mining and Kendall Cole-Rae (responsibility for mineral resources, geology and exploration), B.Sc. (Geology), SME (4138633), employed by Rio Tinto as Chief Adviser, Geology and Resource Estimation. Each of these individuals is a “qualified person” as that term is defined in NI 43-101.

20.

CAUTIONARY STATEMENTS

Language Regarding Reserves and Resources

Readers are advised that NI 43-101 requires that each category of mineral reserves and mineral resources be reported separately. For detailed information related to Company resources and reserves, readers should refer to the AIF of the Company for the year ended December 31, 2015, and other continuous disclosure documents filed by the Company since January 1, 2016 under Turquoise Hill’s profile on SEDAR at www.sedar.com.

Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources

This document has been prepared in accordance with the requirements of Canadian securities laws, which differ from the requirements of United States (U.S.) securities laws. Unless otherwise indicated, all reserve and resource estimates included in this document have been prepared in accordance with


December 31, 2015			Page \| 45

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

43-101, and the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for mineral resources and mineral reserves (CIM Standards). NI 43-101 is a rule developed by the Canadian Securities Authorities that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

Canadian standards, including NI 43-101, differ significantly from the requirements of the SEC, and reserve and resource information contained in this document may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserve”. Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under the SEC standards. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “Measured mineral resources”, “Indicated mineral resources” or “Inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. U.S. investors should also understand that “Inferred mineral resources” have an even greater amount of uncertainty as to their existence and an even greater uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “Inferred mineral resource” will ever be upgraded to a higher category. Under NI 43-101, estimated “Inferred mineral resources” generally may not form the basis of feasibility or pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of an “Inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained pounds” or “contained ounces” of metal in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by the Company in compliance with NI 43-101 may not qualify as “reserves” under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with U.S. standards.

21.

FORWARD-LOOKING STATEMENTS AND FORWARD-LOOKING INFORMATION

Certain statements made herein, including statements relating to matters that are not historical facts and statements of the Company’s beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking information and statements relate to future events or future performance, reflect current expectations or beliefs regarding future events and are typically identified by words such as “anticipate”, “could”, “should”, “expect”, “seek”, “may”, “intend”, “likely”, “plan”, “estimate”, “will”, “believe” and similar expressions suggesting future outcomes or statements regarding an outlook. These include, but are not limited to, statements respecting anticipated business activities, planned expenditures, corporate strategies, and other statements that are not historical facts.


December 31, 2015			Page \| 46

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

implied by such statements or information. There can be no assurance that such statements or information will prove to be accurate. Such statements and information are based on numerous assumptions regarding present and future business strategies, local and global economic conditions, and the environment in which the Company will operate in the future, including the price of copper, gold and silver, anticipated capital and operating costs, anticipated future production and cash flows, and the status of the Corporation’s relationship and interaction with the Government of Mongolia on the continued development Oyu Tolgoi and Oyu Tolgoi LLC internal governance. Certain important factors that could cause actual results, performance or achievements to differ materially from those in the forward-looking statements and information include, among others, copper, gold and silver price volatility, discrepancies between actual and estimated production, mineral reserves and resources and metallurgical recoveries, mining operational and development risks, litigation risks, regulatory restrictions (including environmental regulatory restrictions and liability), activities or assessments by governmental authorities, currency fluctuations, the speculative nature of mineral exploration, the global economic climate, dilution, share price volatility, competition, loss of key employees, additional funding requirements, capital and operating costs, including with respect to the development of the underground mine, and defective title to mineral claims or property. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements and information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. All such forward-looking information and statements are based on certain assumptions and analyses made by the Company’s management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements, however, are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information or statements.

With respect to specific forward-looking information concerning the construction and continued development of Oyu Tolgoi, the Company has based its assumptions and analyses on certain factors which are inherently uncertain. Uncertainties and assumptions include, among others: the timing and cost of the construction and expansion of mining and processing facilities; the timing and availability of a long-term power source for Oyu Tolgoi; the timing and ability to satisfy all conditions precedent to the first drawdown under the Oyu Tolgoi Project Financing; the approval of the Statutory Feasibility Study by Oyu Tolgoi LLC and its shareholders; the impact of changes in, changes in interpretation to or changes in enforcement of, laws, regulations and government practices in Mongolia; the availability and cost of skilled labour and transportation; the obtaining of (and the terms and timing of obtaining) necessary environmental and other government approvals, consents and permits; the availability of funding on reasonable terms; the impact of the delay in the funding and development of the Oyu Tolgoi underground mine; delays, and the costs which would result from delays, in the development of the underground mine (which could significantly exceed the costs projected the 2014 Feasibility Study and in the 2014 Oyu Tolgoi Technical Report); projected copper, gold and silver prices and demand; and production estimates and the anticipated yearly production of copper, gold and silver at Oyu Tolgoi.

