oyutolgoi_1957_2015
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1 9 5 7 - 2 0 1 5
OYU TOLGOI
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OYU TOLGOI THE TURQUOISE HILL
From the pipes forged at the time of the Pharaohs to the 4,700 medalsawarded at the Olympic and Paralympic Games, copper has been anintegral part of life for centuries. The world currently uses more than 19million tonnes of copper every year, with demand set to grow to around25.5 million tonnes by 2020. Malleable, durable, resistant to corrosion,hygienic and an excellent conductor of heat and electricity, copper is not
only a hugely versatile and useful metal, it is also at the forefront of greeninnovation and a critical part of a more energy-efficient future.Global demand for copper has made Oyu Tolgoi one of the most exciting
projects in the mining industry for the last decade. When fully operational,it is expected to be one of the top five copper-gold projects in the world.With extraordinarily extensive reserves, the mine is expected to operate forat least 40 years.
High-grade copper ore is one of the most challenging materials toextract, often located in the toughest and most remote environmentson the planet. Oyu Tolgoi, discovered in 2001 in the South Gobi desert,550km south of the Mongolian capital Ulaanbaatar and 80km north of theMongolia-China border, is no exception.
The largest single investment in the history of Mongolia, the long journey
to discover, develop and construct the Oyu Tolgoi mine is remarkable. Thecreation of a joint venture between the Government of Mongolia andinternational investors, Rio Tinto and Turquoise Hill Resources (formerlyIvanhoe Mines) eventually led to the commencement of shipments ofcopper concentrate from the mine in 2013.
With multiple further stages of development, for decades to come, OyuTolgoi will supply the world with copper, gold, molybdenum and silver,contributing to the global economy and the prosperity of Mongolia forgenerations.
This book tells the story of Oyu Tolgois development, from the firststages of exploration and discovery, to the successful opening of a multi-billion dollar copper and gold complex in the Gobi desert.
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CONTENTS
16 | THE SLEEPING GIANT
26 | UPHEAVAL AND NEW ARRIVALS
40 | AN EXTRAORDINARY FIND
60 | TALKING IT THROUGH
104 | RISING FROM THE DESERT
136 | THE GIANT AWAKES
166 | THE FUTURE
16 |
26 |
40 |
60 |
104 |
136 |
166 |
Mongolian names
Throughout this book, Mongolian names are presented in the traditional way, with the individuals
given name preceded by the initial of their patronymic or matronymic surname.
/ .
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O 1957 2015
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1957 1989
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O 1957 2015
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OYU TOLGOI THE TURQUOISE HILL 1957 2015
THE PEOPLE OF THE GOBI
People have lived off the land in the South Gobi for thousands ofyears. The traditionally nomadic herder families have, in more recenttimes, been joined by more static communities largely based in soumcentres (county town centres), such as the town of Khanbogd,approximately 30 kilometres from Oyu Tolgoi.
Whether nomadic herders or settled communities, the people ofthe Gobi are known for their strong hearts and hardworking nature,while their hospitality is legendary.
Managing the impact of a development as large as Oyu Tolgoi onthese communities is essential in order to create long-term successand to share the value of the project.
Since the very beginning, Oyu Tolgoi has sought to work alongside
local people, providing compensation if the mine impacts theirlivelihoods, and above all, the opportunity to benefit from their largemining neighbour.
Tangible infrastructure improvements have been made, such asthe connection of Khanbogd with the mines electricity supply,the sealing of local roads, the building of training facilities andimprovements to healthcare. But alongside this, dozens of schemesand projects to support the development of the area have beenundertaken. From economic development programmes and training,and low-cost loans for local businesses beyond the mining sector,to immunisation and health education programmes, Oyu Tolgoi isattempting to be the very best neighbour it can be.
Long term, the Government is leading a process to determine the
most successful and sustainable future for the region, providingOyu Tolgoi workers and existing residents of Khanbogd soum witha thriving and successful town, while protecting and enhancing thelivelihoods and traditions of the people of the South Gobi region atlarge.
