Feasibility Study

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Entrée’s technical report titled "Lookout Hill Feasibility Study Update" dated March 29, 2016 (LHTR16) updates Entrée’s 2013 technical report on the Entrée/Oyu Tolgoi JV Property filed in March 2013.  LHTR16 is based on information contained within the 2014 Oyu Tolgoi Feasibility Study completed in July 2014 by OTLLC and Turquoise Hill’s technical report titled "Oyu Tolgoi 2014 Technical Report" filed by Turquoise Hill on October 28, 2014. LHTR16 aligns the mine plan reported by Entrée for the Entrée/Oyu Tolgoi JV Property mineral reserve contained within the Hugo North Extension Lift 1 block cave (Reserve Case) with the mine plan reported in 2014 OTTR. In addition to the Reserve Case, LHTR16 discusses several alternative production cases that have been developed to provide early-stage analysis of the development flexibility that exists with respect to later phases of the OT project, including Lift 2 of the Entrée/Oyu Tolgoi JV’s Hugo North Extension deposit and Heruga.

In October 2016, Turquoise Hill filed an updated technical report (2016 OTTR) derived from data in OTLLC’s 2016 Oyu Tolgoi Feasibility Study (OTFS16), which includes an update to the Reserve Case and a PEA of potential later phases of OT underground development, which include Entrée/Oyu Tolgoi resources.

Entrée intends to complete an updated technical report which will include a PEA of the Entrée/Oyu Tolgoi JV’s Hugo North Extension Lift 2 and Heruga deposits, as well as an update to the Reserve Case for Hugo North Extension Lift 1. Amec Foster Wheeler has been retained to complete an initial data review to be followed by the updated technical report. Completion of this Technical Report will be an important milestone and help investors understand the underlying value of Entrée’s flagship asset.

The Entrée/Oyu Tolgoi JV Property mineral reserve is contained within the Hugo North Extension Lift 1 block cave, included in the current phase of OT underground mine development. The Entrée/Oyu Tolgoi JV Property mineral reserve will be mined as part of the OT project and as such is a subset of the total OT mineral reserves reported in 2014 OTTR, which assumes the processing of 1.5 billion tonnes of ore, mined from OTLLC’s Oyut (Southern Oyu) open pit and from the Hugo North Lift 1 block cave, including Hugo North Extension.  The current Reserve Case mining areas are shown schematically in the figure below.

Figure by OreWin, 2014

A summary of the Entrée/Oyu Tolgoi JV Property production and financial results for the LHTR16 Reserve Case is shown in the table below. The financial analysis has been prepared using the following long-term metal price estimates: copper at $3.08/lb; gold at $1,304/oz and silver at $21.46/oz. The after-tax NPV at an 8% discount rate ("NPV8") attributable to Entrée for the LHTR16 Reserve Case is $106 million.

LHTR16 Entrée/Oyu Tolgoi JV Summary Production and Economic Analysis Results

 

Description

Units

Total

Metal Prices

Copper

$/lb

3.08

Gold

$/oz

1,304

Silver

$/oz

21.46

Entrée/Oyu Tolgoi JV Property Results (Lift 1)

Processed

Mt

34.8

NSR

$/t

100.57

Cu Grade

%

1.59

Au Grade

g/t

0.55

Ag Grade

g/t

3.72

Copper Recovered

Mlb

1,121

Gold Recovered

koz

519

Silver Recovered

koz

3,591

Total Cash Costs After Credits

$/lb Payable Copper

0.99

NPV8% Before Tax (Entrée’s 20% interest only)

$M

142

NPV8% After Tax (Entrée’s 20% interest only)

$M

106

Notes:

  1. Entrée has a 20% interest in Entrée/Oyu Tolgoi JV Property mineralization. Unless otherwise noted above, results are for the entire Entrée/Oyu Tolgoi JV.
  2. Metal prices used for calculating the Hugo North Extension underground NSR are as follows: copper at $3.01/lb; gold at $1,250/oz; and silver at $20.37/oz, all based on long-term metal price forecasts at the beginning of the mineral reserve work. The analysis indicates that the mineral reserve is still valid at these metal prices.
  3. The NSR has been calculated with assumptions specific to Hugo North Extension for smelter refining and treatment charges, deductions and payment terms, concentrate transport, metallurgical recoveries and royalties.
  4. The block cave shell was defined using a NSR cut-off of $15/t NSR.
  5. For the underground block cave, all Indicated mineral resources within the shell have been converted to mineral reserves. Low-grade Indicated mineral resources and Inferred mineral resources have been assigned a zero grade and treated as dilution.
  6. The mineral reserves reported are not additive to the mineral resources.

