Oyu Tolgoi

Location:

Mongolia

Project number:

41158

Business sector:

Natural resources

Notice type:

Private

Environmental category:

A

Target board date:

14 Jan 2015

Status:

Disbursing

PSD disclosed:

05 Sep 2012

Project Description

The EBRD is considering a project involving the development, construction and operation of an open pit and underground mine and ore processing facility at the Oyu Tolgoi copper, gold, silver and molybdenum deposit located in the southern Gobi region of Mongolia, in the eastern part of Omnogovi aimag in Khanbogd soum, approximately 220 km from the aimag capital of Dalandzadgad and 45 km southwest of Khanbogd soum centre.

Oyu Tolgoi, one of the world’s largest copper-gold deposits, contains a currently identified commercial resource (JORC compliant) of almost 40 billion pounds (Blb) of contained copper and 20 million ounces (Moz) of contained gold plus further identified reserves of 40 Blb of contained copper and 25 Moz of contained gold which are in the process of being defined through geological investigation and modelling.

The project is being developed in phases, with commercial production from a 100,000 tonnes per day (tpd) concentrator (due to start in 2013) to be sourced initially from the Southern Oyu open pit mine. In parallel, construction is under way to develop infrastructure at the underground Hugo North deposit. A dedicated road to the Chinese border will be built to export mine output. Power is to be sourced initially from China.

The project is expected to have a material positive impact on the economic development of Mongolia and, at full production, is anticipated to increase national GDP by 30% by 2020. The fiscal benefits for the country will include greater tax revenues, as well as royalties and dividends. The project will adopt best transparency standards through compliance by the project company with the EITI requirements and serve as an example to other private sector investors in the Mongolian mining industry.

In addition, the project will act as a catalyst for the development of supporting infrastructure in the region, including utility services and transportation, and will contribute to the development of the necessary vocational skills in the country through the establishment of two vocational training centres in the South Gobi, and the provision of full financial support for 3,300 Mongolians to attend technical and vocational education training schools across the country. .

Employment generation, both directly at the project and indirectly through the development of a supply chain providing goods and services to it, is expected to be significant. The project will maintain a greater than 75% Mongolian workforce for direct mining operations and at least 90% of the remainder of the workforce will be Mongolian during the operational phase.

Transition Impact

The transition impact potential of the project is expected to derive from:

(i) the support to private sector development in the copper mining industry, currently dominated by State-owned entities;

(ii) transfer of skills, thanks to the involvement of a world-leading mining operator; and
(iii) setting higher standards of transparency, corporate governance and environmental, health & safety practices.

Moreover, the project is expected to contribute significantly to the economic development of the South Gobi region, and it will be leveraged to support the development of local SMEs through backward and forward linkages.

The Client

Oyu Tolgoi LLC (OT), a company established in Mongolia to implement the project.

OT is 66% ultimately owned by Turquoise Hill Resources Ltd (formerly, Ivanhoe Mines Ltd), a Canadian mining group, and 34% by Erdenes Oyu Tolgoi LLC, a corporate body owned by the Mongolian State.

Turquoise Hill Resources Ltd is ultimately majority owned and controlled by Rio Tinto Plc, a leading global mining group, which also acts as manager of the project.

EBRD Finance

A project finance loan to OT to be syndicated to commercial banks. The EBRD will lend up to USD 400 million for its own account (an A loan) and arrange syndication of up to USD 1 billion to commercial banks (a B loan). This will be part of a larger financing package including loans from, among others, the International Financial Corporation (IFC) and Export Development Canada (EDC).

Environmental Impact

The original Environmental and Social section of the PSD (released on 5 September 2012) has been updated (May 2019).  The original section can be accessed on the following link.

The May 2019 updated Environmental and Social section is provided below.

Staff from the Environmental and Social Department (ESD) have been closely monitoring this project since the beginning of construction.  In addition to this, the Independent Environmental and Social Consultant (IESC) has performed regular audits of the facility and, as agreed with OT, the reports for this monitoring have been released on the project web site.  As of March 2019, there are thirteen (13) audit reports available and one further report available summarizing a detailed review of issues related to water resources  (December 2017).   The Bank’s Environmental and Social monitoring will continue for the length of the EBRD loan, and can be accessed at the following link.

