Oyu Tolgoi Project, Mongolia Integrated Development Plan

Executive Summary

IMPORTANT NOTICE

This report was prepared exclusively for Ivanhoe Mines Mongolia XXK Inc. (IMMI) by AMEC Ausenco Joint Venture (AAJV), a joint venture between AMEC Americas Limited (AMEC) and Ausenco Limited (Ausenco). The quality of information, conclusions, and estimates contained herein is consistent with the level of effort involved in AAJV’s services and based on: i) information available at the time of preparation, ii) data supplied by outside sources, and iii) the assumptions, conditions, and qualifications set forth in this report. This report is intended to be used by IMMI only, subject to the terms and conditions of its contract with AAJV. Any use of, or reliance on, this report by any third party is at that party’s sole risk.

Clarification regarding work performed by others: Work performed by others has been evaluated for consistency with the project design criteria and general objectives of the study. AAJV has reviewed the methodology and depth of analysis of such work and, without warranting the accuracy or results of such work, confirms that the methodology and depth of analysis are generally consistent with the requirements of the study.

Cautionary statement: This assessment includes the use of Inferred resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as a Mineral Reserve. Inferred resources will require further exploration to upgrade them to the higher Measured and Indicated categories. Although the assumptions underlying the preliminary assessment are considered reasonable, there is no certainty that the predicted results will be realized.

The term “ore” is used for convenience throughout this report to denote material mined or processed. The use of the term is not meant to imply that this material falls within the classification of a Mineral Reserve as determined by the Canadian Institute of Mining and Metallurgy (CIM), the Australasian Joint Ore Reserves Committee (JORC), or other similar bodies. O YU T OLGOI P ROJECT I NTEGRATED D EVELOPMENT P LAN E XECUTIVE S UMMARY

EXECUTIVE SUMMARY

Part 1 – Project Overview ...... Page 1 to 15

Project AAJV002 August 2005

O YU T OLGOI P ROJECT I NTEGRATED D EVELOPMENT P LAN E XECUTIVE S UMMARY

Project Overview

This Integrated Development Plan (IDP), The Oyu Tolgoi mineral resource estimate prepared by the AMEC Ausenco Joint Venture considered in the plan was prepared by AMEC (AAJV), presents a multi-phase conceptual and reported on previously by IMMI in June 2004 development plan for the known copper/gold and May 2005 disclosure statements. The mineralized resource at Oyu Tolgoi owned by resource estimate is based on some Ivanhoe Mines Mongolia Inc XXK (IMMI) in the 560,000 metres of drilling carried out to 15 April southern Gobi region of Mongolia. The project 2005. There are two distinct sources of ore: consists of open pit and underground mines, a processing plant, and supporting infrastructure to • the Southern Oyu deposits, consisting of the produce high-quality copper/gold concentrates. Southwest, South, Central, and Wedge zones • the Hugo Dummett deposit, consisting of the Oyu Tolgoi Project Location Map Hugo North and Hugo South zones.

The Southern Oyu deposits are amenable to open pit mining, of which the gold-rich, near- surface Southwest zone will be the first mining development and will provide most of the plant feed for the first four years. The Hugo Dummett deposit is best suited to block-cave underground mining. Hugo North will be the first underground mine. The Hugo North ore is of higher value, and so underground production will be ramped up to displace production from the open pit as soon as possible. A two-phase development plan is proposed:

Throughput for Phase 1, the base case, begins at 25.5 Mt/a (70,000 t/d) from the Southwest pit, increasing to 30 Mt/a

(85,000 t/d) by Year 7. The open pit operation will then cease in favour of the higher-value ore from Hugo North. Phase 1 is The IDP work associated with the initial process further sub-divided: plant and open pit mining is at a feasibility quality Phase 1a level. Other aspects, including the off-site • initial plant construction for 70,000 t/d from infrastructure, power supply, underground open pit feed mining, and proposed plant expansions, are at a scoping level. Because the information used to Phase 1b prepare the economic evaluation of the project • underground exploration and shaft includes all levels of study, the overall IDP development quality is classified as a Preliminary Assessment • development of Hugo North block-cave mine in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum Standards on • ramp-up of Hugo North production to 30 Mt/a Mineral Resources and Reserves referred to in Phase 1c National Instrument 43-101. • expansion of plant facilities to 85,000 t/d

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The base case has a mine life of more than 40 Hugo mine geometry extracts 83% of the Hugo years. At a discount rate of 10%, the NPV for Dummett mineral resource (0.6% cutoff). this scenario is US$1.5 billion; at 8% the NPV is Processing the ore defined in the IDP mine plan US$2.2 billion. schedule for the expanded case recovers 35.2 billion pounds of copper and 11.7 million ounces The initial inventory for the first 10 years of the of gold. base case consists of more than 85% Measured and Indicated resources from both open pit and Cost Estimates (US Dollars) underground sources. This inventory totals Under the base case, capital expenditure of 295.6 million tonnes at 1.20% Cu and 0.35 g/t Au $1,380 million is incurred to the beginning of and represents 8.7 billion pounds of recoverable 2009. This includes $1,093 million for the copper and 4.0 million ounces of recoverable processing plant, infrastructure, and open pit gold. mining and $55 million in escalation (note: escalation not included in financial model). The Continuing at a production rate of 85,000 t/d remaining $232 million is to advance the beyond Year 10, the project has sufficient development of the Hugo North deposit. These resources to operate for at least another 50 amounts are expended over a 33-month years by expanding open pit production and construction period to July 2008 and also include exploiting the Hugo South resource. the six-month period immediately following as the plant ramps up to initial maximum capacity. Phase 2, the expanded case, realizes the The capacity at this stage of development is ability of Hugo North to produce at more than 70,000 t/d, sourced almost exclusively from the 30 Mt/a with concurrent development of Hugo open pit. South and additional open pit mining to support a process plant expansion to 52.5 Mt/a (nominal To reach the production capacity of 85,000 t/d 140,000 t/d). In this plan, open pit production (Phase 1c) possible from underground ore, would continue to Year 12 and the underground another $105 million will be required to modify mine life would extend to Year 35. the processing plant and infrastructure in 2010 and 2011 (Years 2 and 3 of operations). This Although the final decision to implement Phase 2 amount will be in addition to any sustaining does not need to be made until Year 3 of capital required in that period. In the first four operations, the significant enhancement years of operations, $719.1 million is expended (+US$339 million NPV ; +US$485 million NPV ) 10 8 to bring the underground deposit to a stage of project economics represented by timely where it represents the major source of ore to expansion of production makes Phase 2 an the mill in 2013. Capital expenditure continues integral part of the IDP. on the underground deposit, allowing the At a Cu equivalent cutoff of 0.6%, the entire IDP operation to achieve the 85,000 t/d maximum mineral resource inventory—open pit and capacity of the plant in 2015. underground—totals 2.3 billion tonnes at Therefore, the total capital to achieve 85,000 t/d 1.16% Cu and 0.35 g/t Au. Considering the from Hugo North, in the base case, is $2.4 ultimate pit shell at a Cu equivalent cutoff of billion, including all sustaining capital, over 0.3%, the Southern Oyu open pit resource totals slightly more than 9 years of phased 995 million tonnes at 0.49% Cu and 0.35 g/t Au. development. Mining plans have not been developed to fully In a base case only scenario, the average cash assess what portion of the total resource is cost of copper after gold credits is $0.39/lb over mineable as ore; however, the tonnage in the the life of mine. If Phase 2 is added to create an ultimate pit is about 88% of the complete expanded case, then the average over the life of Southern Oyu resource (0.3% cutoff), and the mine is $0.40/lb.

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IMMI estimates that formal authorization to method. To increase value and/or reduce risk, proceed with the project will be received in evaluation of the possible benefits of a dedicated October 2005, with first ore feed to the milling smelter at or near the site is warranted. circuit in July 2008. If a dedicated smelter is demonstrated to be advantageous, then optimization of metal ECONOMIC BENEFIT TO MONGOLIA recoveries and concentrate grades to suit the revised treatment and transportation conditions Based on a report commissioned by IMMI and should be considered. published in August 2005, the Oyu Tolgoi expanded case would have the following impacts With a smelter providing a nearby source of on the economy of Mongolia between 2002 and sulphuric acid, it could be advantageous to 2043: process the low-grade resource identified in the Southwest pit in a heap leach operation. The • 34.3% (average) increase in real GDP amenability of this material for heap leaching • 117,000 (average) increase in employment (full should be evaluated. & part time workers) • 10.3% (average) increase in employment High-Density Tailings • 11.5% (average) increase in real per capita The combined use of high-compression disposable income thickeners to increase the deposition density of tailings and of decant towers to reduce the size • US$7.9 billion (cumulative) increase in of the tailings pond area has the potential to government operating balance, excluding debt reduce make-up water requirements and payments operating costs. • US$54 billion (cumulative) increase in exports. Concentrator Capacity The results of throughput determinations by OPPORTUNITIES means of lab test simulations and SAG mill pilot- plant testing were discounted 10% for Further Resources operational contingency and potential sample set IMMI has identified further opportunities for bias. The IDP process plant design may have mining developments on the adjacent claim to additional capacity without the need for further the north owned by Entrée Gold Ltd., as reported capital expenditure. in a June 2005 disclosure statement by Ivanhoe Mines. Additionally, the grinding circuit of the expanded case plant has a nominal capacity of 170,000 t/d Initial drilling results confirm the presence of for Hugo ores. This may permit a further plant additional high-grade mineralization. IMMI has expansion to be made at a modest cost. recently concluded an Earn-In-Agreement with Entreé. This represents a good opportunity to expand the resource, possibly by developing a Gold Hedging separate high-grade underground operation. Although not included as a basis of the financial analysis, the project NPV8&10 would increase, for both the base and expanded cases, by more Smelting than $200 million if gold production for the first 6 The IDP uses a base treatment charge of years was hedged at $550/oz. As IMMI explores $75 /wmt of concentrate. After price participation, funding alternatives for the project, investigation this escalates to $82.50. Transportation costs of the specific conditions necessary to realize a for concentrate range from $21 to $38 /wmt, benefit from gold hedging should be assessed. depending on destination and transportation

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DEVELOPMENT, CAPITAL & PRODUCTION SCHEDULES – BASE CASE 85,000 t/d, 1st 20 years

Plant Capacity = Plant Capacity = Project Approval 70kt/d 85kt/d

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20202021 2022 2023 2024 2025 20262027 2028 2029 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Phase 1a Plant Ramp Up U/G Crusher and Hugo North Overland Conveyor 30 Million Tonnes First FEED operational. (Year 7) Ph

Phase 1b Commence Engineering Shaft Start U/g Operations No. 2 (60 Drawpoints)

Hugo South Phase 1c Exploration & Feasibility Study

Cumulative Initial, Future and Sustaining $30 $563 $1,134 $1,381 $1,691 $1,991 $2,222 $2,294 $2,380 $2,453 $2,496 $2,534 $2,572 $2,619 $2,657 $2,696 $2,735 $2,787 $2,838 $2,889 $2,940 $2,991 $3,083 $3,252 $3,297 Capital ($000,000's) $500,000,000 Phase 1a, Open Pit, Process Plant Initial, Future and Sustaining Capital Spend by Year and Infrastructure $400,000,000 Phase 1c, Concentrate Circuit Expansion (85kt/d) $300,000,000

$200,000,000 Phase 1b Hugo North Underground Mine Development Ramp Up Capital $100,000,000

$0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

35,000 Hugo North Lift 2 Processed Ore (kt) by Year 30,000

25,000

20,000 Hugo North Lift 1 15,000

10,000 South West 5,000

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

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DEVELOPMENT, CAPITAL & PRODUCTION SCHEDULES – EXPANDED CASE 140,000 T/D, 1ST 20 YEARS

Plant Capacity = Plant Capacity = Plant Capacity = 140kt Project Approval 70kt/d 85kt/d of Ore / day

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20202021 2022 2023 2024 2025 2026 2027 2028 2029 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Phase 1a Hugo North Plant Ramp Up U/G Crusher and Overland Conveyor 35 Million Tonnes operational. (Year 7)

Ph First FEED Hugo South Phase 1b 5 Million Tonnes First Ore From Hugo (Year 11) Commence South Hugo South Engineering Shaft Start U/g Operations 13.8 Million Tonnes No. 2 (60 Drawpoints) (Year 12) Hugo South Phase 1c Exploration & Feasibility Study Phase 2

Cumulative Initial, Future and Sustaining $30 $565 $1,133 $1,380 $1,697 $2,002 $2,243 $2,329 $2,697 $2,983 $3,149 $3,296 $3,527 $3,637 $3,749 $3,836 $3,916 $4,011 $4,104 $4,199 $4,328 $4,514 $4,591 $4,683 $4,765 Capital ($000,000's) $500,000,000 Phase 1a, Open Pit, Process Plant Initial, Future and Sustaining Capital Spend by Year and Infrastructure $400,000,000 Phase 2, Process Plant and Infrastructure Phase 2, Hugo South $300,000,000 Development

$200,000,000

$100,000,000 Ramp-Up Capital

$0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

60,000 Processed Ore (kt) by Year 50,000 Hugo South 40,000

Hugo North Lift 1 30,000

20,000 Hugo North Lift 2

10,000 South West

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

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FINANCIAL SUMMARY

Phase 1 Base Case – Cash Flow Schedule ($/lb Cu, $/oz Au)

CUMULATIVE CASH FLOW TO YEAR 40

16 15 14 $1.20, $450 13 12 $1.10, $425 11 $1.00, $400 * 10 $0.90, $375

9 $0.80, $350 8 7 6 $billion 5 4 3 2 1 - - -1 -2 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047

Year

* Value used in financial analysis

Phase 2 Expanded Case – Cash Flow Schedule ($/lb Cu, $/oz Au)

CUMULATIVE CASH FLOW TO YEAR 35

18 17 16 $1.20, $450 15 $1.10, $425 14 $1.00, $400 13 * 12 $0.90, $375 11 $0.80, $350 10 9 8 7 $billion 6 5 4 3 2 1 - - -1 -2 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043

Year

* Value used in financial analysis

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Financial Model – Discount Rates @ 8% & 10% Parameter Unit Base Case Expanded Case Key Input Copper (Cu) average per year M lb 730 1,007 Gold (Au) average per year 000 oz 258 333 Mine Life Years 40 35 Initial Capital (to achieve 70,000 t/a)ª $M 1,275 1,275 Future & Sustaining Capital $M 2,673 4,156 Site Operating Costs (average)* $/t 5.94 5.62 Realization costs (transport to smelter, treatment $/t 6.32 6.03 & refining, royalties) Financial Projections After-Tax Results: NPV 8% $M 2,221 2,706 NPV 10% $M 1,513 1,852 IRR % 19.25 19.75 Payback Years 5.80 6.53 Total Cash Costs /lb Cu (after Au credits) $ 0.39 0.40 * excludes realization costs ª excludes escalation and ramp-up capital

Project Sensitivities – Phase 1 Base Case

IRR NPV8 NPV10 Change Change Change Parameter Base Value Change (%) ($M) ($M) Gold Price $400/oz ± $25/oz 0.4 68 57 Copper Price $1.00/lb ± $0.05/lb 1.2 271 216 Initial Capital 1.274 M ± 10% 1.3 116 113 Site Operating & Transport $6.78/t ± 10% 0.9 183 149 Smelter Charges $75/wmt, $0.075/lb ± $10/wmt, $0.01/lb 0.4 93 74 Copper Recovery 90.8% (avg) ± 1% point 0.2 50 40 Power Cost $0.0426/kWh ± 10% 0.2 46 36

Project Sensitivities – Phase 2 Expanded Case

IRR NPV8 NPV10 Change Change Change Parameter Base Value Change (%) ($M) ($M) Gold Price $400/oz ± $25/oz 0.4 81 68 Copper Price $1.00/lb ± $0.05/lb 1.2 346 274 Initial Capital 1.274 M ± 10% 2.1 116 113 Site Operating & Transport $6.50/t ± 10% 1.0 241 195 Smelter Charges $75 /wmt, $0.075/lb ± $%, $0.01/lb 0.4 120 94 Copper Recovery 89.7% (avg) ± 1% point 0.2 62 49 Power Cost $0.0426/kWh ± 10% 0.2 58 46

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ORE RELEASE SCHEDULE – PHASE 1, BASE CASE

Ore Sources & Feed Grades

35,000 3.50

30,000 3.00

25,000 2.50

20,000 2.00

15,000 1.50 Milled('000t) Ore Average Feed Grade (% or g/t) 10,000 1.00

5,000 0.50

0 0.00 012345678910111213141516171819202122232425262728293031323334353637383940 Year of Operations

Southwest Hugo North Average Copper (Cu) Feed Grade Average Gold (Au) Feed Grade

Contained Metal Production, Life-of-Mine

1,400 1,400 1,200 1,200 1,000 1,000 800 800 Cu 600 600

400 400 oz Au '000 200 200 Contained Metal - - Metal Contained Contained Metal - M lb Mlb - Metal Contained 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 Year

Copper (Cu) in Concentrate Gold (Au) in Concentrate

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ORE RELEASE SCHEDULE – PHASE 2, EXPANDED CASE

Ore Sources & Feed Grades, Life-of-Mine

60,000 3.00

50,000 2.50

40,000 2.00

30,000 1.50 Milled Ore ('000t)

20,000 1.00 Average Feed Grade (% or g/t) or (% Grade Feed Average

10,000 0.50

0 0.00 0 1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526272829303132333435 Year of Operations

Southwest Hugo North Hugo South Average Copper (Cu) Feed Grade Average Gold (Au) Feed Grade

Contained Metal Production, Life-of-Mine

1,800 1,800 1,600 1,600 1,400 1,400 1,200 1,200 1,000 1,000

Cu 800 800 oz Au 600 600 400 400 200 200 Contained Metal - M lb M lb - Metal Contained 0 0 '000 - Metal Contained 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 Year

Copper (Cu) in Concentrate Gold (Au) in Concentrate

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MINERAL RESOURCES

Mineral Resource Estimate of 3 May 2005 0.6% Cu Eq. Cutoff 0.3% Cu Eq. Cutoff Grade Grade Mineral Resource Category Tonnes Cu % Au g/t Tonnes Cu % Au g/t Southern Oyu Deposits Measured+Indicated 567,230,000 0.62 0.55 917,150,000 0.50 0.36 Inferred 88,500,000 0.47 0.41 78,240,000 0.37 0.18 Hugo Dummett Deposit Hugo North - - - Indicated 581,930,000 1.89 0.41 - - - Inferred 581,290,000 1.08 0.32 - - - Hugo South* - - - Indicated ------Inferred 490,330,000 1.05 0.09 - - - Total Project Measured+Indicated 1,149,160,000 1.30 0.47 - - - Inferred 1,160,120,000 1.02 0.23 - - -

* Resource estimate of June 2004

Profile of Orebodies

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KEY DEVELOPMENT FEATURES

Mining Licence discussions with five Chinese smelters, all of IMMI owns 100% of the project under four which indicated a desire to purchase concentrate mining licences granted by the Government of from Oyu Tolgoi. Potential sales to these Mongolia on 23 December 2003. The term of smelters total 500,000 dmt per year. One the licences is 60 years with an option for a company, Jiangxi Copper Co. Ltd., signed a 40-year extension. Memorandum of Understanding with IMMI in June 2004. Special Stability Agreement IMMI is in negotiations with the Government of A diversified strategy will be needed to evaluate Mongolia for an agreement to establish the rights and encourage the development of greater and obligations of the Oyu Tolgoi project with smelter capacity in geographically favourable regard to taxation, cross-border import/export, regions of China and elsewhere in Asia as supply of power, labour, land use, water rights, concentrate production at Oyu Tolgoi increases and other government-regulated matters. IMMI beyond 1.5 Mt/a. expects the agreement to be finalized during the second half of 2005. Ore Processing The largest conventional and industry-proven Health, Safety & Environment components were selected for the initial IMMI policy is to implement a comprehensive production rate of 70,000 t/d. The grinding health and safety program that meets or exceeds circuit consists of a single 12.2 m x 7.5 m mining industry standards for best practices (40 ft x 24.5 ft) SAG mill, equipped with a during all design, construction, and contracting 24.5 MW drive, feeding a pair of 8.2 m x 13 m activities associated with the project. The project (27 ft x 43 ft) ball mills, each driven by a will also be environmentally compliant with the 18.6 MW gearless drive. As the softer Hugo stringent procedures outlined in ISO 14001. North ores displace Southwest ore, the capacity of the grinding circuit increases to 85,000 t/d. A detailed, three-stage environmental impact assessment (EIA) is underway to meet Coarse material will be scalped from stockpile Mongolian legislation for the project. The first discharge and crushed before SAG milling. EIA document, for the transport corridor south of Pebbles screened from the SAG mill discharge Oyu Tolgoi to the Chinese border, was submitted will be crushed before returning to the ball mill in April 2004 and approved in May 2004. The feed. second, covering the water supply system, was submitted in June 2005. The final submission, The grinding circuit product will be split and incorporating the results of the IDP, is in transferred to the rougher flotation cells. preparation and is planned to be submitted Rougher concentrate will be reground and during the second half of 2005. upgraded in both mechanical and column cells to produce marketable concentrate. To date, no environmental issues have been identified that cannot be managed through The concentrate will be thickened and filtered normal mining practices. before transport to the smelters. The final tailings will be thickened and stored in paddock- Marketing style containment areas constructed from mine Current consumption trends for copper suggest waste rock and borrow materials. that Oyu Tolgoi is well positioned to sell its product. The project is adjacent to China—one All aspects of facility design are focused on of the world’s largest copper-consuming nations. minimizing water consumption as much as During 2004 and 2005, IMMI held commercial practicable.

