Ivanhoe Mines (TSX: IVN)(NYSE: IVN)(NASDAQ: IVN) today signed a
long-term Investment Agreement with the Government of Mongolia that
establishes a comprehensive framework for the construction and
operation of the Oyu Tolgoi copper-gold mining complex in
Mongolia's South Gobi Region.
The signing, at a state ceremony in Ulaanbaatar, was attended by
hundreds of invited guests, including the President, the Prime
Minister, Cabinet members, the Speaker and members of Mongolia's
parliament, the State Great Khural, and representatives of the
international diplomatic community. The ceremony culminated nine
years of exploration successes that have established Oyu Tolgoi as
the world's largest, undeveloped copper-gold porphyry project.
The agreement creates a partnership between the Mongolian
Government - which will acquire a 34% interest in Oyu Tolgoi's
licence holder, Ivanhoe Mines Mongolia Inc. - and Ivanhoe Mines,
which will retain a controlling 66% interest in Oyu Tolgoi. Global
miner Rio Tinto, which joined Ivanhoe Mines as a strategic partner
three years ago, presently holds a 9.9% interest in Ivanhoe Mines.
Under the current financing agreement with Ivanhoe Mines, Rio Tinto
may increase its stake to up to 43.1%, with a right to go to 46.6%
through purchases on the open market during the next two years.
The Oyu Tolgoi Investment Agreement was signed by Peter
Meredith, Deputy Chairman of Ivanhoe Mines, Bret Clayton, Chief
Executive of Rio Tinto's Copper and Diamonds Group, and Keith
Marshall, Managing Director of Ivanhoe Mines Mongolia Inc. Signing
for the Mongolian Government were Sangajav Bayartsogt, Minister of
Finance, Dashdorj Zorigt, Minister of Mineral Resources and Energy,
and Luimed Gansukh, Minister of Environment and Tourism, all
members of the government's Working Group that negotiated the terms
of the final agreement.
Speaking at the signing ceremony, Mr. Clayton said that Rio
Tinto is excited by the significant exploration upside potential
that remains at Oyu Tolgoi. "While Oyu Tolgoi is clearly a
world-class asset, we believe that the area has the potential, over
time, to become a world-class mining district."
Mr. Clayton added: "We see strong parallels between Oyu Tolgoi
today and our initial investment in the Escondida copper mine in
Chile over 20 years ago and our recent project in Madagascar. These
mines have helped develop strong, sustainable mineral industries in
Chile and Madagascar."
The Mongolian Parliament authorized the Government to finalize
the Investment Agreement through a special resolution approved on
July 16, 2009.
A 'made-in-Mongolia blueprint' to deliver the promise of Oyu
Tolgoi
Ivanhoe Mines' Chairman Robert Friedland said it is appropriate
that the Mongolian Government carefully considered the symbolic
significance of staging the signing on October 6, traditionally an
auspicious day for new beginnings, based on Mongolian Buddhist
astrological calendars.
"This is the godfather of new beginnings for Mongolia, whose
revered founding leader helped shape the history of the world.
Today, there is a new, outward-looking determination rising among
Mongolians, who have resolved to draw on the country's remarkable
and largely untapped mineral wealth to help build an independent
nation for the millennium."
Mr. Friedland said the Oyu Tolgoi Investment Agreement is the
crowning achievement of Ivanhoe Mines' successes in the Asia
Pacific region. "It is a tribute to the skills and dedication of
all of the men and women of Ivanhoe - and to the support and
patience of our shareholders.
"When we were invited to resume negotiations back in July, the
Government of Mongolia said it would work with Ivanhoe and Rio
Tinto to achieve an agreement that is mutually beneficial, fair and
sustainable. Resolute commitment has produced a made-in-Mongolia
blueprint to deliver the opportunities presented by Oyu Tolgoi for
generations to come."
A 50-year assurance of stability for what is expected to be a
100-year mine
Based on Ivanhoe Mines' discoveries at Oyu Tolgoi during the
past nine years, independently verified estimates indicate that Oyu
Tolgoi contains approximately 79 billion pounds of copper and 45
million ounces of gold in measured, indicated and inferred
resources. While Ivanhoe will update its mine plan with a revised
Integrated Development Plan in coming weeks, initial indications
are that the current resources will support planned open-pit and
underground mining at Oyu Tolgoi for 60 years.
Annual copper and gold production during the mine's life are
expected to exceed the levels projected in the 2005 Integrated
Development Plan. The 2005 Plan forecast annual average copper
production in the first ten years of operation would exceed one
billion pounds per year and that gold production would exceed an
average of 500,000 ounces per year. An updated development plan is
being prepared and is expected to be released in the near
future.
