Entrée Resources Announces Second Quarter 2023 Results
ENTRÉE RESOURCES ANNOUNCES SECOND QUARTER 2023 RESULTS
Vancouver, B.C., August 8, 2023 – Entrée Resources Ltd. (TSX:ETG; OTCQB:ERLFF – the “ Company” or
“Entrée”) has today filed its interim financial results for the second quarter ended June 30, 2023. All
numbers are in U.S. dollars unless otherwise noted.
Entrée’s President and CEO Stephen Scott commented, “It’s been an extremely exciting first half of 2023
with many Oyu Tolgoi Lift 1 underground project milestones achieved including the commencement and
ramp-up of production from Panel 0, improved sinking rates for Shafts 3 and 4, and completion of the
Panels 1 and 2 mine design and schedule optimization studies. Our joint venture partner has advised that
first development on the Entrée/Oyu Tolgoi JV Property is expected to commence in H1 2024 with
production from Panel 1, which includes the Hugo North Extension deposit on the Entrée/Oyu Tolgoi JV
Property, now scheduled for H1 2027. It certainly feels that we are closer than ever to our first production.
Entrée also endorses ongoing Oyu Tolgoi project drilling designed to support an Order of Magnitude study
for Hugo North/Hugo North Extension Lift 2, a significant portion of which is on the Entrée/Oyu Tolgoi JV
Property.”
Q2 2023 HIGHLIGHTS
Oyu Tolgoi Underground Development Update
The Oyu Tolgoi project in Mongolia includes two separate land holdings: the Oyu Tolgoi mining licence,
which is held by Entrée’s joint venture partner Oyu Tolgoi LLC (“ OTLLC”) and the Entrée/Oyu Tolgoi joint
venture property (“Entrée/Oyu Tolgoi JV Property”), which is a partnership between Entrée and OTLLC.
Rio Tinto owns 66% of OTLLC and is the manager of operations at Oyu Tolgoi.
In July 2023, Rio Tinto announced that ramp-up of the high-grade Oyu Tolgoi underground mine
continues. Oyu Tolgoi is set to become the world’s fourth largest copper mine by 2030 with the
operation expected to deliver average mined copper production of ~500 kilo-tonnes per annum
between 2028 and 2036.
As at June 30, 2023, 54 Lift 1 Panel 0 draw bells have been opened, and the delivery of
infrastructure for ramp-up to full capacity remains on target. Construction of conveyor to surface
works was ~60% complete at the end of the second quarter. Construction works for the
concentrator conversion also progressed during the period, with the main contractor mobilized
and the commencement of major site works in May.
Shaft sinking rates improved during the second quarter. At the end of June, Shafts 3 and 4 reached
639 metres and 752 metres below ground level, respectively. Final depths required for Shafts 3
and 4 are 1,148 metres and 1,149 metres below ground level, respectively. Rio Tinto now expects
both shafts to be commissioned in the second half 2024.
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Technical studies for Panels 1 and 2 mine design and schedule optimization were completed by
OTLLC during the second quarter. The Hugo North Extension deposit on the Entrée/Oyu Tolgoi JV
Property is located in the northern portion of Panel 1. According to Rio Tinto:
o The technical studies have resulted in substantially de-risked, resilient mine designs that
provide a pathway to ramp-up, flexibility to pursue value creating opportunities and react
to future risks, and improved stability, constructability, and operability. The studies also
provide a pathway to bring the panels into production faster and maximize the use of the
ventilation system.
o Identified risks associated with the previous Panel 1 mine design have been resolved by
increasing drawpoint and rim drive spacing, relocating the central material handling
system and return raises outside of the active caving area, and optimally orienting the
extraction drives and drill drives.
o Panel 1 production is anticipated to commence in ~2027.
o The technical studies have been incorporated into an updated Oyu Tolgoi Feasibility Study
(“OTFS23”) to be submitted to and reviewed by applicable regulatory bodies in Mongolia.
Although the Company does not anticipate any material changes to underground development
cost or schedule for the Entrée/Oyu Tolgoi JV Property, once OTLLC has provided Entrée with a
copy of OTFS23 (including the updated mine plan for Panel 1), Entrée will assess the potential
impact and update the market accordingly.
Rio Tinto reported during its July 11, 2023 investor site visit that with the technical studies for Lift
1 Panels 1 and 2 completed, attention is shifting to the design of Lift 2. Drilling programs to
support a Lift 2 Order of Magnitude Study are in progress. An updated resource model for Hugo
North (including Hugo North Extension) is expected to be completed by mid-2024 and will include
Lift 2. The updated resource model will incorporate the results from ongoing Hugo North
Extension surface and underground drilling on the Entrée/Oyu Tolgoi JV Property. The Company
continues to request full results of the 2022 Hugo North Extension diamond drill program from
OTLLC.
