##### Table of Contents

Exhibit 99.3





LOGO

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and

Results of Operations

December 31, 2016









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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)



INTRODUCTION

This management discussion
and analysis of the financial condition and results of operations (MD&A) of Turquoise Hill Resources Ltd. should be read in conjunction with the audited consolidated financial statements of Turquoise Hill Resources Ltd. and the notes thereto for
the year ended December 31, 2016. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). In this MD&A, unless the
context otherwise dictates, a reference to the Company refers to Turquoise Hill Resources Ltd. and a reference to Turquoise Hill refers to Turquoise Hill Resources Ltd. together with its subsidiaries. Additional information about the Company,
including its Annual Information Form (AIF), is available under the Companys profile on SEDAR at www.sedar.com.

References
to C$ refer to Canadian dollars and $ to United States dollars.

This MD&A contains certain forward-looking
statements and certain forward-looking information. Please refer to the cautionary language commencing on page 40.

All readers of this
MD&A are advised to review and consider the risk factors discussed under the heading Risk and Uncertainties in this MD&A commencing on page 22.

The effective date of this MD&A is March 23, 2017.



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





TABLE OF CONTENTS



|                                                                          |  |      |    | 
|------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                          |  | Page |   
|1.        
Selected Annual Financial Information                          |  |      | 4  | 
|                                                                          | 
|2.        
Review of Operations                                           |  |      | 4  | 
|                                                                          | 
|A.    Oyu Tolgoi                                                          |  |      | 6  | 
|                                                                          | 
|B.    Corporate
Activities                                                |  |      | 13 | 
|                                                                          | 
|C.    
Corporate Administrative Expenses                                  |  |      | 13 | 
|                                                                          | 
|3.        
Selected Quarterly Data                                        |  |      | 13 | 
|                                                                          | 
|4.        
Liquidity and Capital Resources                                |  |      | 14 | 
|                                                                          | 
|5.        
Share Capital                                                  |  |      | 16 | 
|                                                                          | 
|6.        
Outlook                                                        |  |      | 16 | 
|                                                                          | 
|7.   
     Off-Balance Sheet Arrangements                                 |  |      | 17 | 
|                                                                          | 
|8.        
Contractual Obligations                                        |  |      | 17 | 
|                                                                          | 
|9.        
Changes in Accounting Policies                                 |  |      | 18 | 
|                                                                          | 
|10.     
Critical Accounting Estimates                                    |  |      | 18 | 
|                                                                          | 
|11.     
Recent Accounting Pronouncements                                 |  |      | 20 | 
|                                                                          | 
|12.     Risk and
Uncertainties                                            |  |      | 22 | 
|                                                                          | 
|13.     
Related-Party Transactions                                       |  |      | 36 | 
|                                                                          | 
|14.   
  Non-GAAP Measures                                                |  |      | 37 | 
|                                                                          | 
|15.     
Disclosure Controls and Procedures                               |  |      | 39 | 
|                                                                          | 
|16.     
Managements Report on Internal Control over Financial Reporting |  |      | 40 | 
|                                                                          | 
|17.     
Oversight of the Audit Committee                                 |  |      | 40 | 
|                                                                          | 
|18.     Qualified
Person                                                  |  |      | 40 | 
|                                                                          | 
|19.     Cautionary
Statements                                             |  |      | 40 | 
|                                                                          | 
|20.     
Forward-Looking Statements and Forward-Looking Information       |  |      | 41 | 
|                                                                          | 
|21.     
Managements Report to Shareholders                              |  |      | 44 | 



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





|1. | SELECTED ANNUAL FINANCIAL INFORMATION
|-- | -------------------------------------



|                                                                               |  |                        |          |  |      |   |         |      |  |   |         | 
|------------------------------------------------------------------------------ |  | ---------------------- | -------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|($ in millions, except per share information)                                  |  | Year Ended December 31 |         
|                                                                               |  | 2016                   |          |  | 2015 |   |         | 2014 | 
|Revenue                                                                        |  |                        |          |  |      |   |         |      |  |   |         | 
|Copper-gold concentrate                                                        |  | $                      | 1,203.3  |  |      | $ | 1,634.8 |      |  | $ | 1,735.6 | 
|Total revenue                                                                  |  | $                      | 1,203.3  |  |      | $ | 1,634.8 |      |  | $ | 1,735.6 | 
|                                                                               |  |                        |         
|Net income from continuing operations attributable to owners of Turquoise Hill |  | $                      | 210.6    |  |      | $ | 340.7   |      |  | $ | 198.8   | 
|Loss from discontinued operations attributable to owners of
Turquoise Hill     |  |                        | -        |  |      |   | (27.4)  |      |  |   | (171.9) | 
|Net income attributable to owners of Turquoise
Hill                            |  | $                      | 210.6    |  |      | $ | 313.3   |      |  | $ | 26.9    | 
|                                                                               |  |                        |         
|Basic income (loss) per share attributable to owners of Turquoise Hill         |  |                        |          |  |      |   |         |      |  |   |         | 
|Continuing operations                                                          |  | $                      | 0.10     |  |      | $ | 0.17    |      |  | $ | 0.10    | 
|Discontinued operations                                                        |  |                        | -        |  |      |   | (0.01)  |      |  |   | (0.09)  | 
|Total                                                                          |  | $                      | 0.10     |  |      | $ | 0.16    |      |  | $ | 0.01    | 
|                                                                               |  |                        |         
|Diluted income (loss) per share attributable to owners of Turquoise Hill       |  |                        |          |  |      |   |         |      |  |   |         | 
|Continuing operations                                                          |  | $                      | 0.10     |  |      | $ | 0.17    |      |  | $ | 0.10    | 
|Discontinued operations                                                        |  |                        | -        |  |      |   | (0.01)  |      |  |   | (0.09)  | 
|Total                                                                          |  | $                      | 0.10     |  |      | $ | 0.16    |      |  | $ | 0.01    | 
|                                                                               |  |                        |         
|Total assets                                                                   |  | $                      | 12,460.2 |  |      | $ | 8,240.1 |      |  | $ | 8,299.0 | 
|Long-term liabilities                                                          |  |                        |          |  |      |   |         |      |  |   |         | 
|Borrowings and other financial liabilities                                     |  | $                      | 4,139.1  |  |      | $ | 13.6    |      |  | $ | 14.1    | 
|Decommissioning obligations and deferred income tax liabilities                |  | $                      | 127.0    |  |      | $ | 157.3   |      |  | $ | 215.8   | 

Note: Financial information has been extracted from the audited financial statements of Turquoise Hill
Resources, which are prepared in accordance with IFRS.



|2. | REVIEW OF OPERATIONS
|-- | --------------------

Turquoise Hill is an international mining company focused on the operation and further development of the Oyu Tolgoi copper-gold mine in
southern Mongolia, which is the Companys principal and only material mineral resource property. Turquoise Hills ownership of the Oyu Tolgoi mine is held through a 66% interest in Oyu Tolgoi LLC (Oyu Tolgoi); the remaining 34% interest is
held by Erdenes Oyu Tolgoi LLC (Erdenes), a Mongolian state-owned entity.

In 2016, the Company recorded net income attributable to owners
of Turquoise Hill of $210.6 million or $0.10 per share compared with net income of $313.3 million or $0.16 per share in 2015. The decrease is mainly attributable to reduced gold sales volumes due to lower production and copper prices,
partly offset by cost reductions and adjustment to deferred tax assets.

Cost of sales for 2016 were $861.8 million compared to
$975.0 million in 2015 reflecting lower sales of metals in concentrate and reduced cost of production as a result of cost savings. Operating cash flows before interest and taxes in 2016 were $399.2 million compared with $650.5 million
in 2015 mainly reflecting the impact of reduced gold production and lower copper prices.

Capital expenditure on property, plant and
equipment was $326.3 million on a cash basis in 2016 compared to $116.2 million in 2015, attributed to both underground and open-pit capital activities.

Turquoise Hills cash and cash equivalents at December 31, 2016 were $1.4 billion.

Financial and operational highlights for 2016

Full year 2016



| |  | Oyu Tolgoi achieved an industry-leading safety performance with an All Injury Frequency Rate of 0.22 per
200,000 hours worked for the year ended December 31, 2016.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





| |  | On May 5, 2016, Oyu Tolgoi received the formal notice to proceed for underground development by the
boards of Turquoise Hill, Rio Tinto and Oyu Tolgoi LLC.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On October 21, 2016, Turquoise Hill filed the updated Oyu Tolgoi Technical Report.
|- |  | ----------------------------------------------------------------------------------



| |  | At the end of 2016, 1.6 equivalent kilometres of underground lateral development had been completed for the
year.
|- |  | -----------------------------------------------------------------------------------------------------------------



| |  | In 2016, progress was made on the sinking of Shafts 2 and 5 with final depth for both shafts expected to be
reached in 2017.
|- |  | ----------------------------------------------------------------------------------------------------------------------------



| |  | During 2016, the bulk excavation component of the convey-to-surface system was completed, followed by the commencement of the decline tunnel work in January 2017.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Oyu Tolgoi recorded revenue of $1.2 billion in 2016 on record concentrate sales of 828,600 tonnes.
|- |  | --------------------------------------------------------------------------------------------------



| |  | For 2016, the Company recorded net income from continuing operations attributable to owners of Turquoise Hill
of $210.6 million.
|- |  | --------------------------------------------------------------------------------------------------------------------------------



| |  | Turquoise Hill generated operating cash flow before interest and taxes of $399.2 million in 2016.
|- |  | -------------------------------------------------------------------------------------------------



| |  | For 2016, Oyu Tolgois cost of sales was $2.07 per pound of copper sold, C1 cash costs were $1.02 per
pound of copper produced and all-in sustaining costs were $1.48 per pound of copper produced.1
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Operating cash costs1 of $775.3 million in 2016 was
below the Companys guidance.
|- |  | ---------------------------------------------------------------------------------



| |  | Turquoise Hills cash and cash equivalents at December 31, 2016 were approximately
$1.4 billion.
|- |  | ------------------------------------------------------------------------------------------------



| |  | In June 2016, Oyu Tolgoi drew down approximately $4.3 billion of the project finance facility and used
all net proceeds to pay down shareholder loans payable by Oyu Tolgoi to Turquoise Hill.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Oyu Tolgoi operated at record levels for material mined and ore treated; concentrator throughput exceeded
nameplate capacity by year end.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | Copper production of 201,300 tonnes and gold production of 300,000 ounces exceeded the Companys
guidance.
|- |  | ----------------------------------------------------------------------------------------------------------



| |  | Compared to 2015 results, material mined for 2016 increased 5.6%, concentrator throughput increased 10.5%,
copper production was similar and, as expected, gold production decreased 54.1%.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fourth quarter 2016



| |  | Revenue of $224.6 million in Q416 was slightly lower than Q316 reflecting lower concentrate
sales.
|- |  | ----------------------------------------------------------------------------------------------------



| |  | For Q416, Turquoise Hill reported net income from continuing operations attributable to owners of
$93.3 million.
|- |  | -----------------------------------------------------------------------------------------------------------------



| |  | Turquoise Hill generated operating cash flow before interest and taxes of $18.2 million in Q416.
|- |  | -------------------------------------------------------------------------------------------------



| |  | In Q416, concentrator throughput increased 7.4% over Q316 resulting in an average daily rate of
106,700 tonnes for the quarter, which was a quarterly high to date.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|1 | Please refer to Section 14  NON-GAAP MEASURES  on page
37 of this MD&A for reconciliation of these metrics to the financial statements.
|- | -----------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







| |  | Copper production in Q416 was broadly consistent with Q316; Q416 copper grades were as
expected with mining focused mainly on Phases 4 and 6 of the open pit.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Gold production in Q416 increased 32.4% over Q316 due to the final processing of Phase 2 ore.
|- |  | -----------------------------------------------------------------------------------------------

Outlook for 2017



| |  | Oyu Tolgoi is expected to produce 130,000 to 160,000 tonnes of copper and 100,000 to 140,000 ounces of gold in
concentrates for 2017.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  | Sales contracts have been agreed for a significant majority of Oyu Tolgois expected 2017 concentrate
production.
|- |  | -----------------------------------------------------------------------------------------------------------------



|A. | OYU TOLGOI
|-- | ----------

The Oyu Tolgoi mine is approximately 550 kilometres south of Ulaanbaatar, Mongolias capital city, and 80 kilometres north of the
Mongolia-China border. Mineralization on the property consists of porphyry-style copper, gold, silver and molybdenum contained in a linear structural trend (the Oyu Tolgoi Trend) of deposits throughout this trend. They include, from south to north,
the Heruga Deposit, the Oyut deposit and the Hugo Dummett deposits (Hugo South, Hugo North and Hugo North Extension).

The Oyu Tolgoi mine
was initially developed as an open-pit operation. The copper concentrator plant, with related facilities and necessary infrastructure, was established at 110,000 tonnes of ore per day with the 2016 Oyu
Tolgoi Technical Report (2016 OTTR). The concentrator was initially constructed to process ore mined from the Oyut open pit. In August 2013, development of the underground mine was suspended pending resolution of matters with the Government of
Mongolia. Following signing of the Oyu Tolgoi Underground Mine Development and Financing Plan (Underground Plan) in May 2015 and the signing of a $4.4 billion project finance facility in December 2015, Oyu Tolgoi received the formal notice to
proceed approval by the boards of Turquoise Hill, Rio Tinto and Oyu Tolgoi LLC on May 5, 2016, which was the final requirement for the re-start of underground development. Underground construction
recommenced in mid-2016.

At peak production, Oyu Tolgoi is expected to be the worlds
third-largest copper mine with average production between 2025 to 2030 of more than 550,000 tonnes of copper a year. Copper production is expected to increase more than 300% between 2017 and 2025 (peak production year for Hugo North Lift 1).

Underground development progress

Major
underground development programs currently underway include underground lateral development, sinking of Shafts 2 and 5, support infrastructure and the convey-to-surface
system. At the end of 2016, the underground project workforce had grown to more than 2,000 people with continued growth expected to peak in 2018.

Prior to suspending underground construction in August 2013, underground lateral development at Hugo North Lift 1 had advanced approximately
16 kilometres off Shaft 1 with a total of 65 kilometres of lateral development expected to be complete by the first draw bell in mid-2020. At the end of 2016, underground lateral development was ahead of
schedule with 1.6 equivalent kilometres completed. A further increase in underground lateral development capability is expected in the second half of 2017 due to the installation of a new 3,500 tonne per day crusher, which will replace the existing
crusher.

In 2016, progress was made on the sinking of Shafts 2 and 5 with final depth for both shafts expected to be reached in 2017.
During 2016, Shaft 2 was connected to the underground workings enabling a second independent means of egress, increased materials delivery capacity and additional ventilation. Shaft 2 activity in 2017 is focused on the
fit-out of the 1,202 metre level connections to the underground workings



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





before sinking to the final depth of 1,284 metres. When completed, Shaft 5 will be dedicated to ventilation thereby increasing the capacity for underground activities. The following table
outlines the shafts for underground development as at year end 2016.



|            |  |                                     |  |                             |  |               |  |               |  |              
|----------- |  | ----------------------------------- |  | --------------------------- |  | ------------- |  | ------------- |  | -------------
|            |  | Shaft 1                             |  | Shaft 2                     |  | Shaft 5       |  | Shaft 3       |  | Shaft 4      
|            |  | (early development
and ventilation) |  | (production andventilation) |  | (ventilation) |  | (ventilation) |  | (ventilation)
|Total Depth |  | 1,385 metres                        |  | 1,284 metres                |  | 1,178 metres  |  | 1,148 metres  |  | 1,149 metres 
|Diameter    |  | 6.7 metres                          |  | 10 metres                   |  | 6.7 metres    |  | 10 metres     |  | 11 metres    
|Completion  |  | 2008                                |  | Expected 2017               |  | Expected 2017 |  | Expected 2021 |  | Expected 2021
|Remaining   |  | Complete                            |  | ~85 metres                  |  | ~840 metres   |  | Not started   |  | Not started  

Infrastructure needed to support underground development progressed during 2016 in areas such as material
handling (crushing and conveying), ventilation and water handling equipment, power distribution and maintenance and storage facilities. Some areas began slower than anticipated but did not impact lateral advancement rates.

During 2016, the bulk excavation component of the
convey-to-surface system was completed, followed by the commencement of decline tunnel work in January 2017. The convey-to-surface system is the eventual route of the full 95,000 tonne per day underground ore delivery system to the concentrator; however it is not a critical path item for first drawbell planned in 2020.
Expected completion of the convey-to-surface system is 2022, which will facilitate the ramp up to full production by 2027.

During 2016, Oyu Tolgoi spent $226.8 million on underground expansion, including $61.9 million of
pre-start activities initiated prior to the notice to proceed in May 2016. In addition, Oyu Tolgoi had further capital commitments of $638.8 million2
at the end of 2016.

