Submission of Explanation and Clarification to the Interim Oversight Committee of the State Great Khural of Mongolia

(Due to time constraints, responses were provided only to certain preliminary conclusions included in the inspector’s presentation. Additional clarifications or responses to other conclusions can be provided if necessary.)

As of the third quarter of 2025, Oyu Tolgoi LLC has contributed USD 5.3 billion, equivalent to MNT 13.7 trillion, to the state and local budgets in the form of taxes, fees, and charges. This amount includes not only taxes transferred to the General Tax Authority and the General Customs Authority, but also payments made to other government agencies, including the General Authority for Social Insurance, as well as VAT paid through suppliers.

Because the company does not receive VAT refunds, VAT constitutes tax expense. As OT LLC’s copper concentrate production is expected to accelerate in the coming years, the level of taxes contributed to the budget will rise proportionally. For instance, contributions are projected to exceed USD 600 million in 2026. Subsequently, once investment costs have been fully recovered, the company will begin paying income tax. It is worth noting that the Erdenet and Oyu Tolgoi mines are at different stages of their respective projects.

1.   24% of the Oyu Tolgoi deposit’s C-category resources are located in Hugo North, 20% in Hugo South, and 43% in the Heruga deposit. These areas represent the less-explored sections of the Oyu Tolgoi group deposit. We have planned phased exploration activities to upgrade the classification of C-category resources and improve confidence levels. Over the next five years, drilling will be conducted in Hugo North Lift 2 and Hugo South, while research work in the Heruga deposit is scheduled to begin in 2033.

2.   We are currently updating the resource estimates for Hugo North and expect to deliver a revised resource report by 2026.

3.   It is not feasible to conduct exploration across the entire Oyu Tolgoi group deposit simultaneously. Therefore, exploration is carried out in stages, starting with the most thoroughly studied areas, and mining operations proceed accordingly. As exploration progresses, resource classifications will be upgraded, and additional geological information on ore bodies located at depth will increase the volume of extractable resources. The figures of 73.5% and 48% cited in the inspector’s conclusion are based solely on the Feasibility Study 2023 (FS23) and the information we had available at that time. These figures will change as resource classifications are upgraded.

The Oyu Tolgoi group deposit is geologically a single complex mineralization system, formed during the same geological period and consisting of interconnected ore bodies. In the case of developing such large-scale porphyry deposits, international mining practice adheres to the principle of “one deposit – one mining technology.” The Investment Agreement was established based on this principle.

Accordingly, the most technically and economically sound approach would be to develop the Oyu Tolgoi group deposit through:

·     Integrated planning of open-pit and underground mining operations.

·     A unified ore processing and concentration technology.

·     A phased and consolidated strategy for exploration and extraction.

This approach ensures:

·     Reduced risk of selective mining and resource loss,

·     Gradual preparation of C-category resources for extraction,

·     Preservation of the overall value of the deposit over the long term.

Segmenting the Oyu Tolgoi group deposit and attempting to develop each part separately using different technologies would not align with geological realities and international mining practices. Conversely, developing it as a single integrated deposit using one technology fully serves Mongolia’s long-term interests.

1.      Considering the size, geological characteristics, and life of mine of the Oyu Tolgoi group deposit, it is practically impossible to complete all detailed studies prior to the commencement of mining. For world-class porphyry deposits (underground mines employing block caving), exploration, geological, and geotechnical studies are necessarily integrated with and conducted in phases during mining operations, which is a widely accepted international practice.

2.      It is not accurate to conclude that changes in the FS are a “direct consequence of insufficient studies.” Most of these changes resulted from:

• Increased precision in block caving technology applied to the underground mine,
• More accurate geotechnical data obtained under actual operating conditions,
• Engineering improvements aimed at ensuring safety and stability. These changes should be viewed not as planning errors, but as optimizations intended to reduce risks and enhance project sustainability.

3.      The conclusion that operations were “hurriedly commenced” does not reflect the actual circumstances, the legal requirements, the approved FS, and the decisions of relevant government authorities at the time. Both open-pit and underground operations at Oyu Tolgoi were implemented in compliance with applicable laws, regulations, and oversight mechanisms, based on the FS and permits valid at the time.

4.      It is not reasonable to regard increased investment resulting from plan adjustments as an inherently negative outcome. On the contrary, these additional investments were necessary to

• Ensure long term operational safety of the underground mine,
• Enable comprehensive resource extraction,
• Prevent accidents and operational failures,
• Safeguard the overall value of the deposit.

