annual oyu tolgoi mine visit october 3-5, 2017 oyu tolgoi ... · oyu tolgoi: leading long-term...

Oyu Tolgoi:

Leading long-term

copper growth opportunity

Annual Oyu Tolgoi Mine Visit

October 3-5, 2017

Forward-looking statements 2

This presentation includes certain “forward-looking information” within the meaning of applicableCanadian securities legislation and “forward-looking statements” within the meaning of the “safe harbour”provisions of the United States Private Securities Litigation Reform Act of 1995.

All statements and information, other than statements of historical fact, are forward-looking statementsand information that involve various risks and uncertainties. There can be no assurances that suchstatements or information will prove accurate and actual results and future events could differ materiallyfrom those expressed or implied in such statements. Such statements and information contained herein,which include, but are not limited to, statements respecting anticipated business activities, plannedexpenditures, corporate strategies and other statements that are not historical facts, represent theCompany’s best judgment as of the date hereof based on information currently available. The Companydoes not assume any obligation to update any forward-looking statements or information or to conformthese forward-looking statements or information to actual results, except as required by law.

For a more detailed list of specific forward-looking statements and information applicable to the Company,refer to the Forward-Looking Information and Forward-Looking Statements sections of the AnnualInformation Form dated as of March 23, 2017 in respect to the year ended December 31, 2016.

All amounts are in U.S. dollars, unless otherwise stated.

Cover photo: Sinking of Shaft 2

Oyu Tolgoi Open-Pit OperationsStephen JonesCOO, Oyu TolgoiOctober 2017

2БҮХ ЭРХ ХУУЛИАР ХАМГААЛАГДСАН © 2017, ОЮУ ТОЛГОЙ ХХКCOPYRIGHT © 2017 OYU TOLGOI , ALL RIGHTS RESERVED

The safety journey

0

20

40

60

80

2012 2013 2014 2015 2016 2017

Injury rates have reduced significantly One of the best AIFR in Rio Tinto Robust manual handling reduction program Successful implementation of CRM program Continuing roll-out of Process Safety program Significant incidents continue to occur Complacency risk with maturing workforce

Num

ber o

f Inj

urie

s

Significant Incidents(2016 - 2017)


Production achievements

76,919 91,771 96,938

49,527

2014 2015 2016 1H'17

Total material mined('000 tonnes)

27,872

34,537 38,152

19,724

2014 2015 2016 1H'17

Concentrator throughput('000 tonnes)

148.4

202.2 201.3

75.3

2014 2015 2016 1H'17

Copper production('000 tonnes)

589653

300

49

2014 2015 2016 1H'17

Gold production(‘000 ounces)

Leading Rio Tinto haul truck performance Throughput target of 40 million tonnes for 2017

2017 copper production impacted by composition of Phase 6 ore 2017 gold production impacted by low grade Phase 6 ore


TailingsFacility

WasteDumpsPrimary

Crusher

2016-18 Ore(Phase 6, Stockpiles)

Finished Mining(Phase 1-3)

Final OpenPit 2018-22 Ore

(Phase 4-5)

Managing current ore grade challenges Open pit phases 1-3 now completed

Currently mining lower-grade phase 6 and stockpile ore

Waste movement from phase 4 is on plan (8 benches this year)

Higher grade ore from Q3’18


Focus on reducing cash costs

Source: Oyu Tolgoi

Business improvement programs have been in place since 2014 delivering value across productivity, operating costs, sustaining capex and working capital.

The program values one-off savings, sustaining capital reductions and net working capital (NWC) reductions at 10% of face value.

Program is key platform for ensuring Oyu Tolgoi open-pit operations remain free cash flow positive.


The cash journey continues

What to do

How to make it happen

Estimate the opportunitywithin the business using an approach based on investor due diligence

Developing an execution plan (initiatives and financial projections) which is fully owned by the management team

Launching a full-scale effort to drive value to the bottom-line

Bottom-up planning

Top Down Assessment

Execution Phase1 2 3

6-8 weeks4-6 weeks 12-18 months+

Change management

Building the leadership, infrastructure, and mindsets to drive and sustain the transformation4

Performance infrastructure

Tracking the progress of the transformation supported by a cadence to ensure superior execution5


2000 South Gobi residents employed at mine site (including 1100 from Khanbogd)

2016 South Gobi procurement spend of 150B MNT, and on track to exceed this value in 2017

Gobi-Oyu fund has delivering significant benefits (BO hospital, DZ sports hall, herder programs)

Further substantial direct investments from OT (KB water, BO/ML sports halls, KB road)

Additional Gobi-Oyu fund support in 2017 (KB school, KB animal clinic, ML heating plant)

