The Oyu Tolgoi Board has approved continued funding to progress the project as discussions with the Government of Mongolia proceed. Oyu Tolgoi is expected to reach commercial production by the end of June 2013 subject to the resolution of the issues being discussed with the Government of Mongolia.
In October 2012, the Company, Rio Tinto and Oyu Tolgoi rejected a request from the Government of Mongolia to renegotiate the Investment Agreement. the rejection followed the receipt of a letter from the Minister of Mining requesting the parties to renegotiate the landmark agreement that was signed in October 2009 and became fully effective in March 2010.
In its proposed 2013 budget, the Government of Mongolia has included revenue from the application of a progressive royalty scheme to Oyu Tolgoi. However, the Investment Agreement provides a stabilized royalty rate of 5% over the life of the agreement and specifies that new laws made after its signing will not apply to Oyu Tolgoi. Any change to Oyu Tolgoi's royalty rate would require the agreement of all parties to the Investment Agreement.
In October 2011, the Mongolian Government reaffirmed that the Investment Agreement was signed in full compliance with all laws and regulations of Mongolia.
Development drilling continued in 2012
In January and February 2012, 1,560 metres of underground drilling was completed before the planned shutdown of Shaft #1. Underground drilling recommenced in Q4'12. Characterization holes were also drilled in 2012 for Shaft #4, Shaft #5 and Vent Raise #3.
At Hugo North Lift 1, 18,829 metres of infill drilling were completed. the drilling is designed to bring the first seven years of production into the measured resource confidence category. the infill drilling program was 60% complete at year end and drilling is expected to continue in 2013.
Exploration drilling continued in 2012
During 2012, exploration drilling continued at the Oyu Tolgoi mine and 28,431 metres of surface exploration diamond drilling and 1,752 metres of condemnation drilling were completed. the surface exploration drilling included 13,228 metres of drilling on the Oyu Tolgoi mine's mining licence, 9,058 metres of drilling on Entree Gold's Javkhlant mining licence, 5,776 metres on Entree Gold's Shivee mining licence and 367 metres of drilling on Oyu Tolgoi's Manakht mining licence. the condemnation drilling was on the Manakht licence.
At the start of Q1'12, there were five exploration drill rigs in operation which had been reduced to one drill rig by the end of Q4'12. in April 2012, management of the exploration program transferred from the Company to Oyu Tolgoi. Following this change, the strategy of the Oyu Tolgoi exploration program was restated: (i) to further the development of a pipeline of projects within the contract area; (ii) to seek a transformational discovery (long-life, low-cost, high-grade copper resources), especially in those areas where it may impact on the current development of the Oyu Tolgoi mine ore bodies; and (iii) to further delineate the resource potential at Heruga North.
To implement the strategy there will be a shift in emphasis in 2013 from drilling to data compilation, 3D modelling and interpretation to generate the next series of prioritized exploration targets. the Heruga geology model will be updated and a new resource estimate completed to incorporate the Heruga North resource potential. Drilling expenditure is expected to be reduced compared to recent years.
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