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Phase 2 Plant Development second field, Galbyn Gobi, together with other regional resources are expected to hold sufficient groundwater resources for requirements at the nominal 140,000 t/d production.

Power Supply Power supply for the project is subject to agreement with the Government of Mongolia. The IDP is based on the initial power demand of 130 MW being imported from Inner Mongolia via a 220 kV transmission line for the first five years, followed by supply from a coal-fired power station constructed in Mongolia to exploit the extensive coal resources in the region. The Top: Flotation section. Bottom: Grinding area anticipated price of electric power was derived from a financial model that simulated the anticipated financial expectations of an Independent Power Producer based on estimated operating costs and capacity charges.

Infrastructure As a greenfield project, Oyu Tolgoi will require new infrastructure facilities, both on and off site, to support the project. On-site infrastructure includes amenities associated with personnel accommodation, administrative offices, the distribution of utilities, medical and first aid facilities, an airstrip to support cargo and personnel transportation and internal roads.

Left to right: Coarse ore stockpile conveyors, process plant, Off-site infrastructure includes the development tailings thickeners of a raw water supply, a China-based truck/rail transfer depot for concentrate, and remote Grinding and flotation capacity will be increased administration, training, and logistics offices. to more than 140,000 t/d for the Phase 2 expansion, as shown in the renderings. Rail transportation is expected to be available for use by Oyu Tolgoi by the fourth year of Water Supply & Management operation. The project will construct on-site Regional aquifers are capable of providing long- trackage and a spur line to a new rail line term water supply for the project. The Gunii anticipated to be constructed from the coal fields Hooloi field can meet average demand for 40 at Tavan Tolgoi to the existing Chinese rail years at a nominal production rate of 85,000 t/d. system. Although additional exploration is required, a

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PROJECT IMPLEMENTATION

The project will be executed with key • Goods transported overland to the China- engineering and supply resources from Mongolia border at Ganqimaodao-Gashuun Western countries supplemented by resources Sukhait, then to site from Mongolia and China. The selected prime • 33-month construction period for open pit, engineering contractor will be from a Western- concentrator, and infrastructure based company that has been active in the • Critical path: procurement and delivery of long- region and has the proven capability to lead equipment for the concentrator. effectively deliver large mining projects. A Program Management Organization (PMO) Work Force for Operations consisting of personnel from IMMI and the IMMI plans to maximize Mongolian employment engineering contractor will oversee all levels and achieve a 90% national workforce by the activities associated with the project, including fifth year of operation. Mongolian exposure to the the management of all supply and construction specific technical and trade skills required for the contracts. project has been limited, and an extensive training General procurement and construction plan: program will be implemented.

• Basic engineering for the process facilities Risk Assessment by Western engineering contractor A project risk assessment concluded that although • Principal equipment sourced from a number of issues need to be addressed and international suppliers resolved, none of the identified risks, if managed to • Other equipment and materials sourced in a reasonable conclusion, would jeopardize the Asia successful development and operation of Oyu • Combination of unit price, lump sum, and Tolgoi. direct-hire construction contracts • Heavy industrial work by major Chinese contractors Level 1 Schedule • Components of infrastructure by Chinese A Level 1 project implementation schedule, and Mongolian contractors showing the development plan of the proposed • Site services by direct-hire Mongolian labour Phase 1 and Phase 2 facilities is shown on the • Tianjin to be the main port for import of following page. equipment and materials sourced outside of Mongolia and China

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OYU TOLGOI LEVEL 1 PROJECT IMPLEMENTATION SCHEDULE

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This map was provided by IMMI for information purposes only, and contains data that is not addressed in the IDP and has not been reviewed by AAJV.

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TERMS OF REFERENCE

The IDP report was prepared to present the Steffen Robertson Kirsten (Australasia) Pty Ltd. current status and vision for development of the (Perth) Oyu Tolgoi project. The classification of work • Geotechnical engineering for open pits performed for the study varies from feasibility SRK Consulting Inc. (Vancouver) study level to scoping study level. The • information associated with all levels of work was Geotechnical engineering associated with underground mines combined to prepare the economic evaluation for the project; therefore, the overall IDP report McIntosh Engineering Inc. (Tempe, Arizona) quality is classified as a preliminary assessment. • Design of block-cave underground mines • Capital & operating costs for underground mines The report is intended for the use of Ivanhoe Mines Mongolia Inc. XXK (IMMI), and in its full SGS Lakefield Research Limited (Lakefield, Ontario) form is not intended to be submitted as a • Flotation, gravity-recoverable gold, comminution Technical Report as defined by the Canadian & leaching testwork Securities Commission Regulation 43-101. • SAG mill pilot plant However, it is expected that information from this MinnovEX Technologies Inc. (Toronto) report will form the basis of a separate 43-101 • Comminution & flotation testwork Technical Report. • Modelling / interpretation AMMTEC Ltd. (Perth) Main Study Participants & Responsibilities • Flotation & comminution testwork IMMI (Mongolia/Perth/Vancouver) Knight Piésold Pty Limited (Perth) • Property ownership & tenure • Tailings storage design • Exploration drilling • Site-wide water balance • Mineral resource model • Access road • Marketing • Government & public relations Aquaterra Consulting Pty Ltd. (Perth) • Electrical power cost estimate • Hydrogeology & raw water borefield design • Financial modelling & analysis Eco-Trade Co Ltd. (Ulaanbaatar) AMEC (Vancouver) • 2002 environmental baseline study • Mineral resource estimates • Environmental Impact Assessment AAJV (AMEC/Ausenco Joint Venture) Sustainability Pty Ltd. (Perth) (Perth/Vancouver) • Coordinate environmental, archaeological, & • Coordinate IDP preparation socioeconomic assessments • • Metallurgy & plant design Training systems assessment • On-site, off-site infrastructure design Teshmont L.P. Consultants (Winnipeg, Manitoba) • Capital & operating costs for process plant, on- • Power supply study site & off-site infrastructure Fluor (Shanghai) GRD Minproc Limited (Perth) • Coal-fired power plant evaluation • Open pit mine design • Capital & operating costs for open pit mines

Project AAJV002 August 2005 REV 1 Terms of Reference

O YU T OLGOI P ROJECT I NTEGRATED D EVELOPMENT P LAN E XECUTIVE S UMMARY

EXECUTIVE SUMMARY

Part 2 – IDP Components

Background & Study Framework...... 16 Tailings Management ...... 59 Marketing ...... 20 Water Supply & Management...... 62 Project Economics ...... 22 Electrical Power Requirement & Supply.... 65 Geology & Mineral Resources ...... 30 Other Infrastructure & Facilities ...... 67 Mine Plan ...... 36 Project Implementation...... 73 Open Pit Mining ...... 42 Operating Plan ...... 77 Underground Mine Development ...... 45 Socio-Political Assessment ...... 79 Metallurgy ...... 49 Safety, Health & Environment ...... 80 Process Facilities ...... 53 Closure & Reclamation...... 80 Concentrate Handling & Shipping ...... 58

Project AAJV002 August 2005

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Background & Study Framework

LOCATION & ACCESS long gravel airstrip at the site and routinely receives flights from Ulaanbaatar. The Oyu Tolgoi project is in the Aimag of Omnogovi in the South Gobi region of Mongolia. HISTORY The property is approximately 550 km south of Ulaanbaatar, the national capital. 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 at the Central deposit and evidence of alteration and copper mineralization at the South deposit.

In 1996, geologists from Magma Copper Company identified a porphyry copper leached cap nearby and secured exploration tenements in late 1996. Magma was subsequently acquired by BHP.

BHP carried out geological, geochemical, and View of Ulaanbaatar geophysical surveys and diamond drilling programs (23 holes total) in the Central and There are a number of communities in the South South deposits in 1997 and 1998. Copper and Gobi region. The most prominent is gold were encountered at depths from 20 m to Dalanzadgad, population 15,000, the centre of 70 m below surface. Based on the results of this the Omnogovi Aimag and 220 km northwest of drilling, BHP estimated a preliminary resource of the Oyu Tolgoi property. Facilities at 438 Mt, averaging 0.48% copper and 0.25 g/t Dalanzadgad include a regional hospital, tertiary gold, early in 1999. technical colleges, a domestic airport, and a 6 MW capacity coal-fired power station. IMMI BHP then halted its exploration in Mongolia and envisions that Dalanzadgad may be suitable as a offered its properties for joint venture. IMMI regional centre for recruitment and training. visited Oyu Tolgoi in May 1999 and made an agreement to acquire 100% interest in the The closest community to the property is property, subject to a 2% Net Smelter Royalty Khanbogd, with a population of approximately (NSR). 2,500, 35 km east. Others relatively nearby include Mandalgovi (population 13,500), 310 km In 2000, IMMI completed 8,000 m of reverse north of the project on the road to Ulaanbaatar, circulation (RC) drilling, mainly at the Central and Bayan Ovoo (population 1,600), 55 km to deposit, to explore the chalcocite blanket the west. discovered earlier by BHP. Based on this drilling, IMMI estimated an Indicated resource of Access to the property from Ulaanbaatar is by air 31.7 Mt at 0.80% copper and an additional or over an unpaved road, passing through Inferred resource of 11.2 Mt grading 0.78% Mandalgovi, an 8- to 10-hour drive under good copper for the chalcocite blanket. conditions. IMMI has constructed a 2,000 m

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designs were developed from a mineral resource model with 92% of the tonnage in the Measured or Indicated category (at 0.3% Cu equivalent cutoff grade). The primary underground mine resource, Hugo North, contains the majority of the economic value of the property. The underground block-cave mine designs were developed from a mineral resource model with 50% of the tonnage classified as Indicated and 50% as Inferred (at 0.6% Cu equivalent cutoff grade).

Early photo showing setting of Central & South Deposits Ongoing drilling has encountered mineralized intersections that In 2001, IMMI continued RC drilling, mostly in suggest the presence of an the South deposit area, to test possible oxide extension to the physical boundaries of the resources, and then drilled three diamond core current resource. holes to test the deep hypogene copper-gold potential. Hole 150 intersected 508 m of Initial production from the open pit will be chalcopyrite-rich mineralization grading 0.81% processed through a conventional 70,000 t/d copper and 1.17 g/t gold; hole 159 intersected a crushing, grinding, and flotation circuit using 49 m thick chalcocite blanket grading 1.17% proven technology and equipment sizing copper and 0.21 g/t gold, followed by 252 m of developed from extensive mineral processing hypogene covellite mineralization grading 0.61% testwork. Testwork has also confirmed that this copper and 0.11 g/t gold. circuit can process the higher-grade Hugo North ore at a rate of 85,000 t/d if additional capacity is These results encouraged IMMI to mount a added to the flotation and filtration circuits. major follow-up drill program. In late 2002, drilling in the far northern section of the property The open pit mine design is complete and intersected 638 m of bornite-chalcopyrite-rich optimized. It will provide the primary feed to the mineralization in hole 270, starting at a depth of mill for the first few years until production from 222 m. This hole marked the discovery of the Hugo North ramps up. Stockpiled open pit Hugo Dummett deposit. material also tops up production from the underground for several years. Open pit mining IMMI completed all of its earn-in requirements by will be done with a fleet of 220 to 240 tonne June 2002 and acquired the 2% NSR royalty trucks and hydraulic shovels operated by IMMI. retained by BHP in November 2003. As a result, IMMI employees will be trained in block-cave IMMI became the sole owner of the property. mining methods for Hugo North, which, when combined with open pit ore, will provide feed to the mill for 40 years. This development and FRAMEWORK FOR IDP production scenario represents the base case for project assessment. The Oyu Tolgoi property contains a large copper-gold resource recoverable by a Construction of an exploration/early development combination of open pit methods and large- shaft for Hugo North has begun. To maximize volume block-cave mining. The open pit mine project value from the high-grade Hugo North

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deposit, this evaluation assumes that Western companies with recent experience on construction of a second production shaft will major industrial developments in China have commence in 3Q 2005 and of a third 18 months confirmed the presence of an experienced later, both prior to obtaining results from the construction industry capable of working to initial exploration shaft program. international standards of quality and completing projects on schedule. The implementation plan A major expanded case was evaluated in which assumes that Chinese construction capacity and plant production increases to 140,000 t/d after experience will fill the gaps where Mongolian Hugo North reaches its peak base case mining resources need to be augmented. rate. The assessment of project economics for the expanded case is based on preliminary It is also assumed that the Chinese road and rail capital and operating cost estimates. To achieve transportation systems can accommodate the this feed rate, production from Hugo North would movement to site of imported materials required be increased to over 90,000 t/d, the Hugo South for construction and operations and the shipment deposit would be mined at a rate of 50,000 t/d, off site of all concentrate produced at the and open pit push-backs would be developed. process plant. This will need to be confirmed.

Planning associated with the initial phase of The rail system between the southern Gobi area project development—the Southwest open pit, and northern China is expected to be augmented concentrator, and infrastructure component—is by the construction of a new rail line connecting well advanced. However, commencement of the anticipated coal field development at Tavan development will need to be coordinated with the Tolgoi, 140 km northwest of Oyu Tolgoi, to an conclusion of current negotiations and existing Chinese railhead. Construction of a rail discussions related to: link to this new line is an important requirement for the project in about Year 4 of operations, • the Special Stability Agreement with the when concentrate production will exceed the Government of Mongolia reasonable capacity of the early trucking system. • a reliable electrical power supply Under the expanded case, three or more trains would be loaded with concentrate every day. • VAT and import duty payments on materials and equipment Completion of these related developments in time to support Oyu Tolgoi is one of the base • a location on the Chinese mainline rail system assumptions for the IDP. for concentrate transfer from trucks loaded at Oyu Tolgoi The Mongolian population generally has a strong • Mongolian and Chinese government basic education, although experienced mine agreement to continuously open the border labour is scarce. IMMI is committed to operating crossing at Gushaan Sukhait / Ganqimaodao. the project with a 90% Mongolian workforce within five years of start-up. To make this Oyu Tolgoi is located in an isolated region of possible, IMMI has identified the need and Mongolia with little developed infrastructure. The allowed funding for a major training initiative that site is, however, only 80 km from the Chinese encompasses a dedicated facility, experienced border, where resources do exist to support the trainers, and modern equipment. During the project in the energy, transportation, early production years, experienced expatriate manufacturing, and construction areas. The personnel will provide commissioning and development plan for the project is therefore training support to help bring the capacity and based on the principle of maximizing Mongolian productivity of Mongolian employees to content while involving and realizing the benefits equivalent Western standards. of the resources in China. Balancing the dual objectives is seen as achievable. The results of a significant program of environmental and socioeconomic assessment

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suggest that environmental concerns can be conducted for China-related components of the managed and that the socioeconomic benefits to project. The Chinese regulatory approval Mongolia will be substantial. Two of three processes and subsequent construction period Environmental Impact Assessment reports for associated with rail facilities are also expected to the project have been submitted. The first was support the project development schedule. approved by the Mongolian government in May 2004. The second was submitted at the end of A project risk assessment concluded that June 2005, and the third will be ready later in the although IMMI must address and resolve several year. Approvals of these reports are expected to critical issues before commencing project be a prerequisite to project approval. Regulatory development, no risks have been identified that, review and approval is assumed to support the if managed to a reasonable conclusion, would proposed project development schedule. jeopardize the successful development and operation of the project. It is assumed that a risk To date no environmental or socioeconomic mitigation and management system will be baseline or assessment work has been implemented.

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Marketing

During 2004, IMMI began analyzing the copper copper metal by major source against the curve market in anticipation of developing the Oyu of anticipated demand for refined copper within Tolgoi deposit in the Southern Gobi region of China until 2010. Given the disparity, most of Mongolia. From the data obtained, copper the increased mine production will have to come consumption projections have been developed from new projects, and the timing of Oyu Tolgoi that demonstrate a continued demand for refined appears to be well positioned. copper through 2010. Specifically, the analysis shows that by 2008, when Oyu Tolgoi After 2010, the challenge of maintaining commences commercial production, it will be sufficient mine production to meet rising metal entering a market where there is growing demand will become even greater. By 2015, a demand for copper concentrate and in which it number of large mines currently in operation will will hold an advantage with its strategic have reached the ends of their productive lives. geographic location. The Oyu Tolgoi mine will be a custom Other committed and anticipated copper mining concentrate producer—a mine that produces projects appear capable of meeting the needs of concentrate for sale on the open market rather the refined copper market through 2008. than delivering concentrate to its own smelter. Beyond 2008, however, mine production levels While initially all of the Oyu Tolgoi production will will need to increase substantially over the be delivered to Chinese smelters, the capacity that is already firmly committed to meet commercial terms Oyu Tolgoi receives will be the projected copper demand. These increases dictated by conditions on the international are required not only to meet rising consumption, concentrate market. The custom concentrate but also to offset the natural decline in market currently represents nearly half of the production at existing mines as a result of falling Western World’s concentrate production, but ore grades and depletion of resources. The treatment and refining charges are determined following graph shows China’s actual (2000 to by the entire concentrate market balance, not 2004) and projected (2005 to 2010) production of just the custom concentrate markets. China’s Sources vs. Consumption for Refined Copper until 2010 Based on a review of the concentrate market, IMMI has (kt refined Cu) incorporated a treatment 6000 China’s ProductionCu Sources charge of $75/dmt of E.E BlocBloc Conc concentrate and a refining E. Bloc Conc 5000 Secondary Cu W.W.Secondary ConcConc Cu charge of $0.075/lb of payable ImportedW.W. Conc Blister copper, along with price ChineseImported Mines Blister 4000 Chinese Mines participation of ±10% from a Refined Cu Consumption China’s RefinedRefined base price of $0.90/lb of Cu Consumption 3000 copper, into the financial analysis for the project. These

2000 terms equate to 22.3% of the base price, which is close to the average price between 1987 1000 and 2003—a period that spans both surplus and deficit 0 conditions. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sources: Antaiki, Brook Hunt, ICSG, various corporate reports

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Looking ahead to 2007, IMMI’s analysis likely the U.S. dollar will come under further suggests that all mine development required to pressure, which probably will lead to an increase meet growing copper consumption will need to in gold price when expressed in U.S. dollars. be stimulated by an average copper price similar IMMI has selected a gold price of $400/oz in to that in the 1990s: about $1.24/lb in 2005 2005 constant dollars for the IDP. dollars. However, this overlooks the effects of any possible consumption downturn. Market Silver price has tracked gold price upwards in indicators and projections support the the last year, but its largest market, photographic expectation of a long-term average copper price film, is being constantly eroded by the rising of $1.00/lb (2005 constant dollars), which is used popularity of digital photography. IMMI has in the base case financial analysis for Oyu selected a silver price of $6.00/oz in 2005 Tolgoi. This is slightly higher than the frequently constant dollars for the IDP. reported assumption of $0.90 to $0.95/lb, but it During 2004 and 2005, IMMI held commercial appears to be justified by the strong fundamental outlook for copper. discussions with five Chinese smelters that are favourably located to receive copper concentrate With regard to gold price, Central Banks have from Oyu Tolgoi. All have indicated a strong sold off approximately 400 t/a of gold in recent desire to purchase concentrate. One, Jiangxi years, which has had a negative effect on price. Copper Co. Ltd., signed a Memorandum of Without such intervention, the gold price would Understanding with Ivanhoe Mines in June 2004. probably be higher than the range seen in the In total, these five smelters could purchase past year ($385 to $454/oz). Another recent 500,000 dmt per year; commercial discussions influence is the value of the U.S. dollar will continue. IMMI will also continue to monitor compared to the Euro and other currencies. the future development of other smelters that With the growing U.S. trade deficit, it seems would make sense geographically for consumption of Oyu Tolgoi concentrate.

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Project Economics

SUMMARY OF RESULTS exchange rate variation. NPV was calculated from the fourth quarter of 2005. The evaluation A detailed financial model was developed for two covers the period from October 2005, the operating scenarios: the Phase 1 base case and anticipated project decision date, through a Phase 2 expanded case. The cases were 33-month development and construction stage, analyzed at discount rates of 10% and 8%. to the end of the operating life of each case.