As identified in the original PSD, the main risks posed for this project were grouped into the following three categories:

(i) Risks to water resources;
(ii) Risks to biological resources; and
(iii) Risks to impact the baseline social conditions of the area.
Updates on these three issues are provided below.

Water Resources

The main issue in term of water resources on this project has always been related to ensuring that there is no impact to water resources available for herders as a result of project development.  The two areas to be considered for this include 1) the mine licence area, and 2) the Gunii Hooloi aquifer.  These areas are discussed below.

OT has developed a comprehensive monitoring network to assess possible impacts to water resources, and they have a knowledgeable team that collects, analyses and reports on these data.  Based on our detailed review of the ongoing monitoring as presented in the Water Resources Management Plan and the Water Monitoring Plan, we are confident that the monitoring being implemented onsite would allow for early indication of a potential impact to water resources, either at the mine licence area or at the Gunii Hooloi area.  Based on a detailed review of available monitoring data, there are no data that indicate impacts to water resources.  The Gunii Hooloi aquifer is performing as anticipated in the modelling, and no impacts are observed in any of the nearby monitoring wells or herder wells.  Further, as presented in the detailed review of water the diversion systems in place for subsurface and surface water in the Undai are performing well.  To date there have been no observed adverse impacts to springs or herder wells located in the Undai channel downgradient of the diversion.  Further, it appears that the volume of water transferred through the subsurface diversion is greater than the amount of subsurface water transferred to the alluvial sediments at the location of the New Bor Ovoo spring in the natural system.  This statement is based on the fact that the alluvial sediments of the active channel are often saturated at the location of the New Bor Ovoo spring, and the large area of surface water present much of the time at the New Bor Ovoo (typically far exceeding the greatest amount ever recorded at the original Bor Ovoo).

While the water diversion systems are performing well and the New Bor Ovoo over the last several years has contained significant surface water, over the medium to long term natural droughts will be experienced and it is likely that there will be times when local springs and herder wells go dry.  In such circumstances the existing monitoring system will allow early identification of any influence that the site may have on these conditions.

Biological Resources

To mitigate potential project related impacts to species and habitats of conservation importance, OT continued to implement its comprehensive Biodiversity Monitoring and Evaluation Program (BMEP), which is disclosed on the Company’s website. The objectives of the BMEP are to (i) assess impacts (positive and negative) of operational activities and the effectiveness of mitigation (including rehabilitation and offset) actions in order to allow for adaptive management; (ii) demonstrate that the project is on track for and, in the longer-term, results in a Net Positive Impact (NPI) on priority biodiversity features; and (iii) evaluate experimental management options within a scientific framework.

Work activities in 2018 included, but were not limited to khulan movement monitoring and traffic analysis; bird observation and monitoring; rangeland monitoring and condition assessments; monthly powerline and road inspections (to document wildlife incident reports), rehabilitation/plant propagation assessments and the assessment of elm tree health down gradient from the new Bor Ovoo Spring. The OT team also deployed new satellite collars on 30 khulans and 20 goitered gazelles, with the results of these assessments to be incorporated into the Core Biodiversity Monitoring objectives. With the exception of one KPI (involving a vehicle collision with a goitered gazelle), all biodiversity indicators were “green”, confirming compliance with the project’s overall  commitments, biodiversity sensitivity thresholds and lender requirements.

Progress on OT’s land rehabilitation program was also noted, with technical rehabilitation exceeding the project’s 2018 targets. The 2019 program will further include additional technical and biological rehabilitation, vegetation trials at rock dumps and soil amelioration trials at the OT airstrip rehabilitation area. Work on the project’s Biodiversity Offset Management Plan is also on track, and includes projects in the five following areas: (i) anti-poaching; (ii) sustainable cashmere; (iii) railroad fence removal and modification; (iv) powerline insulation of low voltage and medium voltage (<35 kV) power lines; and (v) development of a bird friendly construction standard for low and medium voltage power lines. Work required to meet the offset targets for the low voltage powerline insulation offset (item iv) was completed in 2018.  Plans for 2019 have been developed and approved by OT and the Lenders.