Full-year 2016 and Q416 open-pit operations performance

Safety is a major focus throughout Oyu Tolgois operations and the mines management is committed to reducing risk and injury. Oyu
Tolgoi achieved an industry-leading safety performance with a combined All Injury Frequency Rate of 0.22 for open-pit operations and the underground project per 200,000 hours worked for the year ended
December 31, 2016.



|2 | Please refer to Section 14  NON-GAAP MEASURES  on page
37 of this MD&A for reconciliation of this metric to the financial statements.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





Key financial metrics for 2016 and Q416 are as follows:

Oyu Tolgoi Key Financial Metrics(1)



|                                                       |  |         |       |  |            |  |       |         |  |  |         |  |  |         |       |  |               |  |       |                |  |  |         |  |  |  |         | 
|------------------------------------------------------ |  | ------- | ----- |  | ---------- |  | ----- | ------- |  |  | ------- |  |  | ------- | ----- |  | ------------- |  | ----- | -------------- |  |  | ------- |  |  |  | ------- | 
|($ in millions, unless otherwise noted)                |  | 4Q
2015 |       |  | 1Q(4)
2016 |  |       | 2Q
2016 |  |  | 3Q
2016 |  |  | 4Q
2016 |       |  | Full Year2016 |  |       | Full Year
2015 | 
|                                                       |  |         |       |  |            |  |      
|Revenue                                                |  |         | 355.6 |  |            |  | 422.7 |         |  |  | 329.7   |  |  |         | 226.3 |  |               |  | 224.6 |                |  |  | 1,203.3 |  |  |  | 1,634.8 | 
|Concentrates sold (000 tonnes)                        |  |         | 236.2 |  |            |  | 213.1 |         |  |  | 227.4   |  |  |         | 206.2 |  |               |  | 181.9 |                |  |  | 828.6   |  |  |  | 819.8   | 
|Revenue by metals in concentrates                      |  |         |       |  |            |  |       |         |  |  |         |  |  |         |       |  |               |  |       |                |  |  |         |  |  |  |         | 
|Copper                                                 |  |         | 194.6 |  |            |  | 202.0 |         |  |  | 207.9   |  |  |         | 174.2 |  |               |  | 178.5 |                |  |  | 762.6   |  |  |  | 829.6   | 
|Gold                                                   |  |         | 156.4 |  |            |  | 216.2 |         |  |  | 115.1   |  |  |         | 45.8  |  |               |  | 42.8  |                |  |  | 419.9   |  |  |  | 788.9   | 
|Silver                                                 |  |         | 4.6   |  |            |  | 4.5   |         |  |  | 6.7     |  |  |         | 6.3   |  |               |  | 3.3   |                |  |  | 20.8    |  |  |  | 16.2    | 
|Cost of sales                                          |  |         | 239.2 |  |            |  | 207.9 |         |  |  | 237.1   |  |  |         | 232.5 |  |               |  | 184.3 |                |  |  | 861.8   |  |  |  | 975.0   | 
|Production and delivery costs                          |  |         | 149.7 |  |            |  | 125.9 |         |  |  | 141.2   |  |  |         | 134.3 |  |               |  | 112.5 |                |  |  | 513.9   |  |  |  | 630.4   | 
|Depreciation and depletion                             |  |         | 89.6  |  |            |  | 82.0  |         |  |  | 95.9    |  |  |         | 88.5  |  |               |  | 79.5  |                |  |  | 345.9   |  |  |  | 344.5   | 
|Capital expenditure on cash basis                      |  |         | 27.5  |  |            |  | 55.9  |         |  |  | 53.3    |  |  |         | 74.4  |  |               |  | 142.7 |                |  |  | 326.3   |  |  |  | 116.2   | 
|Underground                                            |  |         | 7.3   |  |            |  | 22.6  |         |  |  | 36.5    |  |  |         | 46.7  |  |               |  | 121.0 |                |  |  | 226.8   |  |  |  | 10.3    | 
|Open pit(2)                                            |  |         | 20.2  |  |            |  | 33.3  |         |  |  | 16.8    |  |  |         | 27.7  |  |               |  | 21.7  |                |  |  | 99.5    |  |  |  | 105.9   | 
|Royalties                                              |  |         | 25.0  |  |            |  | 22.7  |         |  |  | 18.5    |  |  |         | 13.9  |  |               |  | 13.0  |                |  |  | 68.1    |  |  |  | 120.8   | 
|Operating cash
costs(3)(4)                             |  |         | 236.6 |  |            |  | 196.6 |         |  |  | 215.5   |  |  |         | 187.8 |  |               |  | 175.4 |                |  |  | 775.3   |  |  |  | 962.6   | 
|Unit costs ($)                                         |  |         |       |  |            |  |       |         |  |  |         |  |  |         |       |  |               |  |       |                |  |  |         |  |  |  |         | 
|Cost of sales (per pound of copper sold)               |  |         | 1.98  |  |            |  | 1.84  |         |  |  | 1.98    |  |  |         | 2.31  |  |               |  | 2.22  |                |  |  | 2.07    |  |  |  | 2.20    | 
|C1 (per pound of copper produced)(3)(4)                |  |         | 0.88  |  |            |  | 0.06  |         |  |  | 1.12    |  |  |         | 1.56  |  |               |  | 1.57  |                |  |  | 1.02    |  |  |  | 0.57    | 
|All-in sustaining (per pound of
copper produced)(3)(4) |  |         | 1.56  |  |            |  | 0.66  |         |  |  | 1.55    |  |  |         | 2.00  |  |               |  | 1.90  |                |  |  | 1.48    |  |  |  | 1.37    | 



|(1) | Any financial information in this MD&A should be reviewed in conjunction with the Companys consolidated financial statements or condensed interim consolidated financial statements for the reporting periods
indicated.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Open-pit capital expenditure includes both sustaining and non-underground development activities.
|--- | -------------------------------------------------------------------------------------------------

|(3) | Please refer to Section 14  NON-GAAP MEASURES  on page 37
of this MD&A for reconciliation of these metrics to the financial statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(4) | Operating cash costs, C1 and all-in sustaining unit costs for the three
months ended March 31, 2016 have been revised to correctly reflect the change in inventory as reported in the Companys reconciliation of net income (loss) to net cash flow generated from operating activities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Full year 2016

Revenue of
$1.2 billion in 2016 decreased 26.4% over 2015 mainly reflecting reduced gold sales and lower copper prices partially offset by higher gold prices. Concentrate sold in 2016 of 828,600 tonnes increased 1.1% over 2015 reaching an all-time annual high.

Production and delivery costs include primarily the cash costs in inventory sold
as well as allocated mine administration costs. Depreciation and depletion includes the depreciation and depletion in inventory sold as well as any depreciation of assets used in the selling and delivery process, including the depreciation of
capitalized production phase stripping costs. Cost of sales for 2016 were $861.8 million compared to $975.0 million in 2015 reflecting lower sales of metals in concentrate and reduced cost of production as a result of cost savings.

Capital expenditure, on a cash basis, for 2016 was $326.3 million compared to $116.2 million in 2015, comprising amounts attributed
to the underground project and open-pit activities of $226.8 million and $99.5 million, respectively. Open-pit capital expenditure includes deferred stripping
of $30.9 million and tailings storage facility spending of $22.0 million.

Total operating cash costs at Oyu Tolgoi were
$775.3 million in 2016 compared to $962.6 million in 2015 and below the Companys guidance of $840 million. Lower operating cash costs in 2016 reflect mining and production efficiencies, cost reduction programs and reduced
royalty expense as 2015 included one-off adjustments made upon agreement of the Underground Plan. Operating cash costs include the 5% royalty payable to the Government of Mongolia and exclude deferred
stripping costs.

Cost of sales were $2.07 per pound of copper sold in 2016, compared with $2.20 per pound in 2015, reflecting reduced
cost of production as the results of cost savings. This new metric has been included as



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





a measure of cost per pound of copper sold for comparison with C1 and all-in sustaining costs (AISC) per pound of copper produced.

Oyu Tolgois C1 costs in 2016 were $1.02 per pound of copper produced, compared with $0.57 per pound of copper produced in 2015, and are
presented net of revenues from gold and silver sales. The increase was mainly due to lower gold sales, reflecting the grade impact from the completion of Phase 2 mining.

AISC in 2016 were $1.48 per pound of copper produced, compared with $1.37 per pound of copper produced in 2015. The increase was mainly due to
lower gold revenues.

Fourth quarter 2016

Revenue of $224.6 million in Q416 was slightly lower than Q316 reflecting lower concentrate sales. Fourth quarter concentrate
sold of 182,000 tonnes decreased 11.8% over Q316 as a result of limited rail availability into China due to increased coal shipments.

Q416 cost of sales were $184.3 million compared to $232.5 million in Q316 reflecting lower sales of copper in
concentrate and a reduction to net charges for finished goods inventory write-down as a result of higher Copper prices at year end.

Capital expenditure, on a cash basis, for Q416 was $142.7 million compared to $74.4 million in Q316, attributed to the
underground project and open-pit activities of $121.0 million and $21.7 million, respectively. Open-pit capital expenditure includes deferred stripping of
$3.1 million and tailings storage facility spending of $4.8 million.

Total operating cash costs at Oyu Tolgoi were
$175.4 million in Q416 compared to $187.8 million in Q316 due to lower operating expenses, including selling costs, in the fourth quarter. Operating cash costs include the 5% royalty payable to the Government of Mongolia and
exclude deferred stripping costs.

Cost of sales were $2.22 per pound of copper sold in Q416, compared with $2.31 per pound of
copper sold in Q316, reflecting a reduction to net charges for finished goods inventory write-down as a result of higher prices at year end.

Oyu Tolgois C1 costs in Q416 were $1.57 per pound of copper produced, a slight increase from Q316 of $1.56 per pound of
copper produced, due to the net impact of reduced operating cash costs, offset by lower gold sales and decreased production volumes.

AISC
in Q416 were $1.90 per pound of copper produced, compared with $2.00 per pound of copper produced in Q316, mainly due to the lower net charges for inventory write-down.



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







Key operational metrics
for 2016 and Q416 are as follows:

Oyu Tolgoi Production Data

All data represents full production and sales on a 100% basis



|                                      |  |         |        |  |         |  |        |         |  |  |         |  |  |         |        |  |                |  |        |                |  |  |        |  |  |  |        | 
|------------------------------------- |  | ------- | ------ |  | ------- |  | ------ | ------- |  |  | ------- |  |  | ------- | ------ |  | -------------- |  | ------ | -------------- |  |  | ------ |  |  |  | ------ | 
|                                      |  | 4Q
2015 |        |  | 1Q
2016 |  |        | 2Q
2016 |  |  | 3Q
2016 |  |  | 4Q
2016 |        |  | Full Year
2016 |  |        | Full Year
2015 | 
|                                      |  |         |        |  |         |  |       
|Open pit material mined (000 tonnes) |  |         | 23,708 |  |         |  | 22,867 |         |  |  | 22,716  |  |  |         | 25,739 |  |                |  | 25,615 |                |  |  | 96,938 |  |  |  | 91,771 | 
|Ore treated (000 tonnes)             |  |         | 9,369  |  |         |  | 9,662  |         |  |  | 9,525   |  |  |         | 9,146  |  |                |  | 9,819  |                |  |  | 38,152 |  |  |  | 34,537 | 
|Average mill head grades:             |  |         |        |  |         |  |        |         |  |  |         |  |  |         |        |  |                |  |        |                |  |  |        |  |  |  |        | 
|Copper (%)                            |  |         | 0.69   |  |         |  | 0.70   |         |  |  | 0.64    |  |  |         | 0.66   |  |                |  | 0.61   |                |  |  | 0.65   |  |  |  | 0.67   | 
|Gold (g/t)                            |  |         | 0.92   |  |         |  | 0.63   |         |  |  | 0.33    |  |  |         | 0.21   |  |                |  | 0.25   |                |  |  | 0.36   |  |  |  | 0.78   | 
|Silver (g/t)                          |  |         | 1.67   |  |         |  | 1.92   |         |  |  | 1.92    |  |  |         | 1.99   |  |                |  | 1.50   |                |  |  | 1.83   |  |  |  | 1.56   | 
|Concentrates produced (000 tonnes)   |  |         | 231.8  |  |         |  | 229.5  |         |  |  | 207.1   |  |  |         | 203.2  |  |                |  | 206.7  |                |  |  | 846.6  |  |  |  | 788.5  | 
|Average concentrate grade (% Cu)      |  |         | 24.7   |  |         |  | 25.1   |         |  |  | 24.9    |  |  |         | 22.9   |  |                |  | 22.0   |                |  |  | 23.8   |  |  |  | 25.6   | 
|Production of metals in concentrates: |  |         |        |  |         |  |        |         |  |  |         |  |  |         |        |  |                |  |        |                |  |  |        |  |  |  |        | 
|Copper (000 tonnes)                  |  |         | 57.3   |  |         |  | 57.6   |         |  |  | 51.7    |  |  |         | 46.6   |  |                |  | 45.5   |                |  |  | 201.3  |  |  |  | 202.2  | 
|Gold (000 ounces)                    |  |         | 207    |  |         |  | 144    |         |  |  | 70      |  |  |         | 37     |  |                |  | 49     |                |  |  | 300    |  |  |  | 653    | 
|Silver (000 ounces)                  |  |         | 355    |  |         |  | 395    |         |  |  | 391     |  |  |         | 361    |  |                |  | 273    |                |  |  | 1,420  |  |  |  | 1,223  | 
|Sales of metals in concentrates:      |  |         |        |  |         |  |        |         |  |  |         |  |  |         |        |  |                |  |        |                |  |  |        |  |  |  |        | 
|Copper (000 tonnes)                  |  |         | 54.7   |  |         |  | 51.2   |         |  |  | 54.4    |  |  |         | 45.7   |  |                |  | 37.6   |                |  |  | 188.9  |  |  |  | 201.3  | 
|Gold (000 ounces)                    |  |         | 160    |  |         |  | 175    |         |  |  | 95      |  |  |         | 38     |  |                |  | 39     |                |  |  | 347    |  |  |  | 737    | 
|Silver (000 ounces)                  |  |         | 360    |  |         |  | 305    |         |  |  | 395     |  |  |         | 341    |  |                |  | 239    |                |  |  | 1,280  |  |  |  | 1,158  | 
|Metal recovery (%)                    |  |         |        |  |         |  |        |         |  |  |         |  |  |         |        |  |                |  |        |                |  |  |        |  |  |  |        | 
|Copper                                |  |         | 88.4   |  |         |  | 85.6   |         |  |  | 83.3    |  |  |         | 78.0   |  |                |  | 76.6   |                |  |  | 81.0   |  |  |  | 87.6   | 
|Gold                                  |  |         | 74.2   |  |         |  | 72.2   |         |  |  | 69.3    |  |  |         | 62.0   |  |                |  | 63.4   |                |  |  | 68.5   |  |  |  | 74.4   | 
|Silver                                |  |         | 70.8   |  |         |  | 66.4   |         |  |  | 65.9    |  |  |         | 61.7   |  |                |  | 57.2   |                |  |  | 63.1   |  |  |  | 69.9   | 

Full year 2016

Oyu Tolgoi operated at record levels in 2016. Productivity improvements in the concentrator implemented throughout the year led to throughput
exceeding nameplate capacity by year end. Copper production of 201,300 tonnes for 2016 exceeded the Companys guidance of 175,000 to 195,000 tonnes and annual gold production of 300,000 ounces exceeded 2016 guidance of 255,000 to 285,000
ounces. Compared to 2015 results, mined production for 2016 increased 5.6%, concentrator throughput increased 10.5%, copper production was similar and, as expected, gold production decreased 54.1%. Decreased gold production for 2016 reflects the
grade impact from the completion of Phase 2 mining in the second half of the year.

Fourth quarter 2016

Oyu Tolgoi performed well during Q416 as open-pit operations focused mainly on Phases 4 and 6.
Q416 concentrator throughput increased 7.4% over Q316 resulting in an average daily rate of 106,700 tonnes for the quarter, which was a quarterly high. Copper production in Q416 was broadly consistent with Q316 while gold
production increased 32.4% over Q316 due to the final processing of Phase 2 ore. Copper grades in Q416 were as expected as operations focused mainly on Phase 6 of the open pit.

Operational outlook

Oyu Tolgoi is
expected to produce 130,000 to 160,000 tonnes of copper and 100,000 to 140,000 ounces of gold in concentrates for 2017. Open-pit operations are expected to mine in Phases 4 and 6 during the year. In addition,
stockpiled ore will be processed during the year. The lower production when compared to 2016 is primarily the result of approximately one-quarter less copper head grade and approximately one-half less gold head grade. During 2016, the mine plan for Phase 4 was divided into two stages, referred to as Phases 4A and 4B, in expectation of reaching the high-grade gold zone of Phase 4 around mid-2018. Accordingly, mine stripping for 2017 will focus on Phase 4A.



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







Operating cash costs
for 2017 are expected to be approximately $720 million compared to $775 million in 2016. The reduction reflects cost improvements and the impact of lower logistics costs from decreased production.

Capital expenditures for 2017 on a cash-basis are expected to be approximately $100 million for
open-pit operations and $825 million to $925 million for underground development.

Underground development capital includes both expansion capital and VAT. In an effort to encourage bidding by Mongolian suppliers, Oyu Tolgoi
has incorporated longer tendering periods resulting in a slightly longer capital deployment process. The Company continues to expect production from the first underground draw bell in mid-2020 and first
sustainable production beginning in early 2021.

Open-pit capital includes approximately
$40 million of deferred stripping and reflects lower maintenance costs, reduced deferred stripping costs due to optimization and improved tailings storage costs.

Sales contracts have been agreed for a significant majority of Oyu Tolgois expected 2017 concentrate production.

Funding of Oyu Tolgoi by Turquoise Hill

In accordance with the Amended and Restated Shareholders Agreement (ARSHA) dated June 8, 2011, Turquoise Hill has funded Oyu
Tolgois cash requirements beyond internally generated cash flows by a combination of equity investment and shareholder debt.

For
amounts funded by debt, Oyu Tolgoi must repay such amounts, including accrued interest, before it can pay common share dividends. At December 31, 2016, the aggregate outstanding balance of shareholder loans extended by subsidiaries of the
Company to Oyu Tolgoi was $3.0 billion, including accrued interest of $103.9 million. These loans bear interest at an effective annual rate of LIBOR plus 6.5%.

In accordance with the ARSHA, a subsidiary of the Company has funded the common share investments in Oyu Tolgoi on behalf of Erdenes. These
funded amounts earn interest at an effective annual rate of LIBOR plus 6.5% and are repayable, by Erdenes to a subsidiary of the Company, via a pledge over Erdenes share of Oyu Tolgoi common share dividends. Erdenes also has the right to
reduce the outstanding balance by making cash payments at any time. As of December 31, 2016, the cumulative amount of such funding was $751.1 million, representing 34% of invested common share equity; unrecognized interest on the funding
amounted to $302.9 million.