Rio Tinto has reported the capital cost estimate for the underground project remains unchanged
at $7.06 billion with $1.4 billion remaining to be spent at June 30, 2023. The Company continues
to request full results of the 2022 Hugo North Extension diamond drill program from OTLLC.
Entrée/Oyu Tolgoi JV Property
The Entrée/Oyu Tolgoi joint venture (“Entrée/Oyu Tolgoi JV”) Management Committee approved
a 2023 in-fill drill program for Hugo North Extension comprising both underground (12 holes
totalling 3,889 metres) and surface (six holes totalling 9,082 metres) diamond drilling. The
underground holes are collared from underground drill stations on the Oyu Tolgoi mining licence
crossing onto the Entrée/Oyu Tolgoi JV Property. The approved budget for the program is ~$4.5
million, 20% of which will be contributed by OTLLC on Entrée’s behalf as a loan in accordance with
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the joint venture agreement (the “ Entrée/Oyu Tolgoi JVA”). The principal purpose for the 2023
drilling is to support the Lift 2 Order of Magnitude Study and updated resource model.
The Entrée/Oyu Tolgoi JV Management Committee also approved a budget of ~$2.245 million for
exploration on the Entrée/Oyu Tolgoi JV Property, including three inclined diamond drill holes
totalling 2,600 metres on the Heruga South and Railway targets (Javhlant licence) and four
diamond drill holes totalling 2,600 metres on the Ulaan Khud South target (Shivee Tolgoi licence).
20% of the exploration expenditures will be contributed by OTLLC on Entrée’s behalf as a loan in
accordance with the Entrée/Oyu Tolgoi JVA.
The Company recently received partial assay results from 2022 exploration drilling conducted on
the Shivee Tolgoi licence at the North Ulaan Khud target (six reverse circulation drillholes totalling
1,506 metres and one 800 metre diamond drill hole) and the Airstrip target (three diamond drill
holes totalling 2,200 metres). The Company is reviewing the results and will update the market in
due course. The Company does not consider any of the results to be material.
Corporate
For the three and six month periods ended June 30, 2023, the Company’s operating loss was $1.0
million and $1.9 million, respectively, compared to $0.7 million and $1.3 million, respectively, for
the comparative periods in 2022. The increase in the three and six month periods ended June 30,
2023 was due to legal costs for both commercial negotiations with OTLLC and Rio Tinto and the
arbitration proceedings.
For the three and six month periods ended June 30, 2023, the Company’s operating cash outflow
before changes in non-cash working capital items was $0.9 million and $1.4 million, respectively,
compared to $0.7 million and $1.1 million, respectively for the comparative periods in 2022.
Share purchase warrants to purchase 2,847,000 common shares with an exercise price of C$0.60
were exercised resulting in gross proceeds of C$1,708,200 being received by the Company since
January 1, 2023.
As at June 30, 2023, the cash balance was $6.0 million and the working capital balance was $5.6
million.
On May 9, 2023, 2,799,079 common shares were cancelled and returned to the Company’s
treasury for no consideration which was related to the Company’s spin-out of its U.S. assets into
Mason Resources Corp. on May 9, 2017.
On July 17, 2023, the Company announced it has made good progress in its previously disclosed
negotiations with OTLLC and Rio Tinto to amend or restructure the Entrée/Oyu Tolgoi JVA and
transfer the Shivee Tolgoi and Javhlant mining licences to OTLLC as contemplated in the
Entrée/Oyu Tolgoi JVA. However, several key items still need to be resolved before any definitive
agreement could be finalized and executed, including with respect to the potential acquisition by
the Government of Mongolia of 34% of the Company’s economic interest in the Entrée/Oyu Tolgoi
JV Property.
While the Company remains committed to achieving a commercial resolution with OTLLC and Rio
Tinto, the binding arbitration proceedings commenced by the Company on May 26, 2022 also
continued to progress. The Company is seeking declarations and orders for specific performance
relating to certain provisions of the Equity Participation and Earn-in Agreement (the “ Earn-in
Agreement”) with Turquoise Hill Resources Ltd. (“ Turquoise Hill”) dated October 15, 2004, as
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amended and subsequently assigned to OTLLC and the Entrée/Oyu Tolgoi JVA. Both Turquoise Hill
and OTLLC are respondents to the arbitration proceedings. A three-member Tribunal has been
appointed and a merits hearing is set for April 2024.