Finally, all commitments included in the Biodiversity Action Plan have now been completed. A request to change Action 7, from aerial ungulate surveys to land based surveys was agreed by the Lender group through the NOC procedure given the project’s enhanced understanding of populations in the South Gobi. The revised BAP will be uploaded to the client’s website.

Social Conditions

As identified in the ESIA, social change has been significant in Khanbogd soum and the Umnogobi province. Adverse impacts were mainly associated with permanent and temporary land acquisition, as well as construction nuisance (such as increased traffic), resulting in loss, fragmentation, or degradation of pastures. A comprehensive set of avoidance and mitigation measures were developed to minimise, mitigate and monitor livelihood impacts.  To mitigate these impacts OT developed comprehensive compensation programmes, for both physical and economic displacement, as well as a series of livelihood programmes and employment opportunities offered to affected households.

The Completion Audit for physically displaced households was carried out in 2014 and recommendations implemented during 2014-15. The audit concluded that all but one household improved their livelihoods. Further, the 2018 Outcome Evaluation of the economic displacement impacts concluded that about 88% of economically displaced households had significantly raised their economic livelihoods above the 2011 baseline levels. As a result of the study, additional measures to address the relatively poorer outcomes for 11 herder households as well as measures to address dependency on water deliveries of 5 further households are currently being developed.

Adverse impacts from labour influx, especially during construction, were largely avoided by making use of onsite worker accommodation for non-locals. Direct and induced employment creation has been positive and has resulted in a widespread increase in income and living standards across the project area. As of 2018, over 90% of Oyu Tolgoi employees were Mongolian nationals and over 20% were from the Umnogovi province. The project has also resulted in significant improvements to local infrastructure and access to services, notably in the Khanbogd soum centre. This has profoundly changed the socio-economic make-up of the host communities and contributed to the fast growth of the soum centre, as households have tended to become more sedentary and less dependent on herding activities. Even so, herd-size has been growing rapidly and livestock remains an important investment, compounding pre-existing concerns of overgrazing.

It is undeniable that traditional nomadic culture is declining as a direct result of the project creating alternative opportunities and herders recognise that they prioritise their children’s education and encourage them to adopt non-herder livelihoods. Oyu Tolgoi undertook extensive ethnographic work during the social assessment phase and continues to conduct ethnological and cultural impact surveys in specific heritage areas on an ongoing basis. Soum efforts to protect and promote traditional Mongolian culture are consistently supported, though change in this respect is inevitable.

Regional and community development is implemented largely though the Cooperation Agreements signed in 2015. This is supported by Oyu Tolgoi investment into the Development Support Fund (DSF), which is administered by a Relationship Committee and DSF Board, and implemented through a community partnership model. Over 75 projects with an investment of USD 15.2 million have been supported, two-thirds of which are in social services and social infrastructure directed to Khanbogd and Dalanzadgad soums. The Future Generation Fund (5% of the DSF) contributes to student scholarships and SME microloans. In 2018, the new Khanbogd school and kindergarten complex, as well as the Inter-soum healthcare centre were commissioned as a result of this fund.

Overgrazing due to increased herd sizes, especially of wealthier livestock owners, and access to water for poorer herders remain key concerns and sustainable pasture management needs to be prioritised to improve the prospects of traditional livelihoods over the longer term.  Oyu Tolgoi has developed a Pastureland and Livelihoods Improvement Management Plan (PLIMP) to this end and multiple stakeholders are involved in its implementation. This includes the development of a three-year strategy by the DSF and a comprehensive pasture carrying capacity assessment. The pasture water plan under the PLIMP intends to create 77 new water points. This will be closely monitored by EBRD.

The monitoring of this project will continue with public reporting, and this PSD will be updated from time to time.

There is an Environmental and Social Impact Assessment available for this project.

Technical Cooperation

None.

Company Contact

The OT ESIA Disclosure Manager can be reached on this email.

 

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