Although a modern business, Oyu Tolgois deep respect for localcustoms and cultures has led to significant support for preservingcultural heritage in the region. While Oyu Tolgoi is changing the areasubstantially, the determination by everyone involved to make thischange positive will lead to a bright next chapter in the long historyof the people of the South Gobi.
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THE SLEEPING GIANT 1957 1987
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As Mongolia entered the decades of the latter half of the 20th
Century, the transition from an economy and social structureprimarily dependent on pastoral nomadism to an economycentrally driven by five-year industrial plans and a society steepedin Marxist philosophy was well entrenched. As an ally of theSoviet Union and one of the worlds longest-running Communistsystems, Mongolia was focused on making the great leap froma pre-industrial society to a modern industrialised nation.
As part of this national effort, Mongolian geologists, with thesupport of Soviet experts, conducted extensive geological surveysof the potential mineral resources just below the surface of thesteppe. A geological anomaly in the Gobi desert, suggestive ofa potential copper deposit, was identified during these surveys,but a promising copper reserve in Erdenet, Bulgan aimag in thenorthern part of the country became the focus of Mongoliasquest to become a major copper producer.
The crown jewel of Mongolias nascent mining industry,Erdenet Mining Corporation, began development in the 1970s,and over the following decade grew into a key driver of thecentral economys growth. With central government planningand support, a town developed near the mine and grew intoan industrial community of Mongolian and Soviet tradesmen,machinists, engineers, and technicians. All the while, a sleepinggiant, hundreds of metres below the surface, remainedunnoticed and undisturbed in the Gobi desert.
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THE SLEEPING GIANT 1957 1987
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THE GOBI DESERT
The Gobi, while appearing at times as a barren wasteland in a harshclimate, is in fact an environment rich in biodiversity and blessed witha unique ecosystem. Some 158 plant species exist in the area, includingseveral rare and protected varieties. The desert is also home to anabundance of mammals, birds, insects, reptiles and invertebrates. Wildhorses known as khulan, dozens of species of birds, foxes, wolves, andeven bears live alongside camels, horses and cattle belonging to herdersand local people.
This ancient and precious land makes managing the environmentalimpact of Oyu Tolgoi a significant and solemn responsibility.
Since 2002, environmental impact studies have been conducted in
and around the site to determine how Oyu Tolgoi can minimise andmanage any impact that operations could potentially have on theenvironment. Oyu Tolgoi also works with the Government of Mongolia,provincial and district administrations, non-government organisations,local communities, conservation organisations and experts from variousfields to develop and implement programmes managing issues such as airquality, climate change, energy, water and waste, to name but a few. Allof Oyu Tolgois environmental work complies with Mongolian regulatoryrequirements, as well as Rio Tintos own international standards ofenvironmental protection.
An Environmental and Social Impact Assessment (ESIA) was adoptedprior to construction, and sets out 742 commitments for the project.Progress against these commitments is monitored regularly and
independently.From monitoring programmes with local herders to a commitment to
an overall increase in biodiversity as a result of the project, Oyu Tolgoisenvironmental impact is one of the most carefully managed in the sector.
Thanks to a native plant seed fund established by Oyu Tolgoi inconjunction with local community members, many plants includingrare species that are at risk of extinction will now have the chance tothrive again.
The goal is to minimise and manage the environmental impact of OyuTolgoi, and to maximise the positive benefits of the project ensuring thatthis precious unique environment is preserved for future generations.
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1990 1999
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UPHEAVAL AND NEW ARRIVALS 1990 1999
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The democratic changes sweeping the world in the late 1980s precipitatedthe dissolution of Mongolias own one-party, Communist state, allowingfor multi-party, democratic elections in 1990. This rapid political changealso ushered in a difficult economic period for the country. Without Sovietsubsidies and financing, the government found itself unable to provide
much-needed services and infrastructure.Although the new era of democracy was exalted and celebrated bynearly every Mongolian, the tough economic conditions of the 1990sbecame a lost decade economically for many as they struggled to establisha foothold in a free-market society.