The net present value (NPV) of the base case at Expenditures to date and those anticipated to a discount rate of 10% is $1,979 million before 1 October 2005, including the drilling and tax and $1,513 million after tax. At a discount exploration program for the Hugo North shaft, rate of 8%, the NPV is $2,855 million before tax are treated as sunk costs and are excluded from and $2,221 million after tax. The internal rate of this analysis. These costs total $175 million. return (IRR) of this case is 19.25% after tax, and the payback period is 5.8 years. Total cash cost NPV ($ million) After Tax @ 10% Discount Rate after gold credits over the life of the project is Cu Price Gold Price ($/oz) $0.39/lb. During the first five years, the cash ($/lb) 350 375 400 425 450 cost is substantially lower, at $0.29/lb, reflecting the high gold grade in the Southwest deposit. Phase 1 Base Case 0.80 536 592 649 706 763 The NPV of the expanded case at a discount 0.90 966 1,024 1,081 1,138 1,196 rate of 10% is $2,388 million before tax and 1.00 1,399 1,456 1,513 1,571 1,628 $1,852 million after tax. At a discount rate of 1.10 1,831 1,888 1,945 2,003 2,060 8%, the NPV is $3,434 million before tax and 1.20 2,263 2,320 2,378 2,435 2,492 $2,706 million after tax. The IRR of this case is Phase 2 Expanded Case 19.75% after tax, and the payback period is 6.53 0.80 622 689 756 823 892 years. Total cash cost, after gold credits over 0.90 1,166 1,234 1,303 1,371 1,440 the life of the project is $0.40/lb. 1.00 1,715 1,784 1,852 1,920 1,988 1.10 2,260 2,328 2,396 2,464 2,532 Gold hedging of early year production would 1.20 2,803 2,871 2,939 3,008 3,076 increase the presented NPVs (8% and 10% discounted rates) by more than $200 million at a gold price of $550 for the first 6 years. The high NPV ($ million) After Tax @ 8% Discount Rate gold content in those years is sourced from the Cu Price Gold Price ($/oz) Southwest deposit and therefore the ($/lb) 350 375 400 425 450 improvement in value is similar for both the base Phase 1 Base Case and expanded cases. 0.80 1,003 1,069 1,136 1,204 1,272 0.90 1,543 1,611 1,678 1,746 1,814 BASIS OF ANALYSIS 1.00 2,085 2,153 2,221 2,288 2,356 1.10 2,627 2,695 2,763 2,830 2,898 Pre-tax and after-tax models were constructed 1.20 3,169 3,237 3,305 3,372 3,440 using a base copper price of $1.00/lb and base Phase 2 Expanded Case gold price of $400/oz. No factors were applied 0.80 1,162 1,242 1,322 1,403 1,484 for escalation or inflation of operating costs, 0.90 1,849 1,931 2,013 2,094 2,176 capital costs, or metal prices. The model is 1.00 2,543 2,625 2,706 2,787 2,869 based on 100% equity financing. All costs are 1.10 3,230 3,312 3,393 3,474 3,556 1.20 3,917 3,998 4,080 4,161 4,242 expressed in U.S. dollars, with no provision for

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Basic Production Data – Life-of-Mine Average/Total Smelter Terms Base Expanded Description Unit Value Unit Case Case Payable Ore Milled Copper payment % 96.5 – Rate Mt/a 30 44.1 Minimum deduction % Cu 1 – Total Mt 1.207 1.553 Gold payment: Grade 1 to 3 g/t % 90 – Copper % 1.20 1.14 3 to 5 g/t % 92 – Gold g/t 0.34 0.30 5 to 10 g/t % 95 Project Life years 40 35 10 to 15 g/t % 96 15 to 20 g/t % 97 Strip Ratio - 1.62 1.71 20 g/t + % 98 Concentrate Minimum payment level for Au g/t 1.00 Production Mt/a (dry) 1.0 1.4 Silver payment: Grade Full silver content % 90 – Copper % 31.9 31.7 Minimum payment level for Ag g/t 30.00 – Gold g/t 7.74 7.21 Treatment Charge Metal Produced Rate of charge $/wmt 75.00 Cu in Concentrate Mt 13.2 16.0 Smelter price participation % 10 Au in Concentrate M oz 10.3 11.7 Base price for participation $/lb Cu 0.90 Ag in Concentrate M oz 68.8 82.0 Refining Charges Total Cash Costs for Cu* Base copper refinery charge $/lb 0.075 – after gold credits $/lb Cu 0.39 0.40 Rate for recovered gold $/oz Au 6.00 – before gold credits $/lb Cu 0.53 0.53 Rate for recovered silver $/oz Ag 0.45 Treatment & Refining Penalties Charges for Payable Cu $/lb Cu 0.21 0.21 Arsenic: * includes treatment & refining, realization & transport costs Penalty threshold % 0.3 Penalty per 0.1% $/dmt 2.00 Rejection level % 0.5 Expenditures during the period 1 October 2005 Fluorine: to 30 September 2006 are not discounted. Penalty threshold ppm 300 Therefore, the first discounted year is 1 October Penalty per 100 ppm $/dmt 2.00 2006 to 30 September 2006. Rejection level ppm 1,000 Concentrate Transport The fiscal regime used to estimate the project Rail/Truck Transport Years 1 to 3 $/wmt 38.17 cash flow is based on information currently Rail Transport after Year 3: available and incorporates the draft terms of the First 500 kt $/wmt 20.15 Special Stability Agreement currently being 500 kt to 1.5 Mt $/wmt 21.48 negotiated with the Government of Mongolia. Above 1.5 Mt $/wmt 37.93

Smelter Terms SPECIAL STABILITY AGREEMENT (SSA) IMMI anticipates that all concentrate produced in Phase 1 will be sold to smelters in China. The current form of the SSA, unchanged since Realization costs comprise treatment and January 2005, addresses a range of conditions refining charges from smelters plus concentrate under which IMMI XXK will construct and transport. In Phase 2, concentrate sales will operate the mine. This agreement essentially likely extend to smelters outside of China. The represents the main Mongolian legislation same terms were adopted for both cases in the currently applicable for Oyu Tolgoi: financial analysis.

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• General Law of Taxation of Mongolia Customs & VAT Exemptions • Foreign Investment Law of Mongolia • Customs duty and VAT are exempt for a • Minerals Law of Mongolia specific list of construction items. • Business Entity and Organization Income Tax Law of Mongolia The models assume that most items on the initial capital investment schedule will be The financial analysis required the exempt under these provisions. Allowance interpretation of certain clauses with regard to has been made for customs duty to be four main legislative provisions: payable at a rate of 5% on a number of limited construction items. Customs duty is Period of Concessional Taxation calculated separately on operating costs and • From the commencement of production, the is disclosed as a G&A cost once production investor shall be exempted from the commences. VAT is calculated on a similar corporate income tax for five years and will basis but at a rate of 15% and is disclosed in have a 50% exemption for the following 5 working capital. Successful conclusion of years. current discussion with the Mongolian The operating life of the Oyu Tolgoi mine government is required to achieve the values begins with a ramp-up period in 2008 and assessed in the IMMI model. reaches nameplate capacity in 2009. The model treats 2009 as the year of Other Fees & Taxes commencement of production. • Sales Royalty is calculated at 2.5% of net sales. Investment Allowance • Immovable Property Tax is calculated at • If the investor reinvests to its entity from its 0.6% of the written-down value of applicable income, its taxable income shall immovable property each year. Immovable be subject to a deduction equivalent to the property was assumed to comprise the amount of such reinvestment. capital expenditure category that In the model, reinvestment is considered to depreciates over 40 years. cover all capital expenditure in a given year to • Calculation of Corporate Tax was based on the limit of the amount of taxable profit current legislation applicable to the determined in the preceding year. This metallurgy industry, which provides for a tax provision is treated as a separate item from holiday for the first five years of operations, depreciation, which continues to be calculated following by a further five years at half the as per the legislation. Claiming the investment corporate tax rate. The first year was taken allowance does not reduce the taxable base of to be 2009, the first full year of production. Beyond Year 10, corporate tax will be paid the asset. at the full rate of 30% of taxable income.

Carry Forward of Tax Losses CAPITAL COST ESTIMATE • Tax losses can be carried forward for a three-year period. The base date for the estimate is second quarter 2005. All costs are expressed in U.S. Application of this provision to mining remains dollars with no allowance for escalation. The unclear. In the models prepared for this initial capital estimates for components other analysis, the tax loss carry forward provision than the underground mine were developed to had no impact on the results. a prefeasibility level with an expected accuracy range of -5% to +20%.

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Initial Capital Future Capital Initial capital includes the cost of constructing the In the base case, expenditure continues on open pit, concentrator, and infrastructure underground development after ore feed to the components of the project. A program was mill commences. Additional capital is also spent implemented during preparation of the IDP to on the processing plant and infrastructure to include “China value” in the initial capital cost meet the higher throughput rates associated with estimates. Pricing was obtained from Chinese underground mining. firms based on schedules of quantities provided by AAJV and analyzed to developed unit rates. In the expanded case, work also begins on development of the Hugo South underground Initial capital also includes construction of the mine, and more capital is required for the Hugo North underground Shafts 1 and 2 and process plant and infrastructure. associated surface works. Sustaining Capital Summary of Capital Costs over Mine Life ($M) Sustaining capital is included in the analysis in Phase 1 Phase 2 each subsequent year following the major capital Item Base Case Expanded case expenditure periods. The most significant item in Initial Capital (prior to first mill feed) sustaining capital is expansion of the tailings Open pit 75.1 - dam facility. Process plant 230.1 - Tailings storage facility 31.4 - OPERATING COSTS On-site infrastructure 114.8 - Off-site infrastructure 98.8 - Operating costs were separated into mining, Indirects 195.8 - processing, and G&A costs. The detailed costs Owner’s cost (incl. pre-strip) 175.2 - Contingency 120.2 - were supplied by AAJV for processing and G&A, Escalation 55.2 - by GRD Minproc for open pit mining, and by Underground mine 232.2 - McIntosh for underground mining. Subtotal 1,328.8 1,328.8 Ramp-up 51.1 51.1 Operating Costs Future Capital Area Phase 1 Phase 2 Open pit - - Process plant 38.4 228.9 Unit Costs Tailings storage facility - 21.0 Mining – $/t ore mined On-site infrastructure 38.3 71.0 Open Pit Mining 2.11 2.39 Off-site infrastructure - 59.9 Strip Ratio 1.62 1.71 Indirects 28.3 171.0 UG Mining – Hugo North 2.17 2.16 Underground mine 728.7 1,211.9 On-Site Costs Subtotal 833.7 1,763.7 Mining – average all sources 2.16 2.28 Sustaining Capital Process 2.61 2.53 Open pit 35.8 74.5 G&A 1.09 0.78 Process plant 79.8 132.8 Customs Duties 0.05 0.01 Tailings storage facility 158.4 269.9 Immovable Property Tax 0.03 0.02 On-site infrastructure 38.3 40.1 Total Unit On-Site Costs 5.94 5.62 Off-site infrastructure - - Indirects - - Total Operating Costs ($M) Underground mine 1,519.5 1,865.8 Total Site Operating Costs 7,182 8,725 Closure - 50.0 Mongolian Government Royalty 662 791 Subtotal 1,831.8 2,432.9 Concentrate Transport Costs 1,006 1,375 Treat./Ref. Charges/Penalties 5,963 7,200 Total incl. Initial Capital 4,059.5 5,576.5 Total Operating Costs 14,813 18,091

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Phase 1 Base Case – Cumulative Cash Flow ($/lb Cu, $/oz Au)

CUMULATIVE CASH FLOW TO YEAR 40

16 15 14 $1.20, $450 13 12 $1.10, $425 11 $1.00, $400* 10 $0.90, $375

9 $0.80, $350 8 7 6 $billion 5 4 3 2 1 - - -1 -2 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047

Year

Phase 2 Expanded Case – Cumulative Cash Flow ($/lb Cu, $/oz Au)

CUMULATIVE CASH FLOW TO YEAR 35

18 17 16 $1.20, $450 15 $1.10, $425 14 $1.00, $400 13 * 12 $0.90, $375 11 $0.80, $350 10 9 8 7 $billion 6 5 4 3 2 1 - - -1 -2 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043

Year

Project AAJV002 Financial Analysis August 2005 Page 26

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PHASE 1 BASE CASE – OPERATING PROFIT & CASH FLOW

Year -4 -3 -2 -1 1 2 3 4 5 Years -3 Years 6 Years 11 Years 21 Project Description 2005 2006 2007 2008 2009 2010 2011 2012 2013 to 5 to 10 to 20 to 40 Total

TOTAL ORE MILLED M dmt - - - 8 25 26 26 28 29 142 154 308 603 1,207

COPPER CONCENTRATE PRODUCTION '000 dmt - - - 149 510 576 701 971 1,162 4,068 6,788 10,797 19,895 41,548 Copper (Cu) in Concentrate M lb - - - 84 296 337 454 725 968 2,863 5,828 7,823 12,671 29,186 Gold (Au) in Concentrate '000 Oz - - - 76 441 653 508 440 223 2,342 1,653 2,047 4,295 10,338

OPERATING PROFIT

Net Revenue $US M 85 370 479 513 711 824 2,982 5,096 6,600 10,803 25,481

Less: Direct Operating Costs (incl. Depreciation) $US M (139) (327) (328) (466) (487) (476) (2,223) (1,892) (2,242) (4,890) (11,247)

Net Profit from Operations $US M (55) 43 151 47 225 348 759 3,203 4,358 5,913 14,234

Less: Indirect Costs Royalties $US M (2) (10) (13) (14) (18) (21) (78) (131) (171) (282) (662) Immovable Property Tax $US M (1) (1) (1) (1) (1) (1) (7) (6) (10) (12) (34) Net Profit Before Income Tax $US M (58) 32 137 32 205 326 674 3,066 4,177 5,620 13,537

STATEMENT OF CASHFLOWS

Net Profit before Income tax $US M (58) 32 137 32 205 326 674 3,066 4,177 5,620 13,537

Add / (Less) Depreciation $US M 63 139 145 289 323 307 1,267 1,020 505 1,308 4,099 Working Capital $US M 7154(12) (133) (3) 25 (6) (64) (19) (51) (9) 24 37 Capital Expenditure $US M (30) (519) (536) (189) (311) (296) (220) (72) (87) (2,260) (240) (636) (813) (3,948)

CASHFLOW BEFORE INCOME TAX $US M (23) (364) (548) (317) (143) 11 95 393 527 (370) 3,836 4,070 6,152 13,689 Income Tax $US M (424) (1,062) (1,442) (2,929) CASHFLOW AFTER INCOME TAX $US M (23) (364) (548) (317) (143) 11 95 393 527 (370) 3,412 3,008 4,710 10,760

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PHASE 2 EXPANDED CASE – OPERATING PROFIT & CASH FLOW

Year -4 -3 -2 -1 1 2 3 4 5 Years - Years 6 Years 11 Years 21 Project Description 2005 2006 2007 2008 2009 2010 2011 2012 2013 3 to 5 to 10 to 20 to 35 Total

TOTAL ORE MILLED M dmt - - - 8 25 26 27 28 30 144 235 522 651 1,552

COPPER CONCENTRATE PRODUCTION '000 dmt - - - 149 510 575 740 1,063 1,260 4,297 9,146 17,545 19,374 50,363 Copper (Cu) in Concentrate M lb - - - 84 296 336 487 779 1,006 2,988 7,531 12,479 12,248 35,247 Gold (Au) in Concentrate '000 Oz - - - 76 441 655 464 444 249 2,329 2,919 2,479 3,926 11,653

OPERATING PROFIT

Net Revenue $US M 85 370 479 519 751 857 3,060 6,813 10,110 10,297 30,279

Less: Direct Operating Costs (incl. Depreciation) $US M (142) (327) (329) (496) (530) (537) (2,361) (2,607) (4,255) (5,041) (14,264)

Net Profit from Operations $US M (57) 42 150 23 220 320 699 4,206 5,855 5,256 16,016

Less: Indirect Costs Royalties $US M (2) (10) (13) (14) (19) (22) (80) (177) (265) (270) (791) Immovable Property Tax $US M (1) (1) (1) (1) (1) (1) (7) (6) (11) (10) (34) Net Profit Before Income Tax $US M (61) 31 136 8 200 297 612 4,024 5,579 4,976 15,190

STATEMENT OF CASHFLOWS

Net Profit before Income tax $US M (61) 31 136 8 200 297 612 4,024 5,579 4,976 15,190

Add / (Less) Depreciation $US M 66 140 145 292 327 312 1,282 1,272 1,536 1,505 5,596 Working Capital $US M 6161(11) (135) 123(8) (58) 54 33 (106) 10 64 Capital Expenditure $US M (30) (520) (537) (186) (318) (301) (221) (87) (384) (2,584) (948) (1,051) (847) (5,429)

CASHFLOW BEFORE INCOME TAX $US M (24) (358) (548) (316) (147) 471381280(657) 4,242 6,075 5,698 15,357 Income Tax $US M (461) (1,359) (1,247) (3,067) CASHFLOW AFTER INCOME TAX $US M (24) (358) (548) (316) (147) 471381280(657) 3,781 4,716 4,451 12,290

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TOTAL CASH COST PER POUND OF PAYABLE COPPER ($)

$1.10 $1.10

Cash Costs Before Gold Credits (incl. Royalties & TC/RC) $1.00 $1.00 TC / RC Costs $0.90 $0.90 Gold Credits

$0.80 Cash Costs After $475 Gold Credits $0.80

$0.70 Cash Costs After $400 Gold Credits $0.70

$0.60 $0.60 $0.48 $0.50 $0.45 $0.50 $0.43 US$/lb $0.41 $0.40 $0.38 $0.39 $0.40 $0.35 $0.40 $0.31 $0.32 $0.47 $0.44 $0.42 $0.30 $0.38 $0.30 $0.30 $0.37 $0.31 $0.21 $0.33 $0.30 $0.20 $0.14 $0.27 $0.20

$0.10 $0.17 $0.10

$- $(0.00) $- 1 2 3 4 5 6 7 8 9 1011121314151617181920 $(0.10) $(0.10)

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Geology & Mineral Resources

The geological and resource information complex network of faults, folds, and shear presented here is sourced from two National zones. Instrument 43-101 Technical Reports submitted to the Canadian Securities Commission—one in Major structures in the project area strongly June 2004 and the other in May 2005. Both influence the distribution of mineralization by were prepared by AMEC. The latter report both controlling the original position and form of presented updated analyses and resource mineralized bodies, and modifying them during estimates for the Southern Oyu and Hugo North post-mineral deformation events. areas but did not address Hugo South, where no Southern Oyu includes the Southwest, South, new drilling or estimation work had been done. Wedge, and Central zones. These zones are The Hugo South data included herein are based on the June 2004 report. contiguous and represent multiple mineralizing centres, each with distinct styles of mineralization, alteration, and host rock lithology. PROPERTY GEOLOGY & The boundaries between the individual zones MINERALIZATION coincide with major fault zones. At Southwest the dacite tuff and overlying strata have been The Oyu Tolgoi area lies within an east-west- removed by erosion, exposing deeper-level trending belt of Devonian-Carboniferous volcanic chalcopyrite-gold mineralization with associated and sedimentary rocks of continental margin and biotite-chlorite alteration, hosted within basalt. island arc affinities, constituting the South Mineralization at the South zone is chalcopyrite- Mongolia Volcanic Belt. The stratigraphically bornite dominant with associated biotite-chlorite lowest rocks consist of mafic volcanic flows and alteration and is hosted within quartz lesser volcanogenic sedimentary rocks. These monzodiorite, basalt, and dacite tuff. Strong, rocks are commonly strongly altered and host high-sulphidation mineralization and associated much of the contained copper in the Southern advanced argillic alteration, hosted by dacite tuff Oyu and Hugo Dummett deposits. Volcanic and quartz monzodiorite, are characteristic of the fragmental rocks of dacitic composition overlie Central and Wedge zones. the mafic volcanics and form an important ore host in parts of Hugo South. The Hugo Dummett deposit contains porphyry- style mineralization associated with quartz Intrusive rocks range from large batholithic monzodiorite intrusions. The deposit is highly intrusions to narrow discontinuous dykes and elongate to the north-northeast and extends over sills. These consist of late to post-mineral dykes 3 km. Although mineralization is continuous over (basalt, rhyolite, hornblende biotite andesite, and this entire length, it thins markedly and biotite granodiorite intrusions) and quartz decreases in grade where the host strata are monzodiorite units, genetically linked to the displaced by an east-west striking, north-dipping mineralization at Oyu Tolgoi. In many instances, fault termed the 110 Fault, which defines the the latter units are strongly to intensely altered. boundary between the Hugo South and Hugo The Oyu Tolgoi project area is underlain by a North zones.

