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Oyu Tolgoi Investment Agreement

The basic framework for the Oyu Tolgoi Investment Agreement is now much closer to being finalized after the Government of Mongolia agreed to pass amendments to four laws, including the repeal of the controversial Windfall Profits tax, the Corporate Income Tax Law, the Water Use Law and the Road Law.

Following is the transcript of the Power Point presentation that we have posted on SlideShare.  Please note, this is for informational purposes only and may not be the final version signed.

Oyu Tolgoi Investment Agreement presentation slideshow:

http://www.slideshare.net/icmcmongolia/oyu-tolgoi-investment-agreement-mongolia

Presentation Transcript

OYU TOLGOI INVESTMENT AGREEMENT

  • THE GOVERNMENT OF MONGOLIA AND IVANHOE MINES MONGOLIA INC LLC, IVANHOE MINES LIMITED COMPANY, CANADA AND RIO TINTO INTERNATIONAL HOLDINGS LIMITED, UK

Legal Grounds, Purpose and Scope of Investment Agreement

Legal Grounds to conclude the Investment Agreement (“IA”) are:

  • Article 29, Mongolian Law on Minerals;
  • Parliament Resolution No. 40 of December 20, 2008 (approved main principles and directions to conclude the IA. This Resolution is also applicable for concluding IA on Tavan Tolgoi (TT) coal deposit); and
  • Parliament Resolution No. 57 of July 16, 2009, allowing the Government to conclude the IA.

Main Purposes of the Investment Agreement

  • To maintain stable environment for operation (including stable tax environment) of the Investor for specified period of time;
  • To ensure the rights to sell products at international market price and disposal of income; and
  • To determine the amount of investment and conditions of the Oyu Tolgoi (OT) project.

Scope of the Investment Agreement

  • The IA will cover all types of the Investor’s activities related to the OT Project, including surface and subsoil minerals exploration, mining, construction of infrastructure and mining closure and environmental reclamation.
  • Investment Agreement Term and Government Ownership,
  • 30 years has been granted as initial term of the IA from the effective date of the Agreement
  • The initial 30 year term is extendable for an additional 20 years.
  • Government ownership – The Government of Mongolia take 34% of common shares of Ivanhoe Mines Mongolia, Inc. (IMMI) with the right to take 50% ownership within a year after the initial agreement expires.

Mining License and Land and Water Use Agreements

  • The OT Mining License has been issued for an initial term of 30 years and is extendable an additional two times for 20 years each.
  • Permits related to land use are to be obtained in accordance with the Law on Land and the Government shall support and assist the Investors in obtaining permits
  • The Water Use Agreement shall be issued for 30 years and is extendable for another 20 years – any water discovered with Investor’s funding shall be allowed for the Project use and any excess water third party use will be allowed.

Infrastructure

Electricity will be allowed to be imported during the project’s construction period and up to four years after commissioning.

After this period, power can be supplied from three resources:

  1. Investor-built Power plant;
  2. Third party invested and built Power plant; or
  3. The Power Network of Mongolia.

IMMI has been granted permission to build an auto road from the Project site to the Gashuun-Suhait border point with China at its own expense with the construction-related costs deductable from taxable income.

A License to Construct and License to Use Railroad from the project site to Mongolian-Chinese border may be issued to the Investor or a third party.

Tax Regime

Stabilized Tax Regime:

  • Corporate Income Tax -10 % of annual income if between MNT 0-0.3 billion;
  • if income exceeds 3.0 billion then MNT300 million plus additional 25% tax to the income over MNT3.0 billion;
  • Shall not be obliged to pay “windfall” tax or similar tax;
  • Dividend income is set at 10%;
  • Royalty  income is 10%;
  • Income from the sale of immovable property is 2%;
  • Income from interest is 10%; and
  • Income from sale of rights is set at 30%.

Customs Tax

  • shall be imposed in accordance with Law on Customs;
  • Value Added Tax 10% of products produced, sold, imported, work performed and services rendered;
  • Excise Tax – in accordance with the Law on Excise Tax;
  • Royalty –  5 per cent of sales value of products;
  • Mining Licenses Fee – $15/ha for the licensed area.

Non- Stabilized Taxes:

  • Taxes other than the above, which are defined in Article 7 of the Law on General Taxation as of the efective date of IA, shall not be stabilized.

Laws Rescinded and Amended in relation to the Investment Agreement

The Law on Rescinding of the Law on Imposition Of Price Rise Tax on Some Commodities:

  • Windfall tax is to be rescinded from January 1, 2011.

Amendment Law to the Law on Corporate Income Tax:

  • Any losses incurred shall be deducted from taxable income for four to eight years depending on the amount of investment.

Amendment Law on the Law on Auto Road

  • Allows private investment into State Category Auto Roads

Amendment Law on the Law on Water

  • Water discovered with Investor funding will be allowed for Project use and any excess water shall be allowed for third party use

Here is again the link to the slide presentation: http://www.slideshare.net/icmcmongolia/oyu-tolgoi-investment-agreement-mongolia

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