"The overall size and scope of the Oyu Tolgoi deposits have not
been established and exploration is continuing, guided in part by
proprietary, Zeus induced-polarization technology that can measure
concentrations of metal down to depths of 3,200 metres," said
Ivanhoe Mines' President and Chief Executive Officer John
Macken.
"Drilling already has discovered mineralization at Oyu Tolgoi
over a distance of 20 kilometres and at depths of 2,300 metres -
and it remains open to length and depth. We're confident that
additional resources will be delineated and that Oyu Tolgoi still
will be an important part of Mongolia's economy 100 years from
now."
Given the extent of the discoveries to date and the potential
for additional discoveries, Ivanhoe and Mongolian Government
negotiators agreed that the Oyu Tolgoi Investment Agreement should
conform with the provision of Mongolia's Minerals Law that
specifies that projects of this investment scale qualify for 30
years of stable tax rates and regulatory provisions, with an option
of extending the agreement for an additional 20 years.
Mr. Macken said that while projections remain to be confirmed in
the forthcoming development plan, approximately US$4 billion from
the three project partners is expected to be required to build and
commission the mining complex. A future decision to build a
coal-powered electricity generating plant for Oyu Tolgoi would
require an additional capital commitment. With the terms of an
approved Investment Agreement now confirmed, the investment will be
subject to a full review by all stakeholders. Mr. Macken said that
current planning indicates that initial production can be achieved
at Oyu Tolgoi in mid- to late-2013.
Taxes and rates stabilized for the life of the agreement
include:
- Corporate income tax.
- Customs duty.
- Value-added tax.
- Excise tax.
- Royalties.
- Exploration and mining licences.
- Immovable property and/or real estate tax.
The existing 68% Windfall Profits Tax on copper and gold was
cancelled by the Mongolian Parliament in August, effective January
1, 2011.
The agreement's comprehensive taxation provisions clarify the
application of current Mongolian legislation. In addition, Ivanhoe
Mines Mongolia Inc. will receive a 10% investment tax credit on all
capital expenditures and investments made throughout the Oyu Tolgoi
construction period.
Any future taxes introduced will not be imposed on the project
unless future legislation is more favourable. If Mongolia enters a
treaty that provides greater benefits to the investor, Ivanhoe may
request the benefit of such law, regulation or treaty to help
ensure that a stable taxation environment is maintained.
Mongolia will join Ivanhoe Mines and Rio Tinto as a partner in
Oyu Tolgoi
In accordance with Mongolia's Minerals Law, Mongolia will
acquire a 34% interest in the Oyu Tolgoi Project. Within 14 days of
the Investment Agreement taking effect, after all conditions
precedent have been satisfied, Ivanhoe Mines shareholders will be
asked to approve a resolution transferring 34% of the shares of the
Oyu Tolgoi holding company, Ivanhoe Mines Mongolia Inc. (IMMI), to
Mongolia's state-owned Erdenes MGL.
- Ivanhoe will arrange financing for the construction of Oyu
Tolgoi within two years of the Investment Agreement taking effect;
production must begin within five years of financing being
secured.
- Ivanhoe will fund the Government's share of initial capital
costs, to be financed through loans and equity during the
construction and initial production periods. Ivanhoe will receive
loan repayments, redemption of the equity, dividends and interest
at a rate of 9.9%, adjusted to the US CPI. Erdenes will nominate
three directors and Ivanhoe will nominate six directors to the
nine-member IMMI board.
- Ivanhoe will nominate the management team that will be
responsible for Oyu Tolgoi's core operations. Management services
payments will be received, based on capital and operating costs
through the construction period and after production begins.
- The Government will have the option to purchase an additional
equity interest of 16% of IMMI, at an agreed upon fair-market
value, one year after the expiry of the initial 30-year term of the
Investment Agreement and following the start of the permitted
20-year extension. This would give the government a total maximum
interest of 50% of Oyu Tolgoi for the remainder of the project's
operational life. Ivanhoe would continue to hold management rights
over the project and hold a deciding vote at board and shareholder
meetings.
- A condition of ownership is that Erdenes must remain
wholly-owned and controlled by the state for the life of the
project. The only exception would be if the state listed Erdenes
shares on the Mongolian Stock Exchange, at which time any and all
money invested on the Government's behalf would have to be
immediately paid in full.
Advance payments covered by interest-bearing Government
T-bills
Ivanhoe Mines has agreed to make advance payments to the
Government of Mongolia. The three payments, which will total US$250
million, will be secured by Mongolian Government bonds that will
mature after five years and pay annual interest of 3.8%.
