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 JV Property, which is a partnership between Entrée and OTLLC, and the Oyu Tolgoi mining licence, which is held by OTLLC.

Entrée has a 20% participating interest in mineralization on the Entrée/Oyu Tolgoi JV Property 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.

The Entrée/Oyu Tolgoi JV Property comprises the eastern portion of the Shivee Tolgoi mining licence and all of the Javhlant mining licence. The Entrée/Oyu Tolgoi JV Property covers 39,807 hectares and hosts:

  • Hugo North Extension Copper-Gold Porphyry Deposit, Lifts 1 and 2
    • Lift 1 is the upper portion of the Hugo North Extension copper-gold porphyry deposit and forms the basis of the 2021 Reserve Case. It is the northern portion of the Hugo North Lift 1 underground block cave mine plan that is currently in development on the Oyu Tolgoi mining licence. Starting in 2022, initial development production is scheduled to start on the Entrée/Oyu Tolgoi JV Property. Hugo North Extension Lift 1 Probable reserves include 40 million tonnes ("Mt") grading 1.53% copper, 0.53 grams per tonne ("g/t") gold, and 3.6 g/t silver. 
    • Lift 2 is directly below and extends north beyond Lift 1 and is the next potential phase of underground mining on the Entrée/Oyu Tolgoi JV Property, once Lift 1 mining is complete. Mineral resources from Lift 2 form the basis of the 2021 PEA mine plan, which include: 78 Mt (Indicated) and 88 Mt (Inferred). The average expected run-of-mine feed grade of 1.35% copper, 0.49 g/t gold, and 3.6 g/t silver includes dilution and mine losses.
  • Heruga Copper-Gold-Molybdenum Porphyry Deposit
    • Heruga is the southernmost deposit at Oyu Tolgoi, ~93% of which occurs on the Entrée/Oyu Tolgoi JV Property. Inferred mineral resources include: 1,448 Mt grading 0.41% copper, 0.40 g/t gold, 1.5 g/t silver and 120 parts per million ("ppm") molybdenum. While Heruga is not included in the 2021 PEA, it provides opportunity for future exploration and potential development.
  • A large prospective land package with priority exploration targets including Airstrip, Gravity Ridge, Southeast IP, Heruga Southwest, Mag West, Bumbat Ulaan, and Ulaan Khud
Oyu Tolgoi Project Image #1
Oyu Tolgoi Project Image #2
Oyu Tolgoi Project Image #3

The 12.4-kilometre trend of porphyry deposits that comprise the Oyu Tolgoi project is shown below in a north-south oriented, west-looking cross section (A-A’).  

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, which owns approximately 51% of Turquoise Hill, 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 (including Hugo North Extension) underground mine on both the Oyu Tolgoi mining licence and the Entrée/Oyu Tolgoi JV Property.

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.

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., formerly Entrée’s Vice-President, Corporate Development and currently a consultant to the Company, approved the scientific and technical information about the Entrée/Oyu Tolgoi JV Property and Shivee West on this website. Portions of the information are based on assumptions, qualifications and procedures which are not fully described herein. Reference should be made to the Company’s most recently filed Annual Information Form and to the News Release dated June 15, 2021 ("News Release"), which are available on this website or on SEDAR (www.sedar.com). The results of the 2021 Reserve Case and 2021 PEA can be found in the Technical Report that is filed on SEDAR and HERE.

On June 15, 2021, Entrée released the results of the 2021 Reserve Case based on mineral reserves attributable to the Entrée/Oyu Tolgoi JV from Hugo North Extension Lift 1.  Hugo North (including Hugo North Extension) Lift 1 is currently in development by project operator Rio Tinto as an underground block cave, with first development production from the Entrée/Oyu Tolgoi JV Property expected in 2022. By 2030, Oyu Tolgoi is expected to be the fourth largest copper mine in the world. The 2021 Reserve Case aligns Entrée’s disclosure with that of other Oyu Tolgoi project stakeholders with respect to OTLLC’s OTFS20 completed on Hugo North (including Hugo North Extension) Lift 1.  