The cost, timing and complexities of mine construction and development are increased by the remote location of a property such as Oyu Tolgoi. It is common in new mining operations and in the development or expansion of existing facilities to experience unexpected problems and delays during development, construction and mine start-up. Additionally, although Oyu Tolgoi has achieved


December 31, 2015			Page \| 47

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

commercial production, there is no assurance that future development activities will result in profitable mining operations. In addition, funding and development of the underground component of Oyu Tolgoi have been delayed. These delays can impact project economics.

This MD&A also contains references to estimates of mineral reserves and mineral resources. The estimation of reserves and resources is inherently uncertain and involves subjective judgments about many relevant factors. The mineral resource estimates contained in this MD&A are inclusive of mineral reserves. Further, mineral resources that are not mineral reserves do not have demonstrated economic viability. The accuracy of any such estimates is a function of the quantity and quality of available data, and of the assumptions made and judgments used in engineering and geological interpretation (including future production from Oyu Tolgoi, the anticipated tonnages and grades that will be achieved or the indicated level of recovery that will be realized), which may prove to be unreliable. There can be no assurance that these estimates will be accurate or that such mineral reserves and mineral resources can be mined or processed profitably. See the discussion under the headings “Language Regarding Reserves and Resources” and “Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources” in Section 20 of this MD&A. Such estimates and statements are, in large part, based on the following:

•

Interpretations of geological data obtained from drill holes and other sampling techniques. Large scale continuity and character of the deposits will only be determined once significant additional drilling and sampling has been completed and analyzed. Actual mineralization or formations may be different from those predicted. It may also take many years from the initial phase of drilling before production is possible, and during that time the economic feasibility of exploiting a deposit may change. Reserve and resource estimates are materially dependent on prevailing metal prices and the cost of recovering and processing minerals at the individual mine sites. Market fluctuations in the price of metals or increases in the costs to recover metals from the Company’s mining projects may render mining of ore reserves uneconomic and affect the Company’s operations in a materially adverse manner. Moreover, various short-term operating factors may cause a mining operation to be unprofitable in any particular accounting period;

•

Assumptions relating to commodity prices and exchange rates during the expected life of production, mineralization of the area to be mined, the projected cost of mining, and the results of additional planned development work. Actual future production rates and amounts, revenues, taxes, operating expenses, environmental and regulatory compliance expenditures, development expenditures, and recovery rates may vary substantially from those assumed in the estimates. Any significant change in these assumptions, including changes that result from variances between projected and actual results, could result in material downward revision to current estimates;

•

Assumptions relating to projected future metal prices. The prices used reflect organizational consensus pricing views and opinions in the financial modeling for Oyu Tolgoi and are subjective in nature. It should be expected that actual prices will be different than the prices used for such modeling (either higher or lower), and the differences could be significant; and

•

Assumptions relating to the costs and availability of treatment and refining services for the metals mined from Oyu Tolgoi, which require arrangements with third parties and involve the potential for fluctuating costs to transport the metals and fluctuating costs and availability of refining services. These costs can be significantly impacted by a variety of industry-specific and also regional and global economic factors (including, among others, those which affect commodity prices). Many of these factors are beyond the Company’s control.


December 31, 2015			Page \| 48

Turquoise Hill Resources Ltd.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)

Readers are cautioned not to place undue reliance on forward-looking information or statements. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. Events or circumstances could cause the Company’s actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements are included in the “Risk Factors” section of the AIF.

Readers are further cautioned that the list of factors enumerated in the “Risk Factors” section of the AIF that may affect future results is not exhaustive. When relying on the Company’s forward-looking information and statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Furthermore, the forward-looking information and statements contained in this MD&A are made as of the date of this document and the Company does not undertake any obligation to update or to revise any of the included forward-looking information or statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The forward-looking information and statements contained in this MD&A are expressly qualified by this cautionary statement.

22.

MANAGEMENT’S REPORT TO SHAREHOLDERS

The consolidated financial statements and management’s discussion and analysis of financial condition and results of operations (MD&A) are the responsibility of the management of Turquoise Hill Resources Ltd. The financial statements and the MD&A have been prepared by management in accordance with IFRS and regulatory requirements, respectively, using management’s best estimates and judgment of all information available up to March 17, 2016.