Updated technical report

On October 21, 2016, Turquoise Hill filed an updated compliant independently-prepared technical report under National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) relating to the Oyu Tolgoi Project (Project). Prepared by OreWin Pty Ltd. (OreWin), the 2016 OTTR
updates the Oyu Tolgoi Technical Report dated September 20, 2014 (2014 OTTR). On May 5, 2016, Turquoise Hill announced that the 2016 Oyu Tolgoi Feasibility Study (OTFS16) had been finalized and presented to the Board of Directors of Oyu
Tolgoi LLC. The 2016 OTTR updates the 2014 Reserve Case to the 2016 Reserves Case based on OTFS16 and includes four Preliminary Economic Assessments with regard to the Oyu Tolgoi resources.

Highlights of the 2016 OTTR Reserves Case compared to the 2014 OTTR are as follows:



| |  |  | Reserves and resources have only changed to the extent of mining depletion from
open-pit operations.
| | - |  | ----------------------------------------------------------------------------------------------------

| |  |  | Assumes a January 1, 2017 start date for production schedules and accommodates for the delayed mid-2016 underground project restart.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





| |  |  | Assumes processing of 1.4 billion tonnes of ore, mined from the Oyut open pit and the first lift in the
Hugo North underground block cave.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Assumes plant capacity remains at an average production rate of 40 million tonnes per annum (Mt/a).
| | - |  | ---------------------------------------------------------------------------------------------------

| |  |  | Underground mine remains at targeted full production rate of 95,000 tonnes per day.
| | - |  | -----------------------------------------------------------------------------------

| |  |  | Updates to expansion capital and Net Present Value (NPV) range analysis.
| | - |  | ------------------------------------------------------------------------

For a more complete summary of production and financial results for the 2016 Reserves Case and a description of the Alternative Production
Cases, please refer to the 2016 OTTR filed on October 21, 2016 under the Companys profile on SEDAR at www.sedar.com.

Updated
mineral reserve estimates based on the 2016 OTTR are provided in the table below.

Oyu Tolgoi Mineral Reserves 2016



|                                                 |  |          |       |  |        |          |      |          |          |  |          |          |  |                 |      |  |  |  |        |  |  |  |        |  |  |  |        | 
|------------------------------------------------ |  | -------- | ----- |  | ------ | -------- | ---- | -------- | -------- |  | -------- | -------- |  | --------------- | ---- |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                                 |  | Ore
(Mt) |       |  | Cu
(%) |          |      | Au
(g/t) |          |  | Ag
(g/t) |          |  | Recovered Metal |     
|Deposit by Classification                        |  |          |       |  |        | Cu
(Mlb) |      |          | Au
(koz) |  |          | Ag
(koz) | 
|Oyut Mineral Reserve                             |  |          |       |  |        |          |      |          |          |  |          |          |  |                 |      |  |  |  |        |  |  |  |        |  |  |  |        | 
|Proven                                           |  |          | 353   |  |        |          | 0.54 |          |          |  | 0.35     |          |  |                 | 1.40 |  |  |  | 3,266  |  |  |  | 2,775  |  |  |  | 11,837 | 
|Probable                                         |  |          | 598   |  |        |          | 0.39 |          |          |  | 0.23     |          |  |                 | 1.11 |  |  |  | 4,058  |  |  |  | 3,103  |  |  |  | 15,977 | 
|Oyut Total (Proven and Probable) Mineral Reserve |  |          | 951   |  |        |          | 0.45 |          |          |  | 0.28     |          |  |                 | 1.22 |  |  |  | 7,325  |  |  |  | 5,878  |  |  |  | 27,814 | 
|Hugo North Mineral Reserve                       |  |          |       |  |        |          |      |          |          |  |          |          |  |                 |      |  |  |  |        |  |  |  |        |  |  |  |        | 
|Probable (Hugo
North  OT LLC)                   |  |          | 464   |  |        |          | 1.66 |          |          |  | 0.34     |          |  |                 | 3.37 |  |  |  | 15,592 |  |  |  | 4,199  |  |  |  | 43,479 | 
|Probable (Hugo
North  EJV)                      |  |          | 35    |  |        |          | 1.59 |          |          |  | 0.55     |          |  |                 | 3.72 |  |  |  | 1,121  |  |  |  | 519    |  |  |  | 3,591  | 
|Hugo North Total (Probable)
Mineral Reserve      |  |          | 499   |  |        |          | 1.66 |          |          |  | 0.35     |          |  |                 | 3.40 |  |  |  | 16,713 |  |  |  | 4,717  |  |  |  | 47,070 | 
|Oyu Tolgoi Mineral Reserve                       |  |          |       |  |        |          |      |          |          |  |          |          |  |                 |      |  |  |  |        |  |  |  |        |  |  |  |        | 
|Proven                                           |  |          | 353   |  |        |          | 0.54 |          |          |  | 0.35     |          |  |                 | 1.40 |  |  |  | 3,266  |  |  |  | 2,775  |  |  |  | 11,837 | 
|Probable                                         |  |          | 1,097 |  |        |          | 0.97 |          |          |  | 0.29     |          |  |                 | 2.15 |  |  |  | 20,771 |  |  |  | 7,820  |  |  |  | 63,047 | 
|Total Mineral
Reserve                            |  |          | 1,450 |  |        |          | 0.86 |          |          |  | 0.30     |          |  |                 | 1.97 |  |  |  | 24,037 |  |  |  | 10,595 |  |  |  | 74,884 | 

Notes:

| | 1. | Metal prices used for calculating the financial analysis are as follows: long-term copper at $3.00/lb; gold at
$1,300/oz; and silver at $19.00/oz. The analysis has been calculated with assumptions for smelter refining and treatment charges, deductions and payment terms, concentrate transport, metallurgical recoveries and royalties.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | For mine planning, the metal prices used to calculate block model Net Smelter Return (NSR) were copper at
$3.01/lb; gold at $1,250/oz; and silver at $20.37/oz.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | The NSR is used to define the Mineral Reserve cut-offs at Oyu Tolgoi,
therefore cut-off is denominated in $/t. By definition the cut-off is the point at which the costs are equal to the NSR. For the open pit processing and general
administration, the following operating costs have been used to determine cut-off grades: Southwest at $8.37/t, Central Chalcocite, Central Covellite, and Central Chalcopyrite at $7.25/t and the underground
(including some mining costs) costs were based on $15.34/t.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | For the underground block cave, all Mineral Resources within the shell have been converted to Mineral Reserves.
This includes Indicated Mineral Resources below the resource cut-off grade. It also includes Inferred Mineral Resources, which have been assigned a zero grade and treated as dilution.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | The Oyut open pit Mineral Reserves are the Mineral Reserves in the pit at the effective date of
December 31, 2015. The Mineral Reserves do not include stockpiles as at that date.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | For Oyut, only Measured Mineral Resources were used to report Proven Mineral Reserves and only Indicated
Mineral Resources were used to report Probable Mineral Reserves.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | For Hugo North, Measured and Indicated Mineral Resources were used to report Probable Mineral Reserves.
| | -- | -------------------------------------------------------------------------------------------------------



| | 8. | EJV is the EntréeOT LLC Joint Venture. The Shivee Tolgoi and Javkhlant licenses are held by
Entrée. The Shivee Tolgoi and Javkhlant licenses are planned to be operated by OT LLC. OT LLC will receive 80% of cash flows after capital and operating costs for material originating below 560 m, and 70% above this depth.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 9. | The Mineral Reserves reported above were not additive to the Mineral Resources.
| | -- | -------------------------------------------------------------------------------



| | 10. | Totals may not match due to rounding.
| | --- | -------------------------------------



| | 11. | The Oyut deposit was formerly known as Southern Oyu Tolgoi (SOT).
| | --- | -----------------------------------------------------------------



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







Disclosure of a
scientific or technical nature in respect of the 2016 OTTR was prepared by the following qualified persons: Bernard Peters, B. Eng. (Mining), FAusIMM of OreWin, who was responsible for the overall preparation of the report and the mineral reserves
estimate of the report, as well as the preparation of the geotechnical sections and the sections related to and including processing, and Sharron Sylvester, B.Sc Geology, MAIG (RPGeo), of OreWin, who was responsible for preparation of the mineral
resources estimate of the report, both of whom are qualified persons for the purposes of NI 43-101.



|B. | CORPORATE ACTIVITIES
|-- | --------------------

Management changes

In January 2016,
Turquoise Hill announced the appointment of Brendan Lane as Vice President, Operations and Development effective February 1, 2016. Mr. Lane brings 25-years of industry experience including
metallurgical, mine engineering and commercial roles at Rio Tinto, Anglo American and BHP Billiton.

In February 2017, Turquoise Hill
announced the retirement of Steeve Thibeault, the Companys Chief Financial Officer, effective May 23, 2017. Turquoise Hill is conducting a search for Mr. Thibeaults successor.

Disposal of SouthGobi Resources shares

On September 22, 2016, the Company announced it had disposed of 375,000 common shares of SouthGobi Resources Ltd. (SouthGobi) and
beneficially owned or controlled less than 10% of SouthGobis issued and outstanding common shares. On October 12, 2016, the Company completed the sale of its remaining stake in SouthGobi.

Board changes

Effective
December 31, 2016, Jill Gardiner retired from the Board of Directors of the Company. Independent director Peter Gillin, who has served as a director of Turquoise Hill since May 2012, was appointed Chairman effective January 1, 2017.
Mr. Gillin has extensive experience both in the resources sector and as a corporate director.

Effective January 4, 2017, Maryse
Saint-Laurent, ICD.D, was appointed to the Companys Board as an independent director. Ms. Saint-Laurent is an accomplished legal executive, corporate director and senior advisor to boards and management teams with almost 20 years of
experience in the energy and electricity sectors.



|C. | CORPORATE ADMINISTRATIVE EXPENSES
|-- | ---------------------------------

Corporate administrative costs in 2016 were $23.6 million, an increase of $6.4 million from 2015. The increase is principally due to
professional and advisory fees relating to project finance completion and consultancy costs to simplify information technology arrangements following divestment of non-core operations.



|3. | SELECTED QUARTERLY DATA
|-- | -----------------------

The Companys interim financial statements are reported under IFRS applicable to interim financial statements, including International
Accounting Standard (IAS) 34 Interim Financial Reporting. The following table sets forth selected unaudited quarterly financial information derived from financial information for each of the eight most recent quarters.



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







|                                                                         |  |               |       |  |            |   |        |            |  |   |            |  |  |   |       | 
|------------------------------------------------------------------------ |  | ------------- | ----- |  | ---------- | - | ------ | ---------- |  | - | ---------- |  |  | - | ----- | 
|($ in millions, except per share information)                            |  | Quarter Ended |      
|                                                                         |  | Dec-312016    |       |  | Sep-302016 |   |        | Jun-302016 |  |   | Mar-312016 | 
|Revenue                                                                  |  |               |       |  |            |   |        |            |  |   |            |  |  |   |       | 
|Copper-gold concentrate                                                  |  | $             | 224.6 |  |            | $ | 226.3  |            |  | $ | 329.7      |  |  | $ | 422.7 | 
|Total revenue                                                            |  | $             | 224.6 |  |            | $ | 226.3  |            |  | $ | 329.7      |  |  | $ | 422.7 | 
|                                                                         |  |               |       | 
|Net income (loss) from continuing operations attributable to owners      |  | $             | 93.3  |  |            | $ | (31.4) |            |  | $ | 29.8       |  |  | $ | 118.9 | 
|Loss from discontinued operations attributable to
owners                 |  |               | -     |  |            |   | -      |            |  |   | -          |  |  |   | -     | 
|Net income (loss) attributable to owners of
Turquoise Hill               |  | $             | 93.3  |  |            | $ | (31.4) |            |  | $ | 29.8       |  |  | $ | 118.9 | 
|                                                                         |  |               |       | 
|Basic income (loss) per share attributable to owners of Turquoise Hill   |  |               |       |  |            |   |        |            |  |   |            |  |  |   |       | 
|Continuing operations                                                    |  | $             | 0.05  |  |            | $ | (0.02) |            |  | $ | 0.01       |  |  | $ | 0.06  | 
|Discontinued operations                                                  |  |               | -     |  |            |   | -      |            |  |   | -          |  |  |   | -     | 
|Total                                                                    |  | $             | 0.05  |  |            | $ | (0.02) |            |  | $ | 0.01       |  |  | $ | 0.06  | 
|                                                                         |  |               |       | 
|Diluted income (loss) per share attributable to owners of Turquoise Hill |  |               |       |  |            |   |        |            |  |   |            |  |  |   |       | 
|Continuing operations                                                    |  | $             | 0.05  |  |            | $ | (0.02) |            |  | $ | 0.01       |  |  | $ | 0.06  | 
|Discontinued operations                                                  |  |               | -     |  |            |   | -      |            |  |   | -          |  |  |   | -     | 
|Total                                                                    |  | $             | 0.05  |  |            | $ | (0.02) |            |  | $ | 0.01       |  |  | $ | 0.06  | 
|                                                                         |  |               |       | 
|                                                                         |  | Dec-312015    |       |  | Sep-302015 |   |        | Jun-302015 |  |   | Mar-312015 | 
|Revenue                                                                  |  |               |       |  |            |   |        |            |  |   |            |  |  |   |       | 
|Copper-gold concentrate                                                  |  | $             | 355.6 |  |            | $ | 431.7  |            |  | $ | 421.3      |  |  | $ | 426.2 | 
|Total revenue                                                            |  | $             | 355.6 |  |            | $ | 431.7  |            |  | $ | 421.3      |  |  | $ | 426.2 | 
|                                                                         |  |               |       | 
|Net income from continuing operations attributable to owners             |  | $             | 179.7 |  |            | $ | 44.0   |            |  | $ | 49.9       |  |  | $ | 67.1  | 
|Income (loss) from discontinued operations
attributable to owners        |  |               | (8.7) |  |            |   | (22.8) |            |  |   | (25.0)     |  |  |   | 29.1  | 
|Net income attributable to owners of Turquoise
Hill                      |  | $             | 171.0 |  |            | $ | 21.2   |            |  | $ | 24.9       |  |  | $ | 96.2  | 
|                                                                         |  |               |       | 
|Basic income (loss) per share attributable to owners of Turquoise Hill   |  |               |       |  |            |   |        |            |  |   |            |  |  |   |       | 
|Continuing operations                                                    |  | $             | 0.09  |  |            | $ | 0.02   |            |  | $ | 0.02       |  |  | $ | 0.03  | 
|Discontinued operations                                                  |  |               | -     |  |            |   | (0.01) |            |  |   | (0.01)     |  |  |   | 0.01  | 
|Total                                                                    |  | $             | 0.09  |  |            | $ | 0.01   |            |  | $ | 0.01       |  |  | $ | 0.04  | 
|                                                                         |  |               |       | 
|Diluted income (loss) per share attributable to owners of Turquoise Hill |  |               |       |  |            |   |        |            |  |   |            |  |  |   |       | 
|Continuing operations                                                    |  | $             | 0.09  |  |            | $ | 0.02   |            |  | $ | 0.02       |  |  | $ | 0.03  | 
|Discontinued operations                                                  |  |               | -     |  |            |   | (0.01) |            |  |   | (0.01)     |  |  |   | 0.01  | 
|Total                                                                    |  | $             | 0.09  |  |            | $ | 0.01   |            |  | $ | 0.01       |  |  | $ | 0.04  | 



|4. | LIQUIDITY AND CAPITAL RESOURCES
|-- | -------------------------------

Cash flow

Operating activities.A total of $399.2 million of cash was generated from operating activities before interest and tax in 2016 compared with $650.5 million in 2015, reflecting primarily the impact of lower gold revenues, partly offset by production
cost savings and decreased royalty expense.

Investing activities.Cash used in investing activities totalled
$4.3 billion in 2016, compared with $81.6 million in 2015. Under the Cash Management Services Agreement, entered into on December 15, 2015 as part of Project Finance, amounts totalling $4.2 billion were placed with 9539549 Canada
Inc., a wholly owned subsidiary of Rio Tinto, during 2016. The resulting receivables, which represented substantially all of the net proceeds received on drawdown of the project finance facility in 2016, are returned to Turquoise Hill as required
for purposes of Oyu Tolgoi underground mine development and financing. As



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





of December 31, 2016, amounts totalling $180 million have been withdrawn and provided to Oyu Tolgoi.3 In 2016, property, plant and
equipment purchases of $326.3 million related to both the Oyu Tolgoi underground project and open-pit activities (including deferred stripping and construction of tailings storage facility).

Financing activities. Cash generated from financing activities was $4.1 billion in 2016. Net proceeds from the project
finance facility of $4.3 billion were partially offset by the payment of $0.2 billion of project finance fees.

Liquidity

At December 31, 2016, Turquoise Hill held consolidated cash and cash equivalents of approximately $1.4 billion (2015: $1.3 billion)
and consolidated working capital4 of $69.3 million (2015: $137.0 million). Working capital fell during 2016 as the combined result of reduced inventory levels and a rise in payables
associated with underground development. A $4.2 billion related-party receivable with a Rio Tinto subsidiary was recorded in 2016, representing net proceeds (after settlement of withholding taxes and transaction costs) from project finance
tranches drawn down before June 30, 2016 in accordance with the Cash Management Services Agreement. Turquoise Hill draws upon this related-party receivable as required in order to fund development and financing of the underground mine. At
December 31, 2016, $180 million had been re-drawn from this related-party receivable, leaving a balance of $4.0 billion.

Turquoise Hill believes that, based on its current cash position and the net project finance proceeds available to be re-drawn from the related-party receivable, it will have sufficient funds to meet its minimum obligations, including general corporate activities, for at least the next 12 months.

Capital resources

The Company considers
its capital to be share capital and third-party borrowings. To effectively manage capital requirements, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate
liquidity to meet its operating needs.

In December 2015, Oyu Tolgoi signed the $4.4 billion project finance facility for the
purposes of developing the underground mine, of which $4.3 billion had been drawn down at December 31, 2016. In addition to the $4.3 billion already drawn down, there is an additional $0.1 billion available, subject to certain
conditions, under the Companys facility with the Export-Import Bank of the United States. The project finance lenders have agreed a debt cap of $6.0 billion thus allowing the potential for an additional $1.6 billion of supplemental
debt in the future.

