Summary of contract

• Negotiation, representation, and other relevant context

  This agreement was reached after 4 years of deliberation and the community was consulted through public meetings, briefings with herders and meetings with elderly associations and local agencies (Preamble). The minutes of the meetings are available for public scrutiny. The parties want to enter this agreement to have a transparent basis for their relationship and to develop mutual recognition, respect, and support, as well as promote employment and training, environmental and cultural protection, health, safety and local business development. . This agreement supersedes all prior discussions and agreements between the parties and does not vary the State-investor agreement (Art. 18). Umnugobi Aimag and Khanbogd Soum will support the applications for approvals that OT needs for its project (Art. 10). The parties acknowledge that they have received proper advice to negotiate this agreement and enter into it with an informed understanding of its content (Art. 11). The termination of the agreement does not affect the validity of any licenses and permits that OT has been granted (Art. 13.2). If OT wants to transfer the mining license it agrees to use its reasonable endeavors to procure that the transferee accedes to the terms of this agreement or agrees to enter into a new cooperation agreement (Art. 14). The 4-year deliberation between the parties prior to this agreement is recorded in a Memorandum of Understanding and a Process Agreement that constitute annexures A and B of the agreement. Annexure C contains a previous collaboration agreement.

• Governance, implementation, dispute resolution

  The parties establish a relationship committee as a forum where local governments, community representatives, and senior OT operations managers meet regularly to discuss, support, monitor and implement the principles of the relationship (Art. 4). The committee has 13 members: 9 appointed jointly by Umnugobi and Khanbogd, and 4 members appointed by OT. The relationship committee’s purpose is to ensure transparent consultation on all obligations involving community interaction and review the submission of proposals to the Development Support Fund. The relationship committee will create working groups integrated by at least one representative of the community, one of OT and a person(s) with relevant experience for the implementation of specific thematic obligations. The relationship committee will meet at least once quarterly and the secretariat’s duties will be performed by OT. The relationship committee and the Development Support Fund will have a close but independent relationship (Art. 4, Schedule 2). OT’s commitments in specific areas are described in the thematic schedules of the agreement but these schedules are only summaries of existing obligations originating from a number of sources including the Investment Agreement, ESIA, and other laws and standards; the commitments as described in the thematic schedules that do not alter existing obligations under the investment agreement or other applicable laws, and do not confer any rights or impose any obligation on any person (Art. 5.6). The Development Support Fund will be audited at least once per year by an internationally recognized firm and the cost of the audit will be paid by the Fund (Art. 8.8). A qualified third party will review every three years the terms and compliance with the agreement (Art. 16). In case of dispute, the parties will try in good faith to negotiate a resolution. If they cannot settle it, the dispute will be taken to the Governor of Umnugobi Province and the CEO of OT for resolution. If they cannot either settle the dispute, it will be resolved through arbitration under the UNCITRAL Rules. The arbitral award will be final and binding on the parties. The language of the arbitration will be English with a highly skilled translator to Mongolian. In case of an inconsistency between the English and Mongolian versions of the agreement in a legal dispute setting, the English version prevails (Art. 18). These procedures continue applying after the termination of the agreement. Each party will cover the costs of the resolution of disputes (Art. 15). Any notice or other communication between the parties must be in writing (Art. 17). OT will maintain a community system of complaints, disputes and grievances (Schedule 9). The tasks and responsibilities for the implementation of the agreement are described in Schedule 11.

• Fiscal obligations: content

  The parties establish the Development Support Fund (DSF) as an independent legal entity governed by the DSF board according to the policies set out in schedule 3 of the agreement. OT will deposit in the DSF US $5,000,000 per year, starting in January 2017. This amount will be adjusted each year according to a formula set out in Article 8.4. of the agreement. The operating costs of the DSF must be met from the contribution paid by OT. OT may stop or suspend the transfer of the contribution in case of material breach of the agreement (Art. 8). The DSF’s purpose is to fund projects targeting social infrastructure and the expansion of broad-based economic participation within the area of the Umnugobi Province. The DSF Board, which has 3 members of the community and 4 members of OT, has to decide how funding is allocated (Schedule 13). The parties agree that the obligation of OT to make any contribution is at all times conditional and that OT can decrease or stop payments in circumstances such as maintenance of the mine or serious impacts on the mining license for more than 45 days caused by a Governmental Authority (Art. 8.11). OT confirms its commitment to complete the current undertakings, listed in Annexure E, with funds separate from those in the DSF (Art. 7).

