Ivanhoe Mines is an international mining company focused on mineral exploration and development primarily in the Asia Pacific region. In addition to its ownership in OT which is its primary asset, Ivanhoe owns 58% of Mongolian coal producer SouthGobi Resources; 59% of Ivanhoe Australia and 50% of Altynalmas Gold, a private company developing the Kyzyl Gold Project in Kazakhstan. Ivanhoe’s majority shareholder is international mining major Rio Tinto Group (“Rio Tinto”). In 2006 Rio Tinto entered into a strategic partnership with Ivanhoe to develop and fund the Project and, since December 2010, to manage OT LLC. In January 2012 following a series of equity injections used primarily to fund the development of the Project, Rio Tinto became 51% owner of Ivanhoe. Rio Tinto is a diversified multinational mining and resources group with headquarters in London and Melbourne. Rio Tinto is the world’s fifth largest copper supplier and is an industry leader in sustainable mining practice, conservation, land rehabilitation, biodiversity, climate change and water and energy use. Erdenes Oyu Tolgoi LLC is a state-owned holding company established for purpose of representing the Government of Mongolia with regard to its ownership into OT LLC as provided for under an Investment Agreement between the Government, OT LLC, Ivanhoe Mines and Rio Tinto signed in October 2009.

The estimated total Project cost is $12.0 billion. IFC’s proposed investment is a $300 million senior A Loan together with a B Loan of up to $600 million loan to be syndicated to international commercial banks, as part of a proposed $4billion project debt financing. Co-arrangers of the proposed debt financing are European Bank for Reconstruction and Development (EBRD), Export Development Canada (EDC), Standard Chartered Bank, BNP Paribas, US Export Import Bank (US EXIM), and Multilateral Investment Guarantee Agency (MIGA). The balance of the funding for the Project is expected to come from Sponsor equity, shareholder loans and Project generated cash flows.

400.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	400.0
Equity

* These investment figures are indicative

The Project is located in the southern Gobi region of Mongolia, approximately 600 km South of the capital city Ulan Bataar and 80 km North West of the border post and rail head with China at Gashunn Sukhait. The nearest town, the regional soum capital Khanbogd, is 45 km away. The area is very sparsely populated with a total population in the regional Khanbogd soum of 3,500 of whom some 1450 are resident in Khanbogd town. The Project area is characterised by a very dry, continental desert climate with very high summer and very cold winter temperatures. Vegetation in the Project area is limited and largely comprises low-growing drought- and cold-tolerant shrubs, perennial grasses and annual plants.

Macro-economic impacts: The Oyu Tolgoi project is expected to make a significant contribution to Mongolia''s economic growth, increasing GDP by more than 30% at full production and providing a catalyst for additional private sector investment in Mongolia''s fast growing mining sector.

Fiscal impact: The Project is expected to generate significant revenue streams to the Mongolian Government. In addition to a 34% equity stake, the Government will receive: (i) a royalty of 5% of sales for the life of the mine; (ii) taxes on profits; (iii) other taxes and duties, including customs duties, value added, excise and immovable property/real estate taxes and payments for mining licenses; (iv) dividends on its equity ownership stake.

Employment: At peak construction the Project employs 14,800 workers, of whom 10,000 are Mongolians. During operations the Company is expected to have 3,500 direct employees, of whom 90% will be Mongolian. The Project is also expected to generate significant indirect employment in the supply chain including service companies, construction, mining equipment contractors, transport and maintenance operations.

Regional impacts: The Project is expected to be a catalyst for investment in infrastructure including housing for company employees, utilities and services in the the Khanbogd soum and regional cities. The Project will also develop the road, air transport and and electric grid in the South Gobi region and will provide investment and support for university education and vocational training for mining and technical graduates across Mongolia.

