Highlights

Partnerships are central to the way we share the value created at Oyu Tolgoi

The discussions and planning involved in forming partnerships are as important as the agreement itself

Community partnerships have helped ensure funds are directed where they’re needed most

Many mining projects are rich in superlatives – and the Oyu Tolgoi copper-gold mine in Mongolia’s South Gobi desert is no exception. With a potential productive life of more than 75 years, Oyu Tolgoi was the country’s largest taxpayer in 2015. Between 2010 and 2016 it injected US$6.1 billion into the Mongolian economy through salaries, payments to Mongolian suppliers, taxes and other payments to the Government.

As with all operations on this scale, a crucial question is how will Oyu Tolgoi’s environmental, social and economic contributions remain positive over time.

Delivering benefits for generations to come Delivering benefits for generations to come

A unique and challenging location

Eighty kilometres north of the Mongolia-China border, Oyu Tolgoi is jointly owned by the Government of Mongolia (34 per cent) and Turquoise Hill Resources (66 per cent, of which Rio Tinto owns 51 per cent). Since 2010, Rio Tinto has also been the manager of the Oyu Tolgoi project.

Oyu Tolgoi’s open pit mine began producing copper in 2013. The underground mine, which began development in 2016, will allow access to 80 per cent of the expected value of the mine.

Located in an isolated and underdeveloped region, the question of sustainability both challenges and provides opportunities for Oyu Tolgoi. Its scale means it affects both settled and nomadic communities, many of whom have lived off the land for thousands of years. To contribute to both social and economic sustainability, the operation has to ensure benefits flow to the local economy and people and help build long-term prosperity. It is important its contribution to local communities is positive.

The South Gobi is also rich in biodiversity and home to a unique ecosystem that features rare plant species. The mine’s development must be sensitive to this fragile environment. And in a water-scarce area, the water-intensive mining process needs to operate without depleting this most precious of resources.

Delivering benefits for generations to come Delivering benefits for generations to come
Naadam festival in Khanbogd, Mongolia

Development based on mutual agreement

The operation already makes a major direct contribution to the Mongolian economy and society. In addition to its contributions through taxation, the multi-billion dollar investment, which includes thousands of relatively well-paid employees and contractors, has a “multiplier effect”, stimulating the economy indirectly.

Armando Torres, managing director, Oyu Tolgoi, said partnerships were central to the way Rio Tinto shared the value created from the region’s highly valuable resources.

"To be successful, any project we develop has to deliver mutual benefit through genuine partnership,” Armando said.

"The ideal legacy for Oyu Tolgoi is that together with our employees and our partners in the government, our neighbouring communities and our suppliers, we deliver a sustainable, world-class Mongolian business that generates ongoing value for the country and showcases the capabilities and assets of Mongolia for generations to come."

Partnerships require an understanding of social and environmental impacts in great detail, and in the context of a project that spans a long timeframe and many stakeholders. To date, partnership agreements have underpinned the value this operation has released for all involved.


Delivering benefits for generations to come Delivering benefits for generations to come
Bayan bagh camel festival, Khanbogd soum, Mongolia

2009

Investment Agreement signed, covering tax rates and clarifying requirements and expectations around infrastructure, regional development, employment and local content

Investment Agreement

Signed in 2009, the Investment Agreement covers tax rates and clarifies requirements and expectations around infrastructure, regional development, employment and local content. With a 30-year initial term and two 20-year extensions, this agreement matches the duration of the mining licence at Oyu Tolgoi. The Agreement, which took six years to negotiate, provides a stable and predictable legal structure for the business to invest the billions of dollars required to develop the mine and subsequent infrastructure.

A subsequent shareholder agreement between Turquoise Hill, Rio Tinto and the Government of Mongolia regulates corporate governance on the project and funding arrangements between shareholders.

The importance of the process

The discussions and planning involved in forming partnerships are just as important as the agreement itself.

In establishing the Underground Development and Finance plan, the company worked with the project’s partners to overcome points of disagreement – constructively and respectfully. This included local tax law interpretations, and how aspects of the underground project would be approached – such as feasibility studies and funding structure.

The plan, which was signed in 2015 after two and a half years of negotiation, closed the chapter on Oyu Tolgoi’s initial development and made sure that issues relating to the underground project were clarified and agreed with the Government. This allowed Oyu Tolgoi to move forward on the project with a common understanding.

This significant investment demonstrates the confidence of all the partners in both the Oyu Tolgoi mine and in Mongolia. It also demonstrates the attractiveness of Mongolia as a place to do business and invest, which will be a catalyst for further investments that will strengthen Mongolia's economy. The development of the underground will create further jobs, support Mongolian suppliers and unlock substantial value for all stakeholders, delivering benefits for all Mongolians for generations to come. This is a proud day for Mongolia and is a clear demonstration that the country is back to business.

Prime Minister of Mongolia MP Chimediin Saikhanbileg

Strengthening the
social fabric

Strengthening the
social fabric

The Cooperation Agreement was closely followed in September 2015 by the launch of the “Gobi Oyu Development Support Fund” (DSF).