The parliamentary elections in 1996 handed the Mongolian PeoplesRevolutionary Party (MPRP) their first electoral defeat since theirfounding 75 years earlier. An alliance of parties under the banner ofthe Democratic Union Coalition subsequently formed the first non-MPRPcontrolled government for nearly four generations.
After decades of state control of property, the newly electedgovernment expanded on programmes to privatise state assets to spurmuch needed economic development. Included in these efforts were new
laws allowing private entities, including foreign investors, to hold andtrade exploration and mining licenses.
Mongolias relative geographic isolation and dearth of criticalinfrastructure made it a challenging place for investment in every sector,including mining. But the changes in laws and government policy openedthe door to the first trickle of foreign investment since the loss of Sovietsubsidies and financing.
Among the first of the adventurous looking for opportunity inMongolias burgeoning free-market were miners who once again tooknotice of an area in the Gobi desert with tantalising geological featureswhich hinted at something extraordinary.
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AN EXTRAORDINARY FIND 2000 2003
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Missteps with the privatisation programmes, governmentinstability, and a series of devastating winters during thelate 1990s weighed on Mongolias economic development.As the 21st Century dawned, the country was still strugglingto find a pathway to sustained and substantial improve-ments to the quality of life of each and every citizen.
The parliamentary elections in 2000 produced resultsreminiscent of the single-party, pre-democratic era with theMongolian Peoples Revolutionary Party (MPRP) winning 72of the 76 seats in the State Great Khural (Parliament). Theseresults and N.Bagabandis re-election as President in 2001,re-established the MPRP as the preeminent political force atthe national level.
Privatisation programmes continued in earnest with largestate institutions such as the Agriculture Bank (Khan Bank)being sold to private investors, and private start-up busi-nesses such as cellular phone providers Mobicom and Sky-tel expanding services and introducing new technologies todaily life.
Although only apparent in retrospect, the country wasbeginning to turn a page in its history and embarking ona new phase of development. An extraordinary find by aCanadian mining exploration company in the Gobi desertin an area called Oyu Tolgoi was just beginning to impressitself on the consciousness of the public and bring Mongoliato the attention of serious global investors.
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The potential scale of Oyu Tolgoi was unprecedented in Mongolias history, and it spurred a wholesale re-examination ofthe countrys legal and regulatory framework to support development of megaprojects. In a very short period of time,this once obscure and isolated patch of the Gobi Desert became a watchword for the myriad competing ideas amongpoliticians, investors, and the general public about Mongolias future.
In the lead up to the 2004 parliamentary elections, many commentators expected the Mongolian Peoples RevolutionaryParty (MPRP) to leverage its control of Parliament and the Presidency to further entrench its dominance of nationalpolitics. In spite of those expectations, the MPRP was unable to win a majority of seats in Parliament, and the MotherlandDemocratic Coalition, led by the former parties of the Democratic Union Coalition reconsolidated under the banner ofthe Democratic Party (DP), formed a grand coalition government with the MPRP under the leadership of Prime Minister
Ts.Elbegdorj.After a by-election victory in 2005 and defections to the MPRP camp early in 2006, the MPRP acquired enough seatsin Parliament to form a majority government. The MPRP ministers in Prime Minister Elbegdorjs government resigned,effectively dissolving the government after just over 500 days in office. MPRP Chairman M.Enkhbold was subsequentlyappointed Prime Minister.
Negotiations to establish a stability agreement (now widely referred to as the Investment Agreement) between theGovernment of Mongolia and Oyu Tolgoi license holder Ivanhoe Mines began to gain steam, reaching a new level of interestand excitement with international mining giant Rio Tinto joining the project as a strategic partner in 2006.
That same year, Parliament passed revisions to the minerals law which allowed the Government to own stakes instrategically important deposits such as Oyu Tolgoi, and also passed a controversial windfall profits tax to take advantageof minerals prices, which had been increasing steadily since 2004 on the back of Chinas booming economy.