Local herder complaints resolution agreement signed

Khanbogd logistics convoy Khanbogd water plantKhanbogd road construction

Bayan-Ovoo hospital

Dalanzadgad Sports Hall

South Gobi stakeholder engagement success

Copyright © 2017 Oyu Tolgoi LLC, All rights reserved

Oyu Tolgoi Underground ProjectMarco Pires, Chief Development Officer

Annual Oyu Tolgoi Mine Visit – October, 2017

Shaft #1 development crusher

Copyright © 2017 Oyu Tolgoi LLC, All rights reserved Annual Oyu Tolgoi Mine Visit – October, 2017

Project at full steam and targets unchanged

• 1 million man-hours per month currently being performed

• Outstanding safety performance

• Higher than planned Mongolian workforce

• Lateral Development aligned with original schedule

• Current development productivities higher than plan

• First drawbell planned mid-2020

• Full ramp-up planned by 2027

• Average of 560,000 tonnes of copper from open pit and underground expected 2025 – 2030*

2

* This production target was previously reported in a release to the market on 6 May 2016. All material assumptions underpinning the production target continue to apply and have not materially changed.


Complete ramp-up expected by 2027

Concentrator upgrade

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Project re-start

1st drawbell firing*

Sustainable underground production Complete convey to surface

Complete ramp-up

Excavation (lateral / mass / vertical)

Material handling (conveyto surface + crushers + shafts)

Extraction level access

Surface infrastructure

Complete concentrator upgrade

Timeline is illustrative only and subject to change

Expansion capital

Sustaining capital

Undercutting

Excavation (lateral)

Extraction level access

Pre-start

* Oyu Tolgoi is currently undertaking a schedule & cost review

3


Workforce ramp-up

• Workforce ramp-up was particularly high-risk period for project

• 2017 safety management strategy focus on Critical Risk Management, Xamtdaa (working together program), enhanced leadership safety accountability, fatigue management and safety deep dives

• Safety performance through July 2017 significant given challenges of on-boarding more than 4,000 people to Oyu Tolgoi safety culture over a short timeframe

• Mongolian nationals 87% of workforce, higher than planned, on site

4


Summary progress

• Nine million man-hours with 0.45 AIFR* and effective program in place to prevent fatalities (CRM**).

• Energized culture with more than 87% Mongolians in the workforce. Safety has been embraced as key value.

• Engineering and lateral development on plan.

• Key first-stage enabling facilities (crusher and dewatering system) complete.

• Shaft #5 behind plan but higher productivities in lateral development removed this activity from critical path.

• Shaft #2 all major work packages are in the market.

• Convey-to-surface progress impacted by box cut wall remediation; on track to recover.

• Project cost currently forecast on plan.

• Following 12 months of construction, a standard project schedule/cost review underway.

* AIFR upper limit of 0.41 for 2017 target, 0.45 refers project-to-date.** Critical Risk Management

5


Upcoming milestones

• Shaft #2 fully commissioned with additional crushing capacity as the next critical milestone to enable increased lateral development.

• Oyut II camp to be completed in 2018.

• Shaft #3 and #4 start sinking in 2018.

• Shaft #5 ventilation delivery in 2018.

6


Shaft #2 key to future lateral development

• Shaft #2 sinking and fit-out, material handling system construction and commissioning key to lateral development activity.

• Shaft #2 commissioning very complex and requires coordinated delivery of a number of integrated packages:

• Surface Facilities Structural Mechanical & Piping (SMP) Construction, Electrical & Instrumentation Construction

• Headframe SMP Fit Out

• Equipment Installation

• Underground SMP Construction

• Underground Bin

• Material Handling System

Shaft 2 on critical path

7


• At the end of Q2’17, cumulative lateral development progress was approximately 4,000 eqm and aligned with 2016 Feasibility Study

• New development crusher and the third development crew mobilized; fourth and fifth development crews in training.

Early stage lateral development on plan

8


Convey to surface not on critical path to first drawbell

• Material handling system of approximately 9 km of conveyor, 6,500 tph to match upstream capacity of the material handling system for 100% of Hugo North production.

• Parallel service drift used for equipment transport to service conveyors and provide drive-in access to the Hugo North Lift 1.

9


Project cost estimate unchanged

As of Q2’17, awarded…

• 34 major contracts to 24 different Mongolian companies, totaling over $500 million for major works.

• over 600 orders/contracts to over 200 different national Mongolian companies for materials and minor works.

• over 80 orders/contracts to over 45 different national Mongolian companies for non-engineering services.

