It appears that the MPs who had cautioned against signing the investment contract of Oyutolgoi before reaching a consensus on the technical and economic estimations were right after all. The working group established by the Standing Committee on Security and Foreign Policy met yesterday to hear the answers of the investors to the questions posed by the Professional Council on Minerals as it sent back to Ivanhoe Mines Mongolia Inc. four references in the technical and economic estimate it had submitted. The Director of Oyutolgoi LLC, Keith Marshall, vice director T.Munkhbat and the deputy director of the Professional Council on Minerals, M.Ariunbayar, took part in the discussion.

Clarification had been sought on the following four provisions in the estimate.

1.      Oyutolgoi has 45 million tons of ore, but the estimate says 19 million tons of this will not be mined. The Mongolian stand is that the license holder will have to fully exploit the reserve and will not be allowed to extract only the best quality ore.

2.      Water and hydro-geological estimates were incomplete. It was not stated how much water will be used to refine 150,000 tons of ore a day.

3.      The money that Ivanhoe Mines Mongolia Inc is to pay to use the Oyutolgoi deposit to the original license holder, BHP Billiton, cannot be part of the present technical and economic estimate. This does not concern the Mongolian Government, which should not lose that money.

4.      The capacity of the mine has to be more clearly specified.

MP N.Ganbyamba wanted to know why the 19 million tons will not be mined.

Marshall: The 45-million-ton reserve was put in the Oyutogloi agreement as that was what was registered at the Mineral Council. The 25 million tons of copper indicated in the technical and economic estimate is the amount that can be mined with the technology now available. Some 22 million tons of this may be of the best quality. The possibility of extracting the 19 million tons is limited. This could be done only if copper price reaches USD 10,000 a ton.

MP O.Chuluunbat said the investment agreement was based on the estimate that there will be a good profit when the average copper price is USD 4,200 a ton. The present price is almost twice as high. He wondered why it is now being said it will not be profitable to mine 19 million tons. Was what was said earlier only to get approval from Parliament and to sell shares?

Ivanhoe Mines Mongolia Inc hired an internationally recognized company to make the water research in Umnugobi province. The company calculated the underground water reserve is 1122 liters per second. But the research made by National Professional Water Council said it was 870 liters per second. This means, the daily work capacity will decrease to 100,000 tons of ore. If the 1122 lps calculation is right, the factory will be able to produce 160,000 tons of ore a day. In other words, because the numbers differ, the issue was sent back.

As for the third issue, MP O.Chuluunbat said the two percent payment to BHP Billiton does not concern the Mongolian side. Rio Tinto and Ivanhoe Mines have to pay BHP from their own dividends. This cannot be taken from the share of the Mongolian side.

K.Marshall: I think the Finance Minister should comment on this subject. We will follow the international contract.

A representative from National Tax Authority also explained that this was something between the two foreign companies.

K.Marshall:  Our understanding is that the two percent fee for mining the deposit will be shared. I think the Mongolian Government also thinks so. If this is your opinion, the investment and factory capacity will have to be reconsidered.

The head of the working group instructed the Professional Mineral Council to make a more detailed study of the issue of 2,000 tons of gold. It was also asked to investigate the contents of the contract between BHP Billiton and Ivanhoe Mines Mongolia Inc. Keith

Marshall agreed to respond to the four issues within 14 days.