Overview

The Oyu Tolgoi project is one of the world’s largest new copper-gold mines and is located in the South Gobi region of Mongolia.  The Oyu Tolgoi project comprises two separate land holdings: the Entrée/Oyu Tolgoi joint venture property ("Entrée/Oyu Tolgoi JV Property") and the Oyu Tolgoi mining licence.

Entrée’s main asset is its interest in the Entrée/Oyu Tolgoi JV Property, which is subject to a partnership ("Entrée/Oyu Tolgoi JV") between Entrée and Oyu Tolgoi LLC ("OTLLC"). The Entrée/Oyu Tolgoi JV Property covers 39,807 hectares and includes portions of the following Oyu Tolgoi project deposits:

  • Hugo North Extension Copper-Gold Deposit, Lifts 1 and 2 (upper and lower portions of the northward continuation of OTLLC’s Hugo North deposit onto the Entrée/Oyu Tolgoi JV Property)
  • Heruga Copper-Gold-Molybdenum Deposit (the southernmost deposit at Oyu Tolgoi, ~94% of which occurs on the Entrée/Oyu Tolgoi JV Property)

In addition, early-stage work on the land package has identified several new near-surface targets, all of which remain to be fully explored. These include Castle Rock and Southeast IP.

The Entrée/Oyu Tolgoi JV Property comprises the eastern portion of the Shivee Tolgoi mining licence and all of the Javhlant mining licence, both of which are held by Entrée, and are adjacent on three sides to the Oyu Tolgoi mining licence.

The Oyu Tolgoi mining licence is held by OTLLC (owned 66% by Turquoise Hill Resources Ltd. ("Turquoise Hill") and 34% by the Government of Mongolia). Rio Tinto is the operator of the existing open pit mine on the Oyu Tolgoi mining licence, and is currently managing the construction of Lift 1 of the Hugo North underground block cave on both the Oyu Tolgoi mining licence and the Entrée/Oyu Tolgoi JV Property.

Entrée also holds a 100% interest in the western portion of the Shivee Tolgoi mining licence ("Shivee West") covering 23,114 hectares. Since 2015, Shivee West has been the subject of a License Fees Agreement between Entrée and OTLLC and may ultimately be included in the Entrée/Oyu Tolgoi JV Property.

Robert Cinits, P.Geo., Entrée’s Vice President, Corporate Development, approved the scientific and technical information about the Entrée/Oyu Tolgoi JV Property and Shivee West on this website. For detailed information regarding the Entrée/Oyu Tolgoi JV Property, refer to Entrée’s News Release dated January 15, 2018 available on SEDAR at www.sedar.com. Entrée’s updated technical report has been filed under the Company’s SEDAR profile at www.sedar.com, and updates Entrée’s 2016 technical report on the Entrée/Oyu Tolgoi JV Project filed in March 2016.

The Technical Report can be found here

On January 15, 2018, Entrée released the results of an updated Technical Report on its interest in the Entrée/Oyu Tolgoi JV Property. The Technical Report discusses two alternative development scenarios, an updated reserve case (2018 Reserve Case) and a Life-of-Mine (LOM) Preliminary Economic Assessment (2018 PEA).

The 2018 Reserve Case is based only on mineral reserves attributable to the Entrée/Oyu Tolgoi JV from Lift 1 of the Hugo North Extension underground block cave. Lift 1 of Hugo North (including Hugo North Extension) is currently in development by project operator Rio Tinto, with first development production from Hugo North Extension expected in 2021.

The 2018 PEA is an alternative development scenario completed at a conceptual level that assesses the inclusion of the Hugo North Extension Lift 2 and the Heruga deposit into an overall mine plan with Hugo North Extension Lift 1.  The 2018 PEA includes Indicated and Inferred resources from Hugo North Extension Lifts 1 and 2, and Inferred resources from Heruga. Significant development and capital decisions will be required for the eventual development of the two additional Entrée/Oyu Tolgoi JV deposits (Hugo North Extension Lift 2 and Heruga) once production commences at Hugo North Extension Lift 1.