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Simplified Geological Map of Oyu Tolgoi Concession

Deposit Area Southeast Property Uncertain Stratigraphic Correlation anbs andesitic to basaltic flows & volcaniclastic rocks dacl porphyritic dacite lava flows ms finely-laminated lacustrian siltstone to mudstone Sainshandhudag Formation (Upper Sedimentary Sequence) 336.4±2.3 Ma (U-Pb) rdt rhyolite, rhyodacite lithic tuffs basaltic/andesitic conglomerate, CS3c breccia, block tuff, flows [Bat]

CS3c2 basaltic flows [basl?] Northwest Property basaltic breccias & CS3c1 mv mafic volcanic & volcaniclastic rocks volcaniclastic rocks

mvs schistose mafic metavolcanic rocks CS3b basaltic andesite flows [andl] quartz fedspar porphyry dyke interstratified conglomerate, sandstone, siltstone, CS2 qfp complex, superimposed on mafic carbonaceous layers [cstc] volcanic rocks laminated tuffaceous siltstone to mudstone, CS2b carbonaceous mudstone medium to thinly interstratified sandstone, CS2a conglomerate, carbonaceous siltstone, coal Granitic Intrusions

andesitic volcaniclastic rocks: crystal lithic tuff, granite, leucocratic 351±2 Ma (u-Pb) CS1 348.4±2.7 Ma (U-Pb) lgr lesser epiclastic sandstone, wacke, conglomerate granite, biotite granite

Alagbayan Formation qs quartz syenite; granite interstratified mudstone, siltstone/sandstone, DA3,4 basaltic flows, basaltic breccia medium to thinly interstratified sandstone, DA4a2 conglomerate, carbonaceous siltstone, coal Devonian? DA4a1 basaltic breccia Map Symbol

thinly-bedded siltstone, mudstone, DA3a carbonaceous mudstone fault, offset undefined polylithic conglomerate, sandstone, (exposed, approximate, Inferred) DA3a siltstone

interstratified mudstone, siltstone/sandstone, 365± Ma (U-Pb) DA2 basaltic flows, basaltic breccia

DA1 augite basalt flows & volcaniclastic rocks, laminated tuffaceous siltstone [Va, Vatl]

N Deposit Area Intrusions

dol dolerite

0 500

Metres ba basal SCALE 1:5,000

dc dacite porphyry, trachydacite

330.5±1.5 Ma (U-Pb) 332.5±1.8 Ma (U-Pb) rh rhyolite, felsite, quartz+feldspar porphyry dykes

hba homblende biotite andesite

362±2 Ma (U-Pb) dc biotite granodiorite

362±4 Ma (U-Pb) 365±4 Ma (U-Pb) rh quartz monzodiorite

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The Hugo Dummett deposit exhibit several AMEC reviewed IMMI’s QA/QC procedures at features unusual to porphyry copper systems, site and found them to be strictly adhered to. including: The current IMMI QA/QC program exceeds • the anomalously high copper and gold grades, industry standards and demonstrates that the particularly in the northern part assay process for the Southern Oyu and Hugo • a weakly altered pre-mineral sedimentary cover Dummett deposits is in control, and that the sequence that lies just above the porphyry results are suitable for use in mineral resource system estimation. • quartz + sulphide vein contents always exceeding 15% and commonly over 90% in the MINERALIZATION DOMAINS & DATA high-grade portion of the deposit ANALYSIS • a highly-elongate gently-plunging tabular shape to the high-grade stockwork system. The May 2005 Technical Report was based on new data from infill drilling at Hugo North and revised structural and intrusive rock DATA COMPILATION & VERIFICATION interpretations from ongoing geologic studies at Diamond drill holes are the principal source of Oyu Tolgoi as a whole to create new 3D shapes geologic and grade data for the Oyu Tolgoi of key geologic surfaces, faults, and intrusive project. The IDP is based on total drilling of just units. The changes for Hugo Dummett (mainly under 273,000 m in 583 drill holes for the Hugo North) were major compared to the Southern Oyu deposits and 200,000 m in 156 previous resource estimate and affected both drill holes, including daughter holes, for Hugo geologic and structural features. In Southern North. For Hugo South, the data consist of Oyu, the changes were limited to a more 87,000 m of drilling in 111 holes, including consistent interpretation of post-mineral dykes in daughter holes. all deposits and a better definition of geologic contacts in the Wedge zone. As a test of data integrity, the assay, collar, and down-hole survey data used to estimate the Mineralized or grade shapes were also mineral resources were verified with a random developed. To constrain grade interpolation in comparison of 5% of the database records each of the zones, AMEC and IMMI created 3D against the original certificates. No mineralized envelopes, or shells. Most were discrepancies were found. AMEC concludes based on initial outlines derived by a method of that the assay and survey database transferred Probability Assisted Constrained Kriging (PACK). to AMEC is sufficiently free of error to be Threshold values were determined by inspecting adequate for resource estimation. histograms and probability curves as well as indicator variography. The shells were based on IMMI employs a comprehensive QA/QC a copper or gold grade except for the high-grade program. All sampling and QA/QC work is copper zone in Hugo North, which was defined overseen on behalf of IMMI by Dale A. based on the amount of quartz veining. Sketchley, M.Sc., P.Geo. Each sample batch of 20 samples contains four or five quality control The Southern Oyu gold shells were developed samples consisting of one duplicate split core on threshold gold values of 0.7 g/t for Southwest sample and one uncrushed field blank, which are and 0.3 g/t for Central and South. Southern Oyu inserted prior to sample preparation; a reject or copper shells were based upon threshold values pulp preparation duplicate, which is inserted of 0.3% Cu. during sample preparation; and one or two The high-grade copper zone at Hugo North was standard reference material (SRM) samples, defined by a quartz vein percentage threshold of which are inserted after sample preparation.

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15%. Traditional grade shells were drawn At the Hugo Dummett deposit, drill hole assays manually for the lower-grade copper and selected ICP-MS multi-element data show mineralization at Hugo North as well as the Hugo distinct geochemical zoning coincident with North gold mineralization. The copper shell sulphide zoning. Copper correlates with represents a grade threshold at 0.6% Cu, elevated abundances of gold, silver, selenium, whereas the gold shells (Main and West) bismuth, and tellurium. Arsenic values are represent a grade threshold of 0.3 g/t Au. elevated in enargite zones in the dacite tuff and are mostly confined to Hugo South. Arsenic The 2004 Hugo South model was based on occurs at low levels in the high copper grade manually drawn copper grade shells on copper zone and is related to tennantite. Zinc is present grades of 0.6%, 1.0%, and 2.0%. at low levels as sphalerite associated with chalcopyrite. Selenium and tellurium are The statistical and geostatistical properties of attributed to hessite and clausthalite inclusions in lithologic and mineralized domains in Hugo bornite. Lead occurs at levels of up to several Dummett and Southern Oyu were reviewed to hundred ppm peripheral to the high-grade zone determine appropriate estimation or grade in dacite tuff. Low levels of mercury occur in the interpolation parameters. The analyses were upper part of the orebody. conducted on composited assay data: 5 m down- hole composites for Southern Oyu deposits, 5 m Correlograms were calculated for copper and down-hole composites for Hugo South, and 15 m gold in the main mineralized domains in each down-hole composites for Hugo North. zone. The patterns of anisotropy demonstrated Generally the analyses supported the use of by the various correlograms tend to be grade shells at the chosen threshold values. consistent with geological interpretations— Copper in the main mineralized domains particularly to any bounding structural features displayed essentially unimodel, positively (faults and lithologic contacts) and quartz + skewed populations with moderately low sulphide vein orientation data. (Southern Oyu) to low (Hugo Dummett) coefficients of variation. Gold is enriched in the Southwest zone and depleted in the Wedge and RESOURCE MODEL SET-UP & GRADE Hugo South zones. Highest mean gold values INTERPOLATION are typically hosted in the basaltic rocks in Southern Oyu and the quartz monzodiorite units The 2005 resource estimates were developed in Hugo Dummett. from non-rotated 3D block models utilizing commercial mine planning software. Cell size for Trace element distributions in the Southern Oyu the project was 20 m east x 20 m north x 15 m deposits are generally influenced by the high. Modelling consisted of grade interpolation prevailing style of mineralization in each deposit. by ordinary kriging. Nearest-neighbour grades High-sulphidation portions of the Wedge and were also assigned for validation purposes. Central zones are characterized by increased Blocks and composites were matched on concentrations of silver, arsenic, bismuth, estimation domain. The search ellipsoids were mercury, sulphur, and antimony relative to the oriented preferentially to the orientation of the low-sulphidation portions. Conversely, fluorine respective zone as defined by bounding levels are similar in all of the Southern Oyu structures or to the attitude of the relevant deposits. The degree of correlation between copper or gold grade shell. trace elements and copper varies by deposit, but commonly there is at least a moderate A two-pass approach was instituted for correlation between copper and silver, iron, interpolation. The first pass allowed a single sulphur, bismuth, selenium, antimony, and hole to place a grade estimate in a block, and fluorine. the second pass required a minimum of two holes from the same estimation domain. This

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approach was used to enable most blocks to MINERAL RESOURCE CLASSIFICATION receive a grade estimate within the domains, UMMARY including the background domains. The & S minimum and maximum number of composites The mineral resources of the Oyu Tolgoi project were adjusted to incorporate an appropriate were classified using logic consistent with the amount of grade smoothing. CIM definitions referred to in National Instrument Final resource grade values for Southern Oyu 43-101. and Hugo North were adjusted to reflect likely Inspection of the model and drill hole data on occurrences of internal and contact dilution from plans and sections in the Southwest gold zone the unmineralized post-mineral dykes. The area, combined with spatial statistical work and estimated mineral resources were tabulated and investigation of confidence limits in predicting reported using these adjusted or diluted grade planned quarterly production, showed good values (whereas the 2004 Hugo South grades geologic and grade continuity where sample are undiluted and would need to incorporate spacing was about 50 m. AMEC considers that additional dilution and allowances for mining blocks covered by this data spacing in the recovery prior to conversion to mineral reserves). Southwest zone may be classified as a Measured mineral resource. MODEL VALIDATION The Indicated mineral resource category is AMEC completed a detailed visual validation of supported by the present drilling grid over most the Southern Oyu and Hugo Dummett resource of the remaining part of the Southern Oyu models. Grade interpolation was examined deposits, with holes spread approximately 70 m relative to drill hole composite values by apart on and between sections. The category is inspecting sections and plans. The checks supported at Hugo Dummett (Hugo North only) demonstrated good agreement between drill hole where the drill spacing is approximately composite values and model cell values. 125 m x 75 m centres. Geologic and grade continuity is demonstrated by inspection of the The smoothing in the estimates was checked models and drill hole data in plans and sections independently using the Discrete Gaussian or over the various zones, combined with spatial Hermitian polynominal change-of-support statistical work and investigation of confidence method. The grade-tonnage predictions limits in predicting planned annual production. produced for the various Oyu Tolgoi models Based on these factors, AMEC considers that show that grade and tonnage estimates are blocks covered by this data spacing over the validated by the change-of-support calculations respective deposits may be classified as an over the likely range of mining grade cutoff Indicated mineral resource. values (equivalent to about 0.4% to 0.6% Cu). All interpolated blocks that did not meet the The block model estimates were checked for criteria for either Measured or Indicated mineral global bias by comparing the average metal resource at Southern Oyu or Hugo Dummett grades (with no cutoff) from the kriged model were assigned as Inferred mineral resource if with means from nearest-neighbour estimates. they fell within 150 m of a drill hole composite. Results indicate the estimate is globally unbiased. Local trends in the grade estimates The mineralization of the Oyu Tolgoi project as (grade slice or swath checks) were also of 3 May 2005 is classified as Measured, checked. Results for copper and gold for Indicated, and Inferred mineral resources. The Southern Oyu and Hugo Dummett demonstrate following tables show the total resources that the estimate is not locally biased. reported at a copper equivalent cutoff grade of 0.6% and the Southern Oyu open pit resources at an equivalent cutoff grade of 0.3% copper.

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The equivalent grade was calculated using estimates in the tables have not been adjusted assumed metal prices of US$0.80 /lb for copper for metallurgical recoveries. and US$350 /oz for gold. The contained metal

Oyu Tolgoi Project Mineral Resources based on 0.6% Cu Eq. Cutoff, 3 May 2005 Grade Contained Metal Cu Au Cu Eq. Cu Au Mineral Resource Category Tonnes % g/t % 000 lb oz Southern Oyu Measured 101,590,000 0.64 1.10 1.34 1,440,000 3,580,000 Indicated 465,640,000 0.62 0.43 0.89 6,360,000 6,400,000 Measured+Indicated 567,230,000 0.62 0.55 0.97 7,810,000 9,980,000 Inferred 88,500,000 0.47 0.41 0.73 920,000 1,170,000 Hugo Dummett Hugo North Indicated 581,930,000 1.89 0.41 2.15 24,250,000 7,600,000 Inferred 581,290,000 1.08 0.32 1.28 13,840,000 5,920,000 Hugo South* Indicated ------Inferred 490,330,000 1.05 0.09 1.11 11,380,000 1,390,000 Total Oyu Tolgoi Project Measured 101,590,000 0.64 1.10 1.34 1,440,000 3,580,000 Indicated 1,047,570,000 1.33 0.42 1.59 30,610,000 14,070,000 Measured+Indicated 1,149,160,000 1.30 0.47 1.54 32,850,000 17,340,000 Inferred 1,160,120,000 1.02 0.23 1.16 26,200,000 8,400,000

*Resource estimate of June 2004

Southern Oyu Mineral Resources* at 0.3% Cu Eq. Cutoff Grade, 3 May 2005 Grade Contained Metal Cu Au Cu Eq. Cu Au Mineral Resource Category Tonnes % g/t % 000 lb oz Measured 126,560,000 0.58 0.93 1.18 1,620,000 3,780,000 Indicated 790,590,000 0.49 0.27 0.66 8,540,000 6,910,000 Measured+Indicated 917,150,000 0.50 0.36 0.73 10,160,000 10,700,000 Inferred 78,240,000 0.37 0.18 0.48 630,000 450,000 * Within ultimate pit shell

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Mine Plan

The mine plan for Oyu Tolgoi is based on • Open Pit ...... Southwest (stages 1 & 2) initial open pit mining followed by an emphasis • Underground ...... Hugo North Lift 1 on underground mining to provide the majority • Open Pit ...... Southwest (stages 3 & 4) of plant feed over the life of the project. Open • Underground ...... Hugo North Lift 2 pit mining after the initial production period is • Underground ...... Hugo South scheduled to suit the priorities of the • Open Pit...... Southwest & Central (stages 5 to 9) underground mine and varies for the two project scenarios. Not all open pit stages are used in the present mine plan. Block modelling and optimization have identified nine open pit stages at the Southern Oyu deposits and three block caves at the SCHEDULING SCENARIOS Hugo Dummett deposit. The IDP examines two scenarios: From analysis of various open-pit-only, underground-only, and combined mining • Phase 1 base case, 70,000 to 85,000 t/d. schedules, the relative ranking of the deposits Plant feed is from two Southwest open pit stages in terms of highest to lowest value is Hugo and two Hugo North block caves. North, Southwest, Hugo South, and Central. • Phase 2 expanded case, nominal 140,000 t/d. However, considering the lead-time required Plant is essentially doubled in size and feed is to develop and bring the block caves to full from the first four open pit stages, two Hugo North production, the following life-of-mine mining block caves, and one Hugo South block cave. sequence was developed:

Hugo South

Southwest (4 Stages)

Hugo North Lifts 1 & 2

Open Pit & Underground Scheduling Blocks for Expanded Case

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In both cases, timely underground development • Underground production is considered the is the critical path for ore production from Hugo priority mill feed because of its higher NSR North Lift 1. values. Open pit production is scheduled around the underground mining requirements. The mining rate from the open pit stages and • The underground production schedule block caves was based on the blending incorporates development requirements and requirements for plant feed. The following initiation of the block caves. metallurgical ore types have been defined: • Open pit mining rates are based on the number Ore Type Deposit of shovels available and required throughput of 1 Southwest mid-value NSR cutoff ore. Mining inventories 2 Central – chalcocite are reported by bench within the selected pit 3 Central – covellite shells. 4 Central – chalcopyrite • In Phase 2, production from different pit stages 5 Hugo South is balanced to obtain an operationally practical 6 Hugo North mining schedule with smooth waste and ore production rates throughout the mine life. The The base case limits production from Hugo North mining rate is balanced by using low-grade Lift 1 to 30 Mt/a and defers the latter stages of stockpiles where necessary. the open pits until after Hugo North Lift 2 comes • Material from the low-grade stockpiles into production. For these reasons Phase 2 has supplements underground ore after exhaustion been examined as a production scenario that of the open pits. could maximize the project value. The decision to proceed or not with Phase 2 can be made as BASE CASE PRODUCTION SCHEDULE Hugo North Lift 1 production is ramping up to its Phase 1 rate. First ore treatment in the plant is scheduled for Other scenarios, such as scheduling the entire mid-2008. Open pit mining commences the year underground and open pit inventories, are yet to before to match the staggered delivery and be completed. The number of open pit stages commissioning of shovels and other equipment. that have been identified provides opportunity for Underground access and development continue risk reduction if underground development from Hugo North Shaft 1, which is currently should be delayed. being constructed. Development of Shaft 2 begins in 2006. Mine planning work for the open pits is based on Measured and Indicated resources only, while Medium- and high-grade ore from open pit the underground mine planning uses both preproduction is stockpiled and processed in Indicated and Inferred resources to generate 2008. Low-grade ore is stockpiled separately for production schedules. feed at the end of open pit mining. Only materials from Southwest (ore type 1) and Hugo North (ore type 6) are processed in the base APPROACH TO SCHEDULING case. The average mining rate is 25.5 Mt/a from the open pit and 30 Mt/a from Hugo North over a The approach to production scheduling was mine life of 40 years. based on balancing mining, milling, and stockpiling quantities: The high gold grades from the pit and very high • copper grades from underground indicate the Timing of the mining stages and block caves is source of early gold production from the determined by the plant throughput rate for combined feed and reinforce the high value of each blended ore type. Plant capacity ramps the underground ore. Lower copper and gold up over the first 18 months after commissioning. grades after 2013 are from low-grade stockpiled material from the open pit.

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Development of Hugo North Shaft 1

Ore Processing by Metallurgical Ore Type – Base Case

35000 1 year periods 5 year periods

30000

25000

20000 Ore kt

15000

10000

5000

0 20052006200720082009201020112012201320142015201620172018201920202021202220232024202520262027203220372042204720522057 Year

HN Lift 2 kt HN1 kt SW 1 kt

Note: Bars show kt feed to the mill from stockpile

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Copper Feed Grades – Base Case

3

2.5

2

1.5

1 Copper Feed Grade (%)

0.5

0 2005 2010 2015 2020 2025 2030 2035 2040 2045 Year

All OP Ore Cu % All UG Processing Cu % Total Process Cu %

Gold Feed Grades – Base Case

1.2

1

0.8

0.6

0.4 Gold Feed Grade (g/t)

0.2

0 2005 2010 2015 2020 2025 2030 2035 2040 2045 Year

All OP Ore Au g/t All UG Processing Au g/t Total Process Au g/t

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EXPANDED CASE PRODUCTION The average mining rate is 52.5 Mt/a from all ore sources over a mine life of 35 years. SCHEDULE In the expanded case two additional Southwest pit The preproduction and initial years of the stages and increased production from Hugo North expanded case are the same as the base Lift 1 provide the ore for the larger plant. The case. The difference is that open pit mining expansion also allows Hugo South to be mined continues with the stripping of stage 3 and much earlier than would be possible in the base plant capacity is expanded as Hugo North Lift case. The remaining open pit stages (5 to 9) are 1 production reaches and passes 30 Mt/a. not included but would be available to expand the Hugo South is developed and begins project life beyond the current schedule. production to replace the open pit resources.