Cost remains forecast* at $5.3 billion (2016-2022)

Over $1.5 billion (committed & spent)

-

500

1,000

1,500

2,000

Approximately $1 billion of contracts awarded to Mongolian companies to date

Annual Oyu Tolgoi Mine Visit – October, 2017

* Oyu Tolgoi is currently undertaking a schedule & cost review

10


Preparing for operational integration

11

• Integration of lessons learned from Phase 1

• Involvement of Surface staff in design and

operability reviews

• Common systems extended to UG

• Common approach to asset management

• Utilise OT resources for efficient and

effective knowledge transfer where

possible

• Alignment of Employment Strategy

• Use of existing standards and processes

• Integrated procurement approach

• Mining staff integration and transition plan

(Surface to UG)

• Future staffing requirements for expanded

surface assets

• Review and upgrade of existing

documentation in preparation for surface

asset tie-ins

To leverage from experience To build on what is working Shaping the future

Underground Operation

Underground Construction

Underground Development for Construction

SurfaceConstruction

Operational readiness II

Operational readiness I

Operational readiness III

SurfaceOperation

2016 20182017 2019 2020 2021 2022

Integrated

Op

eration

2023


Current key focus areas

Safety performanceFocus on higher quality for Critical Risk Management, on fatigue management and leadership safety accountability.

Shaft 2 construction packagesMain enabler infrastructure and key priority for construction in 2018.

Mining development activitiesContinued focus on productivity optimization to delivery the necessary development meters.

12


Questions?

Oyu Tolgoi:Leading long-term

copper growth opportunity

Jeff TygesenChief Executive Officer

Annual Oyu Tolgoi Mine VisitOctober 3-5, 2017

Key site visit takeaways 2

1. Lateral development and engineering on plan

2. Shaft 2 key to increase in future lateral development activity

3. Completion of Shaft 5 expected in Q1’18

4. Phase 4A gold brought forward into 2018

145 142 156 149

175

264

450

583

622 612

120

156

256

397

475

221

369

522

669

521

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Copper ('000 tonnes) Gold ('000 ounces)

Updated production profile 3

Expected copper production growth 2017 – 2025:

Expected gold production growth 2017 – 2025:

Ph

as

e 4

gra

de

s

Ph

as

e 4

gra

de

s

Ph

as

e 4

gra

de

s

Sou

rce

: 2

016

Oyu

Tol

goiT

echn

ical

Rep

ort

Expected first draw

bell

Expected first

sustainable production

Expected peak

production

Midpoint of guidance

ranges

+320%

+450%

Ph

as

e 4

A

Additional gold production from

Phase 4A

156

Phase 4A production

Phase 4A production

Long-term copper fundamentals strong 4

-

1.00

2.00

3.00

4.00

0

5

10

15

20

25

2000 2005 2010 2015 2020 2025

Base Primary Demand Average copper price

Forecast

Copper mine supply/demand outlook

Temporary copper market deficit in 2017 following major supply disruptions

Ongoing attrition at existing mines driven by declining grade

Continued demand growth requires new capacity in the medium-term

Market expected to return to balance/small surplus from 2018 before moving into deficit from 2020

China now largest buyer of gold and continues to be largest consumer of copper

Source: Wood Mackenzie (Q2’17 Long-Term Outlook); base includes highly-probable projects.

Co

pper

min

e su

pply

/dem

and

–m

illio

ns o

f to

nne

s

Ave

rag

e LM

E c

oppe

r pr

ice

(U

S$

/lb)

First quartile producer

Source: Wood Mackenzie (Q4’16 Cost Service), 2016 Oyu Tolgoi Technical Report and Turquoise Hill Resources. Normal C1 cost + sustaining capex, range capped at -100/lb & 400/lb for base, highly probable and probable mines only.

5

8,000 14,00012,00010,0000 2,000 4,000 6,000

200

300

16,000

400

0

-100

18,000

100

Other Mines

Oyu Tolgoi

Cumulative production (‘000 tonnes)

C/lb, 2016$

Q1 Q2 Q3 Q4

Normal C1 + Sustaining CAPEX(Oyu Tolgoi’s costs and volumes for 2025 – 2030)

Underground mining sequence 6

Panel 2 Panel 1Panel 0

Average grade 2.5% cu

Initial production –three to five drawbells per month

North

South North

Initial underground production begins with Panel 0

Highest copper grades occur during ramp up exceeding 2.5% in several years

2024-2026: Oyu Tolgoi peak copper production during period expected to average > 600,000 tonnes annually due to high grades

2024-2036: Total mine copper production over period expected to average > 500,000 tonnes annually