Therefore, rather than categorizing the issues mentioned in the conclusions as “non-optimal decisions” or “consequences of insufficient studies” it is more balanced and realistic to consider them within the context of the unique geological conditions of the Oyu Tolgoi group deposit, the complexity of block caving technology, and the phased planning approach commonly observed in international mining practice.

It is professionally unsound and one-sided to infer that variations in concentrate production, as shown in the presentation, reflect selective mining of underground ore or inadequate studies. In reality, Oyu Tolgoi’s operations are guided by phased exploration, integrated mine planning, and a risk-managed strategy.

1.      The variations in copper concentrate production shown in the slides should be understood as indicative figures based on assumptions drawn from the Feasibility Study (FS) and mine planning documents available at the time. These figures are subject to change depending on subsequent geological study results, resource classification upgrades, and optimization of mining sequences. They should not be regarded as final or fixed conclusions.

2.      The pattern of higher copper concentrate production in the early years followed by a later decline does not indicate selective mining of underground ore. Rather, it reflects the typical production curve commonly observed in large porphyry deposits. At the start of operations, blending high-grade ore from the open-pit Oyu deposit and the underground Hugo North deposit results in higher concentrate output. This is a geological reality, not a consequence of insufficient studies.

3.    Throughout the mine’s life, the concentrator’s ore processing capacity has remained stable at approximately 40 million tons per year, demonstrating the consistency of mine and concentrator capacity, technology, and infrastructure. The decline in concentrate output is due to natural variations in ore grade, which is a geological condition, not a planning error.

4.    Geological exploration and detailed studies currently underway at Hugo North Lift 2 enable phased preparation of C-category resources for extraction and provide opportunities to optimize mining sequences and update plans as needed. Therefore, the phased and systematic planning and implementation of studies and exploration at Lift 2 and other ore bodies is a strategic measure aimed at mitigating risks arising from geological uncertainty. It is unfounded to characterize these actions as “errors caused by delayed studies.”

Oyu Tolgoi LLC prepared a detailed Feasibility Study (FS) for the open-pit mine and concentrator, as well as an order-of-magnitude study for the underground mine, which were reviewed and approved by the Mineral Resources Professional Council (MRPC) in 2010. Based on these approvals, project development and operational activities commenced in compliance with applicable laws and regulations. Subsequently, a detailed FS for the underground mine was developed in 2015, reviewed and approved by the MRPC, and became the primary reference document for underground operations.

In accordance with FS requirements and relevant regulations, Oyu Tolgoi LLC has fulfilled its obligation to update the FS every five years, submitting official amendments to the MRPC in 2020 and 2023.

As the holder of a mineral license, Oyu Tolgoi LLC has consistently met its responsibility to prepare and update the FS. The acceptance and approval of these FS documents and their amendments are determined by the MRPC through a formal review process in accordance with law and regulation.

Therefore, the conclusion that “Oyu Tolgoi LLC has operated without an approved FS for the past 10 years” is inconsistent with legal requirements and actual practice. Rather, it reflects a misinterpretation of the procedural stages of MRPC review and decision making.

The Investment Agreement (IA) between Oyu Tolgoi LLC and the Government of Mongolia defines the issues related to the Javkhlant and Shivee Tolgoi mining licenses held by Entrée LLC as follows:

Clause 16.31 of the IA specifies that “Mining Licenses” shall mean […] the mining licenses referred to in Clause 15.7.8 of this Agreement and other tenure incorporated under Clause 15.5. Clause 15.7.8 refers specifically to the Javkhlant and Shivee Tolgoi licenses. In summary, regardless of whether the the Javkhlant and Shivee Tolgoi licenses were incorporated under Clause 15.5, they are defined as “mining licenses.”

Clause 16.11.2 of the Investment Agreement states that “all such other additional areas of Mining Licenses and other tenure incorporated under Clause 15.5”, meaning that the areas covered by the Javkhlant and Shivee Tolgoi licenses, defined as mining licenses in the Agreement, fall within the “Contract Area” and, under Clause 1.5, are subject to the provisions of the Investment Agreement.

