Text of Oyutolgoi letter saying Government owns 34%
The Communications Department of Oyutolgoi LLC released an open letter last week, setting the record straight on the percentage of shares held by the Mongolian government in the company. The letter reads:
"We are writing regarding the mounting criticism of the Government of Mongolia"s equity holding in Oyutolgoi LLC and our Investment Agreement and we would like to present this open letter in order to address these concerns and set the record straight.
“Certain officials are distorting facts, alleging that the Government of Mongolia"s equity interest has been diluted from 34% to 7%. This is clearly wrong. The critical factors are: Cl. 1.6 of the IA clearly states the Government shall own 34% of the common shares of the OT LLC and this ratio will remain at this level throughout the life of the project. Indeed, there is an option in years to come that the Government can increase its stake. The dividends, taxes and royalties from the Oyutolgoi project to the Government and people of Mongolia will add up to over 50% from the revenue generated by the OT Project.
“The non-Government shareholders have already committed at least USD4 billion (MNT 5.2 trillion) to getting this project to first ore, and are funding 100% of the investment needed to do so, pursuant to its obligations under the Investment Agreement. If and when extra capital is required to continue the development of the project, the required funding will be raised solely by the foreign shareholders.
“There is no requirement for cash contributions from the Government of Mongolia as Ivanhoe Mines and Rio Tinto provide a lender of last resort financing facility to the Government. Provision of this facility insures that the Government"s equity interest is not diluted. The Government also has the option to source its own finance.
Oyutolgoi and its foreign shareholders, Rio Tinto and Ivanhoe Mines, are concerned that distortion of this important facts is not just unjustified bad news for Oyutolgoi project and its shareholders, but also for the reputation of Mongolia. This occurs at a time when other companies are trying to raise finance for important projects and are considering doing business here.
“Since the Investment Agreement was signed 12 months ago, a huge part of the construction process is under way and over 3,600 Mongolians are employed at the project. And a further 3,300 as a start are being funded by us to train for future jobs both at Oyutolgoi and elsewhere in the Mongolian economy at the cost of MNT110 billion. As per the Investment Agreement we have over 60% workforce of Oyutolgoi project who are Mongolian and this will increase to 90% by the time we become operational in 2013. “Helping us develop the project are over 2,420 Mongolian companies who are supplying us with essential Mongolian products and services to the value to date of MNT360 billion. “Because of the Mongolian support, a huge amount has been achieved in a short space of time including:
“Laying the foundations of 100,000-ton-per-day copper concentrator with a total budget of USD1.2 billion;
“The construction of Shaft#2 and its 31-storey concrete head-frame;
“A 20-megawatt diesel power station and 35-kilovolt distribution system;
“Initial earthworks for the open pit;
“The underground development of Shaft#2;
“The construction of a 105-km highway from Oyu Tolgoi to Gashuun Sukhait; and
“Construction of a regional airport and concrete runway to accommodate Boeing 737 sized aircraft.”
"We are writing regarding the mounting criticism of the Government of Mongolia"s equity holding in Oyutolgoi LLC and our Investment Agreement and we would like to present this open letter in order to address these concerns and set the record straight.
“Certain officials are distorting facts, alleging that the Government of Mongolia"s equity interest has been diluted from 34% to 7%. This is clearly wrong. The critical factors are: Cl. 1.6 of the IA clearly states the Government shall own 34% of the common shares of the OT LLC and this ratio will remain at this level throughout the life of the project. Indeed, there is an option in years to come that the Government can increase its stake. The dividends, taxes and royalties from the Oyutolgoi project to the Government and people of Mongolia will add up to over 50% from the revenue generated by the OT Project.
“The non-Government shareholders have already committed at least USD4 billion (MNT 5.2 trillion) to getting this project to first ore, and are funding 100% of the investment needed to do so, pursuant to its obligations under the Investment Agreement. If and when extra capital is required to continue the development of the project, the required funding will be raised solely by the foreign shareholders.
“There is no requirement for cash contributions from the Government of Mongolia as Ivanhoe Mines and Rio Tinto provide a lender of last resort financing facility to the Government. Provision of this facility insures that the Government"s equity interest is not diluted. The Government also has the option to source its own finance.
Oyutolgoi and its foreign shareholders, Rio Tinto and Ivanhoe Mines, are concerned that distortion of this important facts is not just unjustified bad news for Oyutolgoi project and its shareholders, but also for the reputation of Mongolia. This occurs at a time when other companies are trying to raise finance for important projects and are considering doing business here.
“Since the Investment Agreement was signed 12 months ago, a huge part of the construction process is under way and over 3,600 Mongolians are employed at the project. And a further 3,300 as a start are being funded by us to train for future jobs both at Oyutolgoi and elsewhere in the Mongolian economy at the cost of MNT110 billion. As per the Investment Agreement we have over 60% workforce of Oyutolgoi project who are Mongolian and this will increase to 90% by the time we become operational in 2013. “Helping us develop the project are over 2,420 Mongolian companies who are supplying us with essential Mongolian products and services to the value to date of MNT360 billion. “Because of the Mongolian support, a huge amount has been achieved in a short space of time including:
“Laying the foundations of 100,000-ton-per-day copper concentrator with a total budget of USD1.2 billion;
“The construction of Shaft#2 and its 31-storey concrete head-frame;
“A 20-megawatt diesel power station and 35-kilovolt distribution system;
“Initial earthworks for the open pit;
“The underground development of Shaft#2;
“The construction of a 105-km highway from Oyu Tolgoi to Gashuun Sukhait; and
“Construction of a regional airport and concrete runway to accommodate Boeing 737 sized aircraft.”
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