Entrée also released the results of the 2021 PEA on a conceptual Hugo North Extension Lift 2. The 2021 PEA is based on Indicated and Inferred mineral resources from Lift 2, as the second potential phase of development and mining on the Hugo North Extension deposit.  Lift 2 is directly below and extends north beyond Lift 1. There is no overlap in the mineral reserves from the 2021 Reserve Case and the mineral resources from the 2021 PEA. Development and capital decisions will be required for the eventual development of Lift 2 once production commences at Hugo North Extension Lift 1.

LOM highlights of the production and financial results from the 2021 Reserve Case and the 2021 PEA are summarized below.

Entrée/Oyu Tolgoi JV Property Units 2021 Reserve Case 2021 PEA
Attributable Financial Results      
Cash Flow, pre-tax US$M 381 1,982
NPV(5%), after-tax US$M 160 541
NPV(8%), after-tax US$M 114 306
NPV(10%), after-tax US$M 91 213
       
LOM Recovered Metal      
Copper Recovered Mlb 1,249 4,564
Gold Recovered koz 549 2,025
Silver Recovered koz 3,836 15,067
       
LOM Processed Material      
Probable Reserve Feed   40 Mt @ 1.53% Cu, 0.53 g/t Au, 3.6 g/t Ag ----
Indicated Resource Feed   ---- 77.9 Mt @ 1.35% Cu, 0.49 g/t Au, 3.6 g/t Ag (1.64% CuEq)
Inferred Resource Feed   ---- 87.8 Mt @ 1.35% Cu, 0.49 g/t Au, 3.6 g/t Ag (1.64% CuEq)
 

Notes:

  1. Long term metal prices used in the net present value (NPV) economic analyses for the 2021 Reserve Case and the 2021 PEA are: Cu US$3.25/lb, Au US$1,591.00/oz, Ag US$21.08/oz.
  2. Mineral reserves in the 2021 Reserve Case, and mineral resources in the 2021 PEA mine plan are reported on a 100% basis.
  3. Entrée has a 20% interest in the above processed material and recovered metal.
  4. The mineral reserves that form the basis of the 2021 Reserve Case are from a separate portion of the Hugo North Extension deposit than the mineral resources in the 2021 PEA.
  5. Copper equivalent (CuEq) is calculated as shown in the mineral reserves and mineral resources statements on this website.
  6. 2021 Reserve Case cash flows are discounted to the beginning of 2021.
  7. 2021 PEA cash flows are discounted to the beginning of 2027, the beginning of Hugo North Lift 2 development.  Attributable Entrée/Oyu Tolgoi JV production begins in 2031 and ramps up to stable production in 2043.  Final Entrée/Oyu Tolgoi JV attributable production concludes in 2056.
  8. The 2021 Reserve Case and 2021 PEA are exclusive of each other.
  9. Indicated and Inferred resource average expected run-of-mine feed grade of 1.35% Cu, 0.49 g/t Au, and 3.6 g/t Ag (1.64% CuEq) includes dilution and mine losses.

The economic analysis in the 2021 PEA is based on a conceptual mine plan and does not have as high a level of certainty as the 2021 Reserve Case. The 2021 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 2021 PEA will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability.

In both the 2021 Reserve Case and the 2021 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. The production and cash flows from the 2021 Reserve Case and the 2021 PEA are from separate parts of the Hugo North Extension deposit and there is no overlap of the mineralization.

Both the 2021 Reserve Case and the 2021 PEA are based on information supplied by OTLLC or reported within OTFS20. OTFS20 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 Lift 2 or other deposits on the Entrée/Oyu Tolgoi JV Property.

The results of the 2021 Reserve Case and 2021 PEA can be found in the Technical Report that is filed on SEDAR and HERE.