The commodities boom allowed Erdenet Mining Corporation for the first time to contribute significant revenue to thestate budget, and the Government soon found itself running large budget surpluses. Economic activity picked up across
Mongolia, and the country appeared to be making substantial economic progress. All the while, attention was focused onthe ultimate outcome of negotiations over the Oyu Tolgoi development.In the 2008 parliamentary elections, the MPRP won a clear majority of seats under the leadership of MPRP Chairman
and Prime Minister S.Bayar. However, the elections were marred by accusations of electoral fraud by opposition partieswhich culminated in a violent demonstration on 1 July 2008 that led to the burning of the MPRP headquarters and PresidentEnkhbayar declaring a state of emergency.
In the aftermath of the demonstration, Prime Minister Bayar chose to form a grand coalition government with the DP inan attempt to ensure national unity, in particular in the face of on-going negotiations over Oyu Tolgoi.
After nearly six years of discussion and negotiations, agreement on Oyu Tolgoi was finally reached in October 2009,laying the groundwork for construction on the mine to begin in 2010.
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The signing of the Oyu Tolgoi Investment Agreement kicked off an extraordinary period of economic growth. In a veryshort period of time, Mongolia began to raise eyebrows around the world for its astonishing GDP growth figures whichtopped 17.5 per cent in 2011. Mongolia, synonymous with remoteness in other parts of the world, was suddenly thedestination of choice for international investors.
Not far from Oyu Tolgoi, the Tavan Tolgoi coking coal deposit also entered a new phase of development as risingcoal prices and the excitement generated from Oyu Tolgoi made it an attractive project to international investors. Aninternational tender to develop and manage the property was organised in 2010, but a number of issues stood in the wayof an investment agreement. Over the ensuing years, the project remained mired in political controversy.
In other parts of the country, prospectors expanded exploration efforts to find the next big deposit. However, PresidentTs.Elbegdorj temporarily suspended the issuance of new licenses in 2010 in order to review the legal and regulatoryframework of the industry and to ensure balanced economic growth from mining.
The influx of foreign direct investment was a mixed blessing, and President Elbegdorjs decision on new explorationlicenses echoed a growing unease in the country about the rapid socio-economic changes underway. This unease manifesteditself in a series of laws and measures in the lead up to the 2012 parliamentary elections which resulted in the slowing offoreign investment, in particular from Chinese state-owned companies.
Longstanding divisions in the Mongolian Peoples Revolutionary Party (MPRP) finally resulted in the party splitting, withformer-President N.Enkhbayar leaving with a core group of supporters to form a new party. The MPRP, as part of arebranding exercise, dropped the Revolutionary from its name to become the Mongolian Peoples Party (MPP). Former-President Enkhbayar and his allies used the rebranding as an opportunity to name their newly formed party the MongolianPeoples Revolutionary Party (new MPRP). In the parliamentary elections, the DP won a plurality of seats, forming agovernment with the Justice Alliance, a coalition of parties led by the new MPRP.
The new government felt it had a mandate to confront socio-economic issues linked with the rapid economic growthof the last few years. Among the core policy agenda items was renegotiating the 2009 Oyu Tolgoi Investment Agreement.
At the same time, the government raised an unprecedented US$1.5 billion by issuing Chinggis bonds on the internationalmarket, seemingly demonstrating the countrys ability to raise significant capital on its own. However, tapping into theinternational bond market focused international attention on Mongolias domestic politics in a significantly new way.Political statements, which in the past went unnoticed by the world outside, suddenly drove swings in the bond interestrates and yield. For the first time in its history, Mongolia was fully linked to the international finance market.
Throughout this turbulent period, construction at Oyu Tolgoi continued in earnest, ramping up to be one of the biggestdevelopment projects in Mongolias history. Located in one of the most isolated and underdeveloped parts of the country,almost everything was built from scratch, from heavy equipment to the supply chain feeding the work. Through thededication and hard work of the construction workforce made up of Mongolians and international workers from over 40countries, an industrial complex of gigantic blue clad buildings, warehouses, and shaft head frames began rising from thedesert.
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2010 2013 - , . , .