The Board of Directors has approved the information contained in the consolidated financial statements and the MD&A. The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal controls. The Audit Committee of the Board of Directors, consisting solely of outside directors, meets regularly during the year with financial officers of the Company and the external auditors to satisfy itself that management is properly discharging its financial reporting responsibilities to the Directors who approve the consolidated financial statements.

The financial statements included in the MD&A have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized in Note 2 to the consolidated financial statements.

The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, independent auditor, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). They have full and unrestricted access to the Audit Committee.

/s/ Jeff Tygesen

/s/ Steeve Thibeault

Jeff Tygesen

Chief Executive Officer

March 17, 2016

Vancouver, BC, Canada

Steeve Thibeault

Chief Financial Officer


December 31, 2015			Page \| 49

Exhibit 99.4

CONSENT OF INDEPENDENT AUDITOR

We hereby consent to the incorporation by reference in this Annual Report on Form 40-F for the year ended December 31, 2015 of Turquoise Hill Resources Ltd. of our report dated March 17, 2016, relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in the Exhibit incorporated by reference in this Annual Report.

We also consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-160783 and 333-143550) of Turquoise Hill Resources Ltd. of our report dated March 17, 2016 referred to above.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants

Vancouver, British Columbia

March 17, 2016

Exhibit 99.5

CONSENT OF EXPERT

I hereby consent (i) to the use of and reference to my name as a qualified person for the Oyu Tolgoi 2014 Technical Report with an effective date of September 20, 2014, and to the use of and reference to my name, in the Company’s Annual Information Form for the year ended December 31, 2015, dated March 17, 2016, and the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations, dated March 17, 2016, in each case which form part of the 40-F, and (ii) to the incorporation by reference of such information into the Company’s Registration Statements on Form S-8 (333-143550 and 333-160783).

Sincerely,

/s/ Bernard Peters

Name: Bernard Peters

Title: Technical Director – Mining

Company: OreWin Pty Ltd.

Date: March 17, 2016

Exhibit 99.6

CONSENT OF EXPERT

Sincerely,


/s/ Sharron Sylvester
Name: Sharron Sylvester
Title: Technical Director – Geology
Company: OreWin Pty Ltd.

Date: March 17, 2016

Exhibit 99.7

CONSENT OF EXPERT

Reference is made to the Annual Report on Form 40-F (the “40-F”) of Turquoise Hill Resources Ltd. (the “Company”) to be filed with the United States Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, and to the Oyu Tolgoi 2014 Technical Report with an effective date as of September 20, 2014 (the “Report”).

I, Bernard Peters, on behalf of OreWin Pty Ltd., consent to the use of our name and references to the Report, or portions thereof, as described in the 40-F and documents filed as part of the 40-F, and to the incorporation by reference of such information in the Company’s Registration Statements on Form S-8 (333-143550 and 333-160783).

Sincerely,

/s/ Bernard Peters

Name: Bernard Peters

Title: Technical Director – Mining

Company: OreWin Pty Ltd.

Date: March 17, 2016

Exhibit 99.8

CONSENT OF EXPERT

I hereby consent (i) to the use of and reference to my name as a qualified person for disclosures of a scientific or technical nature in the Company’s Annual Information Form for the year ended December 31, 2015, dated March 17, 2016, and the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations, dated March 17, 2016, in each case which form part of the 40-F, and (ii) to the incorporation by reference of such information into the Company’s Registration Statements on Form S-8 (333-143550 and 333-160783).

Sincerely,

/s/ Kendall Cole-Rae

Name: Kendall Cole-Rae

Title: Chief Advisor, Geology & Resource Estimation

Company: Rio Tinto plc

Date: March 17, 2016

Exhibit 99.9

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO

RULE 13A-14(A) OR 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934

I, Jeff Tygesen, certify that:

1.	I have reviewed this annual report on Form 40-F of Turquoise Hill Resources Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5.	The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: March 17, 2016


By:		/s/ Jeff Tygesen
		Chief Executive Officer

Exhibit 99.10

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO

RULE 13A-14(A) OR 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934

I, Steeve Thibeault, certify that:

1.	I have reviewed this annual report on Form 40-F of Turquoise Hill Resources Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: March 17, 2016


By:		/s/ Steeve Thibeault
		Chief Financial Officer

Exhibit 99.11

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with this annual report of Turquoise Hill Resources Ltd. (the “Company”) on Form 40-F for the fiscal year ended December 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeff Tygesen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 17, 2016


By:		/s/ Jeff Tygesen
		Chief Executive Officer

Exhibit 99.12

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with this annual report of Turquoise Hill Resources Ltd. (the “Company”) on Form 40-F for the fiscal year ended December 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steeve Thibeault, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 17, 2016