The justification for including the Javkhlant and Shivee Tolgoi licenses under the Oyu Tolgoi Investment Agreement has been clearly outlined above. On this basis, these licenses fall under the scope of the IA without the need for a separate request for inclusion. This explanation has previously been provided to the Interim Committee and the inspectors. However, the conclusion presented at the hearing appears to reflect a one‑sided interpretation of the matter.

(Due to time constraints, responses and comments have been provided only to certain preliminary conclusions included in the expert presentation. If necessary, additional responses and clarifications to the remaining conclusions can be provided.)

Annex 2, Resolution #40 of 2008 by the State Great Khural of Mongolia approved the basic principles and guidelines for concluding an investment agreement for the joint development of the Oyu Tolgoi copper-gold deposit. Pursuant to that resolution, it was instructed to examine a “production-sharing–based option” when negotiating the investment agreement. However, the Mongolian laws in force at that time, including the Law on Minerals, did not provide for the conclusion of an investment agreement based on the production sharing principle.

Consequently, in compliance with the applicable laws, it was agreed that the state-owned share would be 34 percent, and that this share could be further increased to 50 percent, and this was reflected in the Investment Agreement.

Therefore, concluding that the equity participation of the State, and the related option of investor-provided financing, was a “poor option” is not consistent with the legal and regulatory framework in force at the relevant time. Furthermore, the OT Shareholders’ Agreement is not confidential and has been publicly disclosed on Oyu Tolgoi’s website and other public sources.

Article 29 of the 2006 Minerals Law, which was in force at the time the Investment Agreement was concluded, provided that an investment agreement may be entered into in order to maintain stable conditions for an investor’s operations for a certain period of time, and that such agreement may include provisions on the stabilization of the tax environment and other related matters. Within this legal framework, the parties negotiated and agreed on the terms of the Investment Agreement, and therefore the draft agreement was prepared in full compliance with the laws and regulations of Mongolia that were in force at the relevant time.

The meeting minutes of the Government of Mongolia dated 6 October 2009 (Minute #62) state that “the State Property Committee and the Board of Directors of Erdenes MGL LLC (D. Sugar) are instructed to grant, in accordance with the applicable laws, the authority to B.Enebish, Chief Executive Officer of Erdenes MGL LLC, to sign the Shareholders’ Agreement of Ivanhoe Mines Mongolia Inc. LLC on behalf of Erdenes MGL LLC.” Pursuant to this decision, Resolution #22 of Erdenes MGL LLC dated 2009 granted B.Enebish, Chief Executive Officer of Erdenes MGL LLC, the authority to sign the Shareholders’ Agreement of Ivanhoe Mines Mongolia Inc. LLC.

Capital expenditure refers to the upfront investment required to transform an orebody into a mine. This includes the development of an open pit or underground mine, procurement of equipment, construction of a concentrator, tailings and waste storage facilities, provision of power and water supply, and the development of infrastructure such as roads, maintenance workshops, and worker accommodation. Large-scale projects such as Oyu Tolgoi are planned over many years, with cost estimates being refined in detail at each stage.

Oyu Tolgoi is now entering a critical phase in 2025–2026. With the completion of underground mine development and the transition to fully integrated operations, cash flows are expected to turn positive, enabling the repayment of loans incurred to transform the orebody into a world-class

mining operation.

When comparing interest rates, it is necessary to take into account numerous factors, including the terms and risks of the loans, the country’s credit rating, political and economic conditions, the purpose of the loan (such as working capital loans, working capital financing loans, equipment purchases, or the comprehensive introduction of new technologies or construction of facilities), the project implementation period (short-term or long-term, e.g. one year, five years, etc.), and the sector in which the project is implemented (mining, food, light and heavy industry, agriculture, information technology, etc.).

The loan received by OT LLC from its shareholders is characterized as unsecured, not backed by any collateral or guarantees, and repayable only after all senior debt has been satisfied.

Furthermore, OT LLC has applied a consistent methodology for calculating benefits since 2010, and according to the most recent calculation, Mongolia’s share of the benefits is estimated at 61 percent. However, the experts presented a calculation indicating that Mongolia’s share is 37 percent and disseminated this information to the public without explaining which components were included or how they were assessed, which is inappropriate.

(Due to time constraints, responses and comments have been provided only to certain preliminary conclusions included in the expert presentation. If necessary, additional responses and clarifications to the remaining conclusions can be provided.)

The experts concluded that the Shareholders’ Agreement lacked authorization from the State Great Khural, without providing any explanation of the legal basis on which such an agreement would require authorization from the State Great Khural, rendering their conclusion overly biased.

