MONGOLIAN COPPER SMELTER PROJECT

Prepared by: Industrial Corporation of Mongolia 2009

CONTENT

PROJECT SUMMARY MARKET OVERVIEW MONGOLIAN COPPER INDUSTRY COMCENTARES SOURCES ERDENET MINING CORPORATION PLANT CAPACITY TECHNOLOGY AUSMELT TECHNOLOGY COPPER EXPERIENCE PLANT LOCATION FINANCIAL PROJECTIONS SUMMARY

I. PROJECT SUMMARY

The main business concept is to establish a copper smelter in Mongolia to produce readily saleable commodities such as copper matte or blister with purpose to export to Chinese or other markets. The projects primary objective is to establish a smelter with a capacity of producing 120.000 tpa of copper concentrates produces by Erdenet copper mine and soon-to-be operated Oyu Tolgoi copper mine. Smelting and converting operations will occur in a single Ausmelt furnace. The products will be 29,642 t/y blister copper, 127,700 t/y sulphuric acid (98%) and a discardable slag A comprehensive Feasibility Study of establishing copper smelter in Mongolia was carried out by Australian AUSMELT Limited.

II. MARKET OVERVIEW

China is a primary market of Mongolian copper. Although China is worlds second largest producer of refined copper, ranked only after Chile, it is also the number one consumer in the world accounting for some 20% of the global market. Since 1999, Chinese domestic consumption copper has increased by an average of almost 20% per year. Meanwhile, Chinas domestic copper mine production has managed to grow only at 4% per annum while production of refined copper grew only by 11% per annum. The remaining substantial gap in copper demand has been mostly filled in by imports of refined copper. Although during the last 5 years Chinas domestic production of refined copper has been steady rising, its dependence of imported raw materials has similarly remained strong. In 2004, China had a copper imbalance of close to a million tons and cathodes shortage 1.5 ml tons. With purpose to fulfill the shortage of copper, China has been resourcing copper concentrates mostly from Australia, Mongolia, Peru, Chile and Indonesia. Mongolia was the second largest exporter of copper concentrates to China in course of this period

III. MONGOLIAN COPPER INDUSTRY

Copper is a primary industry of a Mongolian mining sector. Mongolian copper industry is dominated by a well known large enterprise Erdenet Mining Corporation (EMC) developed with a technical assistance of former Soviet Union in early 70s.

Mongolian copper export consists of two types of commodities, namely copper in concentrates produced Erdenet copper mine and cathode copper produced by Erdmin Company, a Mongolian and American joint venture.

III. CONCENTRATES SOURCES - ERDENET MINING CORPORATION

VI. PLANT CAPACITY

The plant will treat 120,000 tons per year dry tons of copper concentrate to produce 33,500 tons per year blister copper. The plant can be expanded to treat 240,000 and 360,000 tons per year of copper concentrates by construction of a dedicated smelting furnace and increasing the levels of oxygen enrichment. The initial Ausmelt furnace will be dedicated to the converting duty.

IV. TECHNOLOGY

Ausmelt Copper technology has been implemented in eight projects with three more currently construction and design phases which treat range of materials to produce blister copper or copper matte.

The Ausmelt Technology bath smelting system for treating copper materials is predominantly based on bath reactions between the sulphuric and metallic components of the feed material, oxygen and ferric oxide and oxygen injection via the Ausmelt lance.

V. AUSMELT TECHNOLOGY COPPER EXPERIENCE

Commercial Copper Plants Using Ausmelt Technology

VI. PLANT LOCATION

The plant location is near Sainshand city of Umnu-Gobi city is on province. Trans-

Sainshand

Mongolian Railway, and 420 km to the south-east of Ulaanbaatar.

The distance to the Chinese border is

CopperPlant

about 200 km. this site is very convenient to the project, very close to water source, electricity and developed infrastructure.

VII. FINANCIAL PROJECTIONS SUMMARY

The total estimated investment for the Project implementation including inventory and start-up costs are approx. US$80 millions (whereas the construction estimate is US$68.9 millions)

Due to high absorbing capacity of the market and ever increasing demand for copper the terms and goals of the business strategies outlined here and its related projections presented in this document are subject to improvements and adjustments in course of the implementation of the copper smelter project.