Mining currently accounts for 70% of exports and more than 30% of Mongolian government revenues and will continue to be the mainstay of economic growth for Mongolia as the Project and other large scale mining projects come on stream in coming years. Following a sharp cyclical correction in metals prices in 2008/2009, the Government of Mongolia, supported by the IMF and World Bank, passed a Fiscal Sustainability Law and an Integrated Budget Law in 2010. These provide a legislative framework to support financial management of mineral revenues and to plan and execute public investment. The World Bank also has a longstanding engagement with the Mongolian government including advice with the Minerals Law in 1997 and 2006, technical assistance programs for the Ministry of Mines and state owned mining companies, and support to achieve compliance with the Extractive Industries Transparency Initiative (EITI) in December 2010. Furthermore, the Investment Agreement (October 2009), the Shareholders’ Agreement (October 2009), and the Revised Shareholders’ Agreement (June 2011) which describe the royalty, tax and legal framework for the Project together with other material information are available for review by the public under “Ivanhoe Mines” at the Canadian Securities Administrators public information website http://www.sedar.com and on the Company’s website at http://www.ot.mn. The Company will also commit to disclosure of all payments to government.

Given: (i) the existing legal framework and commitments of government of Mongolia with respect to macro-economic management and sector governance and transparency; (ii) the continued engagement of the World Bank and the IMF and (iii) the engagement, resources, and strong record of commitment of the Project owners to transparency and best industry practice, IFC believes that the governance risks for the Project are adequately addressed.

Long-term Partner, Mobilization and Risk Management: IFC has played a lead role with the arranging bank syndicate and the Company to help structure Mongolia''s largest ever private sector financing, which will provide long tenor partial recourse debt financing meeting the complex requirements of a capital intensive, very long mine development; the evolving needs of IFI and commercial bank participants, the Company and its owners. IFC''s participation helps mitigate risk for both Project owners who are providing very significant capital for this very long life investment as well as for international commercial banks and co-lenders in the project debt financing.

Management of E&S Risks: The Project is a very large scale and long life mine being developed in a remote location. IFC has lead the environmental and social due diligence for the arranging bank syndicate, working over an extended period to advise on and help the Company prepare a comprehensive Environmental and Social Impact Assessment (ESIA) of the potential environmental and social impacts on the biophysical and human environments in the Project''s area of influence. The ESIA draws upon on Environmental Impact Assessments prepared under Mongolian requirements between 2002-2008 as well as on numerous supplementary studies undertaken to accommodate continuously evolving Project design. The ESIA also builds upon extensive fieldwork, baseline data gathering, inputs from specialized consultants and experts and an extensive stakeholder engagement process to develop measures through all Project phases to avoid, minimize, mitigate and manage potential adverse impacts to meet Mongolian regulatory requirements, IFC Performance Standards, European Bank for Reconstruction and Development (EBRD) Performance Requirements as well as the corporate commitments to environmental protection and social responsibility of Ivanhoe Mines and Rio Tinto.

Community Development: IFC is providing assistance to the Company in formulating their community development strategy, providing training using financial valuation methodologies to prioritize between investment options as well as broader strategic advice. IFC also expect to work with the Company over time on external initiatives addressing regional priorities, with focus areas likely to include stakeholder engagement and awareness around water issues.

The Oyu Tolgoi development is a very large scale mining operation with significant impacts on the environment and way of life in the Southern Gobi including on water resources, biodiversity and local communities. An international standard ESIA demonstrating compliance with Mongolian Law and IFC Standards is being disclosed along with the Environmental and Social Review Summary and this SII. Future Project components including expansion phases or other major infrastructure will also have international standard ESIAs completed. All ESIAs are subjected to full consultation and disclosure meeting IFC standards.

Internal and external auditing of environmental, health & Safety and social parameters is being undertaken. Periodic external monitoring post IFC-investment conducted by qualified independent consultants will also be undertaken with reports publically disclosed.

Please refer to the related Environmental and Social Review Summary (ESRS) document for this project.

Please refer to the Environmental and Social Action Plan (ESAP) tab in the related Environmental and Social Review Summary (ESRS) document for this project.