Prime
Minister S.Batbold, Minister of Finance S.Bayartsogt and Minister of Mineral
Resources and Energy D.Zorigt yesterday told media that negotiations are
continuing on some changes the Government has suggested in the Oyutolgoi
shareholders’ agreement and hoped that the issue will be resolved by the end of
the year.

Batbold
made it clear at the outset that these changes had nothing to do with the
status or percentage of Mongolia’s ownership of the project, categorically
dismissing as “baseless rumor” all talk that “Mongolia’s ownership is coming
down, or ever will come down from 34%”. He said related Ministries will soon
provide explanatory information on the implications of Ivanhoe Mines’ recent
sale of new shares.

Minister Bayartsogt explained that there were two different agreements on
Oyutolgoi — an investment agreement and a shareholders’ agreement. The
Government is seeking changes in certain provisions of the latter. The interest
on the loan it has taken to pay for its share of the investment expenses is
9.9% plus the American consumer price index, and the Government wants this to
be reduced. It prefers the London
Interbank Offered Rate, currently 0.35% plus 6.5% interest. This would
work out to 6.8% in place of the approximately 11.7% in the agreement.

He
said the Government would also like the financing mechanism changed because
Mongolians “have not understood the present method of selling shares” and have
been misled by “some erroneous information”.

The third issue relates to the Government’s approval of any change in the shareholding
pattern of Oyutolgoi LLC.

Bayartsogt explained that selling preferential rights shares is not very common
as most companies seek to raise money through issue of common shares. However,
it is a perfectly legitimate financing mechanism and is aimed at reducing the
financing risks of a company. The company pays only interest on the amount
invested in these shares, and not any dividends as is being said. Also, these
do not give the holder any ownership share in the company and so cannot reduce
any other shareholder’s percentage of ownership.  The Government wants to replace the sale of preferential
shares with a straightforward loan.