OTFS14 assumed that the timing for the restart of the underground mine would occur at the commencement of 2015. Despite the fact that this did not occur, the economic analysis of the mineral reserve remains valid and the costs and revenues are delayed by the same timing. As the actual restart of underground development occurred in mid-2016, the discounted cash flow has been calculated assuming Year 1 is 2016. A summary of the Entrée financial results-discount rate sensitivity for the LHTR16 Reserve Case is shown below.

Entrée Financial Results — Discount Rate Sensitivity — LHTR16 Reserve Case

Discount Rate

Net Present Value ($M) Entrée

Before-Tax

After-Tax

Undiscounted

440

328

5.0%

215

160

6.0%

187

139

7.0%

163

121

8.0%

142

106

9.0%

124

93

10.0%

109

81

OT is a very large project that includes four separate deposits. The long-term development of OT would involve the development of the resources on all deposits. Alternative production cases have been developed to provide early-stage analysis of the development flexibility that exists with respect to later phases of the OT project (Heruga, Hugo South, and Lift 2 of Hugo North including Hugo North Extension).

While it is outside of the scope of reserve reporting, as part of the long-term development strategy OTLLC continues to examine the alternative production cases to better define future work plans and prepare for investment decision points. The mine designs developed by OTLLC and considered in the alternative production cases include mineral reserves from the Oyut open pit (Southern Oyu) deposits and Hugo North (including Hugo North Extension) Lift 1, Indicated and Inferred mineral resources from Hugo North (including Hugo North Extension) Lift 2 and Inferred mineral resources from Hugo South and Heruga.

The mine designs noted above that are in the alternative production cases and on the Entrée/Oyu Tolgoi JV Property are:

  • Hugo North Extension Lift 1 Block Cave (reserves)
  • Hugo North Extension Lift 2 Block Cave (Indicated and Inferred resources)
  • Heruga Block Cave (Inferred resources)

Under NI 43-101 guidelines, Inferred mineral resources are considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorised as mineral reserves. There is no certainty that the alternative production cases will be realized.

The mine designs developed by OTLLC and considered in the alternative production cases are shown schematically in the figure below.

Figure by OreWin, 2014

Development of these deposits will require separate development decisions in the future based on the prevailing conditions and the development experience obtained from developing and operating the initial phases of OT.

The figure below shows an example of the decision tree for the possible development options at OT including the Entrée/Oyu Tolgoi JV Property. This has been updated to include options that take advantage of productivity improvements in plant throughput that have begun to be recognized in the process plant. The decision tree shows options assuming that continuous improvements in plant productivity are achieved over the next five years. Then there would be key decision points for plant expansion and the possible development of new mines at Hugo North (including Hugo North Extension) Lift 2, Hugo South, and eventually Heruga. This provides an opportunity as OTLLC will have the benefit of incorporating actual performance of the operating mine into the study before the next investment decisions are required. OTLLC plans to continue to evaluate alternative production cases in order to define the relative ranking and timing requirements for overall development options.

The initial production case, LOM 100, assumes that there is no expansion to the plant, and that Hugo North (including Hugo North Extension) Lift 1 development is followed by production from Hugo North (including Hugo North Extension) Lift 2, Hugo South and Heruga. Three alternative production cases, which assume expansion to the plant capacity, will be part of the strategic planning that is being undertaken by OTLLC. The three alternative production cases are:

  • LOM 140 - Continuous improvement of plant throughput of 5.0% per year for five years.
  • LOM 260 - LOM 140 plus a 100% plant expansion after approximately 20 years.
  • LOM 350 - Progressive expansion of the plant to 350 ktpd.

LOM 140 assumes that there is an increase in plant throughput productivity of 5.0% per year for five years and that the Hugo North (including Hugo North Extension) Lift 1 development is followed by production from Hugo North (including Hugo North Extension) Lift 2, Hugo South and Heruga. The average throughput rate is approximately 140 ktpd or 51 Mtpa.

LOM 260 is an extension of LOM 140 and assumes that the plant capacity is doubled after approximately 20 years to an average throughput rate of 260 ktpd or 95 Mtpa.

LOM 350 assumes that there are progressive plant expansions to an ultimate rate of 350 ktpd or 128 Mtpa. With each successive expansion case there is a reduction of the mine life that would necessitate the success of further exploration to continue production. In LOM 350 this would be required to bring the exploration potential to production in approximately 30 years.

The work on the alternative production cases is not yet at Feasibility Study stage, in particular the definition of the expansion sizes and costing of the cases. OreWin Pty Ltd recommends that the options be studied further and that the timing of the new mines be defined in more detail.

Last updated: July 2017