LOM highlights of the production and financial results from the 2018 Reserve Case and the 2018 PEA are summarized below.

Entrée/Oyu Tolgoi JV Property Units 2018 Reserve Case 2018 PEA
LOM Processed Material      
Probable Reserve Feed   35 Mt @ 1.59% Cu,
0.55 g/t Au, 3.72 g/t Ag
(1.93% CuEq)
----
Indicated Resource Feed   ---- 113 Mt @ 1.42% Cu,
0.50 g/t Au, 3.63 g/t Ag
(1.73% CuEq)
Inferred Resource Feed   ---- 708 Mt @ 0.53% Cu,
0.44 g/t Au, 1.79 g/t Ag
(0.82 % CuEq)
Copper Recovered Mlb 1,115 10,497
Gold Recovered koz 514 9,367
Silver Recovered koz 3,651 45,378
Entrée Attributable Financial Results      
LOM Cash Flow, pre-tax US$M 382 2,078
NPV(5%), after-tax US$M 157 512
NPV(8%), after-tax US$M 111 278
NPV(10%), after-tax US$M 89 192

Notes:

  1. Long term metal prices used in the net present value (NPV) economic analyses are: copper US$3.00/lb, gold US$1,300.00/oz, silver US$19.00/oz
  2. Mineral reserves and mineral resources are reported on a 100% basis 
  3. Entrée has a 20% interest in the above processed material and recovered metal
  4. The mineral reserves in the 2018 Reserve Case are not additive to the mineral resources in the 2018 PEA
  5. See "Reserve and Resource Estimates" on this website for copper equivalent (CuEq) calculations

The economic analysis in the 2018 PEA does not have as high a level of certainty as the 2018 Reserve Case. The 2018 PEA is preliminary in nature and includes Inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the 2018 PEA will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability.

In both development options (2018 Reserve Case and 2018 PEA) Entrée is only reporting the production and cash flows attributable to the Entrée/Oyu Tolgoi JV Property, not production and cash flows for other Oyu Tolgoi project areas owned 100% by Entrée’s joint venture partner, OTLLC. Note the production and cash flows from these two development options are not additive.

Both the 2018 Reserve Case and the 2018 PEA are based on information reported within the 2016 Oyu Tolgoi Feasibility Study ("OTFS16"), completed by OTLLC on the Oyu Tolgoi project. OTFS16 discusses the mine plan for Lift 1 of the Hugo North (including Hugo North Extension) underground block cave on both the Oyu Tolgoi mining licence and the Entrée/Oyu Tolgoi JV Property. Rio Tinto is managing the construction and eventual operation of Lift 1 as well as any future development of deposits included in the 2018 PEA.

The results of the 2018 Reserve Case and the 2018 PEA have been summarized by Amec Foster Wheeler Americas Limited (Amec Foster Wheeler) in a National Instrument 43-101 Technical Report that has been filed under the Company’s SEDAR profile at www.sedar.com.

The Entrée/Oyu Tolgoi JV Property includes Lifts 1 and 2 of the Hugo North Extension deposit and the Heruga deposit.  These deposits form the northernmost and southernmost parts, respectively, of the Oyu Tolgoi project, which is a series of world-class, porphyry-style deposits containing copper, gold, silver and molybdenum. The mineral resources stretch over 12 kilometres, from Hugo North Extension on the Entrée/Oyu Tolgoi JV Property in the north, through Hugo North, Hugo South, Oyut, and the northern extension of the Heruga deposit on OTLLC’s Oyu Tolgoi mining licence, to the Heruga deposit on the Entrée/Oyu Tolgoi JV Property in the south.

Under the terms of the Entrée/Oyu Tolgoi JV, Entrée has a 20% participating interest in mineralization extracted below 560 metres elevation, which includes all of the Hugo North Extension and Heruga deposits, and a 30% participating interest in mineralization identified above 560 metres elevation. OTLLC has the remaining 80% (or 70%) interest.

