The Tolgoi Agreement
The Tolgoi Agreement is an investment agreement signed by Ivanhoe Mines and the government of Mongolia. Its purpose is to establish rules and regulations for the Oyu Tolgoi copper and gold mining complex located in Mongolia's south Gobi region.
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Benefit to Mongolia
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The partnership agreement gives the Mongolian government 34 percent interest in Ivanhoe Mines Mongolia Inc., shares to be transferred by Ivanhoe Mines Mongolia Inc. to state-owned Erdenes MGL. Mongolia will therefore receive 34 percent of any profit from the mining efforts.
Benefits to Mines
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The agreement gives the investment in Oyu Tolgoi stable regulatory provisions and tax rates for 30 years, with the option of another 20 years. This includes corporate income tax, customs duty, excise tax, value-added tax, royalties and licenses. In addition, the previously existing 68 percent Windfall Profits tax was canceled, effective January 1, 2011. In addition, if any future tax legislation is more beneficial to investors, Ivanhoe Mines Mongolia Inc. may apply for the more favorable tax treatment.
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Additional Benefits
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If water is discovered using investor money, the water can be used for the project. In addition, any excess water can be sold to a third party. Permission has been granted to build a road to the Gashuun-Suhait border with China and the costs can be deducted from taxable income. Ivanhoe Mines Mongolia Inc. will also receive a 10 percent tax credit on capital investments that are made through the construction period.
Expectations
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It is expected that, during the first 10 years, the annual production of copper will be more than 1 billion lbs. During that same time period, the annual expectation for gold will be at least 500,000 oz.
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