Following Panel 0, production will move outward with Panels 1 and 2

Five draw bells per month Four draw bells per month

Sources and uses of development capital 7

Sources of development capital (2016 – 2022)

Sources Amount ($B) Note

Oyu Tolgoi operating cash flow ~$2.0 Dependent on commodity prices

Project finance $4.4 + up to $1.6 $4.3 drawn down; remaining remitted by US Ex-Im

Turquoise Hill cash $1.4

Total $9.4

Uses of development capital (2016 – 2022)

Uses Amount ($B) Note

Underground development $5.3 Includes concentrator upgrade

Debt service $3.3 Debt repayment, interest and financing fees

Total $8.6

Estimated long-term cash flow data 8

($ in millions) 2018 2019 2020 2021 2022 2023 2024 2025 2026Indicative net cash flow after tax at Oyu Tolgoi

level1 (1,375) (1,075) (975) (290) 250 1,500 2,350 2,825 2,600

Net finance costs2 150 270 315 350 365 325 260 160 60

Net cash flow after finance costs (1,525) (1,345) (1,290) (640) (115) 1,175 2,090 2,665 2,540

Principal repayments3- - 30 60 510 925 1,230 1,330 1,380

Net cash flow after finance costs and princial repayments (1,525) (1,345) (1,320) (700) (625) 250 860 1,335 1,160

Price assumptions

Copper 2.36 2.58 2.79 3.00 3.00 3.00 3.00 3.00 3.00

Gold 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300

1. Per reserve case cash flow table (22.11) in 2016 technical report; includes all CAPEX.

2. Finance costs less interest income and Turquoise Hill management services payment.

3. Assumes $1.6 billion supplemental debt facility secured in January 2019.

Technical report CAPEX profile

2016e 2016a 2017e 2017g 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e

Underground capital spend profile1

($ billion)

Expansion capital Sustaining capital

Source: 2016 Oyu Tolgoi Technical Report | 1. Expansion and sustaining capital includes VAT and escalation | e = expected, a = actual, g = midpoint of 2017 underground CAPEX guidance

9

$0.5

$0.2

$1.0

$0.9

$1.2 $1.2

$1.3

$0.8

$0.5

$0.3 $0.4$0.3

$0.4 $0.4

Expansion capital of $5.3 billion and sustaining capital of $2.8 billion to full ramp-up expected in 2027

1. Oyu Tolgoi expected to be world’s third-largest copper mine

2. Significant cash flow expected from underground development

3. Hugo North Lift 1 financing in place1

4. Turquoise Hill should benefit from expected drop in copper supply (~2020)

5. Oyu Tolgoi’s resources provide long-term development optionality

Leading long-term copper growth opportunity

1. Financing sources includes project finance facility, supplemental debt (in progress), operating cash flow from Oyu Tolgoi and Turquoise Hill’s cash; excludes power plant CAPEX.

10

Appendix

2016 Resources Case: ~3.4 billion tonnes 12

Oyut Open Pit~900Mt (reserve)

0.44% copper; 0.28 g/t gold

Hugo North Lift 2~700Mt (resource)


Hugo South~300Mt (resource)

1.07% copper0.06 g/t gold

Heruga~700Mt (resource)

0.42% copper0.43 g/t gold; >100Mlb moly

Hugo North Lift 1, panels 0,1,2~500Mt (reserve)


Hugo North Lift 1, panels 3,4,5~250Mt (resource)


Alternative production cases 13

2016 Reserves Case• Concentrator capacity ~40mtpa• NPV8% $6.9 billion1

• Expansion capex $4.6 billion2

2016 Reserves Case• Concentrator capacity ~40mtpa• NPV8% $6.9 billion1

• Expansion capex $4.6 billion2

2016 Resources Case• Concentrator capacity ~40mtpa • Base Case NPV8% $8.4 billion1

• Expansion capex ~ $9.7 billion3

2016 Resources Case• Concentrator capacity ~40mtpa • Base Case NPV8% $8.4 billion1

• Expansion capex ~ $9.7 billion3

Resources 50 Case• Assumes concentrator creep from 40mtpa to 50mtpa with little capital

• NPV8% $9.3 billion1

• Expansion capex ~$9.7 billion3

Resources 100 Case• ~Year 20, concentrator capacity ~100mtpa












1. NPV8% assumes $3.00/lb copper and $1,300/oz gold2. Expansion capital costs include only direct project costs and exclude interest expense, capitalized interest, debt repayments, tax pre-payments and forex

adjustments. In all cases, total capital cost excludes capital costs for the year 2016. Expansion capital for 2016 excluded is $0.46 billion.3. Expansion capital costs inclusive of 2016 Reserves Case expansion capital. Expansion capital costs include only direct project costs and exclude interest

expense, capitalized interest, debt repayments, tax pre-payments and forex adjustments. In all cases, total capital cost excludes capital costs for the year 2016.

