Europe-Mongolia Investors Forum

Speaker: Andrew Harding, chief executive, Copper Rio Tinto

Location: London, UK

Good afternoon, and thank you for the opportunity to speak at this forum to outline our experience of doing business in Mongolia.

Rio Tinto is a significant investor and development partner in Mongolia and we fully support the creation of the Foreign Investment & Foreign Trade Agency of Mongolia as a means of encouraging investment.

We know that many business groups have been keeping a close eye on our experience in Mongolia. With the recent announcement about the Oyu Tolgoi project, we expect to see many opportunities for other businesses to participate in an exciting growth period for the Mongolian economy.

Mining and energy projects have a good record in laying the foundations of developing economies. History has shown that when managed well and in a manner that creates mutual benefits, resource extraction can be the starting point for the development of thriving economies.

Centuries ago, the mining of iron ore and coal kick-started industrial development in the major western economies. More recently, Chile owes the foundation of its strong economy to the copper mining industry.

Likewise we think the recent signing of the Investment Agreement between the Government of Mongolia, Ivanhoe Mines and Rio Tinto for the development of the Oyu Tolgoi copper gold project is the starting point of a new era for Mongolia, based on mining and minerals.

In fact the negotiation of the Investment Agreement bears strong parallels with the initial investment in the Escondida copper mine in Chile which opened the gates to that country's thriving minerals industry.

Rio Tinto has been active in Mongolia for nearly 15 years, since before its mineral potential was as widely recognised as it is today. We started with exploration in 1995 when we signed a collaboration agreement with the National Geological Fund of Mongolia. We have maintained a continuous presence ever since, and are committed to the long term.

Our activities led to the acquisition in 2005 of a stake in Entrée Gold, a Canadian junior mining company active in Mongolia. Entrée's main assets were exploration claims surrounding Oyu Tolgoi. In October 2006 we acquired an initial stake in Ivanhoe Mines for strategic entry into the Oyu Tolgoi project itself.

Oyu Tolgoi is one of the largest undeveloped copper and gold deposits in the world. It was discovered in the 1990s and Ivanhoe has been expanding the known mineralised area with exploration work over a period of nearly ten years.

There are a series of deposits stretching over a strike of 20 kilometres including a large surface deposit of copper and gold and an even larger underground resource.

Our involvement in the project is consistent with Rio Tinto's strategy of investing in large, long life, low cost orebodies.

While the size and grade of the existing Oyu Tolgoi ore reserves and mineral resources are already significant, we are excited by the exploration upside that still remains.

We believe that in time, the surrounding region has the potential to become a world class mining district.

Rio Tinto has a proven track record in the sustainable development of greenfield projects, coupled with our technological expertise in innovative copper mining processes.

We believe this makes us the ideal partner to work alongside Ivanhoe and the Government in bringing Oyu Tolgoi on stream.

Oyu Tolgoi will be an important project for Mongolia's national economy and its people. It is of strategic importance to central Asia, located as it is between Russia and China, from which Mongolia imports much of its energy.

Oyu Tolgoi is close to the border with China, a country with a voracious appetite for minerals to support its phenomenal economic growth rate.

Rio Tinto's commitment to the project represents a major investment in the country. It will result in increased employment, the development of important infrastructure in the South Gobi region, acting as a catalyst for social and economic development of the region.

Revenues received by the government will create further social and economic investment options that will benefit the wider Mongolian population. The project will also contribute to national development priorities, including employment, skills training, export growth, conservation and multi-user infrastructure development.

Under current agreements with Ivanhoe, Rio Tinto has the right to acquire up to a 46 per cent interest in Ivanhoe. The Government will hold a 34 per cent stake in the mine.

We have enjoyed a strong relationship with Ivanhoe over the past three years, and as the project progresses we look forward to strengthening our relationship further.

The Investment Agreement with the Mongolian Government will take effect once a number of conditions are met, which will clear the way for completion of construction of the mine.

Production is expected to begin in 2013, with a five year ramp up to an average 1.6 billion pounds of copper and 330,000 ounces of gold per year over the life of the mine, currently estimated to exceed 40 years.

Rio Tinto will manage the construction and operation of Oyu Tolgoi. Underground mining will employ a relatively new underground mining method, block caving, which has been used by Rio Tinto at copper mines in South Africa and Australia. We have become an industry leader in the related technology.

We at Rio Tinto look forward to working with our partners in developing this world class asset. Because Mongolia is a new frontier for development we are determined to take an approach that will maximise the benefits of the project for the greatest number of people.

About 4,000 Mongolians have already worked on the Oyu Tolgoi project during the past nine years of exploration and development, and the Investment Agreement sets terms for even greater participation in training, jobs and economic spinoffs.

The agreement promises that at least 90 per cent of the project's employees will be Mongolian citizens. It is intended that within five years, at least 50 per cent of engineers will be Mongolian citizens, increasing to at least 70 per cent within ten years.

A comprehensive, five year Oyu Tolgoi Training Strategy and Plan will be submitted to the Government for the training of skilled Mongolian workers within 90 days of the Investment Agreement taking effect.

As part of a graduate scholarship programme to be established, 120 scholarships will be given over six years to Mongolian tertiary students studying in Mongolia and 30 Mongolian students will be awarded scholarships to study at international universities.

The Government will support the introduction of international mining education and training courses at selected universities and vocational training institutions within six months of the Investment Agreement taking effect.

Ivanhoe and Rio Tinto have undertaken to ensure payment of fair wages and equal remuneration for work of equal value.

Turning now to the bigger picture, to prospective investors in Mongolia, we say this is a land of opportunity. We recognised this, and were exploring for minerals in the country long before entry into Oyu Tolgoi.

There is great potential for the development of commodities such as coal and uranium. Rio Tinto Exploration is currently exploring for coking coal at Altai Nuurs in the south west.

Currently in Mongolia, direct taxes from mining account for about 35 per cent of fiscal revenue. The country's mineral potential can only increase this revenue, and the financial sector will no doubt need to expand in order to support the inflows of capital that result from future mining operations.

As a basic industry positioned at the start of the supply chain, mining will create multiple business opportunities in many fields of activity. This will not only be in services to support mining itself, but a myriad of social education, health and consumer services to satisfy the needs of thousands of well paid mining employees and their families.

Mongolia has been hard hit by declining commodity demand brought about by the global economic downturn. The country is experiencing deflation and rising unemployment, and economic growth is expected to be one per cent in 2009, but we believe recovery is on the way.

We commend the Government of Mongolia on its bipartisan approach to resolving Mongolia's most pressing issues - in particular achieving support for the development of the nation's natural resources.

While the three-year process of negotiating the Investment Agreement was frustrating at times, we are happy with the framework that has resulted. These arrangements bode well for future investment in the Mongolian minerals industry.

What has emerged is a stable operational and tax environment, fair provisions for Government equity participation and balanced project financing arrangements.

The key message for prospective investors is that with the Oyu Tolgoi agreements a process has been created for overwhelming bipartisan support for mineral development in Mongolia.

We are therefore confident that meeting the outstanding conditions necessary for implementation of the Investment Agreement, such as Government approval of the feasibility study and conversion of exploration licences into mining permits, will be resolved within the parameters of our development time line.

I can assure you that Rio Tinto is very happy to be involved in the development of Mongolia. We have already committed more than one billion dollars to Oyu Tolgoi and intend to be a participant in the project and the country for many years to come.

Thank you.

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