The Companys accumulated deficit at December 31, 2016 was $4.3 billion (2015: $4.5 billion).

In March 2016, Oyu Tolgoi signed an amendment to extend the secured $200.0 million revolving credit facility with five banks that was
scheduled to mature on March 19, 2016. Amounts under the credit facility were required to be used by Oyu Tolgoi for working capital purposes. The credit facility expired on drawdown under the project finance facility.



|3 | Please refer to Section 2.A  OYU TOLGOI  on page 6 and to Section 13  RELATED-PARTY
TRANSACTIONS  on page 36 of this MD&A.
|- | ------------------------------------------------------------------------------------------------------------------------------

|4 | The Company has revised its definition of working capital as of December 31, 2016 to reflect the operating
and non-financing nature of this metric. Please refer to Section 14  NON-GAAP MEASURES  on page 37 of this MD&A for a reconciliation of this metric
to the financial statements.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





Financial instruments

The carrying value of Turquoise Hills financial instruments was as follows:



|                                          |  |                  |           |  |                  |   |           | 
|----------------------------------------- |  | ---------------- | --------- |  | ---------------- | - | --------- | 
|(Stated in $000s of dollars)             |  | December 31,2016 |           |  | December 31,2015 |  
|                                          |  |                 
|Financial Assets                          |  |                  |           |  |                  |   |           | 
|                                          |  |                 
|Cash and cash equivalents                 |  | $                | 1,417,754 |  |                  | $ | 1,343,878 | 
|Available for sale: Long-term investments |  |                  | 4,344     |  |                  |   | 18,902    | 
|Cost method: Long-term investments        |  |                  | 115       |  |                  |   | 115       | 
|Loans and receivables:                    |  |                  |           |  |                  |   |           | 
|Trade and other receivables               |  |                  | 31,651    |  |                  |   | 12,210    | 
|Due from related parties                  |  |                  | 10,906    |  |                  |   | 3,623     | 
|Receivable from related party             |  |                  | 3,976,284 |  |                  |   | -         | 
|                                          |  |                 
|Financial Liabilities                     |  |                  |           |  |                  |   |           | 
|                                          |  |                 
|Trade and other payables                  |  |                  | 206,878   |  |                  |   | 166,766   | 
|Payable to related parties                |  |                  | 37,248    |  |                  |   | 34,801    | 
|Borrowings (project finance facility)     |  |                  | 4,126,117 |  |                  |   | -         | 
|Interest payable on long-term borrowings  |  |                  | 9,279     |  |                  |   | -         | 

Long-term investments are carried at fair value. Fair values were determined by reference to published market
quotations, which may not be reflective of future values. Fair values of long-term investments with trading restrictions have been determined by applying a liquidity discount to published market quotations, which may not be reflective of future
values.

Turquoise Hill is exposed to credit risk with respect to its accounts receivable, other long-term investments and cash and cash
equivalents, and other financial assets including related party balances. The significant concentrations of credit risk are with counterparties situated in Mongolia, China, Canada and Europe.

Turquoise Hill is exposed to U.S. and LIBOR interest-rate risk with respect to the variable rates of interest on its third-party project
finance borrowings, receivable from related party, and cash equivalents, the majority of which are at variable rates.



|5. | SHARE CAPITAL
|-- | -------------

As at March 23, 2017, the Company had a total of:



| |  |  | 2,012,314,469 common shares outstanding;
| | - |  | ----------------------------------------



| |  |  | 529,937 incentive stock options outstanding, with a weighted average exercise price of C$12.30 per share. Each
option is exercisable to purchase a common share of the Company at prices ranging from C$6.83 to C$23.75 per share.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. | OUTLOOK
|-- | -------

The information below is in addition to disclosures already contained in this report regarding the Companys operations and activities.

Turquoise Hills financial performance and its ability to advance its future operations and development plans are heavily dependent
on the availability of funding, base and precious metal prices and foreign-exchange rates. Volatility in these markets continues to be high.



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







Funding

For further details on the Companys financing plans, please refer to Section 4  LIQUIDITY AND CAPITAL RESOURCES  on page 14
of this MD&A.

Copper and gold markets

In mid-February 2016, copper prices hit a 21-month high of
$2.79 per pound on news of production suspensions at two major copper mines in Chile and Indonesia. By early March 2016, copper prices had eased back to $2.60 per pound on a stronger U.S. dollar and a jump in London Metal Exchange (LME) stocks.
Copper prices face downside risks given the likely rise in U.S. interest rates and the eventual restart of suspended production. Copper demand indicators point to continued improvement in industrial activity. The global manufacturing Purchasing
Managers Index rose for the sixth consecutive month in February 2016. LME stocks in Asia increased by 120,000 to 220,000 tonnes in the first half of March 2016 as large inflows reached warehouses in Singapore, Busan and Kaohsiung. Stocks in
the U.S. remained broadly flat in March 2016. Chinese stocks continued to rise in advance of expected seasonal demand improvements in Q217. Spot treatment charges edged down in February 2016 to
$75-$85 per tonne (compared to $85-$90 per tonne in January 2016) as smelters were seeking material to replace lost shipments from suspended production. Gold prices
climbed to $1,262 per ounce in late February 2016, but have since retreated to approximately $1,200 per ounce on the back of a strong U.S. dollar.

Foreign exchange rates

Oyu
Tolgois sales are settled in U.S. dollars and a portion of its expenses are incurred in local currencies. Short-term foreign exchange fluctuations could have an effect on Turquoise Hills operating margins; however, in view of the
proportion of locally incurred expenditures, such fluctuations are not expected to have a significant impact on Turquoise Hills long-term financial performance.



|7. | OFF-BALANCE SHEET ARRANGEMENTS
|-- | ------------------------------

During the year ended December 31, 2016, Turquoise Hill was not a party to any off-balance-sheet
arrangements that have, or are reasonably likely to have, a significant current or future effect on the results of operations, financial condition, revenues or expenses, liquidity, capital expenditures or capital resources of the Company.



|8. | CONTRACTUAL OBLIGATIONS
|-- | -----------------------

The following table summarizes Turquoise Hills contractual obligations as at December 31, 2016.5



|                              |  |                        |         |  |             |   |         |             |  |   |               |  |  |       |         |  |  |   |         | 
|----------------------------- |  | ---------------------- | ------- |  | ----------- | - | ------- | ----------- |  | - | ------------- |  |  | ----- | ------- |  |  | - | ------- | 
|(Stated in $000s of dollars) |  | Payments Due by Period |        
|                              |  | Less than 1year        |         |  | 1 - 3 years |   |         | 4 - 5 years |  |   | After 5 years |  |  | Total |        
|                              |  |                        |         |  |            
|Purchase obligations (1)      |  | $                      | 409,947 |  |             | $ | 126,934 |             |  | $ | 87,338        |  |  | $     | 14,554  |  |  | $ | 638,773 | 
|Operating leases              |  |                        | 54,491  |  |             |   | 1,979   |             |  |   | 1,948         |  |  |       | 4,099   |  |  |   | 62,517  | 
|Finance leases                |  |                        | 12,737  |  |             |   | -       |             |  |   | -             |  |  |       | -       |  |  |   | 12,737  | 
|Decommissioning obligations   |  |                        | -       |  |             |   | -       |             |  |   | -             |  |  |       | 257,396 |  |  |   | 257,396 | 
|Total                         |  |                        | 477,175 |  |             |   | 128,913 |             |  |   | 89,286        |  |  |       | 276,049 |  |  |   | 971,423 | 



| | (1) | These amounts mainly represent various long-term contracts that include commitments for future operating
payments for supply of power, drilling, engineering, equipment rentals and other arrangements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5 | Please refer to Section 14  NON-GAAP MEASURES  on page
37 of this MD&A for a reconciliation of these metrics to the financial statements.
|- | -------------------------------------------------------------------------------------------------------------------------------------------



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





|9. | CHANGES IN ACCOUNTING POLICIES
|-- | ------------------------------

There were no changes in Turquoise Hills accounting policies during 2016.



|10. | CRITICAL ACCOUNTING ESTIMATES
|--- | -----------------------------

The preparation of financial statements in conformity with IFRS requires Turquoise Hill to establish accounting policies and to make estimates
that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.

A detailed summary of all of the Companys significant accounting policies and the estimates derived therefrom is included in Note 2 to
the annual consolidated financial statements for the year ended December 31, 2016. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the
estimates derived therefrom have been identified as being critical:



| |  |  | Reserves and resources;
| | - |  | -----------------------

| |  |  | Recoverable amount of property, plant and equipment;
| | - |  | ----------------------------------------------------

| |  |  | Depletion and depreciation of property, plant and equipment;
| | - |  | ------------------------------------------------------------

| |  |  | Decommissioning obligations
| | - |  | ---------------------------

| |  |  | Deferred stripping
| | - |  | ------------------

| |  |  | Income taxes; and
| | - |  | -----------------

| |  |  | Net realizable value of inventories.
| | - |  | ------------------------------------

Reserves and resources

Mineral reserve
and resource estimates are based on various assumptions relating to operating matters set forth in National Instrument 43-101. These include production costs, mining and processing recoveries, cut-off grades, long-term commodity prices, inflation rates and the costs and availability of treatment and refining services for the metals mined. Cost estimates are based on feasibility study estimates or
operating history, and estimates are prepared by appropriately qualified persons (as defined in National Instrument 43-101). Estimated recoverable reserves and resources are used to determine the depreciation
of property, plant and equipment at each operating mine area; to account for capitalized deferred stripping costs; to perform when required, formal assessments of the recoverable amount of property, plant and equipment; and to forecast the timing of
the payment of decommissioning obligations.

Recoverable amount of property, plant and equipment

Property, plant and equipment are tested for impairment when events or changes in circumstance indicate that the carrying value may be higher
than the recoverable amount. Judgment is required in assessing whether certain factors would be considered an indicator of impairment. Management considers both internal and external information to determine whether there is an indicator. A formal
estimate of recoverable amount may, but will not necessarily, result in an impairment charge in the financial statements.

Recoverable
amount is assessed at the level of the cash-generating units, which are identified as the smallest identifiable group of assets capable of generating cash inflows, which are largely independent from the cash inflows from other assets. When an
impairment review is undertaken, the recoverable amount is estimated by reference to the higher of value in use and fair value less costs of disposal (FVLCD). FVLCD is usually estimated either from the value obtained from an active market where
applicable, or by using discounted cash flow techniques based on detailed life-of-mine and/or production plans.



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







The estimates used by
management in arriving at its estimate of recoverable amount are subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of Turquoise Hills
investments in property, plant and equipment.

Depletion and depreciation of property, plant and equipment

Property, plant and equipment comprise one of the largest components of Turquoise Hills assets and, as such, the amortization of these
assets has a significant effect on Turquoise Hills financial statements.

Capital works in progress are not categorized as mineral
property interests, mining plant and equipment or other capital assets until the capital asset is in the condition and location necessary for its intended use. Mining plant and equipment and other capital assets are depreciated over their expected
economic lives using either the units-of-production method or the straight-line method. Depletion of each mineral property interest is provided on the units-of-production basis using estimated proven and probable reserves as the depletion basis.

Significant judgment is involved in the determination of the useful lives and residual values of long-lived assets. A change in the estimated
useful life or residual value of a long-lived asset would result in a change in the rate of depreciation for that asset. For long-lived assets that are depleted or depreciated over proven and probable reserves using the units-of-production method, a change in the original estimate of proven and probable reserves would result in a change in the rate of depletion or deprecation.

Decommissioning obligations

Turquoise
Hill has obligations for site restoration and decommissioning related to its mining properties. Turquoise Hill, using mine closure plans or other similar studies that outline the requirements planned to be carried out, estimates the future
obligations for mine closure activities. Because the obligations are dependent on the laws and regulations of the countries in which the mines operate, the requirements could change as a result of amendments in those laws and regulations relating to
environmental protection and other legislation affecting resource companies. In addition, the estimate includes liabilities arising from constructive obligations made by the Company. Such obligations may arise from established patterns or practice
by Turquoise Hill or its affiliates (including other member companies of the Rio Tinto Group), published policies or statements of intent, or other commitments, whether contractual or informal. As a result of future reviews of its constructive
obligations with respect to asset retirement, there could be adjustments to the Companys accounting provision for site restoration and decommissioning affecting future results.

Turquoise Hill recognizes liabilities for statutory, contractual, legal and constructive obligations associated with the retirement of
property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period
in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of that asset and the cost is amortized as an expense over the economic life of the related asset. Following
the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.

Because the estimate of obligations is based on future expectations in the determination of closure provisions, management makes a number of
assumptions and judgments including estimating the amount of future reclamation costs and their timing, inflation rates and risk-free discount rates. The closure provisions are more uncertain the further into the future the mine closure activities
are to be carried out. Actual costs incurred in future periods in relation to the remediation of Turquoise Hills existing assets could differ materially from their estimated undiscounted future value.



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





Deferred stripping

Stripping of waste material takes place throughout the production phase of a surface mine or pit. Identification of components within a mine
and of life of component strip ratios is dependent on the mines design. Changes to that design may introduce new components and/or change the life of component strip ratios. Changes in other technical or economic parameters having an impact on
ore reserves may also have an impact on the life of component strip ratios even if they do not affect the mines design. Changes to the life of component strip ratio are accounted for prospectively.

Income taxes

Turquoise Hill must make
significant estimates in respect of the provision for income taxes and the composition of its deferred income tax assets and deferred income tax liabilities. Turquoise Hills operations are, in part, subject to foreign tax laws where
interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question which may, on resolution in the future, result in adjustments to the amount of deferred income tax assets
and deferred income tax liabilities, and those adjustments may be material to Turquoise Hills financial position and results of operations.

Turquoise Hill computes the provision for deferred income taxes under the liability method. Deferred taxes arise from the recognition of the
tax consequences of temporary differences by applying statutory tax rates applicable to future years to differences between the financial statements carrying amounts and the tax bases of certain assets and liabilities. Turquoise Hill
recognizes deferred tax assets for unused tax losses, tax credits and deductible temporary differences, only to the extent it is probable that future taxable profits will be available against which they can be utilized.

The determination of the ability of Turquoise Hill to utilize tax losses carried forward to offset income taxes payable in the future requires
management to exercise judgment and make assumptions about Turquoise Hills future performance. Management is required to assess whether Turquoise Hill is more likely than not able to benefit from these tax losses. Changes in economic
conditions, metal prices, timing of taxable income streams and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.

Net realizable value of inventories

Inventory, including stockpiles of ore, are valued at the lower of weighted average cost and net realizable value. If ore stockpiles are not
expected to be processed within the 12 months after the balance sheet date, they are included within non-current assets and net realizable value is calculated on a discounted cash flow over the planned
processing timeframe for such ore. Evaluating net realizable value requires management judgment in the selection of estimates for, among other inputs, discount rate, price assumptions, timing of processing, and associated costs.



|11. | RECENT ACCOUNTING PRONOUNCEMENTS
|--- | --------------------------------

A number of new standards, amendments to standards and interpretations were not yet effective, or were not mandatory for adoption, for the
year ended December 31, 2016 and have therefore not been applied in preparing the annual consolidated financial statements.

The
following standards may have a potential effect on the consolidated financial statements of the Company:



| | (i) | IFRS 9, Financial Instruments, is mandatorily effective for the Companys consolidated financial
statements for the year ending December 31, 2018. IFRS 9 brings together the classification and measurement, impairment and hedge accounting phases of the IASBs project to replace IAS 39, Financial Instruments: Recognition and
Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary | 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





| | measurement categories for financial assets: amortized cost; fair value through profit and loss; and fair value through other comprehensive income. IFRS 9 introduces the expected credit loss
model for impairment of financial assets which replaces the incurred loss model used in IAS 39. IFRS 9 amends the rules on hedge accounting to align the accounting treatment with the risk management practices of the business. Lastly, IFRS 9 amends
some of the requirements of IFRS 7, Financial Instruments: Disclosures, including added disclosures about investments in equity instruments measured at fair value in other comprehensive income, and guidance on financial liabilities and
derecognition of financial instruments. A detailed review will be completed during 2017 but the Company does not currently expect the impact of these changes to be material. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 



| | (ii) | IFRS 15, Revenue from Contracts with Customers, which will replace IAS 18, Revenue, is effective
for the Companys fiscal year ending December 31, 2018 and is available for early adoption. The standard contains a single model that applies to contracts with customers. Revenue is recognized as control is passed to the customer, either
at a point in time or over time. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. To date, a limited review of contracts has been conducted with a further review being
undertaken during 2017. At present, no material measurement differences have been identified between IAS 18 and IFRS 15. | 
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 



| | (iii) | IFRS 16, Leases, which will replace IAS 17, Leases, is effective for the Companys fiscal
year ending December 31, 2019 and is available for early adoption. The objective of the new standard is to report all leases on the consolidated balance sheet and to define how leases and liabilities are measured. Under the new standard, a
lessee is in essence required to: | 
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 



| | a. | Recognize all lease assets and liabilities (including those currently classed as operating leases) on the
balance sheet, initially measured at the present value of unavoidable lease payments; | 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | b. | Recognize amortization of lease assets and interest on lease liabilities in the statement of income over the
lease term; and | 
| | -- | ---------------------------------------------------------------------------------------------------------------------------- | 

| | c. | Separate the total amount of cash paid into a principal portion (presented within financing activities) and
interest (which companies can choose to present within operating or financing activities consistent with presentation of any other interest paid) in the statement of cash flows. | 
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

The Company is currently evaluating the impact of IFRS 16.
Generally, it is expected that under IFRS 16, the present value of most lease commitments will be shown as a liability on the balance sheet together with an asset representing the right of use, including those classified as operating leases under
the existing standard. Information on the undiscounted amount of the Companys operating lease commitments at December 31, 2016 under IAS 17, the current lease standard, is disclosed within Note 25 to the Companys annual financial
statements for the year ended December 31, 2016.