Capital and Operating Costs

The Entrée/Oyu Tolgoi JV Property is being explored and developed, on behalf of joint venture manager OTLLC, by Rio Tinto, through various agreements among OTLLC, Rio Tinto and Turquoise Hill. Underground development of Hugo North (including Hugo North Extension) Lift 1 has been fully financed by a syndicate of banks through OTLLC. 

Under the terms of the Entrée/Oyu Tolgoi JV, OTLLC is responsible for 80% of all costs incurred on the Entrée/Oyu Tolgoi JV Property for the benefit of the Entrée/Oyu Tolgoi JV, including capital expenditures, and Entrée is responsible for the remaining 20%. In accordance with the terms of the Entrée/Oyu Tolgoi JV, Entrée has elected to have OTLLC debt finance Entrée’s share of costs for approved programs and budgets, with interest accruing at OTLLC’s actual cost of capital or prime +2%, whichever is less, at the date of the advance. Debt repayment may be made in whole or in part from (and only from) 90% of monthly available cash flow arising from the sale of Entrée’s share of products. Available cash flow means all net proceeds of sale of Entrée’s share of products in a month less Entrée’s share of costs of Entrée/Oyu Tolgoi JV activities for the month that are operating costs under Canadian generally-accepted accounting principles.

The following is a description of how Entrée recognizes its share of Oyu Tolgoi project capital costs, specifically, the timing of recognition under the terms of the Entrée/Oyu Tolgoi JV and generally accepted accounting principles.

Under the terms of the Entrée/Oyu Tolgoi JV, any mill, smelter and other processing facilities and related infrastructure will be owned exclusively by OTLLC and not by Entrée.  Mill feed from the Entrée/Oyu Tolgoi JV Property will be transported to the concentrator and processed at cost (using industry standards for calculation of cost including an amortization of capital costs).  Underground infrastructure on the Oyu Tolgoi mining licence is also owned exclusively by OTLLC, although the Entrée/Oyu Tolgoi JV will eventually share usage once underground development crosses onto the Entrée/Oyu Tolgoi JV Property. As a result of this, Entrée recognizes those capital costs incurred by OTLLC on the Oyu Tolgoi mining licence as an amortization charge for capital costs that will be calculated in accordance with Canadian generally accepted accounting principles determined yearly based on the estimated tonnes of concentrate produced for Entrée’s account during that year relative to the estimated total life-of-mine concentrate to be produced (for processing facilities and related infrastructure), or the estimated total life-of-mine tonnes to be milled from the relevant deposit(s) (in the case of underground infrastructure). The charge is made to Entrée’s operating account when the Entrée/Oyu Tolgoi JV mine production is actually milled.

For direct capital cost expenditures on the Entrée/Oyu Tolgoi JV Property, Entrée will recognize its proportionate share of costs at the time of actual expenditure. Costs of operations on the Entrée/Oyu Tolgoi JV Property, including capital costs, are allocated as follows:

  • OTLLC shall bear and pay for 100% of such costs allocated to the Oyu Tolgoi mining licence and all associated liabilities including for environmental compliance; and
  • The balance of such costs shall be borne and paid by Entrée and OTLLC in accordance with their respective joint venture interests.

For illustration purposes only, if a shaft is sunk on the Entrée/Oyu Tolgoi JV Property which also provides access to the Oyu Tolgoi mining licence and fifty-five percent (55%) of mineral production is from the Oyu Tolgoi licence and forty-five percent (45%) of mineral production is from the Entrée/Oyu Tolgoi JV Property, Entrée would have responsibility for a share of those costs equal to its twenty percent participating interest (20%) multiplied by forty-five percent (45%).

Both the 2018 Reserve Case and the 2018 PEA are based on information reported within OTFS16, completed by OTLLC on the Oyu Tolgoi project. The capital and operating costs in the 2018 Reserve Case are based on estimates prepared for OTFS16. The capital and operating costs in the 2018 PEA are based on data provided by OTLLC.