Hugo North Lift 1 production schedule 14

Figure: 2016 Oyu Tolgoi Technical Report.

Reserves Case cash flow model 15

Cash Flow Statement (US$M) Year Total

Year Number 1 2 3 4 5 6 7 8 9 10 11 21 31

Year To 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 20 30 40

Gross Revenue 954 923 1,189 1,402 1,735 1,993 3,380 4,434 4,879 4,622 35,422 13,698 8,175 82,806

Realization Costs 263 237 222 212 246 311 513 664 728 709 5,955 2,502 1,206 13,770

Net Sales Revenue 691 686 967 1,190 1,489 1,682 2,867 3,770 4,151 3,912 29,467 11,196 6,969 69,036

Site Operating Costs

Mining 191 182 177 188 188 221 220 250 287 254 3,072 2,158 1,038 8,427

Processing and Tailings 285 295 297 279 266 292 326 328 329 327 3,248 3,193 2,445 11,911

G&A and Operations Support 100 93 94 96 97 96 96 96 92 88 851 586 387 2,771

Infrastructure and Other 65 84 91 41 69 57 69 83 69 30 373 359 371 1,761

Total Site Operating Costs 641 655 659 604 620 665 710 756 776 700 7,544 6,297 4,241 24,869

Operating Surplus / (Deficit) 51 31 307 585 869 1,016 2,157 3,013 3,375 3,213 21,923 4,899 2,728 44,167

Indirect Costs 171 182 180 187 182 178 182 188 178 164 1,746 1,190 848 5,576

Net Profit Before Income Tax –121 –151 128 398 688 838 1,974 2,825 3,197 3,049 20,177 3,708 1,880 38,591

Income Tax – – – – – – – – – – 1,496 557 254 2,307

Net Profit After Income Tax –121 –151 128 398 688 838 1,974 2,825 3,197 3,049 18,681 3,151 1,627 36,284

Capital Expenditure

Expansion Capital 874 1,071 1,080 831 387 92 – – – – – – – 4,336

Sustaining Capital 82 101 58 351 424 373 397 430 320 350 1,912 866 424 6,088

VAT & Duties 79 82 66 102 75 44 43 47 35 38 209 99 47 967

Subtotal 1,035 1,254 1,205 1,285 886 509 440 477 354 388 2,121 964 472 11,391

Working Capital, Capitalized Operating Costs and Closure

–47 –34 –2 80 87 76 37 6 18 49 411 187 937 1,805

VAT & Duties (Capex) 3 1 – 5 2 3 1 – 1 5 44 21 – 86

Total Capital Expenditure 992 1,221 1,203 1,369 975 588 479 483 374 442 2,576 1,172 1,408 13,282

Net Cash Flow After Tax –1,112 –1,372 –1,075 –971 –287 250 1,496 2,342 2,823 2,607 16,105 1,979 218 23,003

Source: Oyu Tolgoi 2016 Technical Report.

Metal Price Assumptions

Unit 2017 2018 2019 20202021

Onwards

Copper $/lb 2.15 2.36 2.58 2.79 3.00

Gold $/oz 1,300 1,300 1,300 1,300 1,300

Silver $/oz 19.00 19.00 19.00 19.00 19.00

Production highlights 16

0.47

0.33

0.22 0.27

2014 2015 2016 1H'17

All Injury Frequency Rate(per 200,000 hours worked)

Industry-leading safety performance Throughput target of 40 million tonnes for 2017

148

202 201

75.3

2014 2015 2016 1H'17

Copper in concentrates('000 tonnes)

2017 guidance of 130,000–160,000 tonnes of cooperand 100,000 – 140,000 ounces of gold

2017 gold production impacted by low grade Phase 6 ore

589 653

300

49

2014 2015 2016 1H'17

Gold in concentrates('000 ounces)

27,872

34,537 38,152

19,724

2014 2015 2016 1H'17

Concentrator throughput('000 tonnes)

Financial highlights 17

$863

$1,344 $1,418 $1,379

2014 2015 2016 1H'17

Cash position($'000,000)

Strong cash position Consecutive periods of positive operating cash flowSource: Average quarterly Comex copper price and average quarterly LBMA gold price.

$10

$227

$321

2015 2016 1H'17

Underground capital expenditure($'000,000)

2017 underground CAPEX guidance of $825 million - $925 million Competitive unit costsNote: C1 and AISC not meaningful in 2013.