- An initial $100 million will be transferred to the government
by October 20, 2009.
- A further $50 million will be transferred within 14 days of
Investment Agreement taking full effect, after all conditions
precedent have been satisfied.
- The final $100 million will be transferred within 14 days of
the successful raising of funds required to build the open-pit mine
and complete shaft and tunnel access to the initial underground
deposit at the site.
Oyu Tolgoi to create thousands of jobs and skills training for
Mongolians
Speaking at the signing ceremony, Ivanhoe's Mr. Meredith said
that approximately 4,000 Mongolians already have worked on the Oyu
Tolgoi project during the past nine years of exploration and
development.
"More than 500 Mongolian businesses have supplied goods and
services to the Oyu Tolgoi Project," he said. "Local procurement,
training and employment opportunities will only increase in size
and scope in the future."
Looking to the future, specific terms of the Investment
Agreement include commitments that:
- At least 90% of the project's employees will be Mongolian
citizens. During construction and any expansion periods, at least
60% of the contractors' employees will be Mongolian citizens; and
for mining and mining-related work, at least 75% of contractors'
employees will be Mongolian citizens.
- Within five years, at least 50% of engineers will be Mongolian
citizens, increasing to at least 70% within 10 years.
- A comprehensive, five-year Oyu Tolgoi Training Strategy and
Plan will be submitted to the Government for the training of
skilled Mongolian workers within 90 days of the agreement taking
effect.
- As part of a graduate scholarship program to be established by
Ivanhoe, 120 scholarships will be given over six years to Mongolian
students studying in Mongolia and 30 Mongolian students will be
awarded scholarships to study at international universities.
- The government will support the introduction of international
mining education and training courses at selected universities and
vocational training institutions within six months of the agreement
taking effect.
- Ivanhoe will ensure payment of fair wages and equal
remuneration for work of equal value.
A commitment to business development, sustainable communities
and best-practice environmental management
- A report on the economic viability of building a copper
smelter in Mongolia will be prepared within five years of the start
of production at Oyu Tolgoi - a response to the Government's
interest in adding value to Mongolian concentrate. Ivanhoe has
agreed that any smelter it might build in connection with the Oyu
Tolgoi Project will be located in Mongolia.
- If a smelter is built with Ivanhoe's involvement, or through a
third party, the Government may request preferential access, on
agreed terms, to Rio Tinto's proprietary flash-smelting technology
for use at the smelter. Oyu Tolgoi concentrate would be supplied to
such a smelter, in which the Government may have an interest, on
commercial terms and at international pricing.
- Ivanhoe and Rio Tinto have agreed to give priority, where
possible, to buying and using services provided by Mongolians, and
equipment and materials made in Mongolia, with a preference to
businesses located in the Umnugovi (South Gobi) region, which
contains Oyu Tolgoi.
- Priority will be given to residents of local communities for
training assistance and jobs. Support will be given to special
programs to help start and develop local businesses capable of
supplying Oyu Tolgoi and to help Mongolian businesses diversify to
reduce their dependence on the project.
- Nomadic herder families impacted by the Oyu Tolgoi Project
will continue to receive compensation.
- Ivanhoe will support and participate in the Southern Gobi
Regional Development Council, to be established by the Government,
which will formulate a development strategy for the region. Issues
to be addressed will include:
-- Transparent and responsible governance.
-- In-migration influx issues.
-- Urban planning and development.
-- Formal and non-formal education, including English-language
and vocational training.
-- Health care, cultural facilities, sport facilities and
veterinary services.
-- Capacity building for local governments and civil
society.
- Ivanhoe has committed to apply modern extraction and
processing technology, which meets Mongolian and international
environmental codes and standards, in an efficient manner that
minimizes environmental impacts to an economically feasible
extent.
- An independent report on the progress of the project's
environmental protection plan and monitoring program will be
submitted every three years and made public.
- The cost of eliminating material, adverse impacts on air,
water, soil, animals and plants will be borne by the project.
- Oyu Tolgoi has the right to use water resources that Ivanhoe
has discovered for any purposes connected with the project, during
the life of the project. Surplus water may be made available to
other economic entities provided Ivanhoe is compensated for its
exploration costs.
- Water discovered by Ivanhoe will be made available to herder
families and community residents for household purposes - and
Ivanhoe will guarantee the supply of livestock drinking water for
existing users in the area. Water surplus to household requirements
will be made available for local, non-commercial agricultural
uses.