The Cooperation Agreement was closely followed in September 2015 by the launch of the “Gobi Oyu Development Support Fund” (DSF).

It makes US$5 million available each year for sustainable development in the South Gobi. In just over one year, the Gobi Oyu Development Support Fund has already initiated seven social infrastructure projects and 21 sustainable development programmes. These include:

  • two kindergartens in Dalanzadgad, creating 67 jobs, with a school and kindergarten complex planned for Khanbogd soum in 2016-2018
  • an animal health care centre serving the Khanbogd, Manlai, Bayan-Ovoo and Tsotgtsetseii soums
  • a medical rehabilitation and therapy centre for disabled people
  • an urban culture training programme that reached 16,000 people
  • an animal disinfection programme covering 2.2 million head of livestock
  • promoting local procurement – in 2016 Oyu Tolgoi spent US$69 million with 89 South Gobi suppliers

In addition to the initiatives delivered by the Development Support Fund, Oyu Tolgoi has built new infrastructure such as roads, sporting and recreational facilities and a bulk water supply system – further improving living conditions for the local community.

 

Image: Playground funded by Oyu Tolgoi, Khanbogd, Mongolia


Sharing the benefits with local communities

Community partnerships have played an important role in ensuring the operation’s funds are directed to where they’re needed most.

In 2015, after four years of discussion and negotiation, Oyu Tolgoi established a Cooperation Agreement with its partner communities Umnugobi aimag (province) and Khanbogd soum (county) as well as Manlai, Bayan-Ovoo and Dalanzadgad soums.

The first of its kind in Mongolia, this agreement commits Oyu Tolgoi and these communities to work together for mutual benefit, promoting socioeconomic development for current and future generations. It is an international-standard agreement, setting a new benchmark in Mongolia.

The cooperation agreement has seven thematic areas:

  • Water management
  • Environmental management
  • Traditional animal husbandry and pasture management
  • Natural history, culture and tourism
  • Social services
  • Local business development and procurement
  • Infrastructure and capital projects

A key benefit of the agreement is the transparency with which community and regional development projects are funded. All key stakeholders, including local and provincial governments and community groups, discuss how funds are going to be used – whether it’s education, hospitals or infrastructure.

Specific interest groups within Oyu Tolgoi and partner communities work together on each area. For example, the operation’s procurement department engages with communities and local government to encourage business growth: this is an area where Oyu Tolgoi can make a large contribution to the wellbeing and wealth of partner communities.


Working to protect
cultural heritage

Working to protect
cultural heritage

The South Gobi has a rich cultural heritage that includes “tangible” heritage, such as archaeological and paleontological sites.

The South Gobi has a rich cultural heritage that includes “tangible” heritage, such as archaeological and paleontological sites.

It also includes “intangible” heritage and social practices that include rituals, folklore, music, material crafts, traditional knowledge, places of cultural or sacred interest, and protected landscapes. Oyu Tolgoi has been proactively implementing cultural heritage protection and preservation programmes within South Gobi and its partner communities. For example:

  • Undertaking joint cultural heritage site monitoring with the Khanbogd soum government and local herders
  • Hosting Gobi cultural awareness training conducted by Khanbogd elders for 599 visitors at Oyu Tolgoi’s culture ger
  • Supporting the Shar Tsav and Hurdet cave cultural heritage protection and tourism programme in Manlai soum
  • Contributing to the Manlai soum museum renovation
  • Working with the Khanbogd Elders’ Association to pass down traditional culture and knowledge to the younger generation
  • Supporting the Naadam Festival, Camel Festivals and Mountain Worshipping ceremonies in partner communities
  • Providing cultural heritage induction for Oyu Tolgoi employees and contractors

 

Image: Demchig Monastery, near the Oyu Tolgoi mine, Mongolia

6.8 billion cubic metres

non-drinkable saline water uncovered in a 150-metre deep resource

Efficient use of scarce resources

The way Oyu Tolgoi manages water resources is of great importance to the local Khanbogd herders, whose livelihoods depend on it. It’s also a key theme covered by the Cooperation Agreement.

Water is precious in the arid South Gobi region, which receives on average 57mm of rainfall each year. Local herders rely on shallow sources of groundwater from springs and wells for their animals.

Producing copper concentrate from ore is, however, water-intensive. So to find a sustainable solution that doesn’t conflict with the population, Oyu Tolgoi surveyed the area seeking a suitable underground water supply. The work uncovered the Gunii Hooloi aquifer, a 150-metre deep resource holding 6.8 billion cubic metres of non-drinkable saline water. Oyu Tolgoi is allowed to use 20 per cent of this, sufficient for 40 years.

The operation also goes to great lengths to use its allocated water efficiently. More than 80 per cent of the water used in production is recycled. Recycling and conservation practices mean that on average Oyu Tolgoi uses 520 litres of water to process a tonne of ore, around one half the industry average (more than 1,000 litres for each tonne of ore processed).

The mine also works with herders, local people and the government to protect the water in boreholes, existing wells and other community water supplies.