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CAMERON MCRAEFrom 2010 until October 2013, Cameron McRae was President and ChiefExecutive Officer of Oyu Tolgoi, a Board Director and Rio Tintos CountryDirector for Mongolia. During this time he led the Oyu Tolgoi project throughthe construction phase to production and the inaugural shipping of copper
concentrate. Prior to joining Oyu Tolgoi, McRae was the managing director atRichards Bay Minerals in South Africa and Murowa Diamonds in Zimbabwe.He was centrally involved in the landmark merger of RTZ and CRA, whichcreated the Rio Tinto Group, and was also responsible for establishing RioTinto Energys presence in China. McRae has extensive experience in themining industry and has lived and worked in six countries during a careerspanning more than 31 years.
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The turbulence generated from the 2012 parliamentary elections continued into 2013as the newly formed Democratic Party (DP) led government focused on its broadpolicy agenda. The need for further discussions between Oyu Tolgois shareholders,Rio Tinto, Turquoise Hill Resources, and the Government of Mongolia over thestructure of the 2009 Investment Agreement and the future development of themine led to the suspension of the underground mine development in July 2013 untilthe outstanding issues could be resolved.
A few weeks before the suspension of underground mine development, OyuTolgoi crossed another significant milestone, shipping its first batch of copperconcentrate to international markets. This marked the transition of Oyu Tolgoi froma construction project to an operating business. On 9 July, the first trucks ladenwith two tonne bags of copper concentrate left the bagging plant in a ceremonyattended by senior leadership of Oyu Tolgoi, Rio Tinto, and Turquoise Hill Resources,the Prime Minister and other representatives of the Government of Mongolia, andhundreds of Oyu Tolgoi employees.
Discussions between Oyu Tolgois shareholders to resolve the issues continued fornearly two years. During this time, Oyu Tolgois workforce focused on transformingthe open pit operation into a safe and globally competitive copper business. Afternearly a decade of high commodities prices, the market began a significant slideas the result of slowing economic performance across the globe and in China inparticular. The changes in the international market also began to affect the widerMongolian economy, and growth began to slow to pre-2010 levels.
As a result of the difficult market conditions, there was a renewed focus ongetting the underground mine development underway, and in May 2015 Oyu Tolgoisshareholders signed the Underground Development Plan (UDP) to establish apathway to restart this economically important development.
After two years of full operations, with a workforce striving to establish OyuTolgoi as a formidable competitor in the global market, and having shipped morethan one million tonnes of copper concentrate, the UDP represented a significantgrowth opportunity for the business and its shareholders. On the cusp of a new erafor the business, the sleeping giant in the Gobi Desert was at long last awakening.
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THE GIANT AWAKES 2013 2015
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THE FUTURE
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When Oyu Tolgoi commenced shipments on 9 July 2013, it markedthe end of a long journey.
Thirty one years after D.Garamjav visited the area to study strangeformations which had been identified by an aerial survey 23 years
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formations which had been identified by an aerial survey, 23 yearsafter Mongolia began its transformation into a vibrant democracyand 12 years after the scale of potential was first identified, OyuTolgoi the working mine was born.
But 9 July 2013 also marked the beginning of a new age of history.As the Chairman of Oyu Tolgoi, G.Batsukh said in his speech at thatevent: For 40 years, Erdenet Copper represented the business cardof the Mongolian people, but today Mongolia has a proud new
product to represent us on the world stage.Oyu Tolgoi will run for 40, 60 or even 100 years. Underneath the
golden sand of the Gobi is one of the greatest copper-gold depositsever discovered. And in the Oyu Tolgoi project, a unique businesspartnership is being forged, grown and strengthened. Oyu Tolgoi isa proudly Mongolian company, supported by some of the worldsbest international expertise and technical know-how.
Every part of the business is focused on the future from thesignificant investment the company is making in technical andvocational training across Mongolia, to the multiple phases ofcontinued exploration and development. Oyu Tolgoi and Mongoliahave a bright and strong future.
Visitors to the mine often remark on the youth of the workforce,
on the young men and women who are patriotic, passionate, andfilled with pride. They are all an extraordinary part of Oyu Tolgoi,but in the coming years, their children and their grandchildren willfind their own proud place in the Oyu Tolgoi story.
This story so far is not, in fact, the history of Oyu Tolgoi it isthe prologue.
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