The Shareholders’ Agreement is an agreement entered into between a company’s shareholders in accordance with the Company Law of Mongolia and is governed by the Civil Code. Therefore, there is no legal requirement for such an agreement to be discussed or authorized by the State Great Khural.

The Investment Agreement was executed with the signatures of the Minister of Finance, the Minister of Mineral Resources and Energy, and the Minister of Environment and Tourism as per Article 29.2, Minerals Law of Mongolia in force in 2009, which stipulates that an Investment Agreement shall be jointly executed by the Cabinet members responsible for finance, geology, mining, and environmental matters, upon authorization by the Government of Mongolia.

While, under the Company Law, the Shareholders’ Agreement must be executed by the shareholders of the relevant company. Therefore, the Shareholders’ Agreement was duly executed by duly authorized representatives of the shareholders of OT LLC, and this does not constitute a violation of law.

As explained above, the Shareholders’ Agreement (Amended and Restated Shareholders’ Agreement) is an agreement entered into between the shareholders of the company in accordance with the Civil Code.

The parties to the agreement have mutually agreed on this arrangement as per Article 189.1 of the Civil Code, which provides that the parties to the agreement have the right to determine the content of the agreement themselves.

With respect to negotiations involving a conflict of interest, this arrangement was included in the agreement in accordance with Article 86.4 of the Company Law in force at the time (currently Article 89.4), which permits specifying circumstances in which the provisions of Chapter 12 do not apply.

Regarding Clause 4.7(a) referenced by the expert, the Shareholders’ Agreement (including the Amended and Restated Shareholders’ Agreement) and the Charter of OT LLC provide that the provisions of the Shareholders’ Agreement form an integral part of the Company’s Charter. In other words, because the law permits alternative arrangement in the Company’s Charter, the shareholders agreed to such terms. This is fully consistent with the laws of Mongolia.

Articles 78.1 and 79.3 of the Company Law of Mongolia (1999), which was in force in 2009, allow for “permissible” arrangements to be specified in the Company’s Charter and in the operating procedures of the Board of Directors, enabling the chairman’s casting vote to resolve matters in the event of a tie among the board members.

In addition, pursuant to the Shareholders’ Agreement (including the Amended and Restated Shareholders’ Agreement) and the Charter of OT LLC, the provisions of the Shareholders’ Agreement are deemed to form an integral part of the Company’s Charter. In other words, because the above legal provisions expressly allow alternative arrangement in the Company’s Charter, the shareholders agreed to such terms.

Both the 1999 and 2011 Company Laws stipulate that a company’s governance structure consists of shareholders, a board of directors, and executive management (either collectively or individually), but they do not impose restrictions prohibiting alternative management structures. In other words, based on both the private law “principle of freedom of contract parties” and the public law principle “what is not prohibited is permitted”, the conclusion that having a Management Team as mentioned here is inconsistent with the Company Law, is biased.

As explained above, the Shareholders Agreement (Amended and Restated Shareholders’ Agreement) is an agreement between shareholders of a company in accordance with the Civil Code. The parties mutually agreed on this arrangement, as stipulated in Article 189.1 of the Civil Code, which states that the parties to an agreement have the right to determine the content of the agreement themselves.

This provision addresses only the tax obligations of the state-owned company in which the Government of Mongolia holds shares, in cases where the five types of transactions specified therein occur (including: distribution of dividends from OT LLC to Erdenes MGL; provision of financing or loans from another shareholder to Erdenes MGL; and repayment of shareholder loans of Erdenes MGL, including related interest payments). This arrangement does not restrict OT LLC from performing its role as a withholding agent. It is therefore overstated to include unrelated clauses here and conclude that they have been violated. Also, Article 17 is agreed upon in accordance with Clause 2.27 of the Investment Agreement, and the Investment Agreement is executed in accordance with the laws of Mongolia.

Fulfilling obligations established by law is the responsibility of the Government and its authorized representatives. Portraying OT LLC as being at fault or in violation of the law for the Government’s failure to implement such obligations and take appropriate actions, and recording it as “non-compliant,” is misleading. This should be corrected to provide the public with an accurate understanding.

The Company Law does not restrict the parties from defining and agreeing on the interrelationship between the Charter and the Shareholders’ Agreement. However, the experts concluded as if these two documents should have no relation to one another, and we do not agree with such a conclusion.