Neither OTFS20 nor the results of the 2021 Reserve Case reflect the impacts of the COVID-19 pandemic, which are ongoing and continue to be assessed by OTLLC.

The Lift 1 mine design presented in OTFS20 and the 2021 Reserve Case is subject to future refinements and updates. Hugo North (including Hugo North Extension) Lift 1 surface and underground drilling programs are ongoing to support the evaluation by OTLLC of different design and sequencing options for Panels 1 and 2 as part of OTLLC’s planned Pre-Feasibility and Feasibility level work. The Hugo North Extension deposit is located at the northern portion of Panel 1.

Key Financial Outputs

Key financial assumptions and outputs from the 2021 Reserve Case are as follows (reported on a 100% Entrée/Oyu Tolgoi JV basis unless otherwise noted; assumes long term metal prices of US$3.25 copper, US$1,591/oz gold and US$21.08/oz silver):

  • Entrée/Oyu Tolgoi JV Property development production from Hugo North Extension Lift 1 scheduled to start in 2022 with the first draw bell in 2026, peak production in 2034, and final production in 2038.
  • 17-year Lift 1 mine life ("LOM") production (4-years development production and 13-years block cave production).
  • Maximum production rate of approximately 25,000 tonnes per day ("tpd"), which is blended with production from OTLLC’s Oyut open pit deposit and Hugo North deposit to supply a maximum mill throughput rate of 125,000 tpd.
  • Total recovered metal over the LOM of Hugo North Extension Lift 1: 1,249,000 lbs copper, 549,000 oz gold, 3,836,000 oz silver.
  • Total direct development and sustaining capital expenditures of approximately US$275.7 million (US$55.1 million attributable to Entrée).
  • Entrée LOM average cash cost US$1.74/lb payable copper.
  • Entrée LOM average cash costs after credits ("C1") US$0.85/lb payable copper.
  • Entrée LOM average all-in sustaining costs ("AISC") US$1.36/lb payable copper.

Hugo North Extension Lift 1 Production

Notes: Entrée has a 20% attributable interest in the above processed material.

Key financial assumptions and outputs from the 2018 PEA are as follows (reported on a 100% Entrée/Oyu Tolgoi JV basis unless otherwise noted; assumes long term metal prices of US$3.25 copper, US$1,591/oz gold and US$21.08/oz silver):

  • Entrée/Oyu Tolgoi JV Property development production from Hugo North Extension Lift 2 scheduled to start in approximately 2034 with the first draw bell in 2038, peak production in 2047 and final production in 2055.
  • 22-year Lift 2 mine life (4-years development production and 18-years block cave production).
  • Maximum production rate of approximately 40,500 tpd, which is blended with production from OTLLC’s Oyut open pit deposit and Hugo North deposit to supply a maximum mill throughput rate of 125,000 tpd.
  • Total metal production over the LOM of Hugo North Extension Lift 2: 4,564,000 lbs copper, 2,025,000 oz gold, 15,067,000 oz silver.
  • Total direct development and sustaining capital expenditures of approximately US$1,589.6 million (US$319.7 million attributable to Entrée). 
  • Entrée LOM average cash cost US$1.10/lb payable copper.
  • Entrée LOM average C1 US$0.30/lb payable copper.
  • Entrée LOM average AISC US$0.92/lb payable copper.

Hugo North Extension Lift 2 Production

Notes: Entrée has a 20% attributable interest in the above production material. The economic analysis in the 2021 PEA does not have as high a level of certainty as the 2021 Reserve Case. The 2021 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 2021 PEA will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability.

The 2021 Reserve Case and the 2021 PEA are mutually exclusive; if the 2021 Reserve Case is developed and brought into production, the mineralization from Hugo North Extension Lift 2 is not sterilized or reduced in tonnage or grades. In addition, the Heruga deposit, which is not included in either the 2021 Reserve Case or the 2021 PEA, provides a great deal of future potential and with further exploration and development could become a completely standalone underground operation, independent of other Oyu Tolgoi project underground development, and provide considerable flexibility for mine planning and development.

