Independent review on the cost overruns and schedule delays of the Oyu Tolgoi underground expansion

2021-04-28 09:39:17

Ulaanbaatar/MONTSAME/. 27 APRIL 2021, Ulaanbaatar ---- In November 2020, at the initiative of the Government of Mongolia, Erdenes Oyu Tolgoi LLC, through their nominated board members of Oyu Tolgoi LLC, submitted draft resolutions for the establishment of a Special Committee of the board of directors of Oyu Tolgoi LLC whose mandate is to appoint independent experts to conduct an independent review of the cost overruns and schedule delays of the underground expansion of the Oyu Tolgoi project. The proposed resolutions were approved at the meeting of Oyu Tolgoi LLC’s board of directors held on 30 November 2020. Rio Tinto opposed the proposed independent review and Rio Tinto appointed board members declined to support the board resolutions. However, following the approval of the proposal by an overwhelming majority of the board members of Oyu Tolgoi LLC, Rio Tinto gave its assurances to the Government of Mongolia that it will fully support and cooperate with the independent review.

Following the establishment of the Special Committee consisting of two board members nominated by each of the Government of Mongolia and Turquoise Hill Resources Limited shareholders as envisaged in the board resolutions, the special committee immediately began its work and approved the scope of work for the independent review/investigations. Further, members of the special committee worked tirelessly to look for and appoint internationally recognized experts who will conduct the independent review. Thanks to the continued efforts and works of the special committee members, the Independent Consulting Group, a consortium of highly qualified and credible consultants in the fields of project management, mine planning, cost management, and related fields, are appointed and started their investigation relating to the Oyu Tolgoi project delays and cost overruns few weeks ago. These investigations are reviewing the delays in the projects schedule and the increase required in capital to complete the project. To date, the Independent Consulting Group are making progress and reviewing technical data that is currently made available by the Special Committee.

However, the Independent Consulting Group have requested several key documents through the Special Committee relating to Rio Tinto’s technical expert reports and project management documents which Rio Tinto have to date failed to disclose.

This investigation has been initiated to seek a full and transparent review of the underground project progress, and to report failures and lessons which may be learnt. Presently, the refusal by Rio Tinto to provide the data and reports requested by the Independent Consulting Group is hampering the expert’s efforts and causing potential delays to the final report/outcome of the review. Erdenes Oyu Tolgoi LLC fully supports the works of the Special Committee who is seeking a fully transparent review, meeting international standards relating to good corporate governance and recognised compliance standards.

We hereby strongly urge both Rio Tinto and Turquoise Hill Resources Limited to fully cooperate with the investigation and provide all requested information available to the Independent Consulting Group without further delay and make their relevant technical personnel available for interviews with the Independent Consulting Group. Should Rio Tinto and/or Turquoise Hill Resources Limited continue to frustrate this process, and remain uncooperative, Erdenes Oyu Tolgoi LLC as a shareholder of Oyu Tolgoi LLC reserves its right to gain access to the information required through legal channels or other methods as Erdenes Oyu Tolgoi LLC currently considers Rio Tinto to be in breach of its obligations as a project manager to provide data to Oyu Tolgoi LLC’s shareholders when requested.


About Erdenes Oyu Tolgoi LLC and Oyu Tolgoi’s underground expansion

Erdenes Oyu Tolgoi LLC is a wholly state-owned company holding 34% of the issued and outstanding shares in Oyu Tolgoi LLC. Oyu Tolgoi LLC is currently undertaking the underground expansion of the Oyu Tolgoi project in the South Gobi region of Mongolia. The remaining 66% interest in Oyu Tolgoi LLC is owned by Turquoise Hill Resources Limited, a company co-listed in the Toronto and New York stock exchanges. Rio Tinto, a global mining company is appointed as mine operator and project manager of the Oyu Tolgoi project and has been responsible for the day-to-day operations of the project since commencement of the underground expansion in 2016.

On 16 December 2020, Rio Tinto reported that the Oyu Tolgoi underground project is expected to have cost overruns of US$1.45 billion and sustainable production from the underground operations will be delayed by 22 months compared to the initial plan of January 2021. Although Rio Tinto and Turquoise Hill Resources Limited explain that the cost overruns and schedule delays are caused by difficult ground conditions, there are various reports and allegations pointing to potential project mismanagement and procurement related issues. These allegations are addressed in the amended claim submitted by certain minority shareholders of Turquoise Hill Resources Limited in the class action against Rio Tinto and Turquoise Hill Resources Limited (including certain executive management members of such companies) filed in the New York court in March 2021.



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