Ore Processing by Metallurgical Ore Type – Expanded Case

60000 1 year periods 5 year periods

50000

40000

30000 Processed kt 20000

10000

0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2037 2047 2057 Year

HN1 kt HN Lift 2 kt HS kt SW 1 kt

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Copper Feed Grades – Expanded Case

3

2.5

2

1. 5

1 Copper Feed Grade (%) Grade Feed Copper 0.5

0 2005 2010 2015 2020 2025 2030 2035 2040 Year

All OP Ore Cu % All UG Processing Cu % Total Process Cu %

Gold Feed Grades – Expanded Case

1.4

1.2

1

0.8

0.6

Gold Feed Grade (g/t) 0.4

0.2

0 2005 2010 2015 2020 2025 2030 2035 2040 Year

All OP Ore Au g/t All UG Processing Au g/t Total Process Au g/t

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Open Pit Mining

The open pit design work was performed by • impurities GRD Minproc Limited, focusing on the • royalties. Southern Oyu deposits. Recognizing the ultimate benefit to the project of exploiting the The resulting NSR values were used to classify the underground resources in Hugo Dummett, the ore blocks in the pit optimization and also as plan provides for flexibility in grade and economic cutoffs as reported in the mining tonnage scheduling. The open pit mine plan is inventories. based on a mineable resource of Measured and Indicated material. Based on the NSR values, the open pit optimization was completed in the Whittle Four-X software Key geotechnical design parameters were program, which is considered a standard mining provided by SRK Consulting based on industry tool. extensive geotechnical studies. OPEN PIT MINE DESIGN PIT OPTIMIZATION Based on the pit optimization results, the objective Pit optimization and mine design were carried of the pit development strategy was to minimize the out on a preliminary resource model prepared early mining costs and maximize the early return by IMMI in February 2005. This model formed from the open pit operation. Nine open pit mining the basis for the AMEC model produced in stages, all within the Southwest and Central May 2005. A comparison of the two models deposits only, were identified to allow for all life-of- showed only a small difference in mining mine options. Only designs for stages 1 to 7 were inventory within pit shells that were essentially considered for production scheduling. Stages 8 the same. Only resources classified as and 9 are pit optimization shells that require further Measured or Indicated in the block model work as mine planning proceeds. The open pit were used in the optimization and production inventory by stage is shown in the table overleaf. scheduling. Inferred resources were treated as waste. The resource model grades Preproduction ore is from stage 1 only. The base incorporate dilution, including the small-scale case production schedule is generated from mining dykes that intersect the mineralized zones. stages 1 and 2, while the expanded case uses stages 1 to 4. Using the model grades, the net smelter return (NSR), or revenue paid for the concentrate at Basic Design Criteria the “mine gate,” was calculated for each block. • Silver was not included in the pit optimization Average cutback width...... 150 m • but was included in the production schedules. Minimum mining width ...... 40 to 50 m • The NSR calculation excludes costs for Bench height ...... 15 m • mining, process, and G&A and is the in-situ Bench stack height limit − value after: Weathered rock...... 60 m − Unweathered rock...... 90 m • recovery to concentrate • Berm width ...... 7.0 to 11.5 m • smelter deductions • Bench face angle (assuming drained slopes): • concentrate transport − Weathered rock ...... 65° • smelter treatment and refining charges − Unweathered rock ...... 75° • Wall slopes (LOSA)...... 40° to 50°

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Open Pit Resource Inventory by Stage Stage Total Movement kt Waste kt Ore kt NSR $/t Cu % Au g/t As g/t Ag g/t F ppm 1 125,635 74,742 50,892 15.39 0.58 0.89 9.97 1.42 2,124.28 2 197,635 125,312 72,323 11.11 0.49 0.56 12.41 1.31 1,981.79 3 259,784 176,222 83,562 9.91 0.45 0.49 19.00 1.35 1,615.07 4 83,196 44,009 39,187 9.21 0.61 0.19 76.49 1.88 1,898.57 5 35,163 20,505 14,658 7.43 0.40 0.32 20.25 1.05 1,374.76 6 33,042 19,526 13,516 10.56 1.01 0.12 252.42 1.46 2,189.26 7 312,355 171,644 140,711 8.42 0.65 0.16 168.42 1.38 1,914.54 8 315,765 169,459 146,306 8.18 0.40 0.40 21.46 1.19 1,596.48 9 1,302,292 984,298 317,995 8.12 0.48 0.29 86.61 1.13 1,743.69 Total 2,664,866 1,785,717 879,150 9.09 0.51 0.36 72.89 1.27 1,783.53

Waste Dumps & Stockpiles equipment maintenance will be performed under Dumps and low-grade stockpiles will be a MARC arrangement. The open pits will be constructed as required for each stage of open operated 24 h/d, on two 12-hour shifts, nominally pit mining. Dump heights will vary between 50 m 340 d/a. It was assumed that 25 days per year and 60 m depending on topography and waste will be lost due to unscheduled delays such as volumes. weather conditions. The total workforce is estimated to vary from approximately 400 to 448 The low-grade stockpile area has a capacity of personnel, including management and labour, approximately 100 Mt at 40 m height to from start-up to peak requirements. accommodate all mining scenarios. An overall slope of 18° was considered in the preliminary Open Pit Mining Equipment Requirements design of the waste dumps and stockpiles. In Equipment Start-up Peak the calculation of the waste dump capacities, it is Hydraulic Shovels 2 3 assumed that the swell of bank volume would be Mining Trucks 13 23 30% after taking into account some natural Rotary Drill 2 3 sorting and compaction on the dumps. Hydraulic Excavator (Phase 2 only) - 1 Wheel Dozers 1 1 Because Oyu Tolgoi is in an arid area with very Track Dozers 3 4 low rainfall, no significant acid rock drainage Graders 2 2 Loaders 1 1 (ARD) issues are expected. The base of the Water Carts 2 2 dumps will be sealed by working the subsurface clay materials. Potentially acid forming (PAF) material will be encapsulated within non-acid- Drilling & Blasting forming (NAF) material, and the final surfaces Rotary blasthole drills will be used to drill 17 m will be capped with rock armouring. This deep, 305 mm diameter holes at an average methodology will be suitable for progressive penetration rate of 45 m/h. A secondary drill is construction and rehabilitation of the dumps. provided for pre-split blasts, secondary drilling, and the horizontal drain holes specified in the OPEN PIT MINING OPERATIONS geotechnical recommendations.

Open pit mining at Oyu Tolgoi will be a ANFO will be used in dry holes and heavy ANFO conventional shovel-truck operation. Drilling, in wet holes. Given the prevailing conditions, loading, hauling, and dumping will be carried out most blasting is expected to be dry. The powder by the Owner’s workforce. Blasting products and factor was estimated at 0.40 kg/bcm for blasting services will be provided by a contractor, and in waste and at 0.78 kg/bcm for blasting in ore.

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Loading & Hauling temporary ramps accessing the upper levels of the The primary loading unit will be 28 m³ bucket pits or via the final designed ramps in the pit diesel hydraulic shovels. In normal operation, stages. An 18 m³ front-end loader will be used for one shovel will be mining mainly ore and the dropcut excavation and backup loading capacity. other(s) will be stripping waste. The shovels will load to 220 to 240 tonne diesel mechanical Support Equipment trucks for transport to the mill site or the waste Conventional ancillary equipment will support the dumps loading and hauling operations. Pit dewatering will be by diesel-powered pumps from in-pit sumps to a The ore will be dumped directly to the crusher tank at the crusher. Pit dewatering is not expected or stockpiled for reclaim. Waste will be to be a major issue at Oyu Tolgoi. distributed to the dump areas either through

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Underground Mine Development

INTRODUCTION

The Hugo Dummett deposit will be mined by Summary of Hugo North Assessment block caving, a cost-effective method where Base Case 85,000 t/d (June 2005) applied under suitable conditions. The deposit Mined Resource has two zones, North and South, both having dimensions, tonnages, and grades comparable – Hugo North Lift 1 to other deposits currently exploited by block- Tonnes (including development) 576.5 M cave mining elsewhere in the world. Hugo North NSR ($/t) 24.89 is the most attractive target for mining. Cu Grade (%) 1.463 Au Grade (g/t) 0.286 McIntosh Engineering Incorporated is one of the – Hugo North Lift 2 industry leaders in assessing block-cave mining Tonnes (including development) 578.6 M applications. McIntosh’s assessment for the IDP NSR ($/t) 17.81 is based on the results of exploration and Cu Grade (%) 1.035 development drilling to March 2005, from which Au Grade (g/t) 0.312 IMMI and AMEC derived the currently defined Production Schedule resource tonnage and grades. SRK Consulting Hugo North Lift 1 Start 2010 (Canada) reviewed geotechnical data and Lift 1 Life (years) 25 years conducted the necessary geotechnical analyses Hugo North Lift 2 Start 2028 of data collected and collated from all drill core. Lift 2 Life (years) 24 years SRK’s findings are supportive of the block-cave Peak Ore Production Start 2015 mining method and integral to McIntosh’s Peak Ore Production End 2050 assessment. Mine Ore Production End 2051 Total Mine Life (years) 43 years Presuming that the current defined resource tonnages and grades are substantiated during underground development and operations, the assessment indicates that block-cave mining at DEPOSIT ASSESSMENT Hugo North could produce 1,155 Mt averaging 1.249 % Cu and 0.299 g/t Au over a 43-year A critical consideration for development of the mine life. For the base case evaluation, peak deposit is assurance that the resource will cave. ore production is 30 Mt/a, or approximately SRK has visited the Oyu Tolgoi site several 85,000 t/d. times to inspect and log certain drill core and to guide IMMI’s, collection and collation of Further increases could be realized in the geotechnical data. SRK and McIntosh concur Indicated and Inferred resources of Hugo North. that the Hugo North zone will cave productively. Two adjacent areas with resource potential have been identified: a northern extension on strike, SRK reached the following conclusions in its down plunge, and on approach to and within analyses: property held in joint venture with Entrée Gold • …the mineralized rock mass of the Hugo North Inc.; and additional deposits on the south and ore body is cavable at a hydraulic radius of 20 – west fringes of Hugo North. An IMMI drilling 27 m. This is the equivalent of a footprint of program is currently underway in the northern approximately 80 m by 80 m to 110 m by 110 m. extension area. The current footprint of the caving envelope for both lifts greatly exceeds this hydraulic radius.

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• The rock mass is characterized as an “average” development is critical to achieving the forecast cavable rock mass (not Palabora and not Cassiar) tonnages. …the Hugo North rock mass is less competent than Northparkes or Ridgeway, which caved at a To enable production ramp-up, the following smaller hydraulic radius. major tasks will need to be executed • It is estimated that shear zones and faults will concurrently or sequentially: further improve the cavability by at least 5 to 10%. • constructing and commissioning: AMEC’s estimates of copper and gold grades − Shaft 2 (one friction-type service hoist and within the Indicated and Inferred resources of one friction-type production hoist) Hugo North at an equivalent cutoff of 0.6% Cu − Shaft 3 (two production hoists) suggest metal content of more than 38 billion − pounds of copper and more than 13 million Shaft 4 (one production hoist) ounces of gold, representing one of the largest • annually constructing 60, then 96, and such deposits in the world. The combined eventually 120 drawpoints on Lift 1. Indicated and Inferred resources for Hugo North It should be noted that to meet the schedule, and Hugo South exceed 1.5 billion tonnes. Shafts 2 and 3 and some associated lateral work A high-grade starter zone has been identified will need to be developed before the necessary within Hugo North. Scoping-level studies have information for a feasibility study on Hugo North been performed based on resource estimates by is obtained from the Shaft 1 exploration program. IMMI and AMEC, mining assessments by Assuming Hugo North is developed to produce McIntosh, and processing and administration 85,000 t/d of ore, it will be one of the world’s assessments by AAJV and others. These studies support the contention that the Indicated largest block-caving operations exploiting a resource of 184 Mt grading 1.987% Cu and single, contiguous mineralized block. 0.419 g/t Au can be mined and processed over the first 10 years to enhance project economics. UNDERGROUND MINING METHOD

The Hugo North mineral resource plunges to the Block caving is a safe, proven, and highly northeast. Its current base is near the minus productive method for extracting bulk ore 400 m elevation (1,600 m below surface). The tonnages from underground mines. It involves caving shapes foreseen are 1,500 m long x 200 undercutting part of the orebody across a plan to 700 m wide x 300 to 500 m high. The area, causing the overlying rock to collapse. The resource dimensions are considered suitable for collapse of the ore, or “cave,” is “by design” and block caving and place the mine into the is accomplished in a deliberate, controlled, and category of “deep caving.” predictable manner. Initially, the ore is undercut and induced to cave by blasting. Thereafter, the LIFT 1 DEVELOPMENT PLAN blasted ore falls into an array of drawpoints beneath the initial cave area and is removed by It is proposed to construct and operate Hugo load-haul-dump (LHD) equipment. As broken North Lift 1 in a way that permits increasing ore ore is removed, the pile within the cave slumps, production in a sequence of steps from creating a void, which in turn promotes further approximately 15,000 t/d to 60,000 t/d and finally caving. to 85,000 t/d. This sequence takes 11 years to execute from the date of project approval, or 6 The cumulative plan area overlying the drawpoints is called the cave footprint. Four years from initial to full production. Timely sublevels will be developed under and adjacent completion of shafts, primary development, to the orebody. The first two, undercut and underground installations, and secondary mine extraction, are necessary to initiate and sustain

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ore production. The others are known as the All ore and waste rock will be lifted 1,500 m to ventilation and haulage sublevels. surface by one of four friction hoists after being hauled 1,100 m from the block cave by a Block Cave Mining Method combination of underground loader, train, and conveyor.

Collar-to-collar, the mining crews will transit roughly 6,000 m. From collar to workplace, materials and supplies will transit 3,000 m.

Mongolia is a developing country and Oyu Tolgoi is an extremely remote frontier site. In addition to the challenge of attracting and retaining a qualified workforce of both national and Undercut Level expatriate personnel, arranging vendor support Extraction Level for mining equipment will need particular Drawpoints Undercut Drift Remnants attention. (Driven on Offset Herringbone Pattern) Panel Drift Offset Herringbone Pattern COST & SCHEDULE ISSUES

Costs have been estimated to a scoping level of study for the following:

• hoisting plants • underground primary mine development and equipment, including ventilation and haulage drifting, crushing, conveying, bins, skip loading, shops, warehouses, explosives magazines, Undercut Level shaft bottom access, and mid-shaft roping

Extraction Level arrangements

Undercut Drift Remnants • undercutting, panel drifting, drawpoint Drawpoints (Driven on El Teniente Pattern) Panel Drift construction, and ore production loading operations El Teniente Pattern • mine operations.

DESIGN & PLANNING CONSIDERATIONS The costs and schedules to complete these requirements are considered achievable, Block caving is expected to result in surface recognizing that substantial contractor/expatriate subsidence. To preserve the integrity of the participation will be required until Mongolian mine shafts and principal infrastructure, the employees are able to consistently demonstrate shafts and infrastructure will be grouped together the necessary skills and performance standards. in a “farm” approximately 1,500 m due west of The proposed hoists, shaft conveyances, and the centreline of the resource. payloads have been proven in operation at other mines, but will be among the largest ever All mining crews, materials, and supplies constructed. Given sufficient time to stabilize required to construct and operate the block cave production and crew performance, operating will be lowered and/or raised 1,300 m within a costs could be below the mid-point of those at all service shaft. other existing block-cave mines.

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GEOTECHNICAL

A significant amount of geotechnical information • mine pumping is available about the Hugo North mineralized • water treatment resources, but the actual underground setting • process water quality and quantity has not been observed, and the resource has • corrosion never been blocked out from a drift. • shaft maintenance • hoist rope life. Little drill core has been obtained from the proposed locations of the mine shafts and primary underground development. At this CAVING PREDICTABILITY stage, assumptions for shaft and development advance rates and ground support are If the orebody does not cave as effectively as preliminary. Geotechnical core drilling is predicted, or if it does cave but the cave muck is currently underway. exceedingly fine, then recovery of mineral resources may be slowed, and, in severe cases, As yet, there are no data to characterize the some resources could be lost. Although groundwater regime in the underground mine drawpoint control and cave management are area. Groundwater quality, quantity, source intended to mitigate this possibility, it could take points, and durations of influence have some time to recognize that caving is not taking implications for several operating conditions: place as expected.

• potential inrush and/or mudrush On the other hand, more-effective caving than • dust control predicted could accelerate mine production.

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Metallurgy

BACKGROUND

The history of metallurgical testing for Oyu Tolgoi An illustration of the testwork programs as they reflects the progress in defining the resource. relate to the growth of the mine resource is Testwork started in late 2001, when samples provided on the following page. from site were shipped to SGS Lakefield Research Limited for preliminary analysis. SGS LOTATION ESTWORK Lakefield produced seven composite samples for F T ore roughly corresponding to the Southwest, The bench-scale testwork was conducted in Central, and Hugo South orebodies as they were three phases. First, the flowsheet developed known at the time. Extensive mineralogical, during the earlier test programs was verified and leach, comminution, and flotation work was done optimized for Southwest ore. A simple, typical on these samples in 2002 and 2003. The work flowsheet for porphyry copper ore treatment was was carried out by SGS Lakefield, A.R. found to work well for all ore types: MacPherson Consultants Ltd. (ARM), and Terra Mineralogical Services under the supervision of • primary grind of approximately 80% passing IMMI. A conceptual flowsheet was developed, 150 µm and IMMI gained a good understanding of the • rougher flotation using Cytec 3418A, a potential of the property. selective diakyl dithiophosphinate collector • regrinding to 80% passing 25 µm As exploration and mine definition advanced, the • two or three stages of cleaner flotation. centre of interest in the mineral deposits changed, the original samples no longer Following flowsheet verification, locked-cycle represented all the ore included in the mine plan, tests and batch tests were performed on and the metallurgical data were deemed composites corresponding to ore-release indicative only. schedules, and batch flotation tests were performed on a large number of spatially In late 2003, AAJV and IMMI initiated an distributed samples to gauge the variability of additional phase of metallurgical testwork, which flotation response throughout each orebody. began in early 2004 and extended through to The test results were compared and algorithms early 2005. This program was designed to developed to relate flotation response to mine confirm the flotation and comminution response model parameters, such as head grade and of ores from the Southwest, Central, Hugo copper/sulphur ratio, to project metallurgical South, and Hugo North zones. Laboratory response to each ore block in the mine plans. batch-scale and pilot-plant flotation testwork programs, as well as laboratory-scale Sampling Density for Flotation Testwork comminution testwork, were conducted at AMMTEC Ltd. in Perth. Further work to define Ore Represented No. of fundamental flotation and comminution Zone (Mt) Variability Samples parameters was executed by MinnovEX, and Southwest 231 152 SGS Lakefield carried out a SAG pilot-plant test Central 30 30 program to confirm the laboratory-scale testwork. Hugo North 140 35 Hugo South 4 20

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Metallurgical Testwork Programs Related to Resource Growth

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In parallel with the conventional flotation program Anticipated Life-of-Mine Metallurgical Performance conducted at AMMTEC, basic flotation – Base Case 85,000 t/d parameters (mineral-by-mineral flotation kinetics Zone/ Grade Distribution and maximum recoveries) were measured at the Material Type Mt Cu % Au g/t Cu % Au % MinnovEX laboratory in Toronto and entered into the MinnovEX FLEET flotation simulator to Southwest determine the required flotation residence times Ore to plant 123.192 0.53 0.69 100.0 100.0 Concentrate 2.319 24.70 25.40 88.0 68.9 and circulating load parameters. Tailings 120.873 0.06 0.22 12.0 31.1 Toward the end of the test period, additional Hugo North Lift 1 sample was collected from areas of step-out Ore to plant 576.494 1.46 0.29 100.0 100.0 drilling to the north of the original Hugo North Concentrate 25.550 30.00 5.10 91.9 79.1 sample locations. This material was tested Tailings 550.944 0.14 0.07 8.1 20.9 under the same flotation conditions, and results Hugo North Lift 2 were similar and repeatable. Because of time Ore to Plant 578.574 1.03 0.31 100.0 100.0 restraints, conditions for this relatively high Concentrate 19.270 28.10 7.40 90.0 79.0 grade, low-sulphur ore have not been fully Tailings 559.304 0.10 0.07 10.0 21.0 optimized.

COMMINUTION CEET and JKMRC. Run-of-mine ore size was obtained from a blasting analysis done by Scott Throughput rates for the concentrator were Mine Consultants Ltd. The MinnovEX, JKMRC, assessed using the MinnovEX CEET simulator. and AAJV databases of industrial installations Simulator input data include SAG performance were referred to extensively to assist in building index, Bond ball mill work index, and crushing and adjusting the models until IMMI and AAJV index, all of which were determined from small- were satisfied that they provided reasonable diameter core obtained from the resource drilling results and agreement over the full range of ore program, providing a large sample suite without types represented in the 26-sample suite. the need for special metallurgical drill programs. To increase confidence in the results, the The calibrated models were then applied to simulator at the JK Metallurgical Research simulations of potential configurations for Centre (JKMRC) was used as a secondary representative sample sets of Southwest and comminution model. The method used to arrive Hugo North ore. The selected configuration is at the nominal plant tonnage is illustrated open-circuit SAG with secondary pre-crushing, overleaf. followed by ball mills in closed circuit with cyclones. The analysis indicated that the circuit To assess potential grinding circuit throughput rate will be limited by the SAG mill configurations, a special suite of 26 samples of more than 90% of the time. large-diameter (PQ) core was taken from diamond drill holes specifically sited to intercept The subsequent SAG mill pilot program all of the major ore types, classified by lithology conducted by SGS Lakefield in April 2005, using and alteration. Hardness parameters were a 250-tonne bulk sample of ore from the measured for each sample, and a grinding circuit Southwest deposit, confirmed the results of the model was developed for each ore type in both small-scale testwork.

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Throughput Assessment Method Throughput Model Validation Pilot Plant Determination Obtain sample Using geological model, Comminution Examine existing holes and from centre site PQ holes to obtain flowsheet based choose a hole that intercepts benches of evenly samples of each major ore on largest most significant ore types distributed type (lithology and available units "metallurgical alteration) blocks" Select intervals for pilot samples

Obtain SPI, Ci, BWi ,JK SPI, C BW for i, i parameters for Twin the chosen hole with a PQ each sample each sample hole, assay, obtain SPI values

Generate tph for Generate tph for each using JK each using CEET Simulation Simulation Sink shaft and obtain bulk samples

Validated CEET Reconcile and validate Conduct pilot plant model

Generate tph for Nominal Time-weighted each using CEET throughput per average Simulation orebody

Grinding Circuit Configuration for IDP

Summary of Grinding Simulation Results Parameter Southwest Hugo North

SAG Mill Feed F80 (mm) 52 40 Transfer Size T80 (mm) 4.4 4.4 Circuit Product Size P80 (µm) 164 195 SAG Mill Capacity (t/h) 3,519 4,128 Ball Mill Capacity (t/h) 4,186 4,259 Total Circuit Capacity (t/h) * 3,490 4,044 Pebble Circulating Load (%) 27 18

* Throughput rates are raw numbers discounted 10% for operational contingency and potential sample set bias

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Process Facilities

DESIGN BASIS

The concentrator will initially process 70,000 t/d will minimize the number of equipment units, of ore from the Southwest open pit. This rate will thereby reducing the footprint and complexity of increase to 85,000 t/d once the Hugo North the facility. underground mine comes into operation. Hugo North will be the main ore source at this time, The plant will employ advanced communications supplemented as required with ore from the and control methods. Process control will be open pit. Because the copper grade of the from a central control room in the process plant. underground ore is higher, more concentrate will Key process parameters will be measured and be produced from expanded mill flotation and controlled by an automatic regulatory control concentrate handling circuits upgraded during system that incorporates supervisory controls. the fifth year of operation. A second expansion An on-stream x-ray fluorescent analyzer will (Phase 2) will increase plant facilities to handle provide continuous assay data, enabling 140,000 t/d of combined underground and open operators and supervisory control systems to pit ore from the various deposits. A 3D optimize flotation and respond to upset rendering of the general concentrator facilities for conditions. Phase 1 is shown below. A metallurgical and analytical laboratory on site No new technology is employed in the design, will provide assays for concentrator control, mine and all the equipment specified for the process is grade control, metallurgical accounting, and proven. Use of the largest available machinery concentrate shipments.