• Community development obligations: Local content

  OT will make a priority the training and employment of citizens of the South Gobi region with a preference for the Umnugobi Province. In 2015, OT will launch a youth development program focused on the development of the high school students of Dalanzadgad community. OT agrees to support the Gobi scholarship program which provides financial assistance to selected students studying for bachelor’s degree. The parties will work together to establish a mining school of excellence in Dalanzadgad community. OT and Khanbogd community will work together to support the improvement of the community’s school and kindergarten. The parties will work with the Umnugobi Province in a pre-employment job readiness program to help provide skills for work. OT will organize an implement in 2015-2016 a pre-apprenticeship program for people interested in employment at OT. The parties will work together to support and assist the development of a technical vocational education training system. OT will prepare materials providing information on job readiness training. The parties will work together to identify the types of training that the parties could support to help with job readiness particularly for herder households. The parties will maintain a database of work-ready residents and will undertake labor and skills censuses in this regard. OT agrees to work with the communities to publicise all OT vacancies. OT will support local business development programs so they supply the OT project as well as the diversification of Mongolian business so that they are not fully dependent on the OT project. OT will purchase goods and services provided by Mongolian citizens with preference to businesses operating in Umnugobi Province to the extent such services and materials are time and costs competitive. OT will maintain a South Gobi supplier development procurement policy to increase jobs, revenues, knowledge, skills and technological improvements for local suppliers. OT will develop an annual Umnugobi Province supplier procurement spend target and will report its performance against this target. The parties will support a local business and economic development program to develop non-mining economic opportunities for the communities (Schedule 9).

• Community development obligations: Infrastructure and social services

  OT agrees to discuss and consider any proposal by Umnugobi Province or the communities in relation to providing access to public use infrastructure and services (Art. 9). The parties will work together to support programs and campaigns aimed at strengthening the health system of the communities. Umnugobi Province will take the lead in cross-sector cooperation to improve the local health services. OT will consider providing information regarding employee health to Umnugobi Province. The parties will work together on road and traffic safety programs (Schedule 8). OT will provide technical advice for the development of public waste management facilities. The parties will work together to support the development of a sustainable water distribution system for Khanbogd center.

• Community development obligations: Other

  The commitments regarding traditional animal husbandry and pastureland management have been “intentionally left blank” in the agreement but the agreement sets obligations for the parties to work together and support strategies with the objective of preserving and developing this sector of the local economy (Schedule 6). OT will maintain a cultural heritage management plan and a cultural heritage management system designed to protect Umnugobi cultural heritage during the development of the OT project. Umnugobi Province will take an active part in the establishment and operations of the proposed cultural heritage study and development center. The parties will work together to identify projects aiming to foster the “living culture” of the communities that can get support from the Development Support Fund. OT will select construction designs that avoid impact on identified historical or cultural places. OT will maintain and share a list of sacred places to the community. OT will train its employees on a program to manage chance archeological findings and will include traditional blessing ceremonies in any new OT construction site. The parties agree to work together to support the development of tourism in the communities in order to create additional sources of income and minimize the communities dependence on mining. (Schedule 7).

• Environmental and social protection

  OT commits to procure an audit of its compliance with environmental requirements every 5 years and the outcome will be provided to the environmental authority. OT commits to not reduce the quality and quantity of existing potable water and livestock supplies used by currents users. OT will make available its self-discovered water sources to the communities. OT will support the Government of Mongolia in the establishment of a safe drinking water center for the community of Khanbogd. OT will apply modern technology to efficient water usage (Schedule 4). OT will implement an environmental management plan and an environmental monitoring and analysis program that will be evaluated by a professional firm every three years and the results of the evaluation will be sent to the environmental authority. OT will make the environmental reports available to the public and provide the communities with relevant information and consult with them the impact of OT’s operations on the environment. OT will rehabilitate the environment damaged by operations. OT at its expense will take measures to eliminate material adverse impacts on the environment. OT will pay compensations for irreversible ecological damage caused directly by its operations. OT will implement a biodiversity plan (Schedule 6).

• Transparency or confidentiality

  The parties agree to provide accurate information about the project to the public and take steps to ensure that information provided to the public by third parties is correct and wrong information is not distributed (Art. 3.6) The parties agree that the information regarding the monetary contribution by OT will be publicly available in a form agreed by the Development Support Fund Board (Art. 8.7). OT can stop transferring the monetary contribution in case of allegations of corruption or bribery not disproved by the Development Support Fund (Art. 8.10). The parties will promote and practice the applicable anti-corruption laws, regulations and the OT code of business conduct (Art. 18.7).

• Reference to investor-state contract

  Investment Agreement between the Government of Mongolia, Ivanhoe Mines Mongolia Inc LLC (former name of OT), Ivanhoe Mines Ltd and Rio Tinto International Holdings Limited on 9 October 2009 (Preamble).