A summary of the Entrée/Oyu Tolgoi JV capital expenditures, including expansion and sustaining capital for both the 2018 Reserve Case and the 2018 PEA is shown below.

Entrée/Oyu Tolgoi JV Property Direct Development and Sustaining Capital

  2018 Reserve Case 2018 PEA
Description Unit Entrée/Oyu Tolgoi JV Entrée 20% Attributable Entrée/Oyu Tolgoi JV Entrée 20% Attributable
Entrée/Oyu Tolgoi JV Property Mine Development & Sustaining Capital(1)(2)(3)          
Mine Shaft 4 US$M 28.9 5.8 19.1 3.8
HNE Lift 1 Development US$M 232.8 46.6 232.8 46.6
HNE Lift 2 Construction & Development US$M - - 1,209.7 241.9
Heruga Construction & Development(2) US$M - - 7,175.7 1,435.1
Total Mine Development Capital US$M 261.7 52.3 8,637.3 1,727.4
  1. Capital costs are inclusive of indirect costs, Mongolian custom duties and VAT and contingency.
  2. For the purposes of the Technical Report, it has been assumed that all underground infrastructure for Heruga will be constructed on the Entrée/Oyu Tolgoi JV Property.
  3. HNE means Hugo North Extension.
  4. Totals may not sum exactly due to rounding.

Entrée’s Hugo North Extension Lift 1 direct capital contribution (expansion and sustaining capital) under the 2018 Reserve Case totals approximately US$52 million. Positive free cash flow is expected to be achieved for Entrée in the first year after the block cave is initiated on the Entrée/OTLLC JV Property.

The average LOM operating costs for the Entrée/Oyu Tolgoi JV Property 2018 Reserve Case and the 2018 PEA (including amortization charges for capital costs incurred by OTLLC on the Oyu Tolgoi mining licence) are as follows:

Description Unit 2018 Reserve Case 2018 PEA
Mining US$/t processed 6.19 5.67
Processing US$/t processed 8.41 9.37
Infrastructure and Other Operating US$/t processed 2.04 2.04
Amortized Mining Costs US$/t processed 8.86 0.251
Amortized Process Costs US$/t processed 0.52 0.162
Amortized Tailings Costs US$/t processed 1.09 1.27
Total Refining & Transportation Costs US$/t processed 8.66 3.75
Total Operating Expenditure US$/t processed 35.76 22.51
Administration Charge (2% during development; 2.5% during production) US$/t processed 1.32 0.84
Total US$/t processed 37.08 23.35

1 Mining amortized cost are significantly reduced for the 2018 PEA because the Lift 1 costs are being divided by the total resource tonnage for presentation purposes; nonetheless, within the financial model Lift 1 costs are amortized against Lift 1 tonnage and captured during Lift 1 mining.

2 Process amortized costs are significantly lower for the 2018 PEA because the concentrate expansion costs are amortized against the resource tonnage within the financial model including Lift 1, Lift 2, and Heruga.

The Entrée/Oyu Tolgoi JV Project (the "Project"), which includes The Entrée/Oyu Tolgoi JV Property and Shivee West, is located within the Aimag (province) of Ömnögovi in the South Gobi region of Mongolia, about 570 kilometres south of the capital city of Ulaanbaatar and 80 kilometres north of the border with China.

Road access to the Project follows well-defined roads directly south from Ulaanbaatar requiring approximately 8-12 hours travel time in a four-wheel drive vehicle. OTLLC has constructed a 3.25 kilometre concrete airstrip, partially on the Entrée/Oyu Tolgoi JV Property, which is serviced by charter and scheduled flights to and from Ulaanbaatar. Ulaanbaatar has an international airport, and Tsogt Tsetsii and the Aimag capital of Dalanzadgad have regional airports.

Last Updated: February 2018