Concentrator Facilities

Coarse Ore Tailings Thickeners Stockpile Process Plant Electrical Substation

Raw Water Ponds

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Oyu Tolgoi – Simplified Flowsheet

From Open Pit Mine Coarse Ore Stockpile Primary Crusher

From Underground Mine (85,0000 - t/d phase)

Coarse Ore SAG Mill Grizzly Cyclones Discharge Screen Secondary Ball Mills Crushers Pebble Screen SAG Mill

Pebble Crushers

Tailings Thickeners Rougher Flotation

Recleaner Columns

Regrind Cleaner Flotation Cleaner Scavenger Vertimills Flotation To Tailings Storage Facility

Concentrate To Market Pressure Filters Thickeners

PROCESS DESCRIPTION

Primary Crushing & Conveying concentrator. The stockpile building will have a During the 70,000 t/d phase, the primary source maximum capacity of three days’ supply of ore of ore will be the Southwest open pit. Ore will be for the mill; the maximum live load capacity will hauled to a gyratory primary crusher. A run-of- be one day. mine (ROM) ore stockpile near the crusher will absorb fluctuations in mine production and Ore released during development of the facilitate the blending of different ore types. underground mine and initial underground Crushed ore from the primary crusher will be production will be trucked to the open-pit primary conveyed to a covered stockpile near the crusher and blended with open-pit ore. During

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the 85,000 t/d phase, underground ore will be SAG mill discharge with a top size of 75 mm will delivered to a half-day surge pile near the mine pass through a trommel screen with 13 mm shaft farm and conveyed overland to the coarse openings, where the bulk of the water and fine ore stockpile. solids will be removed. The oversize will be washed over a vibrating screen, also equipped Secondary Crushing with a 13 mm screen deck. Undersize from the Coarse ore will be reclaimed from the stockpile trommel and vibrating screens will collect in a by four belt feeders and be discharged over a pumpbox for transfer to the ball mill circuit. The vibrating grizzly with bars at 65 mm spacing. washed pebbles will be conveyed to a bin ahead Undersize from the grizzly (approximately half of of two 746 kW cone crushers. the coarse ore) will fall onto the grinding mill feed Self-cleaning electromagnets on the conveying conveyor, and the oversize will be conveyed to system will protect the cone crushers from tramp two secondary cone crushers with closed-side grinding steel. Crushed pebbles will report to a settings of 50 to 65 mm. The crusher discharge vibrating screen with a 13 mm deck located will join the grizzly undersize on the feed above the SAG mill discharge pumpbox. Water conveyor to the SAG mill. This circuit will sprays will thoroughly wet and slurry the screen accommodate both the 70,000 t/d and 85,000 t/d undersize, which will then mix in the SAG mill cases. discharge pumpbox with the undersize from the other screen. Grinding The grinding equipment will be based on the Grinding circuit throughput will normally (90% to largest units currently in use (at Collahuasi in 95% of the time) be limited by the SAG mill Chile). The SAG mill will be a single unit 12.2 m capacity. When the crushers are not available, x 7.5 m (40 ft x 24.5 ft) in size with a 24.5 MW or when pebble production is excessive, a wrap-around variable-speed drive. bypass feeder will draw uncrushed pebbles from the bin and deposit them on the SAG mill feed belt.

Crushed Ore Conveyor & Stockpile

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Grinding Circuit followed by four 160 m3 scavenger tank-type flotation cells.

The cleaner-scavenger concentrate will be combined with rougher concentrate for regrinding. Cleaner-scavenger tailings will be combined with rougher tailings and pumped to the tailings thickeners. The first cleaner concentrate will be pumped to a distributor feeding four 4.5 m diameter x 14 m high recleaner column cells. Recleaner column tailings will be combined with primary regrind cyclone overflow and routed to the cleaner/scavengers.

For 85,000 t/d operations, the vertical stirred mill circuit will be duplicated to provide eight mills for regrinding the combined rougher concentrate and cleaner-scavenger concentrate. The cleaning circuit for regrind cyclone overflow will be expanded from two to three parallel rows of Pressure distributors will divide undersize from eight flotation cells. The circuit for the first the SAG mill circuit screens between two ball cleaner concentrate will be expanded from four mills in closed circuit with 838 mm cyclones. to twelve recleaner columns. The ball mills will be 8.23 m diameter x 12.95 m long (27 ft x 43 ft), with 18.6 MW variable-speed Concentrate Dewatering & Storage wrap-around drives. Cyclone overflow, at about Final concentrate will be thickened to 65% solids 33% solids and an average 80% passing particle in two 20 m diameter, high-rate concentrate size of 150 µm, will report to the flotation circuit. thickeners and stored in an agitated surge tank The grinding circuit will accommodate both the prior to filtration. When the plant is expanded for 70,000 t/d and 85,000 t/d cases due to the the 85,000 t/d phase, a third thickener and differences in grinding energy required for the second stock tank will be required. Automatic Southern and Hugo ores. pressure filters will reduce the concentrate moisture to less than 9%. Two 108 m2 filters will Flotation be required for 70,000 t/d operation. For the The testwork programs have led to a simple, 85,000 t/d operation processing the high-grade typical porphyry copper flotation circuit with no Hugo North ore, these two filters will be unusual features or equipment. Ball mill cyclone converted to 144 m2, and two additional 144 m2 overflow will gravitate to three rows of eight units will be installed. 160 m3 tank-type rougher flotation cells. Rougher concentrate will be combined with Because of the cold winters, the concentrate cleaner-scavenger concentrate, classified, and thickeners and the stock tanks will be enclosed reground by four 1,119 kW vertical stirred mills in in a building, with the concentrate filters on a closed circuit with a cluster of twelve 508 mm floor above a concrete bunker providing storage cyclones. Regrind cyclone overflow, at a particle for approximately 10 days of production. size of 80% passing 25 µm, will be cleaned in Shuttling, reversible conveyors below each filter two parallel rows of four 160 m3 cleaner cells will intercept the falling concentrate and distribute it along the length of the bunker.

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Concentrate Load-Out system to maintain the inventory. The ponds will During the initial operations phase, a wheel collect reclaim water from the thickener’s tailings loader will load the concentrate into trucks for dam, surplus water from mine dewatering, and transport to a railhead in China. During the runoff from the site drainage containment Phase 1c expansion, rail service will be available system. at the mine, and a rail siding will be routed through the loading point. The filter plant and Raw water from the borefield will be pumped to a storage shed will be enlarged to double the tank close to the process plant for use in fire storage capacity, and a second loading point will fighting, cooling, gland seal, column sprays, and be added. Wheel loaders will fill the railway cars other applications where clean water is required. from the pile below the filters. Grinding Media & Reagents Tailings Disposal Grinding balls will be delivered from China and Flotation tailings will be thickened to 55% to 65% dumped into storage bins at site. Ball feeders solids in two 125 m diameter tailings thickeners. will meter the balls from holding bins onto the The thickener rakes, designed for winter SAG mill feed belt, and onto conveyors operation, will be traction driven. Thickened delivering balls to the feed chutes of the ball tailings will be pumped through two tailings lines mills. Grinding balls for the lime slaking mill and to a booster pumpstation near the tailings the regrind mills will be loaded into buckets and storage facility (TSF). The tailings lines will charged to the mills by the bridge cranes. follow a graded corridor to allow the tailings lines to drain into the booster pumpbox if operations Flotation reagents will be obtained from are interrupted. Two two-stage booster pump international suppliers, generally through Chinese-based affiliates. Storage will be lines will distribute tailings around the TSF. provided for a six-week supply of unmixed reagents and for a one-day supply of diluted, Process Water mixed reagent. Quicklime will be received in Process water will be supplied from two ponds at bulk from China and stored in a silo capable of the concentrator, each capable of storing holding a two-week supply. Quicklime will be 24 hours’ requirement. Make-up water will be slaked as required to maintain a one-day supply added to the pond from the raw water supply of slurry in holding tanks.

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Concentrate Handling & Shipping

CONCENTRATE TRANSPORT TO 2.5 million wmt/a, requiring an average of four trainloads per day. Capital costs for the AILHEAD R connecting spur and the on-site track are Mongolia is land-locked and lacks developed included in project costs as part of Phase 1c ground transportation infrastructure. Because development. No costs are included for the rail smelters within China will be the primary link between China and the coal fields or for road customers for the concentrate, a transportation upgrades required within China. link connecting Oyu Tolgoi with the rail system in northern China will be created. Wuyuan, China, CONCENTRATE TRANSPORT TO was assumed to be the railhead location for SMELTERS study purposes. Pricing for concentrate transport from Wuyuan to For the first three years of operations, smelters was estimated based on concentrate concentrate will be loaded into 40 tonne trucks production information and the likely mix of for transport to Wuyuan. The operation will be smelter customers. Potential customers within conducted 24 h/d, requiring more than 50 trucks an average distance of 1,800 km from site have each day in Year 3. Because the route passes been identified for approximately 0.5 Mt/a of through heavily populated areas, operating concentrate, which represents most of the procedures will need to be negotiated with the production for each of the first three years. As communities to address safety and production expands, IMMI anticipates that environmental concerns. volumes of between 0.5 and 1 Mt/a would be By the beginning of the fourth year, the trucking sold to Chinese smelters within an average rail operation will be replaced with rail transport. A distance of 2,300 km from site. Quantities in rail line expected to be constructed as part of the excess of 1.5 Mt/a would be sold to smelters in development of regional coalfields to the Asia, exported through the Chinese port of northwest of Oyu Tolgoi will pass within 40 km of Tianjin. the mine site, en route to northern China. A spur The average estimated cost of concentrate line will be constructed to the mine site, directly transport from Oyu Tolgoi to the smelters varies connecting Oyu Tolgoi to the Chinese rail from US$38.17/wmt in the early years, when the system. Peak production rates arising from the first leg includes trucking, to as low as Phase 2, 140,000 t/d mining schedule reach $20.15/wmt once the rail line to site is in place.

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This map was provided by IMMI for information purposes only, and contains data that is not addressed in the IDP and has not been reviewed by AAJV.

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Tailings Management

TAILINGS CHARACTERISTICS & The natural clay material at the site will be conditioned to form an impermeable base as a TORAGE S natural liner. The embankment of the starter The design of the tailings storage facility (TSF) is dam will consist of an upstream low-permeability based on testwork conducted by Knight Piésold. layer and an area of structural fill. In subsequent The tailings were classified as predominantly silt- lifts, the inner layer, facing the impoundment, will sized with low plasticity. The settling rate is be constructed with tailings from the upper moderately fast (95% of final settled density beach area. Use of the tailings for construction within five days), and relatively high final settled will be climate-dependent and will be practical densities are achievable with up to 42% of the during summer months only, when the material initial water volume released as supernatant. can be suitably dried, moisture conditioned, and compacted. Mine waste material for the Geochemical characterization of tailings samples structural fill will be obtained directly from the concluded that most of the tailings are non acid open pits up to Year 7 and from stockpiles or forming (NAF) and only a small proportion is local borrow areas thereafter. The outer layer of potentially acid forming (PAF). The PAF tailings rock will provide a durable surface to resist wind will be encapsulated within the NAF tailings in erosion. the TSF cells. Seepage through the tailings mass will be intercepted by a series of collector, branch, and TSF SITE finger drains, which will join to form a basin underdrainage system. The drainage network The TSF site is lower in elevation than the will be connected to three concrete sumps at the tailings thickeners and adjacent to the waste upstream toe of the main embankment; seepage rock storage area. This location minimizes will be pumped back into the impoundment. pumping requirements from the thickeners and the costs for waste rock haulage. Mine waste rock will be the principal construction material for FACILITY OPERATION the starter dam. Because of the low topographical relief at site, a four-sided, bunded Sub-aerial deposition methods will be used for impoundment will need to be constructed. A the following reasons: range of near-surface NAF mine waste materials • The supernatant pond can be as small as (clays, sands and gravels, competent rock) will practicable to reduce water losses due to be available for various uses. evaporation and seepage. • It allows operating flexibility to mitigate dust FACILITY DESCRIPTION generation on the tailings surface. • It allows full drying of the tailings adjacent to The initial TSF will be constructed in cells, each the embankments to prevent liquefaction and consisting of two sub-cells for separate winter facilitate lift construction. and summer deposition. At the 85,000 t/d • production rate, the first cell will be filled in Year It reduces the extent of saturated beach area 14. Each cell will have similar underdrainage, and consequently will reduce the potential for decant, and deposition systems. seepage.

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General Arrangement of TSF

======HAUL RAMP BRANCH DRAIN TAILINGS DEPOSITION PIPELINE FINGER DRAIN RETURN WATER PIPELINE ELECTRIC PIEZOMETER AND DATA LOGGER LOCATION TOE DRAIN GROUNDWATER MONITORING WELL LOCATIONS

Water from the tailings pond will be reclaimed to discharged from anywhere around the cell the process water ponds. This recovery will be periphery or the central divider embankment and maximized by using two pumping systems to that operations are not limited by embankment minimize environmental losses and reduce the construction. amount of raw water required from external sources. During winter, tailings will be discharged from single, large-diameter line. A thin sheet of ice Three independent tailings pipelines will be and glaciated tailings will be allowed to develop installed to ensure that tailings can be over otherwise inactive beach areas in each of

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the two sub-cells. The sub-cell used for winter The overall embankment slope will be relatively deposition will be taken out of service during flat, and a waste rock cover will be placed over spring and allowed to thaw. As much stored the tailings surface to control wind erosion. water and thawed ice as possible will be pumped back from the TSF. The supernatant pond will After periods of rainfall, water will accumulate be drawn down to reduce evaporative losses. within the old tailings pond area. This could result in the creation of a natural vegetated zone similar to the original topography. The aim will FACILITY CLOSURE be to return the final surface of the facility to conditions similar to the existing environment to The TSF will be developed in a way that suits the extent practical. ongoing rehabilitation and the closure objectives.

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Water Supply & Management

MINE & PROCESS WATER SUPPLY water will not be reclaimed to the process plant until spring thaw. Aquaterra Consulting Pty Ltd (Aquaterra) completed a comprehensive assessment of A water balance at the design maximum potential raw water sources to meet the project’s production rate, defined as 15% above the total estimated water demand of 650 Mm3 over instantaneous design rate at 70,000 to 85,000 t/d, was also produced. Peak demand in 40 years for the 70,000 to 85,000 t/d case. The 3 IDP does not consider the use of surface or this case is estimated to be 3,179 m /h (883 L/s). subsurface water extracted from the Umdai River This rate was used as the design maximum flow because of its intermittent flow and the potential for the raw water supply pipeline system for for impact on users downstream. continuous but short periods of operation.

Vast reserves of groundwater are stored in BOREFIELD WATER SUPPLY SYSTEM nearby sedimentary basins, which are considered to offer the most cost-effective option The initial borefield development will consist of for a long-term process water supply. Field 48 production bores, 28 of which will be investigations identified three regional aquifers: adequate for average demand and the other 20 to meet short-term peaks in demand. Multi- • Gunii Hooloi • stage, fixed-speed submersible pumps will be Galbyn Gobi installed in all bores. • Nariin Zag. The water will be pumped to a raw water tank at Of these, the Gunii Hooloi aquifer was selected the central plant facilities through a steel pipeline as the priority for development, based on supply arranged with two booster pumpstations en capacity, economics, and environmental impact. route. The pipeline will be buried at a depth of The Galbyn Gobi system has potential as a 2.2 m, below the soil freeze/thaw active layer. supplemental supply, while the Nariin Zag Each booster station will be equipped with three system proved to be insufficient. variable-speed, vertical turbine pumps (two The groundwater resource at Gunii Hooloi has operating, one standby), connected in parallel, to the capacity to supply the long-term demand meet the fluctuating demand. requirements of the mine for a production rate of Telemetry between the raw water tank, the 70,000 to 85,000 t/d. When a second grinding booster stations, and the bore pumps will control line is installed in the future 140,000 t/d the system. The bore pumps will be cycled on production scenario, then other water sources and off as required to control the level in the raw will need to be investigated, including the Galbyn water tank and to minimize any drawdown Gobi aquifer. effects at each bore. A site-wide water balance was prepared for the nominal plant production rate of 70,000 to Environmental Impacts of Borefield Operation 85,000 t/d over a 40-year mine life. Considering Depth to groundwater level over the Gunii Hooloi maximum recovery of water from the tailings system is more than 35 m, whereas the limited supernatant pond for process use, yearly vegetation that exists in the area has a maximum average and seasonal peak raw water demands estimated root depth of 10 m. As such, the 3 were calculated to be 1,865 m /h (518 L/s) and vegetation does not depend on the aquifer. In 3 2,624 m /h (729 L/s), respectively. The seasonal localized areas vegetation may rely on water in peak demand occurs in the winter, primarily streambeds, but these are not expected to be because the tailings ponds will be frozen and affected by borefield extraction.

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Sedimentary Basins for Oyu Tolgoi Groundwater Investigations

Basement Topography Gunii Hooloi North East

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CAMP & CONSTRUCTION WATER Environmental Effects Related to Dewatering SUPPLY Mine dewatering together with post-mining evaporative losses will result in the development During the construction period, water supply for of a “groundwater sink” below regional static the camp and construction activities will be water levels in the pit areas. Under quasi- developed from sources as close as practical to steady-state conditions after mining, the Oyu Tolgoi site. Existing sources located on groundwater gradients around Oyu Tolgoi will site will be adequate initially, but other sources trend toward the pits. This will potentially will be required as the workforce construction mitigate possible effects on groundwater quality activities and resulting demand increases. For a from any contaminants released in runoff or period during construction, it may be necessary seepage from the decommissioned facilities. to develop a small number of the bores in the With the exception of part of the TSF, most of southwest section of the Gunii Hooloi basin and the mine infrastructure falls within the anticipated to transport this water to site by tanker truck until cone of depression at the end of mining, and any the borefield pipeline is operational. water-borne contaminants will be captured by the prevailing flow patterns towards the pits. The MINE DEWATERING degree of capture will depend on the status of the pit at the particular time, i.e., less capacity in Aquaterra studied the dewatering requirements the early years. Subsequent evaporation will and impacts associated with the mining prevent the dispersion of these waters. developments. A numerical flow model was used to predict inflow into the open pits and the The only groundwater-dependent vegetation underground mine workings and was also used identified within 10 km of Oyu Tolgoi is elm trees in conjunction with an analytical model to assess adjacent to or in streambeds. The end-of-mining the post-mining pit water balance and water drawdown contours extend to these areas, but recovery levels. The combined mine dewatering on closure, when groundwater recharge rates from the open pits and Hugo North are resumes, the trees will be outside any drawdown predicted to rise to a peak of approximately zone. After rainfall events, the local streams 125 L/s after four years, remain above 100 L/s receive considerable runoff, and the trees are until year 11, and then gradually drop to expected to have adequate water supply approximately 60 L/s at the end of mining. throughout mine operations. Under the 140,000 t/d case, the peak is estimated to be 140 L/s. During the period of underground mining, groundwater levels are estimated to drop to the base of open pits and to depths of 150 m below surface in the area above the underground mining. This drawdown extends out to a maximum of 5 km from the mine site. After mining, the underground mines will flood, but evaporative losses from the open pits will cause a long-term zone of drawdown approximately 300 m deep at the Southwest pit, extending out nearly 4 km. Water levels north of the open pits will recover substantially because of the underground mine flooding, but it will take Mongolian Elm Trees at least 300 years for steady-state conditions to develop.

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Electrical Power Requirement & Supply

The projected electrical power load profile for The most cost-effective and reliable power Oyu Tolgoi is illustrated below. At the initial supply for Oyu Tolgoi is considered to be the production rate of 70,000 t/d, average 15-minute combination of a coal-fired power station at the power demand will be approximately 130 MW. Tavan Tolgoi coal property 140 km northwest of This will increase to approximately 200 MW the site, in conjunction with a 220 kV when the production rate increases to 85,000 t/d transmission line connection to the substantial during the fourth year of operation. power grid in Inner Mongolia. Connection to the Chinese grid would allow Oyu Tolgoi to start up Initial investigations to assess various options for on schedule, provide IMMI and the Mongolian the supply of power to Oyu Tolgoi began as early government early access to revenue, provide a as mid-2002. Three primary options were long-term solution for power supply stability, and identified: act as a source of backup power.