$719 $651

$399

$140

2014 2015 2016 1H'17

Operating cash flow($'000,000)

Cu:$2.21Au:$1,251

Cu:$2.49Au:$1,160

Cu:$3.10Au:$1,266

Cu:$2.61Au:$1,238

$1.14

$0.57

$1.02

$1.89

$1.95

$1.37 $1.48

$2.21

2014 2015 2016 1H'17

C1 and All-in sustaining costs (AISC)

C1 AISC

Production and financial guidance 18

2016 2017

Copper in concentrates 201,300 tonnes (actual)175,000 – 195,000 tonnes

130,000 – 160,000 tonnes

Gold in concentrates ~300,000 ounces (actual)255,000 – 285,000 ounces

100,000 – 140,000 ounces

Operating cash costs $775 million (actual)$840 million

$720 million

Capital expenditures $100 million (open pit actual)$200 million

$100 million (open pit)$825 million - $925 million (underground)

2017 production impacted by ~25% less copper head grade and ~50% less gold head grade

2017 operating cash costs reflects cost improvements and impact of lower logistics costs from decreased production

2017 open-pit CAPEX reflects lower maintenance costs, reduced deferred stripping cost due to optimization and improved tailings storage costs

Managing near-term ore grade challenges

Source: 2016 Oyu Tolgoi Technical Report

19

Phases 6 and 4a as well as low-grade stockpile ore processed in 2017

Phase 4 stripping provides access to higher ore grades in 2018

Open-pitplan view

Phase 5

Phase 10

Phase 9

Phase 6

Phase 8

Phase 7

Phase 4B

Phase 4A

Project finance flow of funds 20

Shareholder loan

Receivable from Oyu Tolgoi*

Shareholder loan Q2’17: $3.4 billion

Payable to Turquoise Hill*


Drawdown Q2’16: $4.3 billion


1. In accordance with the ARSHA, Turquoise Hill funded the common share investments in Oyu Tolgoion behalf of Erdenes Oyu Tolgoi LLC; at June 3, 2017 the balance was approximately $1.1 billion

* Interest rate LIBOR + 6.5%

At project finance drawdown

Proceeds: $4.3 billion2 $4.3 billion3 $4.2 billion

Payable to Turquoise Hill*

Shareholder loan: $3.4 billion

2. Project finance facility made directly with Oyu Tolgoi3. Amount received net of bank fees* Interest rate LIBOR + 6.5%** When guarantee fee paid, Oyu Tolgoi pays 1.9% and Turquoise Hill pays 0.6%


Shareholder loan: $3.4 billion

Deposit from Turquoise Hill

Deposit: $4.2 billionWaive 2.5%** guarantee fee with amount on deposit

Priority of funding used for development

Oyu Tolgoi operating cash flow

Oyu Tolgoi cash call

Funding

* Indicative, does not show the withholding tax implications | original shareholder loan interest rate LIBOR + 6.5% | Oyu Tolgoi’s all-in project finance interest rate, including upfront and ongoing fees as well as the guarantee fee, is LIBOR + 6.0%** Guarantee fee - Oyu Tolgoi pays 1.9% and Turquoise Hill pays 0.6%

Funding


Shareholder loan: ↑Equity loan: ↑

Funding

Payable to Turquoise Hill (2.5%** guarantee fee on funds used)

Shareholder loan: ↑Equity loan: ↑

Project finance funds

Turquoise Hill cash

#1

#2

#3

Oyu Tolgoi at China’s doorstep 21


HSES Update

September 2017


Injury and Incident Overview

0.25

0.13

0.41

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

DecNovOctSepAugJulJunMayAprMarFebJan

All Injury Frequency Rate YTD

OT UGOT OpsOne OT

2 2

8

3 1 3

211111111 1

0.260.270.290.290.28

0.260.26

0.180.18

0.27

0

2

4

6

8

10

0.00

0.05

0.10

0.15

0.20

0.25

0.30

Freq

uenc

y

17-Apr17-Mar17-Feb17-Jan

Inju

ry

16-Sep 17-Aug17-Jul17-Jun17-May16-Dec

0.22

16-Nov

0.15

16-Oct

LTIMTCIOne OT AIFR 12 month rolling

All Injury Frequency Rate 12 month rolling – One OT

1 32

2

41

4

5

32

112

1110

1

2

3

4

5

6

7

8

17-Apr17-Mar17-Feb17-Jan16-Dec16-Nov16-Oct16-Sep 17-Aug17-Jul17-Jun17-May

SI PFI

SI and PFI count 12 month rolling – One OT

5.9

3.82.7

1.7 1.42.4

0

1

2

3

4

5

6

2012 2013 2014 2015 2016 2017

Injury per month rate

Copyright © 2017 Oyu Tolgoi LLC, All rights reserved 2017.06.06

CRM Performance - Key metrics (August YTD)