To date, work has focussed on the identification
of the provisions of the standard which will mostly impact the Company. In 2017, work on these issues and their resolution will continue and work on detailed review of contracts and financial reporting impacts will commence as well as assessment of
likely changes to systems.

None of the remaining standards and amendments to standards and interpretations are expected to have a
significant effect on the consolidated financial statements of the Company.



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







|12. | RISK AND UNCERTAINTIES
|--- | ----------------------

Turquoise Hill is subject to a number of risks due to the nature of the industry in which it operates, the present state of development of its
business and the foreign jurisdictions in which it carries on business. The following is a summary description of the material risks and uncertainties to which Turquoise Hill is subject. Some of the following statements are forward-looking and
actual results may differ materially from the results anticipated in these forward-looking statements. Please refer to Section 20  FORWARD-LOOKING STATEMENTS AND FORWARD-LOOKING INFORMATION  on page 41 of this MD&A. If any of such
risks or risks not currently known to Turquoise Hill actually occurs or materializes, Turquoise Hills business, financial condition or results of operations could be adversely affected, even materially adversely affected.

The Company may be limited in its ability to enforce the Oyu Tolgoi Investment Agreement (Investment Agreement) and the Underground Plan
against Mongolia, a sovereign government.

The Investment Agreement and the Underground Plan impose numerous obligations and
commitments upon the Government of Mongolia that provide clarity and certainty in respect of the development and operation of Oyu Tolgoi. The Investment Agreement also includes a dispute resolution clause that requires the parties to resolve
disputes through international commercial arbitration procedures. Nevertheless, if and to the extent that the Government of Mongolia does not observe the terms and conditions of the Investment Agreement and the Underground Plan, there may be
limitations on the Companys ability to enforce the terms of the Investment Agreement and the Underground Plan against the Government of Mongolia, which is a sovereign nation, regardless of the outcome of any arbitration proceeding. If the
terms of the Investment Agreement and/or the Underground Plan cannot be enforced effectively, the Company could be deprived of substantial rights and benefits arising from its investment in Oyu Tolgoi with little or no recourse against the
Government of Mongolia for fair and reasonable compensation. Irrespective of the ultimate outcome of any potential dispute, any requirement to engage in discussions or proceedings with the Government of Mongolia, whether or not formal, would result
in significant delays, expense and diversion of managements attention. Such an outcome would have a material adverse impact on the Company and its share price.

Turquoise Hills ability to carry on business in Mongolia is subject to legal and political risks.

Although the Company expects that the Investment Agreement and the Underground Plan will continue to bring significant stability and clarity
to the legal, political and operating environment in which Turquoise Hill will develop and operate Oyu Tolgoi, the Company remains subject to potential legal and political risks in Mongolia.

There can be no absolute assurance that the Companys assets will not be subject to nationalization, requisition, expropriation or
confiscation, whether legitimate or not, by any authority or body. In addition, there can be no assurance that neighbouring countries political and economic policies in relation to Mongolia will not have adverse economic effects on the
development of the Companys mining projects, including its ability to access power, transport and sell its products and access construction labour, supplies and materials.

There is no assurance that provisions under Mongolian law for compensation and reimbursement of losses to investors under such circumstances
would be effective to restore the full value of the Companys original investment or to compensate for the loss of the current value of the Mongolian projects. Insofar as the Government of Mongolia is a sovereign entity against which the terms
of the Investment Agreement and the Underground Plan may take considerable time to enforce (if enforceable at all), this risk applies to Oyu Tolgoi despite the provisions of the Investment Agreement respecting nationalization and expropriation.
There can be no assurance that Mongolian laws protecting foreign investments will not be amended or abolished or that existing laws will be enforced or interpreted to provide adequate protection against any or all of the risks described herein.



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







The legal framework in
Mongolia is, in many instances, based on recent political reforms or newly enacted legislation, which may not be consistent with long-standing conventions and customs. Although legal title risks in respect of Oyu Tolgoi are believed to be
significantly mitigated by the terms of the Investment Agreement, there may still be ambiguities, inconsistencies and anomalies in the other agreements, licenses and title documents through which the Company holds its direct or indirect interests in
other mineral resource properties in Mongolia, or the underlying legislation upon which those interests are based, which are atypical of more developed legal systems and which may affect the interpretation and enforcement of the Companys
rights and obligations. Many laws have been enacted, but in many instances they are neither understood nor enforced and may be applied in an inconsistent, arbitrary and unfair manner, while legal remedies may be uncertain, delayed or unavailable.
These laws or their enforcement by national, regional or local authorities can adversely affect, among other things, water access rights, operating costs resulting from unanticipated increases in tariff rates and overall assessment of risk.
Accordingly, while the Company believes that it has taken the legal steps necessary to obtain and hold its property and other interests in Mongolia, there can be no guarantee that such steps will be sufficient to preserve those interests.

There can be no assurance that Turquoise Hill will be able to secure the funding that it needs to continue development of the Oyu Tolgoi
underground mine.

Additional funding may be required to complete the development of the underground mine, which could potentially
include construction of a power facility at Oyu Tolgoi. If the full amount of project and other financing required to complete these developments of the underground mine is not available or obtainable on reasonable commercial terms for such purposes
or funding from the Oyut open pit mine operations is insufficient, the Company could seek to issue Common Shares or instruments convertible into equity, including through future rights offerings, which issuances could result in dilution to the
holders of Common Shares and have a material adverse effect upon the market price of Common Shares. Under the terms of the covenants forming part of the Turquoise Hill Financing Support Agreement, the Company is prohibited from creating, incurring
or permitting to remain outstanding any indebtedness, other than certain permitted indebtedness, and from amending its constating documents to create and issue Preferred Shares. As a result of these restrictions, in seeking to raise additional
capital, the Company may not incur indebtedness for borrowed money or issue debt securities, other securities convertible into debt securities or Preferred Shares while the covenants forming part of the Turquoise Hill Financing Support Agreement are
in force and effect unless it obtains a waiver or consent from Rio Tinto International Holdings Limited (RTIH) permitting the incurrence of such indebtedness or the issuance of such securities.

Recent and future amendments to Mongolian laws could adversely affect the Companys mining rights in Oyu Tolgoi, or make it more
difficult or expensive to develop such project and carry out mining in Mongolia.

The Government of Mongolia has put in place a
framework and environment for foreign direct investment. However, there are political constituencies within Mongolia that have espoused ideas that would not be regarded by the international mining industry as conducive to foreign investment if they
were to become law or official government policy. There can be no assurance that the present or future Parliament will refrain from enacting legislation that undermines the Investment Agreement or otherwise adversely impacts Oyu Tolgoi or that the
present or a future government will refrain from adopting government policies or seeking to renegotiate the terms of the Investment Agreement in ways that are adverse to the Companys interests or that impair the Companys ability to
develop and operate Oyu Tolgoi or other projects on the basis presently contemplated, which may have a material adverse impact on the Company and its share price.

The Government of Mongolia holds a significant stake in Oyu Tolgoi.

Although the ARSHA contemplates that the Company will maintain a controlling interest in Oyu Tolgoi, the Government of Mongolia also holds a
significant stake in Oyu Tolgoi LLC which holds the Oyu Tolgoi property. In addition, a portion of the Oyu Tolgoi property is held subject to an agreement with Entrée



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





Gold, a Canadian exploration stage resource company in which the Company directly holds an 8.0% interest and RTIH directly holds a 9.7% interest. Therefore, the Company will be subject to risks
to which shareholders are typically exposed. Such risks include the potential for disputes respecting development, operation and financing matters resulting from multiple levels of corporate and/or governmental approvals and differing sophistication
in relevant business and technical matters, inequality of bargaining power and incompatible strategic and economic objectives (both in the short term and the longer term) among the shareholders.

The Investment Agreement and the Underground Plan include a number of future covenants that may be outside of the control of the Company to
perform.

The Investment Agreement and the Underground Plan commit the Company to perform many obligations in respect of the
development and operation of Oyu Tolgoi. While performance of many of these obligations is within the effective control of the Company, the scope of certain obligations may be open to interpretation. Further, the performance of other obligations may
require co-operation from third parties or may be dependent upon circumstances that are not necessarily within the control of the Company. For example:



| |  |  | Mongolian nationals must represent at least 90% of Oyu Tolgoi employees now that commercial production has
been attained, and 50% of Oyu Tolgois engineers must be Mongolian nationals within five years of achieving commercial production (i.e. by September 2018), and increasing to 70% after ten years of achieving commercial production (i.e. expected
after September 2023). Achieving or maintaining these targets is contingent upon the availability of a sufficient number of qualified personnel, which is not wholly within the Companys control.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Although Oyu Tolgoi LLC has achieved commercial production, there is a risk that unforeseen mining or
processing difficulties may be encountered that could prevent Oyu Tolgoi LLC from maintaining the required commercial production levels.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Oyu Tolgoi LLC is obligated, on a priority basis, to purchase and utilize services supplied by Mongolian
citizens and/or legal entities, and equipment, raw materials, other materials and spare parts manufactured in Mongolia, to the extent such services and materials are available on a competitive time, cost, quantity and quality basis, and to give
preference to Mongolian suppliers of freight and transportation services required for Oyu Tolgoi. Such services, materials and suppliers may not be available to the extent required or may be available upon commercial terms that are less advantageous
than those available from other sources.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Oyu Tolgoi LLC has community development commitments and social responsibility obligations. There is a risk
that Oyu Tolgoi LLC will be unable to meet the expectations or demands of relevant community stakeholders to the extent contemplated to allow Oyu Tolgoi LLC to meet its commitments under the Investment Agreement.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The extension of the term of the Investment Agreement is subject to a number of conditions, including the
Company having demonstrated that Oyu Tolgoi has been operated in accordance with industry best practices in terms of national and community benefits, environment and health and safety practices. The inherently subjective nature of these criteria
creates the risk that the Company and the Government of Mongolia may disagree as to whether the conditions for extending the term of the Investment Agreement have been met.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Despite the Companys best efforts, such provisions are not necessarily within its control and
non-fulfilment of any such provision may result in a default or breach under the Investment Agreement and the Underground Plan. Such a default or breach could result in termination of the Investment Agreement
and



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





the Underground Plan or damages accruing, which may have a material adverse impact on the Company and its share price.

The Investment Agreement commits Oyu Tolgoi LLC to eventually utilize only Mongolian power sources.

The Investment Agreement commits Oyu Tolgoi LLC to eventually utilize Mongolian power sources. Such sources of power may not be available or
may be available upon commercial terms that are less advantageous than those available from other potential power suppliers. Alternative strategies whereby the Company would undertake the construction of a power generating facility in Mongolia are
likely to require further funding in addition to the existing project finance and proposed supplemental debt facilities; such funding remains subject to negotiation, and may not be available or may only be available on substantively different terms
from existing facilities. Despite the Companys best efforts, the ability to meet such an obligation is not necessarily within the Companys control and non-fulfilment of such requirement may result
in a default under the Investment Agreement. Such default could result in termination of the Investment Agreement or damages accruing, which may have a material adverse impact on the Company and its share price.

RTIH, as the holder of a majority of the Common Shares, and as manager of Oyu Tolgoi, has the ability to exert a significant degree of
control over the Company, Oyu Tolgoi LLC and Oyu Tolgoi.

RTIH, a wholly-owned subsidiary of Rio Tinto, together with other Rio Tinto
affiliates, owns a majority of the outstanding Common Shares and can exercise its voting power to elect all of the members of the Board of Directors, subject to applicable securities legislation. RTIH can also exercise its majority voting power to
unilaterally pass any ordinary resolution submitted to a vote of the Companys shareholders, except for resolutions in respect of which RTIH is an interested party and for which disinterested shareholder approval is required. In addition, under
the December 2010 heads of agreement (HoA), RTIH was appointed as manager of Oyu Tolgoi which provides RTIH with responsibility for the management of Oyu Tolgoi. The Companys Board of Directors appoints the Chief Executive Officer in
consultation with RTIH. The Chief Executive Officer and the rest of the Companys senior management team, are employed by affiliates of RTIH and are seconded to the Company.

RTIH is also able to exert a significant degree of control over the management, development and operation of Oyu Tolgoi, as well as the
Company, through a series of governance mechanisms and restrictive covenants established under the October 2006 private placement agreement (Private Placement Agreement), the HoA and other agreements entered into with Rio Tinto. These include the
Technical Committee established under the Private Placement Agreement and the Operating Committee established under the HoA, through which RTIH is able to control decisions respecting the business of Oyu Tolgoi LLC subject to a veto of the Company
in respect of certain special matters.

The interests of RTIH and the interests of the Companys other shareholders may not
necessarily be aligned in all respects and there can be no assurance that RTIH, together with other Rio Tinto affiliates, will exercise its rights as the Companys majority shareholder and its other contractual rights under the Private
Placement Agreement, the HoA and other agreements entered into with Rio Tinto in a manner that is consistent with the best interests of either the Company or the Companys other shareholders.

A substantial portion of Turquoise Hills receivables and liquid asset deposits are with or managed by affiliates of Rio Tinto.

On December 15, 2015, the Company entered into the Cash Management Services Agreement with 9539549 Canada Inc., a wholly-owned
subsidiary of Rio Tinto, pursuant to which the net proceeds from the Project Finance Facility are to be placed with and managed by 9539549 Canada Inc. until they are returned to Turquoise Hill for purposes of funding the underground at Oyu Tolgoi.
Although RTIH has guaranteed the obligations of 9539549 Canada Inc. under the Cash Management Services Agreement, a delay in the return of such funds when requested by Turquoise Hill, or the unavailability of such funds for any reason, could result
in a material adverse effect on the Company.



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







In May 2016, the
Company and its wholly-owned subsidiary, Movele S.à r.l., entered into the Movele Deposit Agreement, pursuant to which Movele S.à r.l. deposited funds with Rio Tinto Finance plc (RTF), which are invested or deposited by RTF for fixed
terms. The inability of Movele S.à r.l. to access cash and cash equivalent investments on deposit with RTF under the Movele Deposit Agreement, in a timely manner or at all due to circumstances which limit RTFs ability to return such
funds to Movele S.à r.l. could have a material adverse impact on Turquoise Hill and its business.

The actual cost of developing
Oyu Tolgoi may differ materially from the Companys estimates, and development may involve unexpected problems or delays.

The
Companys estimates regarding the cost of development and operation of Oyu Tolgoi are estimates only and are based on many assumptions and analyses made by the Companys management in light of their experience and perception of historical
trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These estimates and the assumptions upon which they are based are subject to a variety of risks and
uncertainties and other factors that could cause actual expenditures to differ materially from those estimated. If these estimates prove incorrect, the total capital expenditures required to complete development of the underground component of Oyu
Tolgoi may increase, which may have a material adverse impact on the Company, its results of operations, financial condition and share price.

In addition to the requirements of the Investment Agreement, there are also a number of uncertainties inherent in the development and
construction of any new or existing mine, including Oyu Tolgoi. These uncertainties include the timing and cost, which can be considerable, of the construction of mining and processing facilities; the availability and cost of skilled labour, the
impact of fluctuations in commodity prices, process water, power and transportation, including costs of transport for the supply chain for Oyu Tolgoi, which requires routing approaches which have not been fully tested; the annual usage fees payable
to the local province for sand, aggregate and water; the availability and cost of appropriate smelting and refining arrangements; and the need to obtain necessary environmental and other government permits, such permits being on reasonable terms,
and the timing of those permits. The cost, timing and complexities of mine construction and development are increased by the remote location of a property such as Oyu Tolgoi.

It is common in mining operations and in the development, construction or expansion of existing facilities to experience unexpected problems
and delays during such activities, which may cause delays in the commencement or expansion of mineral production. Such delays could have unforeseen impacts on disclosed project economics. Accordingly, there is no assurance that the current or future
development, construction or expansion activities will be successfully completed within cost estimates, on schedule or at all and, if completed, there is no assurance that such activities will result in profitable mining operations.

Changes in laws and regulations, whether actual or the interpretation thereof, could adversely impact the Companys activities.

Mining operations, exploration and related financing activities are subject to extensive laws and regulations. These relate to
production, development, exploration, exports, imports, taxes and royalties, labour standards, occupational health, waste disposal, protection and remediation of the environment, access to water, mine decommissioning and reclamation, mine safety,
toxic substances, transportation safety and emergency response and other matters.

Compliance with these laws and regulations increases
the costs of exploring, drilling, financing, developing, constructing, operating and closing mines and other facilities. It is possible that the costs, delays and other effects associated with these laws and regulations may impact the Companys
decision as to whether to continue to operate in a particular jurisdiction or whether to proceed with exploration or development of properties and the nature of related investing and financing arrangements.



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







Since legal
requirements change frequently, are subject to interpretation and may be enforced to varying degrees in practice, the Company is unable to predict the ultimate cost of compliance with these changes and their effect on operations or other business
activities. Furthermore, changes in governments, regulations, interpretations, policies or practices could have an adverse impact on the Companys future cash flows, earnings or results of operations and financial condition, which may have a
material adverse impact on the Company and its share price.

Turquoise Hill is exposed to risks of changing political stability and
government regulation in the countries in which it carries out its activities.

The Company carries out its activities in countries
which may be affected in varying degrees by political stability, government regulations (including but not restricted to those related to the mining industry) and domestic or foreign investment therein, and by the policies of other nations in
respect of these countries. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its business. The Companys mining, exploration and financing activities may be affected to
varying degrees by government regulations, or other political and administrative undertakings, including those with respect to restrictions on production, price controls, export controls, income and other taxes, expropriation of property,
employment, land use, water use, environmental legislation and mine safety. The Company may be subject to disputes or issues with customs officials affecting the shipment of the Companys products in jurisdictions in which it operates, and the
ability of its customers to collect such products may arise and could have an adverse effect on the Companys ability to collect and/or recognize revenue. In addition, in the various jurisdictions where the Company operates and finances its
business activities (including Mongolia, Canada and Europe), it may from time to time be subject to disputes with tax authorities over the interpretation and application of existing tax legislation and face risks regarding future changes in the tax
laws of such jurisdictions (and future changes in the way such tax authorities interpret and apply existing tax legislation) that could increase the amount of taxes owing in later years. The Companys activities may also be affected to varying
degrees by political and economic instability, economic, investment or other sanctions imposed by other nations, terrorism, military repression, crime, extreme fluctuations in currency exchange rates and high inflation.