• obtaining power from the Mongolian Central Given these conclusions, the IDP is based on Electricity System (CES) located approximately power being provided by the equivalent of an 560 km to the north of Oyu Tolgoi independent power producer (IPP) through the • obtaining power from the Inner Mongolian construction of coal-fired power plants at Tavan (China) grid approximately 100 km to the south Tolgoi. These units would initially be operated to at its closest point provide power solely for Oyu Tolgoi and the coal • generating power at or near Oyu Tolgoi fuelled mine at Tavan Tolgoi but, over time, as the need by local coal resources. for additional power within the southern Gobi region develops and additional power generating Studies of these options by recognized stations are constructed, the plants will function independent consultants and engineering firms more as a utility, with Oyu Tolgoi being a Teshmont and Fluor (power plant pre-feasibility significant customer. study) have reached the following conclusions: Assuming that an IPP or utility would require • Considering the current load resource balance, similar returns on its investment, IMMI developed the condition of existing generation equipment, a financial model having tax and depreciation and the significant load of the region, CES will parameters consistent with the project’s require additional generation capacity in the economic model and a rate of return of 10%. future. From this model, the price of electricity is • The cost of construction for a dual-circuit estimated to be US$0.0426/kWh. 220 kV transmission line from the CES to the project site is in the range of $150 million to It is important to note that the Mongolian $200 million. There is no apparent, readily government is not in full agreement with the available funding available to the CES for this conclusions of the studies performed for IMMI construction. There is a substantial risk that and continues to assert that the CES can reliably the line will not be operational in time to meet provide both short-term and long-term power the needs of the Oyu Tolgoi project. requirements of Oyu Tolgoi. Consequently, • Substantial and reliable power appears to be approval has not been received to import power readily available from Inner Mongolia (China) from Inner Mongolia, and discussions between and can be obtained in a timely manner. IMMI and the Mongolian government continue. • The construction of coal-fired power plants in the vicinity of Oyu Tolgoi is both technically and economically feasible.

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Electrical Power Load Profile region and the Oyu Tolgoi Oyu Tolgoi Annual Electrical 15 Minute Demand Forecast project. Despite the 400 advantages of connection 350 to the Chinese power grid, 300 engineering studies have

250 shown that reliable and economic power can be 200 achieved through the 150 construction of stand-alone, 100 coal-fired power plants at 50 Tavan Tolgoi or other Gobi

Maximum 15 Minute Demand in MW in Demand Minute 15 Maximum 0 coal properties. -3-2-1123456789101112131415161718192021 Project Operation Years -3 to Year 21 Expansion to 140,000 t/d – 70,000 to 85,000 tpd Expansion to 140,000 tpd If the Hugo Dummett resource achieves reserve status, Oyu Tolgoi will be In addition, the Government of Mongolia, other one of the largest underground mines in the internationally recognized consultants, and IMMI world. Present strategy anticipates a significant have agreed to perform further studies that will expansion of the mining and processing more intimately involve members from operation from 85,000 t/d to more than Mongolia’s National Dispatch Centre (NDC) and 140,000 t/d around Year 8 of production. As a the Mongolian government. These studies result of this expansion, electric power demand commenced in early June and are expected to will increase from approximately 200 MW to be completed in late September 2005. 350 MW. This demand will be met through the further development of coal-fired power plants at On the basis of ongoing discussions, the IDP is either Tavan Tolgoi or another Gobi coal based on the assumption that this issue will be property in proximity to Oyu Tolgoi. resolved to the benefit of the southern Gobi

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Other Infrastructure & Facilities

PLANT SITE ROADS

The selected plant site is close to the open pit Knight Piésold and IMMI conducted a and underground mines and provides a compact, reconnaissance of several road routes from the cost-effective layout. The site is generally flat, site to the Mongolia-China border. The route with some relief to about 6 m height, and selected for the project traverses approximately includes a bedrock plateau where the SAG and 95 km southeast from the project site, generally ball mills will be founded. The ancillary buildings following an existing track to Gashuun Sukhait, will be founded on gravel/alluvial type deposits. the border post on the Mongolian side, and All facilities are located beyond the underground Ganqimaodao, on the Chinese side. mine subsidence zone outline, as estimated by McIntosh Engineering. This road will be constructed with a gravel sub- bed, using borrow materials from local sources, To prepare the building site foundations, topsoil and have an 8 m wide sealed running surface will be removed and stockpiled, followed by cut- and 1 m wide shoulders. The design will suit and-fill levelling as required. Approximately 1.5 construction requirements and maximum 40 Mm3 of additional fill from selected borrow pits is tonne payload truck-trailers or trucks to transport required to form elevated pads for the thickener, ore concentrate to China. Costs for improving process water ponds, and the coarse ore this road are included in the capital cost estimate stockpile. for the Oyu Tolgoi project, although there may be an opportunity for the road to be constructed with international development funds. RIVER DIVERSION A number of on- and off-site gravel roads will be The existing Umdai River channel runs through constructed to access the raw water borefield, the future open pits. Subsurface flow in the river tailings dam, accommodation village, airstrip, channel is constant, but surface flow is sporadic, and mines. occurring only after heavy rainfall. The river must be diverted to prevent the mining hazard South of the Mongolia-China border, the existing represented by water inflows to the pit and to road to Wuyuan, the proposed location of the ensure continued supply to downstream users. railhead facility, will be upgraded; this represents A dam and diversion channel will be constructed a total distance of approximately 260 km. Only and the submerged flow diverted through a short sections of the existing road are suitable buried pipe arrangement. Surface floodwater will for the large volume of construction traffic to site be diverted via the diversion channel to the and the concentrate truck transport operation in parallel tributary. Both flows will return to the the early years. The route passes through Umdai River downstream of the site. heavily populated areas north of Wuyuan but connects to a recently improved road that Because the near-surface water in the river flows bypasses Wuyuan itself and connects to the in a perched water table, separated from the railhead. The final decision on routing and underlying groundwater table, the river flow is IMMI’s capital contribution to road-building will not expected to be affected by the drawdown depend on consultation and negotiation with associated with mine dewatering. local authorities in northern China. Currently, no costs are included in project estimates for upgrading or maintaining roads within China.

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General Site Plan

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ON-SITE SUPPORT BUILDINGS & Accommodation Village The permanent accommodation facilities will be TRUCTURES S arranged as a “village” at the foot of the low hills Warehouse that rise at the north boundary of the lease. The The main site warehouse will provide heated, buildings will be constructed from modules covered storage for equipment spares and manufactured off site. Facilities will include the weather-sensitive materials, as well as office following: space for warehouse personnel. Adjacent • dormitories external storage areas will include a concrete- • kitchen and associated food storage and surfaced pad and yards for bulk materials that do preparation facilities not require protected storage. All external yards • local style and Western style mess will be surrounded by security fencing. • wet mess • laundry and associated room-cleaning facilities Truckshop Complex • village administration and recreation facilities The truckshop complex will consist of two self- • shop, including post office and public phones contained, structural steel buildings, the main • first aid facility one for service bays, warehousing, and offices, • occupational health testing facility. and the second for lube storage. In the main building, space is provided for integrated service The village will be constructed in phases and will bays for heavy and light vehicles as well as other be utilized for both construction and operations. maintenance and repair shops and facilities. Initial facilities to house construction The warehouse space will include ground floor management and general service contractor and mezzanine storage. Offices for mine personnel during construction will house 1,500. operations, administration, mine management, As production commences and production engineering, safety, training, and a lunchroom personnel replace construction personnel, the will be allocated on the second and third floors. village will be expanded to house 500 additional general employees, bringing the total population In preliminary discussions with equipment of the village to 2,000. The village will be maintenance contractors, there is an option to refurbished for operations occupancy after the include construction of the truckshop in the construction phase of the project. scope of the MARC (maintenance and repair contract). This will be further evaluated prior to Security Facilities award of the contract; however, capital has been The site will have two manned guardhouse gates provided in the IDP for the construction of this and a perimeter fence to enhance safety and facility. security of personnel and property, to prevent animals from wandering onto the site, and to Explosives Magazine & Emulsion Mixing protect native fauna. Plant The magazine and emulsion mixing facilities will Airstrip be constructed and operated by a contractor. The airstrip design is based on specifications Facilities will consist of fuel oil storage tanks, an derived from the International Civil Aviation ammonium nitrate storage area, a detonator Organisations (ICAO) and will be suitable for storage area, and an emulsion mixing plant. The Lockheed C130 and Fokker F50 aircraft. A project capital estimate includes the provision of single gravel-surface strip will be constructed services for the facility, but not for construction of southwest of the process plant. the facility itself.

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The terminal building will be 12 m wide x 25 m Emergency Power long and will include an entry area with a check- Emergency power will be provided by diesel- in counter, security check-point with bag x-ray fuelled generating sets, installed in the following and personnel metal detector, a departure locations: lounge sized for 50 persons, and male and female washrooms. • process plant (four 1.5 MW diesel generators for a total of 6 MW capacity) No facilities will be provided for fuel storage or • tailings pumphouse (one 1.5 MW diesel airplane refuelling. generator) • truckshop facilities and boiler house (one 750 kW diesel generator) UTILITIES & SERVICES • accommodation village (four 750 kW diesel generators for a total of 3 MW capacity) Power Distribution • airstrip (one 150 kW diesel generator). On-site facilities will be supplied by a 35 kV distribution system through radial feeders In the event of a utility power failure, the originating at a 220 kV main substation and emergency power generators will start routed through underground cables or overhead automatically, providing power to the essential power lines. The following voltages will be loads such as lighting, heating, and utilized for systems and equipment: communication systems in buildings, and to • emergency loads for selected process 35 kV for the plant site power distribution equipment in the process plant to ensure orderly system and the primary feeders to the shutdown and permit plant maintenance converter transformers for the gearless mill activities. drives • 3.3 kV for large motors above 200 kW rating • 10.5 kV and 3.3 kV for the underground mining Communications power distribution systems A communications network will be established • 690 V for process equipment rated less than based on satellite technology and wireless 200 kW communication for voice, fax, Internet, and PC • 380/220 V, three phase and single phase, for network traffic. The communications and IT lighting and small power loads. infrastructure will consist of satellite link, PABX, Ethernet LAN, IT servers, desktop computers, UPS system, copper and fibre cabling, and site Heating VHF radio system. VSAT (very small aperture The site facilities will be heated by coal-fired terminal) satellite equipment on site will consist boilers burning coal available in the vicinity of the of satellite antenna, transceiver, modem, and site. Two central boiler plants, one at the bandwidth manager. Ethernet LAN points will be process plant and the other at the provided in all offices, stores, and workshops. A accommodation village, will provide building “trunked” repeater system will provide the heating by means of glycol circulation to air- infrastructure to enable VHF and mobile radio handling and heating units. A third boiler plant sets to communicate around the site. will be constructed to provide heated ventilation air to the underground Hugo North mine; this System security will be achieved by a centralized system will be expanded as the mine develops. access control server with a network intrusion All remote small buildings and modules will be detection system and VPN (virtual private provided with electric heating. network) concentrator. Voice communications will be based on an IP network using wide area network (WAN) links, which will result in lower operating costs.

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Fuel & Coal Supply village and the process plant area. The plant will Diesel fuel will be stored in a central fuel storage be a two-train system, each train having a depot supplied and operated by the diesel fuel treatment capacity for the requirements of 1,000 supplier under contract. The facility will consist people. Sludge from the plant will be dried and of a lined and bunded tank farm with two tanks, buried, and wastewater will be pumped to the each of 2 ML capacity, located south of the tailings storage facility. truckshop. Recyclable wastes, including waste oils, will be Coal will be required for the boilers used to heat collected on site before being removed. Non- the process plant, accommodation area recyclable wastes will be disposed of in a buildings, and underground mine. Coal will be sanitary landfill. delivered to site, dumped, and pushed by bulldozer into stockpiles adjacent to the heating FF ITE ACILITIES units. Initial delivery will be by truck, but rail O -S F transport is anticipated in the future. During the Railhead & Associated Facilities initial years of open pit mining, annual diesel fuel The IDP is based on trucking concentrate to consumption will reach approximately 50.0 ML/a. storage facilities at a railhead facility in Wuyuan, Coal consumption is estimated at 12,000 t/a China, for the first years of operation. The initially, increasing to 20,000 t/a when Hugo facility, to be owned and operated by IMMI and North is in full production. included in the cost estimates, will have the capacity for a minimum of 10 days of storage at Water Systems an annual concentrate production rate of Raw water will be pumped approximately 70 km 450,000 t/a. The design of this facility will be from the Gunii Hooloi borefield to the raw water reviewed during the basic engineering phase of tank adjacent to the process water ponds. From the project to evaluate options such as the use of the tank, water will be distributed by an existing facility or acquiring space on a lease underground pipelines to the process water basis. ponds, the process plant, and the potable water treatment plant. As the underground mine is Off-Site Administration developed, raw water will be supplied to a tank A regional office will be established at a major at the shaft farm through a line routed along the city in China for the following operations overland conveyor. Excess inflow water from the functions: open pit and the underground mine will be pumped to the process water ponds. Raw water • concentrate marketing and sales for potable use will be treated in a suitable plant • concentrate transport logistics near the concentrator and be distributed to the • procurement and logistics. various facilities. The existing office in Ulaanbaatar will be The raw water tank, primary crusher raw water modified to include offices for personnel involved tank, and potable water tank at the in the following activities: accommodation village will each have a reserve of fire water in the lower portion of the tank that • government relations will be drawn from below the primary water • legal support nozzles. The fire-fighting reserve in each tank • travel coordination will meet a two-hour demand of 340 m3/h. • human resources • translation. Sewage Treatment & Waste Disposal A modular sewage treatment plant will be It is envisaged that Dalanzadgad, northwest of provided midway between the accommodations the project site, will be the main regional centre

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for recruitment of semi-skilled and unskilled activities, which will be supported from site or by personnel, as well as some skilled and establishing facilities in these communities: professional employees. Khanbogd is the community closest to the site and will be another • provincial government relations source of personnel. Funds have been allocated • recruiting in the operating budget to support the following • workforce training and education.

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Project Implementation

APPROACH

Successful development of the initial phase of infrastructure from the coast to within 80 km of the project (Phase 1a) will involve the the site. implementation of a plan for the concurrent • Advancement of the underground development management of at least three major project will enhance project economics. components—open pit, concentrator & • Long-lead procurement items associated with infrastructure; underground development; and the process plant will need to be ordered early power supply (refer to Level l project schedule to satisfy the construction schedule. presented earlier in project overview). • EPCM contractors and suppliers for the metals After the initial development phase, a near- mining industry are currently in high demand. continuous program of phased studies and associated development/construction efforts will To meet the diverse and extensive management be required over a period of 12 years to achieve for the development, a Western contractor with the possible mining and processing rate of significant experience in mining and in Asia will 140,000 t/d (Phase 2). be appointed to lead a Program Management Organization (PMO) as part of an integrated The execution strategy recognizes several key team with IMMI. This team will have overall factors: responsibility for directing and coordinating the major project components. • No new technology is proposed for the process plant. The PMO will manage the various principal contractors associated with the process plant • Project management and engineering firms and infrastructure development from a base in exist that are experienced with the proposed technology, but no local contractor has Beijing or another location within China. experience with a development of this size or Concurrently, the PMO will manage the complexity in Mongolia. underground mining development work associated with the advancement of the two • Certain governmental and commercial shafts at Hugo North, the power supply initiative, negotiations are outstanding. and project-related off-site developments. • Regulations, permitting, and taxation issues in Mongolia may be subject to ongoing A key component of the execution plan is to negotiation and adjustment. maximize opportunities for Mongolia while also • Benefits arising from the project are to be maximizing “Chinese value.” Chinese value will maximized in favour of Mongolia and the be captured by involving experienced Chinese Mongolian people. contractors in construction of major components of the processing plant, some on-site • The Mongolian construction labour force is of infrastructure, and shaft sinking. Chinese modest size and has not participated in a manufacturers are expected to supply many of mining development of this size or complexity. the bulk materials and some equipment. To • The site is located near China, which has a realize the benefits in these high-value areas, it large, skilled workforce and an industrial is anticipated that Chinese Design Institutes manufacturing sector experienced in major (CDIs) will complete much of the detailed design. modern mining developments. This approach reflects recent experience in • Mongolia is landlocked without direct access to China where Western expectations of quality and tide water. China has well-developed

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schedule performance have been met to the manufactured materials will be sent to a satisfaction of major international clients. consolidation yard, then be transshipped to site by road or rail. The principal contract packages for the • Off-shore shipments will be transported under combined open pit, concentrator, and bond, and all receiving, consolidation, and infrastructure are as follows: custom-clearance activities will be conducted by a freight-forwarding contractor. 1. PMO Services (international firm) • 2. Basic Engineering – process and on-site The preferred road route from Tianjin to site is infrastructure, including procurement of off- by way of the Inner Mongolian town of shore open pit equipment (international firm) Ganqimaodao at the China-Mongolia border. • 3. Detailed Engineering – process and on-site Currently, this border crossing is open only infrastructure (CDI in China) intermittently. The IDP assumes that the border will be opened full time in the near 4. Basic Engineering – utilities and off-site future. infrastructure (international / China) • Importation of equipment and materials is 5. Detailed Engineering – utilities and off-site currently subject to Mongolian duties and infrastructure done as E, EP, or EPC (CDI or taxes. It is anticipated that the Special Stability Mongolian firm) Agreement being negotiated with the Further plans for construction execution are Mongolian government will reduce many of summarized below: these obligations. Certain activities in China may also result in tax or duty exposure. • Procurement of key process equipment will be Certain duties and taxes can be avoided or carried out by the PMO. With the buoyant mitigated by structuring appropriate corporate mining industry, some delivery times of 75 or and contracting relationships. The cost of 80 weeks have been quoted. Purchase orders duties and tax is excluded in the capital cost for this equipment will therefore require early estimate. attention. • Construction contracts will be a Tianjin to Oyu Tolgoi Road Routes combination of unit price/lump sum and direct hire. The heavy industrial work will be tendered to major Chinese firms and components of infrastructure to Mongolian contractors; the site services activities will be performed by direct-hire Mongolian labour. • Chinese and Mongolian contractors with larger workforces will be required to provide their own camps, while all other site workers will be housed in an Owner-provided camp. • Logistics and transportation studies have concluded that equipment and supplies procured from off shore will be received at the Chinese port of Tianjin. These goods and Chinese-

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The execution plan presented here does not The early activities include basic engineering for address the expansion to 140,000 t/d. Although the process plant, construction of temporary the strategies and approaches outlined for services, and placement of long-lead equipment Phase 1a are expected to remain essentially the orders for process plant and major mine mobile same, the Mongolian workforce is expected to be equipment. Mining activities are scheduled for more effective and regional infrastructure more the final 16 months of construction and include developed when in-depth planning for Phase 2 training. begins. Based on recent experience in mine developments executed in remote locations, the SCHEDULE schedule is reasonable and achievable, although full cooperation of Mongolian and Chinese A Level II schedule for Phase 1a is provided authorities will be necessary to expedite the overleaf. Development of the open pit, transportation of equipment and supplies and to concentrator, and infrastructure will be accommodate the joint Mongolian and Chinese completed over a 33-month period following workforce. project approval.

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Level II Schedule – Phase 1a Open Pit, Concentrator & Infrastructure

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Operating Plan

PERSONNEL ORGANIZATION

Mine management and administration functions • Most employees will work 12-hour shifts will be centralized at the site. Off-site offices will • Senior managers will work 5 days, then be be set up at Ulaanbataar for government returned to Ulaanbaatar relations, at Dalanzadgad for hiring and regional • government affairs, and at a major centre in Expatriates will work 6 weeks, then be returned China for procurement, marketing, and other to their country of hire for 2 weeks Chinese business matters. Initial staffing will • Mongolian nationals will work 14 days followed include a combination of expatriates and by 7 days at home. Mongolians. Mongolian Workforce The number of expatriates will be relatively large at the beginning but will eventually be similar to IMMI has been carrying out exploration activities levels at world-scale operations in developing in Mongolia for more than four years and has countries run by Western companies. developed considerable knowledge of the Expatriates will fill senior management roles. available skills and applicable wage rates. These individuals will be among the leaders in Supplemental data have also been provided by their fields of expertise and will have hands-on other companies operating in the country. experience from other major mines. Other expatriate personnel with specific technical The level of education in Mongolia is comparable expertise will assist in training and in to that in many Western countries, with almost implementing operational procedures in the early universal literacy and a high participation rate in years of the operation. Their goal will be to bring tertiary education. However, Mongolian the Mongolian workforce to skill and knowledge exposure to the particular technical and trades levels that permit them to replace most of the skills that will be required for the Oyu Tolgoi initial expatriates. operation has been limited. Although another large mine is in operation in northern Mongolia Initial Operations Work Force (Erdenet), technology and working methods are not consistent with those envisaged for Oyu Number of Total Year Expatriates Employees Tolgoi. 1 78 880 IMMI plans to establish significant training 4 43 1,095 resources and facilities. IMMI’s objective is to 8 12 1,185 maximize Mongolian employment levels and to 12 7 1,187 have a 90% national workforce by the fifth year of operation. Mongolian-based professional staff and approximately 50% of other non-expatriate staff FUEL SUPPLY are expected to live in Ulaanbataar and the rest in Dalanzadgad or other centres in the Gobi. Diesel fuel will be used for the mobile equipment Accommodation facilities will be provided at the associated with open pit mining and, to a lesser mine site for employees on rotational work extent, underground mining. There are no oil schedules. While on site: refineries in Mongolia; supply is expected to be from Russia.