Leaders at target

Finding red 1+ Finding red 2+ Overdue action rate

Action closure rate

Planned verification rate

Adherence to plan rate

OT Surface Ops 95% 89% 82% 3% 73% 30% 68%

OT UG 91% 93% 86% 31% 79% 49% 58%

Total CCV/CCFV count

20%

80%

40%

0

60%

100%

JMJ J O DNF A S

45%

A M

OT UG Target

OT UG YTDOT Ops YTD

OT Ops

CRM Leaders partic.- finding Red 2+

60%

100%

0

40%

20%

80%

DJ OSAJ

85%

NMMJ F A

CRM Leaders partic.- finding Red 1+

OT UG YTD

OT UG TargetOT Ops

OT Ops YTD

CRM Action closure rate

6.000

2.000

0

4.000

10.000

8.000

OF DSJ AMJ NM A J

40%

60%

20%

100%

0

80%80%

NOJF DM J SA AJ M

OT Ops OT UG TargetOT Ops OT UG

80%

100%

20%

60%

0

40%

N DOSM J AJJ AMF

OT Ops

OT UG

OT Ops YTD

OT UG YTD

CRM Leaders participation rate

40%

100%

80%

60%

20%

0SF NM JAMJ J O

20%

DA

OT UG TargetOT Ops

Overdue action rate

Copyright © 2017 Oyu Tolgoi LLC, All rights reserved 2017.06.06

Fatigue study update

Completed phase 1 of the fatigue study. Worker sleep data assessed by Fatigue Science with initial draft report provided for review.

Phase 2 preparation:

Fatigue specialist to be onsite for nine days reviewing fatigue management practices, meeting with managers, supervisors and workers.

Outcome of visit will be recommendations for improvements of fatigue management and to identify options for mitigating fatigue risks.

Mental health awareness:

Awareness topics on stress, depression and anxiety were distributed to all supervisors for discussion with crews. The objective is for workers to understand and discuss mental health challenges

Heat stress and hydration

Working in the heat and preventing heat stress were training topics in June.

Hydration monitoring of workers is conducted during the summer months to reinforce the need for drinking water frequently during the shift and to identify those who are significantly dehydrated.

Health initiatives


Environment Compliance & Assurance

• National audits and inspections• Total 4 inspections and audits

(Government Agency of Specialized Inspection, Environment Protection Agency etc.) in 2016

• Independent Environment for every two years

• Independent Water audit for every 5 years

• Lender audit• 2 Lenders audit

• Rio Tinto audits• HSE Business Conformance Audit• Rio Tinto HSE review

• Local community engagement and agreement

• Tri-Partite council visit and inspections• Independent expert review on the OT

impact• Other external audits

• ISO 14001 Environmental certificate audit

• Independent PwC financial audit

2013• April-Field Visit • October-Field Visit

2014

• April-Field Visit• July-Desk Based Audit• November-Field Visit

2015• April-Desk Based Audit• September-Field Visit (4 auditors, 12 Lenders)

2016• April-Desk Based Audit• August-Field Visit (5 auditors, 8 Lenders)

Lender auditsAudits in 2016


Water management & monitoring

GH

OT

GalbiinGobi

Undai

• Biggest risk – Water access, impact on the local water resource

• Comprehensive water monitoring• Hydrogeological modeling and prediction

of water drawdown in Gunii Hooloi (GH) aquifer

• Close national stakeholder engagement:• Environment Minister meeting with

Oyu Tolgoi CEO• Environment ministry official visit in

OT• Relationship Committee meeting

with local government• Tri-Partite Council meeting

Area2016

Bores Herder wells Springs

OT-Undai 169 25 7

Gunii Hooloi (GH) 117 54 4

Galbiin Gobi & GSK road 6 7 -

Total 292 86 11

Grand total 389


Highly efficient water usage


Water recycling efficiency


Air quality monitoring station• Compliance to the National and Project ambient air

standards;• Continuous and real-time ambient air quality

monitoring;• Accurate assessment of the risk to the

environment and human health from the current emissions sources as received by the “receptor” rather than at the point of emission;

• Internationally advanced technology;• The continuous monitoring results are going to

allow OT to adequately assess potential impact;• Existing onsite monitoring program will be

rationalized and optimized based on the new monitoring stations.


