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Press release

Oyu Tolgoi announces 2016 Performance Update

Ulaanbaatar, Mongolia,

Oyu Tolgoi today announced an update on its performance for the fourth quarter and full year 2016.

Full year highlights:

  • Oyu Tolgoi achieved an industry-leading safety performance with an All Injury Frequency Rate of 0.22 per 200,000 hours worked for the year ended December 31, 2016
  • Oyu Tolgoi cumulative in-country spend, in the form of salaries, payments to Mongolian suppliers, taxes, royalties and other payments to the Government of Mongolia, crossed $6.1 billion the end of 2016
  • Operations update:
    • Revenue of $1.2 billion in 2016 on record concentrate sales of 828,600 tonnes
    • Operated at record levels for material mined and ore treated; concentrator throughput exceeded nameplate capacity by year end
    • Copper production of 201,300 tonnes and gold production of 300,000 ounces exceeded guidance
  • Underground update:
    • Progress was made on the sinking of Shafts 2 and 5 with final depth for both shafts expected to be reached in 2017
    • At the end of 2016, underground lateral development was ahead of schedule with 1.6 equivalent kilometres completed
    • Bulk excavation component of the convey-to-surface system completed in 2016, followed by the commencement of the decline tunnel work in January 2017

Fourth quarter 2016:

  • Revenue of $224.6 million in Q4’16 was slightly lower than Q3’16 reflecting lower concentrate sales
  • In Q4’16, concentrator throughput increased 7.4 per cent over Q3’16 resulting in an average daily rate of 106,700 tonnes for the quarter, which was a quarterly high to date.

Outlook for 2017:

  • Oyu Tolgoi is expected to produce 130,000 to 160,000 tonnes of copper and 100,000 to 140,000 ounces of gold in concentrates for 2017
  • Sales contracts have been agreed for a significant majority of Oyu Tolgoi’s expected 2017 concentrate production

Oyu Tolgoi Managing Director Armando Torres said, “Our industry leading safety performance over 2016 demonstrates once again that safety always comes first at Oyu Tolgoi – and this is a result we are extremely proud of. This is a foundation for everything we do – from delivering a strong operating performance, to progressing underground development – and made possible by our talented workforce, which is over 90 per cent Mongolian.”

“The strength of our performance is seen in our contribution to our community – with US$210.6 million in taxes, fees and other payments to the Government of Mongolia, US$279 million in national and South Gobi supplier spends, and continued investment into sustainable development initiatives – as we together build a world class business that contributes to the prosperity of Mongolia”

Oyu Tolgoi operated at record levels in 2016. Productivity improvements in the concentrator implemented throughout the year led to throughput exceeding nameplate capacity by year end. Copper production of 201,300 tonnes for 2016 exceeded the Company’s guidance of 175,000 to 195,000 tonnes and annual gold production of 300,000 ounces exceeded 2016 guidance of 255,000 to 285,000 ounces. Compared to 2015 results, mined production for 2016 increased 5.6 per cent, concentrator throughput increased 10.5 per cent, copper production was similar and, as expected, gold production decreased 54.1 per cent. Decreased gold production for 2016 reflects the impact of declining grade from the completion of Phase 2 mining in the second half of the year.

Oyu Tolgoi performed well during Q4’16 as open-pit operations focused mainly on Phases 4 and 6. Q4’16 concentrator throughput increased 7.4 per cent over Q3’16 resulting in an average daily rate of 106,700 tonnes for the quarter, which was a quarterly high. Copper production in Q4’16 was broadly consistent with Q3’16 while gold production increased 32.4 per cent over Q3’16 due to the final processing of Phase 2 ore. Copper grades in Q4’16 were as expected as operations focused mainly on Phase 6 of the open pit.

Oyu Tolgoi continues to deliver a strong environmental performance, achieving high water use efficiency – utilizing less than half the water per-tonne of ore compared to similar operations, and achieving recycling rates of 85 per cent. Oyu Tolgoi completed biological rehabilitation at 367.3 hectares land in 2016, and continued progress on a range of environmental programmes.

Oyu Tolgoi also delivered strong progress in community initiatives, with two kindergartens and a school in Dalanzadgad, sport halls in Manlai operationalized, and 13 new sustainable development projects and programmes approved and implemented in 2016. A new bulk water treatment facility in Khanbogd was also completed and is scheduled to be handed over to the local community in April, 2017. The facility gives a significant boost to the community, with the capacity to provide services to 13,000 residents.

Revenues in 2016 decreased 26.4 per cent to $1.2 billion against 2015 mainly reflecting lower copper prices and reduced gold sales, partially offset by higher gold prices. Concentrate sold in 2016 of 828,600 tonnes increased 1.1 per cent over 2015 reaching an annual high. Capital expenditure, on a cash basis, for 2016 was $326.3 million compared to $116.2 million in 2015, comprising amounts attributed to the underground project and open-pit activities of $226.8 million and $99.5 million, respectively. Open-pit capital expenditure includes deferred stripping of $30.9 million and tailings storage facility spending of $22.0 million.

Operational outlook

Oyu Tolgoi is expected to produce 130,000 to 160,000 tonnes of copper and 100,000 to 140,000 ounces of gold in concentrates for 2017. Open-pit operations are expected to mine in Phases 4 and 6 during the year. In addition, stockpiled ore will be processed during the year. The lower production when compared to 2016 is primarily the result of approximately one-quarter less copper head grade and approximately one-half less gold head grade.

Capital expenditures for 2017 on a cash-basis are expected to be approximately $100 million for open-pit operations and $825 million to $925 million for underground development.

Underground development capital includes both expansion capital and VAT. In an effort to encourage bidding by Mongolian suppliers, Oyu Tolgoi has incorporated longer tendering periods resulting in a slightly longer capital deployment process. The Company continues to expect production from the first underground draw bell in mid-2020 and first sustainable production beginning in early 2021.

About Oyu Tolgoi LLC (www.ot.mn)

Oyu Tolgoi LLC, Mongolia's largest copper and gold mining company, is a strategic partnership between the Government of Mongolia, Turquoise Hill Resources and Rio Tinto. Located in the South Gobi, Oyu Tolgoi commenced shipment of product to customers in July 2013. Oyu Tolgoi is managed by Rio Tinto, which is investing global expertise and cutting-edge technology to help develop Mongolia’s mining industry and ensure Oyu Tolgoi is one of the world’s most advanced mines. For Oyu Tolgoi, nothing matters more than safety. The business operates under the principle that if a job cannot be done safely, it will not be done at all.

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