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Facilities on site will be heated by coal-fired Adequate warehousing will be maintained at Oyu boilers. The coal will be sourced regionally from Tolgoi for spare parts and supplies. The MARC the large nearby coalfields in Mongolia. contractor responsible for mine mobile equipment maintenance will maintain a stock of Other fuels, such as gasoline and liquefied spares for the open pit mine equipment. petroleum gas, will only be used where diesel or coal are impractical. MAINTENANCE CONTRACTS

POWER SUPPLY Oyu Tolgoi will undertake most maintenance with its own workforce. Exceptions are the mine For the first five years of operation, it is mobile equipment fleet, which, as noted, will be anticipated that power will be obtained from the maintained by a MARC contractor, and mill Inner Mongolian grid. Thereafter, power is relining, which will be performed by contract expected to be supplied from a coal-fired power crews for the first five years of operation. After station built at Tavan Tolgoi or other Gobi coal this time, the relining will be done by Oyu Tolgoi field. The point of power purchase will be at the personnel. site substations at a cost of $0.0426/kWh. ANALYTICAL SERVICES OPERATING CONSUMABLES Assays for concentrator control, mine grade Grinding media, bulk chemicals such as lime and control, metallurgical accounting, and shipments flotation reagents, and most maintenance will be done in a laboratory on site at the process supplies will be obtained from China. Exceptions facilities. Most environmental analysis work will are certain proprietary collectors and specialty be performed in Ulaanbataar. spare parts for process equipment. Supplies and stores will be marshalled at a yard in China and forwarded to the site.

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Socio-Political Assessment

Socio-political assessment for the project has prepared in 2004 and reflect earlier project data. included the collection of baseline data on In mid-2005, IMMI commissioned a new report to communities with direct historic, economic, and assess the socioeconomic impact on Mongolia of cultural links to the project site and surrounding the IDP expanded case (nominal 140,000 t/d) for area, and one other communities most likely to the project. be influenced by project activities. In addition, traditional ecological knowledge (TEK) has been The mine is expected to have significant, long- gathered in conversations with nomadic herder lasting, and net positive effects on the economy families. of Mongolia in terms of investment expenditures, exports, and jobs. The project is also expected Information used for impact assessment was to help Mongolia expand its industrial and drawn from a wide variety of sources, including manufacturing sectors and to bring job-intensive field surveys, personal interviews, community diversification to an economy that is currently consultation, existing records for the area, and dominated by agricultural production. desktop studies. The economic studies relied heavily on econometric models of the national More than 10,000 person-years of construction and regional economies. employment and 38,000 person-years of total employment will be generated. IMMI aims to have a 90% Mongolian national workforce by the EFFECTS ON LOCAL COMMUNITIES fifth year of operation.

The main socioeconomic effects of the Oyu Over the life of the mine, the average increase in Tolgoi project on local communities are expected the number of jobs created in Mongolia is to be: forecast to be 10.3% per year. It is assumed that sufficient workers are available in Mongolia • provision of direct employment at the mine to meet the operational needs of the project, • improved opportunities for employment in including indirect employment. The largest secondary sectors • effects will not be seen in the mining industry, higher fiscal revenue but rather in other support industries that are • infrastructure development currently under-utilized. • work-related training • a better quality of life overall.

Induced impacts on local residents from environmental change may occur in the areas of local water supplies, grazing land, air quality, and noise levels. IMMI has implemented a residential exclusion zone surrounding the project site and is assisting with the relocation of herders who have customarily used this area for traditional activities.

EFFECTS ON NATIONAL ECONOMY

IMMI commissioned three socioeconomic and macroeconomic studies on the impact of the Oyu Parade in Ulaanbaatar Tolgoi project on Mongolia. These studies were

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The real Gross Domestic Product (GDP) of Other economic effects include changes to Mongolia is forecast to increase by physical infrastructure and human resource approximately 34.3% from 2002 to 2043. In capabilities. Regional infrastructure will be addition, the project will dominate national improved with new road and railway economic performance during its lifetime. transportation links and a new electricity Correspondingly, variations in mine production generating station and power transmission lines. will affect overall economic conditions in the country over time. Fiscal effects are indicated by IMMI will also be undertaking training and the cumulative difference in the government capacity-building activities on a national scale to sector’s current revenues. The increase from assist with efforts to reach its employment target base case revenues is projected to US$7.9 for Mongolian nationals on the project and in billion over the life of the mine, potentially support of its broader social responsibilities. producing a substantial cumulative reduction in From the report published in August 2005, the government debt. Corporate taxes show the largest increase over the project period. impacts of the expanded case are summarized below.

Project Impacts (2002 – 2043) – Expanded Case Average Cumulative Economic Factor % Increase Increase Real GDP 34.3 - Consumer expenditures 9.3 - Exports 71.6 - Imports 44.2 - Net exports (US$ 1995 billions) - 11.2 Employment 10.3 - Labour force participation rate (avg) 5.8 - Real per capita disposable income 11.5 - Government operating balance excluding debt payments (US$ 2005 billions) - 7.85

Impact on Government Revenues (Tg 2005 billions) – Expanded Case

500 450 400 350 300 250 200 150 100 50 0 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042

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COMMUNITY ASSISTANCE & DEVELOPMENT PROGRAMS

IMMI plans to implement an integrated set of community assistance and development programs to maximize positive social and economic effects for the surrounding communities and to appropriately manage public expectations vis-à-vis project benefits, as follows:

Public Consultation Plan – This consultation program began in 2003 and will continue throughout the life of the project.

Herder Support Program – This is a wide-ranging program that focuses on 11 herder families. A new winter base has been established for all but one family. Assistance in the form of training, employment opportunities, and access to health care and education will continue for some time.

Community Assistance Plan – IMMI has planned for a series of programs and initiatives aimed at improving the health, education, and economic lives of residents within the region.

ARCHAEOLOGICAL & HERITAGE RESOURCES

Archaeological investigations and excavations have been completed in three key areas of the project: the mine licence area, the water supply corridor and aquifer locations, and the access road corridor from site to Gashuun Sukhait at the Mongolia-China border. IMMI has also sponsored the excavation of sites at Javkhalant Mountain, 17 km southwest of the project site, considered to be of cultural significance to residents of the region.

Findings in the combined study areas include four ancient copper mines, three ancient stone structures, numerous grave sites, and more than 200 petroglyphs from the Neolithic to the Bronze Age. Some findings were located in the open Petroglyphs from Oyu Tolgoi Area pit and underground mine direct area of impact. Where appropriate, artefacts have been excavated by the Institute of Archaeology, Mongolian Academy of Sciences (MASIA), and transported to Ulaanbaatar for further study and protection.

Further work is planned as project development continues. “Chance-find” procedures are to be included in the Cultural and Heritage Protection Plan.

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Safety, Health & Environment

HEALTH & SAFETY

Occupational Health & Safety Standards prescribed by the international safety standard IMMI policy insists on, and the company is OSHAS 18001. dedicated to, implementing a comprehensive health and safety program that meets or exceeds Management of Emergencies mining industry standards for best practice. The In the event of an emergency, evacuation, or project will be executed under local, other serious emergency, the site Emergency international, and IMMI guidelines and standards Management Team (EMT) will initiate an for occupational health and safety. To create appropriate response to safeguard life and and maintain a safe and healthy working minimize damage to the environment, property, environment, IMMI will implement a and equipment. comprehensive Health & Safety Management System (HSMS) that: ENVIRONMENTAL ASSESSMENT & • provides a framework for continually improving MANAGEMENT overall health and safety performance • is appropriate for IMMI operations IMMI has stated that it is committed to the • integrates with other systems and core implementation of ISO-14001 for the Oyu Tolgoi functions project. • assists IMMI in managing its legal obligations • meets the requirements of the Ivanhoe Mines Extensive baseline data have been gathered and Health and Safety Policy plans developed to assess the potential impacts • outlines the requirements of the site-specific of the Oyu Tolgoi project on the bio-physical and Health & Safety Management Program. social environment in the south-central region of Mongolia. Work to date also includes The HSMS will be based on the Australian/New preliminary environmental risk assessment, Zealand Standard AS/NZS 4801:2001, proposed mitigation, protection, and monitoring Occupational Safety and Health Management plans, and the identification of areas where work Systems, General Guidelines on Principles, is incomplete or outstanding. The available Systems and Supporting Techniques, and will information covers three broad project incorporate the following five principles from the components: standard: • access road and powerline corridor from site to • commitment and policy the Mongolia-China border at Gashaan Sukhait • planning (access road corridor) • implementation • groundwater resource use from the Gunii • measurement and evaluation Hooloi and Galbyn Gobi regional aquifers • review and improvement. (aquifer locations and water supply corridor) • Oyu Tolgoi project mine licence area. IMMI has reviewed the existing Mongolian mine safety legislation and identified no significant The access road corridor from the Mongolia- compliance or operational constraints. For future China border to Wuyuan in China, the considerations, where Mongolian regulations do destination for mine concentrate and location of not meet these international standards, other the rail head for the first three years of operation, regulations, specifically Canadian or Australian, has not been addressed in terms of will be adopted. The HSMS meets the standards

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environmental baseline conditions and impact in a bond account with the Soum (local assessment. government) authority.

Regulatory Framework EXISTING ENVIRONMENT The Mongolian Ministry for Nature and Environment (MNE) is responsible for Topography environmental legislation and approvals for new The access road corridor, aquifer and water projects in the country. The primary legislative supply corridor, and mine licence areas are instrument is the Law of Mongolia on situated within the Galbyn Gobi, one of 33 Environmental Impact Assessment (EIA) (2001). Mongolian Gobi deserts. The Galbyn Gobi is a broad, flat valley at the lowest altitude in the Mining projects must produce project documents country (860 to 1,075 m) surrounded by for screening before obtaining a licence for mountains up to 1,351 masl. Project-related mineral use. After negotiations between MNE impacts on topography are subject to current and IMMI in 2002, preliminary project concepts assessments of the project area layout. Detail were submitted to MNE in February 2003, design will focus on minimizing the footprint of including baseline environmental data produced project components as well as following best by Mongolian consultants licenced for practices during development and reclamation of undertaking EIA under Article 9 of the Law on the waste rock stockpiles, tailings impoundment, EIA. On review of this information, the MNE mine facilities, and linear structures. Within the screening committee established formal water resource area, groundwater extraction will guidelines for the Oyu Tolgoi EIA in March 2003. be managed to minimize the potential for surface The MNE screening guidelines for the project subsidence. were originally valid until the end of the first quarter of 2004 and have since been extended Climate & Air Quality to 15 October 2005. IMMI is currently monitoring climatic conditions at several locations in the region. Further long- The EIA for the project is being completed in term monitoring is required to complete air three stages—access road corridor, aquifer quality modelling. Baseline assessments of the locations and water-supply corridor, and mine air quality in the mine licence area were carried licence area—that reflect the current status of out in July 2002. Additional meteorological and project planning and development. The EIA for air quality monitoring is required in this area and the access road corridor from Oyu Tolgoi to along the access road corridor. Gashuun Sukhait was completed in April 2004 and approved by the MNE in May 2004. The Acid Mine Drainage & Metal Leachate second document on groundwater resource use Geochemical testing has been conducted on was submitted 22 June 2005. The last, covering samples of tailings and the open pit waste rock. the mine licence, will be submitted during the No modelling has yet been done to predict the second half of 2005. potential for post-closure acid-mine drainage and metal leachate generation. The existing testwork An annual environmental report must be results suggest that potential geochemical issues produced during project construction and can be managed by a combination of mine operation, providing details of environmental scheduling of relevant waste types and management and monitoring activities in appropriate design and construction of the waste accordance with the plans and approved dumps and TSF. The potential for acid mine programs. An environmental bond equivalent to drainage and metal leachate from materials 50% of the annual budget to meet environmental sourced from borrow pit areas should be management plan obligations must be deposited assessed prior to excavation and use on roads.

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Hydrology & Surface Water Quality corridor, and aquifer areas are being collected The Oyu Tolgoi project area is located within the through current monitoring programs. This closed Central Asian drainage basin and has no information will be established prior to project outflow to the ocean. Most riverbeds in this development as a basis for assessing potential drainage basin are ephemeral creeks that project-related impacts on surface water quality remain dry most times of the year. The Umdai during routine monitoring. River is the most significant hydrological feature of the project area. A tributary of the river Potential impacts on surface water systems in passes through the site. the project area include changes to natural flow paths and depletion of springs, ephemeral Flows after heavy summer rainstorms often wetlands, and salt-marshes from project result in very turbulent, high-velocity mud flows, development and operation activities, which may locally termed “Gobian wild floods.” These cause loss of wildlife habitat, increased wildlife floods have been known to destroy road mortality rates, and changes to wildlife crossings and to carry away vehicles caught in distribution and migration patterns. the riverbeds. No surface flow data are available for these isolated and episodic flood events. Potential impacts on surface water quality Discussions with local herders indicate that, on include increased sedimentation and risk of average, four to six flow events occur in summer pollution of springs, ephemeral wetlands, and to autumn each year. salt-marshes from increased erosion, contaminated dust fallout, contaminant spills, and accidents associated with project construction and operational activities. Fugitive dust control management plans and spill management systems are being developed to avoid and mitigate potential impacts to surface water quality. These impacts may result in loss of wildlife habitat, decrease in wildlife health, and decrease in wildlife population because of higher mortality rates.

Positive impacts associated with the upgrading of road facilities along the corridor include the formation of dedicated stream crossings, which will reduce the number of undefined and informal Umdai River in Flood Conditions crossings that now exist along the Shallow springs are used by wildlife and section of local roads. This will livestock as drinking water sources. Migratory significantly reduce the area where stream banks wildlife movements during summer months in the and riverbeds are disturbed by uncontrolled Gobi are likely to be dictated by the presence of vehicle access. Improvement of the road and surface water in natural springs. crossings will reduce the risk associated with transport of hazardous materials. Water quality baseline data for surface waters throughout the project area, access road

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Hydrogeology & Groundwater Quality nomadic herders have used specific local plants Detailed groundwater investigations to date have as medicinal drugs, while other plants are used been concentrated in the Gunii Hooloi, Galbyn as seasonal food. Vegetation in the region also Gobi, and Nariin Zag aquifer areas to assess the serves as wildlife habitat and food source for potential to meet the project’s estimated water wildlife and livestock. demand. Groundwater investigations conducted in the mine licence area focused on assessment Other current stresses on vegetation cover and of required dewatering rates for mine works and health in the region arise from vehicle traffic over the potential to meet the project’s camp and unformed tracks that have disturbed large areas. construction water demands. Construction of the access road and designated project roads may significantly reduce this stress Following a review of available studies on vegetation. completed in the region by Aquaterra, AAJV confirmed that additional work is needed to Project-related impacts on vegetation cover and further characterize groundwater conditions in health include permanent removal of vegetation each project area and the region as well as to cover for the development of project facilities and increase confidence levels in existing conceptual infrastructure, i.e., open pit, plant site, rock piles, resource and impact models. mine roads, tailings storage facility, borrow areas, access road, and power line; and temporary removal and disturbance of vegetation Soils cover for development of underground mines Six soil types were identified in the 2002 field and the water resource pipeline and borefield. surveys, all containing low nutrient content and Indirect impacts on vegetation cover and health ranging from medium to high alkalinity. Soils in are expected from dust fallout, surface water elevated areas contain a high proportion of rock runoff, and shallow groundwater contamination fragments throughout poorly developed horizons. along the access road and within the mine Sandy eluvium over preserved brown loams licence area. Desiccation caused by changes to cover the valleys and steppe areas, providing an the surface water drainage system and possibly indication of the major impact of wind and by groundwater extraction are expected to lead dusting on soil development. The sandy valley to loss of vegetation cover; these impacts may and steppe soils are generally non-saline. remain post-closure. Mitigation and monitoring Further baseline work within the project area is will be implemented to reduce these impacts. continuing to identify key concentrations of quality parameters in soils so that potential changes resulting from project development can Fauna be assessed. The fauna of Mongolia is represented in the north by forest-steppe species of Eurasia and in Vegetation the south by desert species of Central Asia. The The flora in the Oyu Tolgoi project area has been central belt of Mongolia is a transitional zone that classified as representative of the eastern region includes both. The desert fauna of the Gobi of the Gobi Central Zone within the Central Asian region is extremely diverse, with many species Greater Zone. Vegetation tends to be typical of the Central Asian desert. The low homogenous across the Eastern Gobi Desert population density and isolation of the southern Steppe and consists of drought-tolerant shrubs Gobi region of Mongolia has resulted in the and thinly distributed low grasses. Four rare survival of many endangered species that no plant species occur within the mine licence area. longer exist in neighbouring countries. Some shrubs are used for cooking and heating fires in “ger” dwellings. However, pressure from Although the entire project area serves as human use is lower near Oyu Tolgoi because the habitat for reptiles and to migratory mammals population density is very low. Traditional and birds, low sandy dunes areas and

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shrublands provide habitat to distinct wildlife family units. Use is based on informal traditional communities. Mongolian principles of shared grazing rights with limited land tenure for semi-permanent Many of the larger mammals found within the winter shelters and other improvements. general project area are rare and endangered Initiation of the herder support program has species. Six species having conservation reduced the incidence of land use conflict significance have been recorded in the mine between current mineral exploration and grazing licence area (MNE, 1997). Two species (the practices. The project intends to maintain Asiatic wild ass and black-tailed gazelle) listed coexistence of traditional grazing practices and as threatened were recorded in the access road mineral development except where there is a risk corridor and Galbyn Gobi aquifer area. to public safety or livestock. Potential impacts on fauna associated with development of the project include changes in RISK ASSESSMENT abundance, geographic distribution, and productivity at the species and ecosystem level. The Law of Mongolia on Environmental Impact Wildlife management plans will be developed Assessment (2001) and the guidelines issued for along with local authorities and government IMMI’s EIA (2001) require the inclusion of a risk bodies to minimize these impacts. These plans assessment in project documentation. “Risk will include initiation of wildlife research assessment” means identification and prediction programs with Mongolian research facilities to of the possible emergencies and accidents that gain a better understanding of wildlife could occur during the production process or populations, migration, and species diversity. natural disasters, and elimination and mitigation of their consequences. Noise & Vibration No baseline noise and vibration data have been ONGOING WORK collected for the project areas of impact. Noise and vibration assessment is required to ensure A complete list of outstanding work to be compliance with Mongolian and World Bank completed at various stages of development, criteria during both construction and operations, and current status, is included in the main body and also to address anticipated concerns by of the IDP report. Key work includes baseline stakeholders, including the general public. An studies and assessment of project-related assessment is proposed prior to mine impacts along the access road corridor from development to meet Mongolian and World Bank Mongolia-China border to Wuyuan, China; standards. wildlife population dynamics, habitat use, ecology and migratory habits of key species Protected Areas within the region; transboundary issues, The Small Gobi Strictly Protected Area (SGSPA) cumulative effects, human health risks, and is approximately 80 km south of the mine licence noise effects; and continued evaluation of acid area, on the Mongolia-China border. The access mine drainage and metal leachate potential, road corridor traverses through 13 km of the hydrology, water quality of surface water protected area. With the acceptance of the EIA occurrences, groundwater resources, air quality, for the corridor in June 2004, IMMI has received soil chemistry; and projected impacts. approval to cross through this area. Completion of this work will aid in customizing Land Use – The land surrounding the mine and improving existing environmental licence area is predominantly used for nomadic management and monitoring plans as part of an herding of goats, camels, and sheep by small Adaptive Environmental Management System.

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Closure & Reclamation

As part of overall project planning, IMMI has to “walk away” from the reclaimed mine with no prepared a preliminary reclamation and closure environmental or social encumbrances. plan. Certain features of the mine, such as the open pit, waste dumps, and tailings IMMI will develop environmental monitoring impoundment, will create permanent changes to plans, including proposed activities and the current landscape that cannot be completely schedules, to ensure that environmental remedied through reclamation. The closure plan parameters meet the criteria, standards, and will, however, ensure that these disturbed areas limits laid out in the EIA and Environmental are stable and have no residual impact on the Protection Plan. In accordance with Mongolian surrounding water, air, and land. law, IMMI will undertake monitoring at its own expense using approved methods and The closure plan for the Oyu Tolgoi project will accredited facilities. The monitoring will permit address the socioeconomic impacts of mine procedures and activities to be adjusted and/or closure considering that the existence and modified as necessary to ensure optimal economic survival of some communities may environmental protection. have become dependent on the project. Issues include ongoing environmental management Parameters to be monitored during the closure during and after reclamation, loss of jobs, and and post-closure phases of the mine include the continued operation of social infrastructure such following: as water supply, electricity, and road networks in • surface water and groundwater quality and around local communities. • physical stability of tailings deposits • Reclamation and sustainability considerations physical stability of the river water diversion are integrated into mine and facility design. dike, waste rock dumps, drainage ditches, and Progressive reclamation will be an ongoing concrete shaft/raise caps • activity throughout the life of the operation. isolation of open pit voids and unfilled subsidence zones, including status of open The primary reclamation objective is to develop water and erosion controls the mine in a manner that prevents leaving an • success of indigenous revegetation, including unsustainable environmental legacy and that remediation as required until proven to be self- considers community input and values. Other sustaining • key objectives: condition of groundwater monitoring wells, piezometers, survey monuments, and other • protect public health and safety during all instrumentation stages of project development • effectiveness of dust-control measures on • prevent or mitigate environmental degradation waste rock, TSF, and other waste areas with caused by mining-related activities specific attention to potential wind-blown • return the maximum amount of disturbed land contaminant sources. to pre-mining conditions suitable for nomadic herdsmen and their grazing animals • secure the open pit areas, subsidence zones, waste dumps, and tailings storage facilities to ensure public and environmental safety • plan and implement reclamation techniques that eliminate the need for long-term maintenance presence on site and permit IMMI

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