In certain areas where the Company is active, the regulatory environment is in a state of continuing change, and new laws, interpretations,
regulations and requirements may be retroactive in their effect and implementation. The laws of certain of the countries in which the Company carries out its activities also have the potential to be applied in an inconsistent manner due to the
substantial administrative discretion granted to the responsible government officials or agencies. As such, even the Companys best efforts to comply with the laws and regulations may not result in effective compliance in the determination of
government bureaucrats, which may have a material adverse impact on the Company and its share price.

A breach by the Company of its
contractual agreements could have a material adverse effect on Turquoise Hill and its business.

The Company is party to a number of
material contractual agreements with a number of third parties, including the Government of Mongolia and Rio Tinto. Should Turquoise Hill breach any of these agreements, it could face consequences that could have an adverse effect on its share price
and/or the operations of Oyu Tolgoi, the Companys main asset. Rio Tinto, as Turquoise Hills majority shareholder and as manager of Oyu Tolgoi, could materially affect the business of the Company if it were to claim damages for a breach
of an agreement against the Company or require specific performance of an obligation that Turquoise Hill is unable to comply with.

The
disclosed resource and reserve estimates are estimates only and are subject to change based on a variety of factors, some of which are beyond the Companys control. Turquoise Hills actual production, revenues and capital expenditures may
differ materially from these estimates.

The disclosed estimates of reserves and resources in the Annual Information Form (AIF) for
December 31, 2016, including the anticipated tonnages and grades that are expected to be achieved or the indicated level of recovery that will be realized, are estimates and no assurances can be given as to their accuracy.



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





Such estimates are, in large part, based on interpretations of geological data obtained from drill holes and other sampling techniques, and large-scale continuity and character of the deposits
will only be determined once significant additional drilling and sampling has been completed and analyzed. Actual mineralization or formations may be different from those predicted. Reserve and resource estimates are materially dependent on
prevailing metal prices and the cost of recovering and processing minerals at the individual mine sites. Market fluctuations in the price of metals or increases in the costs to recover metals from the Companys mining projects may render mining
of ore reserves uneconomical and affect the Companys operations in a materially adverse manner. Moreover, various short-term operating factors may cause a mining operation to be unprofitable in any particular accounting period.

Prolonged declines in the market price of metals may render reserves containing relatively lower grades of mineralization uneconomic to
exploit and could materially reduce the Companys reserves and resources. Should such reductions occur, material write-downs of the Companys investments in mining properties or the discontinuation of development or production might be
required, and there could be cancellations of or material delays in the development of new projects, increased net losses and reduced cash flow. The estimates of mineral reserves and resources attributable to a specific property are based on
internationally accepted engineering and evaluation principles. The estimated amount of contained metals in Proven mineral reserves and Probable mineral reserves does not necessarily represent an estimate of a fair market value of the evaluated
properties.

The Company uses prices reflecting market pricing projections in the financial modeling for Oyu Tolgoi which are subjective
in nature. It should be expected that actual prices will be different than the prices used for such modelling (either higher or lower), and the differences could be significant.

There are numerous uncertainties inherent in estimating quantities of mineral reserves and resources. The estimates referenced in this AIF are
based on various assumptions relating to commodity prices and exchange rates during the expected life of production, mineralization of the area to be mined, the projected cost of mining, and the results of additional planned development work. Actual
future production rates and amounts, revenues, taxes, operating expenses, environmental and regulatory compliance expenditures, development expenditures, and recovery rates may vary substantially from those assumed in the estimates. Many of the
projections and estimates are based on subjective views and assumptions. Any significant change in these assumptions, including changes that result from variances between projected and actual results, could result in material downward revision to
current estimates, which may have a material adverse impact on the Company and its share price.

A number of the uncertainties relate to
the costs and availability of smelting services for the metals mined from Oyu Tolgoi, which require arrangements with third parties and involve the potential for fluctuating costs to transport the metals and fluctuating costs and availability of
such services. These costs can be significantly impacted by a variety of industry-specific and also regional and global economic factors (including, among others, those which affect commodity prices). Many of these factors are beyond the
Companys control.

Mining projects are sensitive to the volatility of metal prices.

The long-term viability of Oyu Tolgoi depends in large part on the world market prices of copper, gold and silver. The market prices for these
metals are volatile and are affected by numerous factors beyond the Companys control. These factors include international economic and political trends, expectations of inflation, global and regional demand, currency exchange fluctuations,
interest rates and global or regional consumption patterns, speculative activities, increased production due to improved mining and production methods and economic events, including the performance of Asias economies. Ongoing worldwide
economic uncertainty could lead to prolonged recessions in many markets which may, in turn, result in reduced demand for commodities, including base and precious metals. It is anticipated that there will be continued volatility in metal prices.

The aggregate effect of these factors on metal prices in the medium or long term is impossible to predict. Should prevailing metal prices be
depressed or below variable production costs of the Companys current



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





and planned mining operations for an extended period, losses may be sustained and, under certain circumstances, there may be a curtailment or suspension of some or all of the Companys
mining, development and exploration activities. The Company would also have to assess the economic impact of any sustained lower metal prices on recoverability and, therefore, the cut-off grade and level of
the Companys reserves and resources. These factors could have an adverse impact on the Companys future cash flows, earnings, results of operations, stated reserves and financial condition, which may have a material adverse impact on the
Company and its share price.

The following table sets forth for the periods indicated: (i) the London Metals Exchanges high,
low and average settlement prices for copper in U.S. dollars per pound; (ii) the high, low and average London afternoon fixing prices for gold in U.S. dollars per ounce; and (iii) the high, low and average London afternoon fixing prices
for silver in U.S. dollars per ounce.



|     |  |        |  |       |  |         |  |        |  |        |  |         |  |        |  |        |  |        
|---- |  | ------ |  | ----- |  | ------- |  | ------ |  | ------ |  | ------- |  | ------ |  | ------ |  | -------
|Year |  | Copper |  | Gold  |  | Silver 
|     |  | High   |  | Low   |  | Average |  | High   |  | Low    |  | Average |  | High   |  | Low    |  | Average
|2012 |  | $3.93  |  | $3.29 |  | $3.61   |  | $1,792 |  | $1,540 |  | $1,669  |  | $37.23 |  | $26.67 |  | $31.15 
|2013 |  | $3.77  |  | $3.04 |  | $3.34   |  | $1,694 |  | $1,192 |  | $1,411  |  | $32.23 |  | $18.61 |  | $23.79 
|2014 |  | $3.37  |  | $2.84 |  | $3.10   |  | $1,385 |  | $1,142 |  | $1,266  |  | $22.05 |  | $15.28 |  | $19.08 
|2015 |  | $2.94  |  | $2.04 |  | $2.49   |  | $1,296 |  | $1,049 |  | $1,160  |  | $18.36 |  | $13.67 |  | $15.66 
|2016 |  | $2.69  |  | $1.96 |  | $2.21   |  | $1,366 |  | $1,077 |  | $1,251  |  | $20.71 |  | $13.58 |  | $17.16 

Under Mongolias Resolution No. 175, the Government of Mongolia may seek contribution or
reimbursement from Oyu Tolgoi LLC for compensation it provides to third parties adversely affected by Resolution No. 175.

On
June 8, 2011, the Government of Mongolia passed Resolution No. 175, the purpose of which is to authorize the designation of certain land areas for State special needs with certain defined areas in proximity to Oyu Tolgoi. These
State special needs areas are to be used for infrastructure facilities for the development of Oyu Tolgoi.

Most of the areas designated
for State special needs are subject to existing mineral exploration and mining licenses issued by the Government of Mongolia to third parties and, in certain cases, a mineral resource has been declared and registered with the applicable governmental
authorities in respect of such licenses. Oyu Tolgoi LLC has entered into certain consensual arrangements with some of the affected third parties; however, such arrangements have not been completed with all affected third parties. If Oyu Tolgoi LLC
cannot enter into consensual arrangements with an affected third party and such third partys rights to use and access the subject land area are ultimately adversely affected by application of Resolution No. 175, the Government of Mongolia
will be responsible for compensating such third parties in accordance with the terms of Resolution No. 175 and the Minerals Law (2006).

It is not clear at this time whether the Government of Mongolia will expect any compensation that may be payable to such third parties to be
borne by Oyu Tolgoi LLC.

To the extent that consensual arrangements are not entered into with affected third parties and the Government
of Mongolia seeks contribution or reimbursement from Oyu Tolgoi LLC for compensation it provides such third parties, the amount of such contribution or reimbursement is not presently quantifiable but may be significant. The description of Resolution
No. 175 has been provided by Oyu Tolgoi LLC and has been relied on under Item 3 of NI 43-101 Reliance on Other Experts.

In April 2015, the Standing Committee of the Parliament of Mongolia requested the Government of Mongolia to modify Resolution No. 175 due
to an alleged inconsistency between Resolution No. 175 and the Minerals Law and Land Law. Oyu Tolgoi LLC understands that the Government of Mongolia supports



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





the validity and justification for Resolution No. 175 and that Resolution No. 175 will not be modified or revoked.

The Company is subject to substantial environmental and other regulatory requirements and such regulations are becoming more stringent. Non-compliance with such regulations, either through current or future operations or a pre-existing condition, could materially adversely affect the Company.

All phases of the Companys operations are subject to environmental regulations in the various jurisdictions in which it operates and has
operated. For example, Oyu Tolgoi is subject to a requirement to meet environmental protection obligations. The Company must complete an environmental protection plan for approval by the Government of Mongolia and complete a report prepared by an
independent expert on environmental compliance every three years.

Failure to comply with applicable laws, regulations and permitting
requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations
of applicable laws or regulations.

Environmental legislation is evolving in a manner which will likely require stricter standards and
enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their directors,
officers and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Companys operations. Environmental hazards may exist on the properties in which the Company holds interests
which are presently unknown to the Company and which have been caused by previous or existing third-party owners or operators of the properties. Government approvals and permits are also often required in connection with various aspects of the
Companys operations. To the extent such approvals are required and not obtained, the Company may be delayed or prevented from proceeding with planned development or exploration of its mineral properties, which may have a material adverse
impact on the Company and its share price.

Amendments to current laws, regulations and permits governing operations and activities of
mining companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in capital expenditures or production costs or reductions in levels of production at producing properties or require
abandonment or delays in development of new mining properties, which may have a material adverse impact on the Company and its share price.

Previous mining operations may have caused environmental damage at former mining projects of the Company, and if Turquoise Hill cannot
prove that such damage was caused by other operators, its indemnities and exemptions from liability may not be effective.

The Company
has received exemptions from liability from relevant governmental authorities for environmental damage caused by previous mining operations at former mining projects. There is a risk, however, that, if an environmental accident occurred at those
sites, it may be difficult or impossible to assess the extent to which environmental damage was caused by the Companys activities or the activities of other operators. In that event, the liability exemptions could be ineffective and possibly
worthless, which may have a material adverse impact on the Company and its share price.

The Companys ability to obtain dividends
or other distributions from its subsidiaries may be subject to restrictions imposed by law, foreign currency exchange regulations and financing arrangements.

The Company conducts its operations through subsidiaries. Its ability to obtain dividends or other distributions from its subsidiaries may be
subject to restrictions on dividends or repatriation of earnings



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





under applicable local law, including any tax obligations, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which the subsidiaries operate or are
incorporated. The ability of the Companys subsidiaries to pay dividends or to make other distributions to the Company is also subject to their having sufficient funds to do so. If its subsidiaries are unable to pay dividends or to make other
distributions, the Companys growth may be inhibited unless it is able to obtain additional equity or debt financing on acceptable terms. In the event of a subsidiarys liquidation, the Company may lose all or a portion of its investment
in that subsidiary. The Company expects to be able to rely on the terms of the Investment Agreement to pay dividends out of Mongolia, subject to certain restrictions contained in the Investment Agreement, but will be unable to do so in respect of
projects that are not covered by the terms of the Investment Agreement, which may have a material adverse impact on the Company and its share price.

Turquoise Hill is subject to anti-corruption legislation.

The Company is subject to the United States Foreign Corrupt Practices Act and other similar legislation, such as, but not
necessarily limited to, Canadas Corruption of Foreign Public Officials Act (collectively, Anti-Corruption Legislation), which prohibits the Company or any director, officer, employee, consultant or agent of the Company or any
shareholder of the Company acting on its behalf from giving, paying, offering to give or pay, or authorizing the giving or payment of any reward, advantage, benefit or anything of value to any foreign government or public official, government staff
member, political party, or political candidate in an attempt to obtain or retain business, obtain an advantage in the course of business, or to otherwise induce or influence a person working in an official capacity. The Anti-Corruption Legislation
also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls. The Companys international activities create
the risk of unauthorized payments or offers of payments by its employees, consultants or agents, even though they may not always be subject to its control. The Company strictly prohibits these practices by its employees, consultants and agents.
However, the Companys existing safeguards and any future improvements may prove to be less than effective, and its employees, consultants or agents may engage in conduct for which the Company might be held responsible. Any failure by the
Company to adopt appropriate compliance procedures and ensure that its employees, consultants and agents comply with the Anti-Corruption Legislation and applicable laws and regulations in foreign jurisdictions could result in substantial penalties
or restrictions on its ability to conduct its business, which may have a material adverse impact on the Company and its share price.

Turquoise Hill may be subject to public allegations or regulatory investigations that could materially and adversely affect the
Companys business.

The Company at one time conducted exploration and mining operations in a number of jurisdictions and, as a
result of such activities and operations or current or future activities and operations, may be subject to governmental or regulatory investigations and claims in or regarding those jurisdictions in which it is not currently active. A serious
allegation or formal investigation by regulatory authorities (regardless of the ultimate decision) could have a material adverse impact on the Company, its reputation and its share price. There may also be considerable cost and disruption in
responding to allegations or investigations and taking any remedial action.

There can be no assurance that the interests held by
Turquoise Hill in its mining, development and exploration properties are free from defects or that material contractual arrangements between the Company and entities owned or controlled by foreign governments will not be unilaterally altered or
revoked.

The Company has investigated its rights to exploit and explore its various properties and, to the best of its knowledge,
those rights are in good standing, but no assurance can be given that such rights will not be revoked, or significantly altered, to the detriment of the Company. There can also be no assurance that the Companys rights will not be challenged or
impugned by third parties. The Company has also applied for rights to explore various properties, but there is no certainty that such rights, or any additional rights



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





applied for, will be granted on terms satisfactory to the Company or at all, which may have a material adverse impact on the Company and its share price.

The Company is currently engaged in a U.S. Securities and Exchange Commission (SEC) comment letter process relating to revenue recognition
accounting treatment regarding certain sales of coal by SouthGobi, which process could result in a requirement to file future supplements to or further restatements of the Companys financial disclosure.

The Company has received comment letters from the staff (the Staff) of the SEC relating to the Annual Report on Form 40-F for the year ended December 31, 2012 filed with the SEC on March 25, 2013. The Staffs comments addressed accounting and disclosure matters primarily related to revenue recognition accounting
under U.S. Generally Accepted Accounting Principles in respect of certain sales of coal by the Companys then majority-owned subsidiary, SouthGobi. On November 14, 2013, the Company filed restated managements discussion and analysis
and consolidated financial statements for the year ended December 31, 2012 and has concluded that such restatement appropriately addresses the timing of revenue recognition for these transactions. However, as of the date of the AIF, the
Staffs comments remain unresolved, and until these comments are resolved, the Company cannot predict whether the Staff will agree with the Companys conclusion. The Company completed the sale of its remaining stake in SouthGobi in October
2016 and, as a result, no longer holds any shares in SouthGobi.

The Company does not expect to pay dividends for the foreseeable future.

The Company has not paid any dividends on its Common Shares to date, nor will it contemplate a declaration of payment of dividends until its
operations generate sufficient excess cash flow for distribution as it anticipates that it will reinvest the majority of, if not all, future earnings, if any, in the development and growth of Oyu Tolgoi and its business generally. Therefore,
investors may not receive any funds unless they sell their Common Shares, and investors may be unable to sell their Common Shares on favourable terms or at all. The Company cannot give any assurance of a positive return on investment or that
investors will not lose the entire amount of their investment in Common Shares. Prospective investors seeking or needing dividend income or liquidity are discouraged from purchasing Common Shares.

There is no assurance that the Company will be capable of consistently producing positive operating cash flows.

Oyu Tolgoi LLC generated positive operating cash flows in 2016.However, there is no assurance that the Company will be capable of
producing positive cash flow on a consistent basis or for a sustained period of time or arranging for additional capital, whether through project debt financing or otherwise, if required, to continue open-pit
operations as currently planned or in respect of additional funding requirements for the underground mine. If such additional capital is required but not available on commercially reasonable terms or at all, it may have a material adverse impact on
the value of Oyu Tolgoi and, consequently, on the Company and its share price.

There is no guarantee that any exploration or
development activity will result in additional commercial production.

Development of a mineral property is contingent upon obtaining
satisfactory exploration results. Mineral exploration and development involves substantial expenses and a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to adequately mitigate. There is
no assurance that additional commercial quantities of ore will be discovered on any of the Companys exploration properties. There is also no assurance that, even if commercial quantities of ore are discovered, a mineral property will be
brought into commercial production. The discovery of mineral deposits is dependent upon a number of factors, not the least of which is the technical skill of the exploration personnel involved. The commercial viability of a mineral deposit, once
discovered, is also dependent upon a number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to infrastructure, metal prices and government regulations, including regulations



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





relating to royalties, allowable production, importing and exporting of minerals, and environmental protection. In addition, assuming discovery of a commercial ore body, depending on the type of
mining operation involved, several years can elapse from the initial phase of drilling until commercial operations are commenced. Most of the above factors are beyond the control of the Company.