Non-mineral waste

• Challenges:• Remote location• No national facility is available

• Underground mine legacy waste solutions – residual/expired waste material from shut down of the UG operations 4 years ago

• Waste segregation and handling campaign• Maximizing recycling or reuse: plastics, waste oil, metal, timber, kitchen oil, battery, tires;• Improvements:

• Recycling 100% waste water• Dewatering the sludge and disposal in the landfill (closed the sludge pond)• Closed the community waste yard• Closed the old waste facility• Tyre storage area established and recycling opportunity• Incinerator decommissioning and autoclave operation

• Non-mineral waste strategy including future forecast and planning


Biodiversity & NPI

• Commitment to net positive gain (NPI) to biodiversity and ecosystem services

• NPI to be achieved through:• Offset projects that include:

• Powerline insulation• Contribute to the development of a national powerline

standard for reducing bird mortalities• Sustainable Cashmere• Anti-poaching• Railroad fence removal

• Rehabilitation of disturbed areas


Biodiversity & NPI

• Powerline insulation pilot project successfully reduce mortality of raptors by 85%

• Two projects intended to offset impacts to bird populations• Expanding powerline insulation to non-OT powerlines• Continuing to work with national powerline committee

Short-toed snake eagle


Biodiversity & NPI

• Three projects (Sustainable Cashmere Project (SCP), anti-poaching, railroad fence) intended to offset impacts to rangeland, khulan, and goitered gazelles (and other species)

• Anti-poaching patrols and community engagement appear to be changing poaching rates

• SCP had first cashmere sale in 2017, with more interest from herders than expected

• Recently received approval from the national railroad authority to implement pilot trial of removing or modifying short sections of fence


Biodiversity & NPI

• Monitoring of biodiversity projects is on-going• Comprehensive biodiversity monitoring annually• Ecosystem service monitoring annually• Review and updating of NPI forecast schedule for 2018

Collecting snake eagle pellets & feathers

Video documenting snake eagle nests in KB soum

Saxaul


Rehabilitation process

15 15

Completed 99% of the rehab required offsite area;Onsite area have active disturbance expansion


Acid Rock Drainage (ARD) risk minimization

To confirm ARD characteristic– ARD sampling and analyzing– Open pit and Tailings Storage Facility seepage

monitoring

To simulate mine closure rehabilitation– Waste Rock Dump rehabilitation trial test


17

Ongoing focus areas

BiodiversityEnvironment

• Full compliance of the environment

management

• Sealing old water exploration bores

to maintain full compliance

• Non-mineral waste strategy and

improvement

• ARD & future rehabilitation

• Review and rationalization of the air

quality and water monitoring

program

• Rehabilitation strategy

stakeholder engagement

• Biodiversity commitments and

mitigation strategy rationalization

• Priority plant protection

• Offset projects

• Rangeland monitoring in

cooperation with NASA and

Stanford University


KHANBOGD SOUM WATER SUPPLY

• Oyu Tolgoi LLC financing the water exploration of the KB soum water supply system during the 2013-2014.

• During the exploration total of 41 boreholes were drilled and 12 of them have been monitored actively.

• As result of the exploration KB soum water supply reserve approved as 37 l/s or 3200m3 per/day for 20 years by Ministry of Environment and Tourism (MET).

• The US$6.9 million bulk water facility will provide safe, clean drinking water to Khanbogd, with a 6.6km network of pipeline distributing water across the town. The facility will support the future development of Khanbogd, with a capacity to supply water to over 13,000 residents and has the potential to be further expanded

OYU TOLGOI FULLY FUNDED THE WATER EXPLORATION ACTIVITIES AND THE CONSTRUCTION OF KHANBOGD BULK WATER FACILITY.

THE FACILITY INCLUDES:• Four boreholes• Raw water tank (1,500m3)• Water purification plant• Water transmission pipeline (6.6km) • Treated water reservoir (2000m3)• 10kV Electrical substation, lines (8.8km)


Undai River diversion project completion

• Physical works carried out in 2013• Comprehensive water monitoring (as well as

hydrogeological assessment) has demonstrated surface and alluvial groundwater diversions are working

• Stakeholder engagement and approvals• Local community approval in Tri-Partite Council• National government approval: official water point registry• Lenders approval (June 2017)

Bor Ovoo Spring, 29 Aug 2017


Thank you.

turquoisehill.com

Turquoise Hill Resources Ltd.Suite 354 - 200 Granville StreetVancouver, BC, Canada V6C 1S4

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Turquoise Hill is an internationalmining company focused on theoperation and development of theOyu Tolgoi copper-gold mine insouthern Mongolia.

annual oyu tolgoi mine visit october 3-5, 2017 oyu tolgoi ... · oyu tolgoi: leading long-term...

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