Capital and Operating Costs

Under the terms of the Entrée/Oyu Tolgoi joint venture agreement ("JVA"), 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 JVA, 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 JVA and generally accepted accounting principles.

Under the terms of the JVA, 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. These costs will be determined yearly and are 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.

A summary of the amortization charges for capital costs incurred by OTLLC on the Oyu Tolgoi mining licence for the 2021 Reserve Case and the 2021 PEA and a summary of the Entrée/Oyu Tolgoi JV capital expenditures, including expansion and sustaining capital for the 2021 Reserve Case and the 2021 PEA are shown below.

Entrée/Oyu Tolgoi JV Property Capital Costs – 2021 Reserve Case and 2021 PEA

    2021 Reserve Case
(HNE Lift 1)
2021 PEA
(HNE Lift 2)
Description  Unit Entrée/Oyu Tolgoi JV Entrée 20% Attributable Entrée/Oyu Tolgoi JV Entrée 20% Attributable  
 
Amortization Charges for OTLLC Capital Costs US$ M 697.3 139.5 201.2 40.2
Mine Development & Sustaining Capital US$ M 275.7 55.1 1,598.6 319.7

Note: Capital costs are inclusive of indirect costs, Mongolian custom duties and VAT and contingency.

The average LOM operating costs for the Entrée/Oyu Tolgoi JV Property (including amortization charges for capital costs incurred by OTLLC on the Oyu Tolgoi mining licence) for the 2021 Reserve Case and the 2021 PEA and mine site cash costs for the 2021 Reserve Case and 2021 PEA are shown below.

Description Unit 2021 Reserve Case
(HNE Lift 1)
2021 PEA
(HNE Lift 2)
Average LOM cash costs after credit (C1) US$/lb 0.85 0.30
Average LOM all-in-sustaining costs (AISC) US$/lb 1.36 0.92
Average LOM operating costs US$/t processed 44.89 28.25

Note: The average LOM cash cost, AISC and operating costs for the 2021 Reserve Case includes an amortization charge for OTLLC facility development capital costs. These costs will have been fully recaptured prior to processing material from HNE Lift 2; consequently, no amortization allowance for such development capital costs is payable for the 2021 PEA.

The cash flows in the 2021 Reserve Case and 2021 PEA are based on information provided by OTLLC, including mining schedules and annual capital and operating cost estimates, as well as Entrée’s interpretation of the commercial terms applicable to the Entrée/Oyu Tolgoi JV, and certain assumptions regarding taxes and royalties. The cash flows have not been reviewed or endorsed by OTLLC. There can be no assurance that OTLLC or its shareholders will not interpret certain terms or conditions, or attempt to renegotiate some or all of the material terms governing the joint venture relationship, in a manner which could have an adverse effect on Entrée’s future cash flow and financial condition.

The cash flows also assume that Entrée will ultimately have the benefit of the standard royalty rate of 5% of sales value, payable by OTLLC under the Oyu Tolgoi Investment Agreement. Unless and until Entrée finalizes agreements with the Government of Mongolia or other Oyu Tolgoi stakeholders, there can be no assurance that the Entrée/Oyu Tolgoi JV will not be subject to additional taxes and royalties, such as the surtax royalty which came into effect in Mongolia on January 1, 2011, which could have an adverse effect on Entrée’s future cash flow and financial condition. In the course of finalizing such agreements, Entrée may have to make certain concessions, including with respect to the economic benefit of Entrée’s interest in the Entrée/Oyu Tolgoi JV Property, Entrée’s direct or indirect participating interest in the Entrée/Oyu Tolgoi JV or the application of a special royalty (not to exceed 5%) to Entrée’s share of the Entrée/Oyu Tolgoi JV Property mineralization or otherwise.

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.

Location and Access Image #1

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: June 2021