The Company cannot insure against all of the risks associated with mining.

Production, development and exploration operations on mineral properties involve numerous risks and hazards, including rock bursts, slides,
fires, earthquakes or other adverse environmental occurrences; industrial accidents; labour disputes; political and social instability; technical difficulties due to unusual or unexpected geological formations; failures of pit walls, shafts, head
frames, and/or underground workings; and flooding and periodic interruptions due to inclement or hazardous weather conditions.

These
risks can result in, among other things, damage to, and destruction of, mineral properties or production facilities; personal injury (and even loss of life); environmental damage; delays in mining; monetary losses; and legal liability.

It is not always possible to obtain insurance (or to fully insure) against all such risks and the Company may decide not to insure against
certain risks as a result of high premiums or other reasons. The occurrence of an event that is not fully covered or covered at all, by insurance, could have a material adverse effect on the Companys financial condition, results of operations
and cash flows and could lead to a decline in the value of the securities of the Company. The Company does not maintain general insurance against political or environmental risks, which may have a material adverse impact on the Company and its share
price.

The loss of, or a substantial decline in sales to, a top customer could have a material adverse effect on the Companys
revenues and profitability.

A reduction or delay in orders from leading customers, including reductions or delays due to market,
economic or competitive conditions, could have a material adverse effect upon the Companys results of operations. Customers that previously accounted for significant revenue may not necessarily generate similar levels of or any revenue in any
future period. The failure to obtain new customers or repeat orders from existing customers may materially affect the Companys operating results. The Company anticipates that its exposure to a group of key customers in any given fiscal year
will continue for the foreseeable future. There is a risk that existing customers will elect not to do business with the Company in the future or will experience financial or other difficulties.

The Company faces risks associated with enforcement of its contractual rights.

Enforcement of existing and future laws and contracts in jurisdictions in which the Company carries out its activities is subject to
uncertainty, and the implementation and interpretation of them may be inconsistent. The promulgation of new laws and changes to existing laws may adversely affect foreign companies, such as the Company, with activities in or contracts with
counterparties in such jurisdictions. These uncertainties could limit the legal protections available to the Company. The Companys inability to enforce its contractual rights could have a material adverse effect on its business and
profitability. In addition, the Company is exposed to risks of political instability and government regulation in the countries in which it carries out its activities. See also the risk factor titled The Company may be limited in its ability to
enforce the Investment Agreement and the Underground Plan against Mongolia, a sovereign government.

The Companys prospects depend on its
ability to attract and retain key personnel.

Recruiting and retaining qualified personnel is critical to the Companys success.
The number of persons skilled in the acquisition, development and exploration of mining properties is limited and competition for such persons is intense. The Company believes that it has been successful in recruiting the necessary personnel to meet
its corporate objectives but, as the Companys business activity grows, it will require additional key financial, operational,



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





mining and management personnel, as well as additional staff on the operations side. The Company is also dependent on Rio Tinto for the secondment of skilled labour at Oyu Tolgoi, particularly in
the construction and development phases. Although the Company believes that it will be successful in attracting and retaining qualified personnel, including qualified secondees from Rio Tinto, there can be no assurance of such success.

In addition, pursuant to the terms of the Investment Agreement, Oyu Tolgoi LLC is obligated to hire a specific number of Mongolian nationals
following the achievement of Commercial Production. Among other obligations, Oyu Tolgoi LLCmust use its best endeavours to ensure that 50% of its engineers are Mongolian nationals within five years of achieving Commercial Production (i.e. by
September 2018), and increasing to 70% after ten years of achieving Commercial Production (i.e. after September 2023) (and failure to meet these levels will result in financial penalties).

Capital markets are volatile, and capital may not at all times be available on terms acceptable to the Company or at all.

Securities markets throughout the world are cyclical and, over time, tend to undergo high levels of price and volume volatility, and the
market price of securities of many companies, particularly those in the resource sector, can experience wide fluctuations which are not necessarily related to the operating performance, underlying asset values or prospects of such companies.
Increased levels of volatility and resulting market turmoil could adversely impact the Company and its share price. In addition, in the past, following periods of volatility in the market price of a particular companys securities, securities
class action litigation has often been brought against that company. The Company cannot provide assurance that similar litigation will not occur in the future with respect to it. Such litigation could result in substantial costs and a diversion of
managements attention and resources, which could have a material adverse effect upon the Companys business, operating results, and financial condition.

If the Company is required to access credit markets to carry out its development objectives, the state of domestic and international credit
markets and other financial systems could affect the Companys access to, and cost of, capital. If these credit markets were significantly disrupted, such disruptions could make it more difficult for the Company to obtain, or increase its cost
of obtaining, capital and financing for its operations. Such capital may not be available on terms acceptable to the Company or at all, which may have a material adverse impact on the Company and its share price.

Turquoise Hill may from time to time hold substantial funds in cash, cash equivalents, loans and receivables, and other deposits and there
is a risk that financial market turmoil or other extraordinary events could prevent the Company from obtaining timely access to such funds or result in the loss of such funds.

The Company may from time to time hold substantial funds in cash, cash equivalents and other deposits, including treasury bills, money market
funds, liquidity funds, bank deposits, and receivables and deposits with related parties. Management has adopted a conservative investment policy with respect to such funds, as the Company may require that these funds be used on short notice to
support its business objectives. Nevertheless, there is a risk that an extraordinary event in financial markets generally or with respect to an obligor under an investment individually will occur that prevents the Company from accessing its funds.
Such an event could, in the case of delayed liquidity, have a negative impact on the implementation of time sensitive business objectives that require access to such funds or such an event could, in extreme circumstances, result in the loss of some
or all of such funds.

The Companys business could be materially and adversely affected by litigation proceedings.



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





The Company is subject to litigation risks. All industries, including the mining industry,
are subject to legal claims, with and without merit. The Company may be required to defend against any such claims that are asserted against it, or may deem it necessary or advisable to initiate legal proceedings to protect its rights. The expense
and distraction of any claims or proceedings, even with respect to claims that have no merit and whether or not resolved in the Companys favour, could materially and adversely affect its business, operating results, and financial condition.
Further, if a claim or proceeding were resolved against the Company or if it were to settle any such dispute, the Company may be required to pay damages and costs or refrain from certain activities, any of which could have a material adverse impact
on the Companys business, operating results, and financial condition.

The Company may be a passive foreign investment corporation (PFIC), which
could have adverse U.S. federal income tax consequences to U.S. holders of Turquoise Hills common shares.

Based on the scope of
its past, current and projected operations, the Company does not believe that it was a PFIC for the 2016 tax year. However, the determination of the Companys PFIC status for any year is very fact-specific, and there can be no assurance in this
regard for future years. If the Company is classified as a PFIC, U.S. holders of Common Shares could be subject to adverse U.S. federal income tax consequences, including increased tax liabilities and possible additional reporting requirements,
which may have a material adverse impact on the Company and its share price.



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





|13. | RELATED-PARTY TRANSACTIONS
|--- | --------------------------

As at December 31, 2016, Rio Tintos equity ownership in the Company was 50.8% (December 31, 2015: 50.8%).

The following tables present the consolidated financial statement line items within which transactions with Rio Tinto are reported.



|                                   |  |                         |         |   |      |   |          | 
|---------------------------------- |  | ----------------------- | ------- | - | ---- | - | -------- | 
|Statements of Income               |  | Year Ended December 31, |        
|(Stated in $000s of dollars)      |  | 2016                    |         |   | 2015 |  
|                                   |  |                        
|Finance income:                    |  |                         |         |   |      |   |          | 
|Cash and cash equivalents (i)      |  | $                       | 7,276   |   |      | $ | 1,393    | 
|Receivable from related party (ii) |  |                         | 79,384  |   |      |   | -        | 
|Cost recoveries - Turquoise Hill   |  |                         | 3,074   |   |      |   | 3,723    | 
|                                   |  |                        
|Finance costs:                     |  |                         |         |   |      |   |          | 
|Completion support fee (iii)       |  |                         | (65,100 | ) |      |   | -        | 
|Management services payment (iv)   |  |                         | (32,821 | ) |      |   | (24,054) | 
|Cost recoveries - Rio Tinto (v)    |  |                         | (44,537 | ) |      |   | (49,322) | 
|Total                              |  | $                       | (52,724 | ) |      | $ | (68,260) | 



|                                                                     |  |                         |         |   |      |   |   | 
|-------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | - | 
|Cash flows from investing activities                                 |  | Year Ended December 31, |        
|(Stated in $000s of dollars)                                        |  | 2016                    |         |   | 2015 |  
|                                                                     |  |                        
|Expenditures on property, plant and equipment:                       |  |                         |         |   |      |   |   | 
|Management services payment and cost
recoveries - Rio Tinto (iv),(v) |  | $                       | (22,755 | ) |      | $ | - | 



|                                                                          |  |              |           |   |              |   |          | 
|------------------------------------------------------------------------- |  | ------------ | --------- | - | ------------ | - | -------- | 
|Balance sheets                                                            |  | December 31, |           |   | December 31, |  
|(Stated in $000s of dollars)                                             |  | 2016         |           |   | 2015         |  
|                                                                          |  |             
|Cash and cash equivalents (i)                                             |  | $            | 741,711   |   |              | $ | 740,537  | 
|Trade and other receivables                                               |  |              | 10,906    |   |              |   | 3,623    | 
|Prepaid expenses and other assets                                         |  |              | 11,153    |   |              |   | -        | 
|Receivable from related party and other non-current
financial assets (ii) |  |              | 3,976,284 |   |              |   | -        | 
|Trade and other payables:                                                 |  |              |           |   |              |   |          | 
|Management services payment (iv)                                          |  |              | (7,839    | ) |              |   | (5,972)  | 
|Cost recoveries (v)                                                       |  |              | (29,409   | ) |              |   | (28,829) | 
|Total                                                                     |  | $            | 4,702,806 |   |              | $ | 709,359  | 



|(i) | In addition to placing cash and cash equivalents on deposit with banks or investing funds with other financial
institutions, Turquoise Hill may deposit cash and cash equivalents with Rio Tinto in accordance with an agreed upon policy and strategy for the management of liquid resources. At December 31, 2016, cash equivalents deposited with wholly-owned
subsidiaries of Rio Tinto totalled $741.7 million, earning interest at rates equivalent to those offered by financial institutions or short-term corporate debt.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(ii) | As part of project finance, Turquoise Hill appointed 9539549 Canada Inc., a wholly owned subsidiary of Rio
Tinto, as service provider to provide post-drawdown cash management services in connection with net proceeds from the project finance facility, which shall be placed with 9539549 Canada Inc. and returned to Turquoise Hill as required for purposes of
Oyu Tolgoi underground mine development and funding. Rio Tinto International Holdings Limited, a wholly-owned subsidiary of Rio Tinto, has guaranteed the obligations of the service provider under this agreement. At December 31, 2016, amounts
due from 9539549 Canada Inc. totalled $3,976.3 million, earning interest at an effective annual rate of LIBOR plus 2.45%. The interest rate reflects: interest receivable at LIBOR minus 0.05%; plus a benefit of 2.5% arising on amounts receivable
from 9539549 Canada Inc. under the Cash Management Services Agreement, which are net settled with the 2.5% completion support fee described in (v) below.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





|(iii) | As part of the project finance agreements, Rio Tinto agreed to provide a guarantee, known as the completion
support undertaking (CSU) in favour of the Commercial Banks and the Export Credit Agencies. In consideration for providing the CSU, Turquoise Hill is required to pay Rio Tinto a fee equal to 2.5% of the amounts drawn under the facility. The annual
completion support fee of 2.5% on amounts drawn under the facility is accounted for as a borrowing cost and included within interest expense and similar charges. The fee is settled net of a benefit arising on amounts receivable from 9539549 Canada
Inc. under the Cash Management Services Agreement described in (ii) above. The fee payment obligation will terminate on the date Rio Tintos CSU obligations to the project lenders terminate.
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(iv) | In accordance with the ARSHA, which was signed on June 8, 2011, and other related agreements, Turquoise
Hill is required to make a management services payment to Rio Tinto equal to a percentage of all capital costs and operating costs incurred by Oyu Tolgoi from March 31, 2010 onwards. After signing of the Underground Plan on May 18, 2015,
the management services payment to Rio Tinto is calculated as 1.5% applied to underground development capital costs, and 3% applied to operating costs and capital related to current operations.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(v) | Rio Tinto recovers the costs of providing general corporate support services and mine management services to
Turquoise Hill. Mine management services are provided by Rio Tinto in its capacity as the manager of Oyu Tolgoi.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|14. | NON-GAAP MEASURES
|--- | -----------------

The Company presents and refers to the following non-GAAP measures, which are not defined in IFRS. A
description and calculation of each measure is given below and may differ from similarly named measures provided by other issuers. These measures are presented in order to provide investors and other stakeholders with additional understanding of
performance and operations at Oyu Tolgoi.

Operating cash costs

The measure of operating cash costs excludes: depreciation and depletion; exploration and evaluation; charges for asset write-down (including
write-down of materials and supplies inventory) and includes management services payments to Rio Tinto and management services payments to Turquoise Hill which are eliminated in the consolidated financial statements of the Company.

C1 cash costs

C1 cash costs is a metric
representing the cash cost per unit of extracting and processing the Companys principal metal product, copper, to a condition in which it may be delivered to customers net of gold and silver credits from concentrates sold. It is provided in
order to support peer group comparability and to provide investors and other stakeholders with additional information about the underlying cash costs of Oyu Tolgoi and the impact of gold and silver credits on the operations cost structure. C1
cash costs are relevant to understanding the Companys operating profitability and ability to generate cash flow. When calculating costs associated with producing a pound of copper, the Company deducts gold and silver revenue credits as the
production cost is reduced as a result of selling these products.

All-in sustaining costs

AISC is an extended cash based cost metric providing further information on the aggregate cash, capital and overhead outlay per unit and is
intended to reflect the costs of producing the Companys principal metal product, copper, in both the short term and over the life-cycle of its operations; as a result, sustaining capital expenditure on a cash basis is included rather than
depreciation. As the measure seeks to present a full cost of copper production associated with sustaining current operations, development project capital is not included. AISC allows Turquoise Hill to assess the ability of Oyu Tolgoi to support
sustaining capital expenditures for future production from the generation of operating cash flows.



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XTurquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







A reconciliation of
total operating cash costs, C1 cash costs and all-in sustaining costs is provided below.



|                                                            |  |                          |  |                    |  |                   |  |                  
|----------------------------------------------------------- |  | ------------------------ |  | ------------------ |  | ----------------- |  | -----------------
|                                                            |  | Operating and unit costs
|                                                            |  | (Three Months Ended)     |  | (Years Ended)     
|C1 costs (Stated in $000s of dollars)                      |  | December 31, 2016        |  | September 30, 2016 |  | December 31, 2016 |  | December 31, 2015
|Cost of sales                                               |  | 184,224                  |  | 232,490            |  | 861,757           |  | 974,956          
|Cost of sales: $/lb of copper sold                          |  | 2.22                     |  | 2.31               |  | 2.07              |  | 2.20             
|Depreciation and depletion                                  |  | (79,507)                 |  | (88,505)           |  | (345,868)         |  | (344,543)        
|Provision against carrying value of copper-gold concentrate |  | 7,679                    |  | (9,706)            |  | (2,027)           |  | -                
|Change in inventory                                         |  | (1,275)                  |  | (27,584)           |  | (47,166)          |  | (29,444)         
|Other operating expenses                                    |  | 64,517                   |  | 75,871             |  | 307,719           |  | 452,539          
|Less:                                                       |  |                          |  |                    |  |                   |  |                  
|- Reversal (impairment / write-down of inventory)           |  | 10,911                   |  | (1,512)            |  | (12,509)          |  | (103,236)        
|- Depreciation                                              |  | (15,114)                 |  | (561)              |  | (19,476)          |  | (11,700)         
|Management services payment to Turquoise Hill               |  | 3,927                    |  | 7,335              |  | 32,821            |  | 24,054           
|                                                            |  |                          |  |                    |  |                   |  |                  
|Operating cash costs                                        |  | 175,362                  |  | 187,828            |  | 775,251           |  | 962,626          
|Operating cash costs: $/lb of copper produced               |  | 1.75                     |  | 1.83               |  | 1.75              |  | 2.16             
|Adjustments to operating cash costs (1)                     |  | 28,308                   |  | 24,180             |  | 118,020           |  | 98,054           
|Less: Gold and silver revenues                              |  | (45,986)                 |  | (52,163)           |  | (440,669)         |  | (805,162)        
|                                                            |  |                          |  |                    |  |                   |  |                  
|C1 costs ($000)                                            |  | 157,684                  |  | 159,845            |  | 452,602           |  | 255,518          
|                                                            |  |                          |  |                    |  |                   |  |                  
|C1 costs: $/lb of copper produced                           |  | 1.57                     |  | 1.56               |  | 1.02              |  | 0.57             
|                                                            |  |                          |  |                   
|All-in sustaining costs (Stated in $000s of
dollars)       |  |                          |  |                    |  |                   |  |                  
|Corporate administration                                    |  | 10,110                   |  | 4,836              |  | 23,606            |  | 17,193           
|Asset retirement expense                                    |  | 1,786                    |  | 1,372              |  | 6,078             |  | 5,280            
|Royalty expenses                                            |  | 13,059                   |  | 13,887             |  | 68,142            |  | 120,795          
|Non-current stockpile and stores write-down
(reversal)      |  | (10,911)                 |  | 1,512              |  | 12,509            |  | 103,236          
|Other expenses                                              |  | (403)                    |  | 2,771              |  | 5,253             |  | 2,607            
|Sustaining cash capital including deferred stripping        |  | 18,999                   |  | 21,454             |  | 87,891            |  | 105,808          
|                                                            |  |                          |  |                    |  |                   |  |                  
|All-in sustaining costs ($000)                             |  | 190,324                  |  | 205,677            |  | 656,081           |  | 610,437          
|                                                            |  |                          |  |                    |  |                   |  |                  
|All-in sustaining costs: $/lb of copper
produced            |  | 1.90                     |  | 2.00               |  | 1.48              |  | 1.37             



|(1) | Adjustments to operating cash costs include: treatment,
refining and freight differential charges less the 5% Government of Mongolia royalty and other expenses not applicable to the definition of C1 cost.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Working capital

Consolidated working
capital6 comprises those components of current assets and liabilities which support and result from the Companys ongoing running of its current operations. It is provided in order to give a
quantifiable indication of the Companys short-term cash generation ability and business efficiency. As a measure linked to current operations and sustaining of the business, working capital excludes:
non-trade receivables and payables (other than accruals and payables relating to capital expenditure); financing items; cash and cash equivalents; deferred revenue and
non-current inventory.