- Modern technology and procedures will be applied to minimize
water usage and water will be recycled where practicable.
- Areas closed to further mining will receive environmental
rehabilitation and potential hazards will be addressed to protect
the public.
- A mine-closure plan will be financed through funds allocated
to an escrow account beginning seven years before actual
closure.
Electrical power and transportation among other key
provisions
- Recognizing that the supply of reliable electricity is
critical to the project, Ivanhoe has the right to obtain power from
inside or outside Mongolia, including arranging the construction of
a high-voltage line from Oyu Tolgoi to the Mongolia-China border to
connect with Chinese supply.
- Ivanhoe also has the right to build or sub-contract
construction of a coal-fuelled power plant at an appropriate site
to supply the project, which could be supplemented by renewable
wind or solar power.
- Within four years of the start of mine production, all power
requirements must be sourced from within Mongolia, either from a
coal-fuelled plant or from the national distribution grid.
- Ivanhoe may build an international road from Oyu Tolgoi to the
Gashuun Sukhait crossing on the Mongolia-China border, with costs
to be deducted from annual taxable income. The Mongolian Government
would be responsible for maintaining the road and collecting fees
from other users.
- The government may construct, or permit a third party to
construct, a railway in the vicinity of Oyu Tolgoi to the
Mongolia-China border, to be made available to Oyu Tolgoi on
competitive commercial terms. Ivanhoe would be consulted on the
route.
- The contract area includes three mining licences owned and
controlled by Ivanhoe Mines and two licences included in the
Ivanhoe Mines-Entree Gold Joint Venture properties that contain the
Heruga and Hugo North Extension deposits and future exploration
targets.
- All investment by Ivanhoe will enjoy legal protection
guaranteed by the Mongolian Constitution, Foreign Investment Law
and other international treaties to which Mongolia is a party.
- Any disputes between parties that cannot be resolved by the
parties within 60 working days may be settled by binding
arbitration in accordance with the procedures under the Arbitration
Rules of the United Nations Commission on International Trade
Law.
Procedural and administrative conditions to be satisfied
As previously announced, the Oyu Tolgoi Investment Agreement
will take full and binding effect once a number of conditions have
been addressed to the satisfaction of Ivanhoe Mines and Rio
Tinto.
The main conditions precedent are:
- Feasibility study of the Oyu Tolgoi project has been approved
in accordance with the laws and regulations of Mongolia.
- Balance of existing income-tax losses, capitalized expenses,
outstanding tax liabilities or credits, have been confirmed and
settled by the tax office.
- The balance of existing shareholder loans have been agreed and
audited.
- Any company restructuring required to execute the agreement
has been completed.
- A standing working committee has been established with members
of the government and the investor to provide a means to expedite
permits, customs clearances or general government
administration.
- Ivanhoe Mines' interests in exploration licences 3148X and
3150X, held by Entree, are transferred to Ivanhoe Mines Mongolia
and have been converted to mining licences by the government.
- Rio Tinto must exercise Tranche 2 in accordance with its
partnership agreement with Ivanhoe Mines to take ownership of 19.9%
of Ivanhoe Mines.
Conference call for investors to be arranged
A conference call for investors to discuss details and
implications of the Oyu Tolgoi Investment Agreement will be
arranged after the Ivanhoe Mines management team returns to North
America. The date and time of the conference call will be announced
in a separate news release.
Ivanhoe Mines' shares are listed on the Toronto, New York and
NASDAQ stock exchanges under the symbol IVN.
FORWARD-LOOKING STATEMENTS: This document includes
forward-looking statements regarding Ivanhoe Mines' plans.
Forward-looking statements include, but are not limited to,
statements concerning the completion of the second tranche of Rio
Tinto's private placement financing, receipt of an unconditional
investment agreement for the Oyu Tolgoi Project, and the
development of the Oyu Tolgoi Project. When used in this document,
the words such as "could," "plan," "estimate," "expect," "intend,"
"may," "potential," "should," and similar expressions are
forward-looking statements. Although Ivanhoe Mines believes that
its expectations reflected in these forward-looking statements are
reasonable, such statements involve risks and uncertainties and no
assurance can be given that actual results will be consistent with
these forward-looking statements. Important factors that could
cause actual results to differ from these forward-looking
statements are disclosed under the heading "Risk Factors" and
elsewhere in the corporation's periodic filings with Canadian and
US securities regulators.
Contacts: Ivanhoe Mines Ltd. Bill Trenaman Investors
1-604-688-5755 Ivanhoe Mines Ltd. Bob Williamson Media
1-604-331-9880 www.ivanhoemines.com
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