A reconciliation of consolidated working capital to the financial
statements and notes is provided below.



|                                         |  |              |          |   |              |   |           | 
|---------------------------------------- |  | ------------ | -------- | - | ------------ | - | --------- | 
|Working capital                          |  | December 31, |          |   | December 31, |  
|(Stated in $000s of dollars)            |  | 2016         |          |   | 2015         |  
|                                         |  |             
|Inventories (current)                    |  | $            | 260,668  |   |              | $ | 321,409   | 
|Trade and other receivables              |  |              | 42,557   |   |              |   | 15,833    | 
|Trade and other payables:                |  |              |          |   |              |   |           | 
|- trade payables and accrued liabilities |  |              | (196,716 | ) |              |   | (165,393) | 
|- payable to related parties             |  |              | (37,248  | ) |              |   | (34,801)  | 
|Consolidated working capital             |  |              | 69,261   |   |              |   | 137,048   | 



|6 | The Company previously reported consolidated working capital as the net amount of current assets and current
liabilities in accordance with generally accepted accounting principles in the United States (U.S. GAAP). Beginning December 31, 2016, the Company has revised the calculation of consolidated working capital, as shown in the table above, to
reflect the operational and cash generating context in which this metric is presented.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





Contractual obligations

Section 8 of this MD&A discloses contractual obligations in relation to the Companys lease, purchase and asset retirement
obligations. Amounts relating to these obligations are calculated on the basis of the Company carrying out its future business activities and operations as planned at the period end. As such, contractual obligations presented in this MD&A will
differ from amounts presented in the financial statements, which are prepared on the basis of minimum uncancellable commitments to pay in the event of contract termination. The MD&A presentation of contractual obligations is provided in order to
give an indication of future expenditure, for the disclosed categories, arising from the Companys continuing operations and development projects.

A reconciliation of contractual obligations at December 31, 2016 to the financial statements and notes is provided below.



|                                  |  |                     |           |  |                  |   |        |                |  |   |                            |  |  |   |          |  
|--------------------------------- |  | ------------------- | --------- |  | ---------------- | - | ------ | -------------- |  | - | -------------------------- |  |  | - | -------- | -
|                                  |  | Purchaseobligations |           |  | Operating leases |   |        | Finance leases |  |   | Decommissioningobligations | 
|Commitments (MD&A)                |  | $                   | 638,773   |  |                  | $ | 62,517 |                |  | $ | 12,737                     |  |  | $ | 257,396  |  
|Cancellable purchase obligations  |  |                     | (536,166) |  |                  |   | -      |                |  |   | -                          |  |  |   | -        |  
|(net of exit costs)               |  |                     |           |  |                  |   |        |                |  |   |                            |  |  |   |          |  
|Accrued capital expenditure       |  |                     | (60,561)  |  |                  |   |        |                |  |   |                            |  |  |   |          |  
|Discounting and other adjustments |  |                     | -         |  |                  |   | -      |                |  |   | 289                        |  |  |   | (138,493 | )
|Financial statement amount        |  | $                   | 42,046    |  |                  | $ | 62,517 |                |  | $ | 13,026                     |  |  | $ | 118,903  |  



|15. | DISCLOSURE CONTROLS AND PROCEDURES
|--- | ----------------------------------

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company under
applicable securities legislation is gathered and reported to senior management, including the Companys CEO and CFO, on a timely basis so that appropriate decisions can be made regarding public disclosures.

As of the end of the Companys fiscal year ended December 31, 2016, an evaluation of the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in Rules 13a  15(e) and 15d  15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act) and under National Instrument
52-109  Certification of Disclosure in Issuers Annual and Interim Filings (NI 52-109)) was carried out by the Companys management with the
participation of the CEO and CFO. Based upon that evaluation, the Companys CEO and CFO concluded that as of the end of the fiscal year, the Companys disclosure controls and procedures were effective to ensure that information required to
be disclosed by the Company in reports that it files or submits under applicable U.S. and Canadian securities legislation is (i) recorded, processed, summarized and reported within the time periods specified in such legislation and
(ii) accumulated and communicated to the Companys management, including its CEO and CFO, to allow timely decisions regarding required disclosure.

The Companys management, including the CEO and CFO, believe that any disclosure controls and procedures or internal control over
financial reporting, no matter how well conceived and operated, can provide only a reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system reflects the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls is also based in part on certain assumptions about the likelihood of
certain events, and there can be no assurance that any design can achieve its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or
fraud may occur and not be detected.



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







|16. | MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
|--- | ----------------------------------------------------------------

Management is responsible for establishing and maintaining adequate internal controls over financial reporting of the Company (as such term is
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act and in NI 52-109). Internal controls over financial reporting are
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS and the requirements of applicable U.S. and Canadian securities legislation.

The Companys CEO and CFO have assessed the effectiveness of the Companys internal controls over financial reporting as at
December 31, 2016 in accordance with Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on this assessment, the Companys CEO and CFO have
determined that the Companys internal controls over financial reporting were effective as of December 31, 2016 and have certified the Companys annual filings with the U.S. Securities and Exchange Commission on Form 40-F as required by the U.S. Sarbanes-Oxley Act and with Canadian securities regulatory authorities.

Management reviewed the results of managements assessment with the Audit Committee of the Companys Board of Directors.
PricewaterhouseCoopers LLP, independent auditor, has been engaged to audit and provide independent opinions on the Companys consolidated financial statements and the effectiveness of the Companys internal control over financial reporting
as of December 31, 2016. PricewaterhouseCoopers LLP has expressed an unqualified opinion on the Companys consolidated financial statements and on the Companys internal control over financial reporting as of December 31, 2016.

Changes in internal controls over financial reporting

There were no changes in the Companys internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2016 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.



|17. | OVERSIGHT OF THE AUDIT COMMITTEE
|--- | --------------------------------

The Audit Committee reviews, with management and the external auditors, the Companys MD&A and related consolidated financial
statements and approves the release of such information to shareholders. For each audit or quarterly review, the external auditors prepare a report for members of the Audit Committee summarizing key areas, significant issues and material internal
control weaknesses encountered, if any.



|18. | QUALIFIED PERSON
|--- | ----------------

Disclosure of a scientific or technical nature in this MD&A in respect of the Oyu Tolgoi mine was prepared under the supervision of
Bernard Peters, Technical Director  Mining, OreWin Pty Ltd., B. Eng. (Mining), FAusIMM (201743), and Sharron Sylvester, Technical Director  Geology, OreWin Pty Ltd., BSc (Geol.), RPGeo AIG (10125). Each of these individuals is a
qualified person as that term is defined in National Instrument Standards of Disclosure for Mineral Projects (NI 43-101).



|19. | CAUTIONARY STATEMENTS
|--- | ---------------------

Language regarding reserves and resources

Readers are advised that NI 43-101 requires that each category of mineral reserves and mineral
resources be reported separately. For detailed information related to Company Mineral Resources and Mineral Reserves, readers should refer to the AIF of the Company for the year ended December 31, 2016, and other continuous disclosure documents
filed by the Company since January 1, 2017 under Turquoise Hills profile on SEDAR at www.sedar.com.



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)







Note to United
States investors concerning estimates of measured, indicated and inferred resources

This document has been prepared in accordance
with the requirements of Canadian securities laws, which differ from the requirements of United States (U.S.) securities laws. Unless otherwise indicated, all reserve and resource estimates included in this document have been prepared in accordance
with 43-101, and the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards for mineral resources and mineral reserves. NI 43-101 is a rule
developed by the Canadian Securities Authorities that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

Canadian standards, including NI 43-101, differ significantly from the requirements of the SEC, and
reserve and resource information contained in this document may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the foregoing, the term resource does not equate
to the term reserve. Under U.S. standards, mineralization may not be classified as a reserve unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time
the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under the SEC standards. The SECs disclosure standards
normally do not permit the inclusion of information concerning Measured mineral resources, Indicated mineral resources or Inferred mineral resources or other descriptions of the amount of mineralization in mineral
deposits that do not constitute reserves by U.S. standards in documents filed with the SEC. U.S. investors should also understand that Inferred mineral resources have an even greater amount of uncertainty as to their
existence and an even greater uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred mineral resource will ever be upgraded to a higher category. Under NI 43-101, estimated Inferred mineral resources generally may not form the basis of feasibility or pre-feasibility studies except in rare cases. Investors are
cautioned not to assume that all or any part of an Inferred mineral resource exists or is economically or legally mineable. Disclosure of contained pounds or contained ounces of metal in a resource is permitted
disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute reserves by SEC standards as in-place tonnage and grade
without reference to unit measures. The requirements of NI 43-101 for identification of reserves are also not the same as those of the SEC, and reserves reported by the Company in compliance with
NI 43-101 may not qualify as reserves under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that
report in accordance with U.S. standards.



|20. | FORWARD-LOOKING STATEMENTS AND FORWARD-LOOKING INFORMATION
|--- | ----------------------------------------------------------

Certain statements made herein, including statements relating to matters that are not historical facts and statements of the Companys
beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute forward-looking information within the meaning of applicable Canadian securities legislation and
forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements and information relate to future events or
future performance, reflect current expectations or beliefs regarding future events and are typically identified by words such as anticipate, could, should, expect, seek, may,
intend, likely, plan, estimate, will, believe and similar expressions suggesting future outcomes or statements regarding an outlook. These include, but are not limited to,
statements respecting anticipated business activities, planned expenditures, corporate strategies, and other statements that are not historical facts.

Forward-looking statements and information are made based upon certain assumptions and other important factors that, if untrue, could cause
the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such statements or information. There can be no assurance that such statements or
information will prove to be accurate. Such statements and information are based on numerous



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





assumptions regarding present and future business strategies, local and global economic conditions, and the environment in which the Company will operate in the future, including the price of
copper, gold and silver, anticipated capital and operating costs, anticipated future production and cash flows, and the status of the Companys relationship and interaction with the Government of Mongolia on the continued development of Oyu
Tolgoi and Oyu Tolgoi LLC internal governance. Certain important factors that could cause actual results, performance or achievements to differ materially from those in the forward-looking statements and information include, among others, copper,
gold and silver price volatility; discrepancies between actual and estimated production, mineral reserves and resources and metallurgical recoveries; development plans for processing resources; matters relating to proposed exploration or expansion;
mining operational and development risks; litigation risks; regulatory restrictions (including environmental regulatory restrictions and liability); communications with local stakeholders and community relations; activities, actions or assessments
by governmental authorities; events or circumstances that may affect the Companys ability to deliver its products in a timely manner; currency fluctuations; the speculative nature of mineral exploration; the global economic climate; dilution;
share price volatility; competition; loss of key employees; additional funding requirements; capital and operating costs, including with respect to the development of additional deposits and processing facilities; and defective title to mineral
claims or property. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements and information, there may be other
factors that cause actions, events or results not to be as anticipated, estimated or intended. All such forward-looking statements and information are based on certain assumptions and analyses made by the Companys management in light of their
experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements, however, are subject to a variety of risks and
uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements or information.

With respect to specific forward-looking information concerning the continued development of Oyu Tolgoi, the Company has based its assumptions
and analyses on certain factors which are inherently uncertain. Uncertainties and assumptions include, among others: the timing and cost of the construction and expansion of mining and processing facilities; the timing and availability of a
long-term power source (or availability of finance for the Company to construct such a source) for Oyu Tolgoi; the ability to draw down on the supplemental debt under the Oyu Tolgoi project financing facility and the availability of additional
financing on terms reasonably acceptable to Oyu Tolgoi LLC, Rio Tinto and the Company to further develop Oyu Tolgoi; the impact of changes in, changes in interpretation to or changes in enforcement of, laws, regulations and government practices in
Mongolia; the availability and cost of skilled labour and transportation; the obtaining of (and the terms and timing of obtaining) necessary environmental and other government approvals, consents and permits; delays, and the costs which would result
from delays, in the development of the underground mine (which could significantly exceed the costs projected in the OTFS16 and the 2016 OTTR); projected copper, gold and silver prices and demand; and production estimates and the anticipated yearly
production of copper, gold and silver at Oyu Tolgoi.

The cost, timing and complexities of mine construction and development are increased
by the remote location of a property such as Oyu Tolgoi. It is common in mining operations and in the development or expansion of existing facilities to experience unexpected problems and delays during development, construction and mine start-up. Additionally, although Oyu Tolgoi has achieved commercial production, there is no assurance that future development activities will result in profitable mining operations.

This MD&A also contains references to estimates of mineral reserves and mineral resources. The estimation of reserves and resources is
inherently uncertain and involves subjective judgments about many relevant factors. The mineral resource estimates contained in this MD&A are inclusive of mineral reserves. Further, mineral resources that are not mineral reserves do not have
demonstrated economic viability. The accuracy of any such estimates is a function of the quantity and quality of available data, and of the assumptions made and judgments used in engineering and geological interpretation (including future production
from Oyu Tolgoi, the anticipated tonnages and grades that will be achieved or the indicated level of recovery that will be realized), which may prove to be unreliable. There can be no assurance that these estimates will be accurate or that such
mineral reserves and mineral resources can



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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





be mined or processed profitably. See the discussion under the headings Language Regarding Reserves and Resources and Note to United States Investors Concerning Estimates of
Measured, Indicated and Inferred Resources in Section 16 of this MD&A. Such estimates are, in large part, based on the following:



| |  |  | Interpretations of geological data obtained from drill holes and other sampling techniques. Large scale
continuity and character of the deposits will only be determined once significant additional drilling and sampling has been completed and analyzed. Actual mineralization or formations may be different from those predicted. It may also take many
years from the initial phase of drilling before production is possible, and during that time the economic feasibility of exploiting a deposit may change. Reserve and resource estimates are materially dependent on prevailing metal prices and the cost
of recovering and processing minerals at the individual mine sites. Market fluctuations in the price of metals or increases in the costs to recover metals from the Companys mining projects may render mining of ore reserves uneconomic and
affect the Companys operations in a materially adverse manner. Moreover, various short-term operating factors may cause a mining operation to be unprofitable in any particular accounting period;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Assumptions relating to commodity prices and exchange rates during the expected life of production,
mineralization of the area to be mined, the projected cost of mining, and the results of additional planned development work. Actual future production rates and amounts, revenues, taxes, operating expenses, environmental and regulatory compliance
expenditures, development expenditures, and recovery rates may vary substantially from those assumed in the estimates. Any significant change in these assumptions, including changes that result from variances between projected and actual results,
could result in material downward revision to current estimates;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Assumptions relating to projected future metal prices. The Company uses prices reflecting market pricing
projections in the financial modeling for Oyu Tolgoi which are subjective in nature. It should be expected that actual prices will be different than the prices used for such modeling (either higher or lower), and the differences could be
significant; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Assumptions relating to the costs and availability of treatment and refining services for the metals mined
from Oyu Tolgoi, which require arrangements with third parties and involve the potential for fluctuating costs to transport the metals and fluctuating costs and availability of refining services. These costs can be significantly impacted by a
variety of industry-specific as well as regional and global economic factors (including, among others, those which affect commodity prices). Many of these factors are beyond the Companys control.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Readers are cautioned not to place undue reliance on forward-looking information or statements. By their nature, forward-looking statements
involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. Events or circumstances could cause the Companys actual results to
differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements are included in the Risk
Factors section in the Companys Annual Information Form dated as of March 23, 2017 in respect of the year ended December 31, 2016 (the AIF).

Readers are further cautioned that the list of factors enumerated in the Risk Factors section of the AIF that may affect future
results is not exhaustive. When relying on the Companys forward-looking statements and information to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and
potential events. Furthermore, the forward-looking statements and information contained in this MD&A are made as of the date of this document and the Company does not undertake any obligation to update or to revise any of the included
forward-looking statements or information, whether as a result of new information, future events or otherwise, except as required by applicable law. The forward-looking statements and information contained in this MD&A are expressly qualified by
this cautionary statement.





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##### Table of Contents

Turquoise Hill Resources Ltd.

Managements Discussion and Analysis of Financial Condition and Results of Operations

(Stated in U.S. dollars, except where noted)





|21. | MANAGEMENTS REPORT TO SHAREHOLDERS
|--- | -----------------------------------

The consolidated financial statements and managements discussion and analysis of financial condition and results of operations
(MD&A) are the responsibility of the management of Turquoise Hill Resources Ltd. The financial statements and the MD&A have been prepared by management in accordance with IFRS and regulatory requirements, respectively, using
managements best estimates and judgment of all information available up to March 23, 2017.

The Board of Directors has approved the
information contained in the consolidated financial statements and the MD&A. The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal controls. The Audit Committee of
the Board of Directors, consisting solely of outside directors, meets regularly during the year with financial officers of the Company and the external auditors to satisfy itself that management is properly discharging its financial reporting
responsibilities to the Directors who approve the consolidated financial statements.

The financial statements included in the MD&A
have, in managements opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized in Note 2 to the consolidated financial statements.

The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, independent auditor, in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). They have full and unrestricted access to the Audit Committee.



|                        |  |                        
|----------------------- |  | -----------------------
|/s/ Jeff Tygesen        |  | /s/ Steeve Thibeault   
|                        | 
|Jeff Tygesen            |  | Steeve Thibeault       
|Chief Executive Officer |  | Chief Financial Officer
|                        | 
|March 23, 2017          |  |                        
|Vancouver, BC, Canada   |  |                        



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