OUTLOOK AND STRATEGY
Entrée’s primary objective is to confirm the transfer of the Shivee Tolgoi and Javhlant mining licences to
OTLLC as contemplated by the Entrée/Oyu Tolgoi JVA, either in conjunction with finalization and execution
of a restructured or amended agreement with OTLLC, or enforcement of certain provisions of the Earn-in
Agreement and Entrée/Oyu Tolgoi JVA pursuant to binding arbitration proceedings. The Company
currently is registered in Mongolia as the 100% ultimate holder of the licences. The Company is also
advancing discussions with Erdenes Oyu Tolgoi LLC regarding a potential acquisition by the Government
of Mongolia of 34% of the Company’s economic interest in the Entrée/Oyu Tolgoi JV Property. The
Minerals Law of Mongolia provides the State may share in up to 34% of the economic benefit derived
from exploitation of a mineral deposit of strategic importance where proven reserves were determined
through funding sources other than the State budget. The Hugo North Extension copper-gold deposit on
the Shivee Tolgoi mining licence and the Heruga copper-gold-molybdenum deposit on the Javhlant mining
licence are mineral deposits of strategic importance.
As previously disclosed by the Company, the contract area defined in the 2009 Oyu Tolgoi Investment
Agreement among the Government of Mongolia, OTLLC, Rio Tinto and Turquoise Hill (the “ Oyu Tolgoi
Investment Agreement”) includes the Javhlant and Shivee Tolgoi mining licences. However, at the time
of negotiation of the Oyu Tolgoi Investment Agreement, the Company was not made a party to the Oyu
Tolgoi Investment Agreement, and as such does not have any direct rights or benefits under the Oyu Tolgoi
Investment Agreement.
Entrée has been engaged in discussions with stakeholders of the Oyu Tolgoi project, including the
Government of Mongolia, OTLLC, Erdenes Oyu Tolgoi LLC, Turquoise Hill and Rio Tinto, since February
2013. The discussions to date have focused on issues arising from Entrée’s exclusion from the Oyu Tolgoi
Investment Agreement, including the fact that the Government of Mongolia does not have a full 34%
interest in the Entrée/Oyu Tolgoi JV Property; the fact that the mining licences integral to future
underground operations are held by more than one corporate entity; and the fact that Entrée does not
directly benefit from the stability that it would otherwise have if it were a party to the Oyu Tolgoi
Investment Agreement.
The Company believes that amending or restructuring the Entrée/Oyu Tolgoi JVA to align the interests of
all stakeholders, transferring the licences to OTLLC as contemplated by the Entrée/Oyu Tolgoi JVA, and
resolving outstanding issues arising from Entrée’s exclusion from the Oyu Tolgoi Investment Agreement
would be in the best interests of all stakeholders. No agreements have been finalized and executed and
there are no assurances agreements may be finalized and executed in the future.
The Company’s interim financial statements and Management’s Discussion and Analysis (“ MD&A”) for
the second quarter ended June 30, 2023 are available on the Company’s website at
www.EntreeResourcesLtd.com, on SEDAR at www.sedar.com, and on EDGAR at www.sec.gov.
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QUALIFIED PERSON
Robert Cinits, P.Geo., consultant to Entrée and the Company’s former Vice President, Corporate
Development, and a Qualified Person as defined by National Instrument 43-101 – Standards of Disclosure
for Mineral Projects, has approved the technical information in this release. For further information on
the Entrée/Oyu Tolgoi JV Property, see the Company’s Technical Report, titled “Entrée/Oyu Tolgoi Joint
Venture Project, Mongolia, NI 43-101 Technical Report”, with an effective date of October 8, 2021,
available on the Company’s website at www.EntreeResourcesLtd.com, on SEDAR at www.sedar.com, and
on EDGAR at www.sec.gov.
ABOUT ENTRÉE RESOURCES LTD.
Entrée Resources Ltd. is a well-funded Canadian mining company with a unique carried joint venture
interest on a significant portion of one of the world’s largest copper-gold projects – the Oyu Tolgoi project
in Mongolia. Entrée has a 20% or 30% carried participating interest in the Entrée/Oyu Tolgoi JV, depending
on the depth of mineralization. Horizon Copper Corp. and Rio Tinto are major shareholders of Entrée,
beneficially holding approximately 25% and 16% of the shares of the Company, respectively. More
information about Entrée can be found at www.EntreeResourcesLtd.com.
FURTHER INFORMATION
David Jan
Investor Relations
Entrée Resources Ltd.
Tel: 604-687-4777 | Toll Free: 1-866-368-7330
E-mail: [email protected]
This News Release contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995
and forward-looking information within the meaning of applicable Canadian securities laws with respect to corporate strategies and plans;
requirements for additional capital; uses of funds and projected expenditures; arbitration proceedings, including the potential benefits, timing and
outcome of arbitration proceedings; the Company’s plans to continue discussions with OTLLC and Rio Tinto regarding a potential restructuring or
amendment of the Entrée/Oyu Tolgoi JVA; the Company’s plans to advance discussions with the Government of Mongolia regarding a potential
acquisition by the Government of Mongolia of 34% of the Company’s economic interest in the Entrée/Oyu Tolgoi JV Property; the Company’s ability
to transfer the Shivee Tolgoi and Javhlant mining licences to OTLLC either in conjunction with finalization and execution of a restructured or
amended agreement with OTLLC, or enforcement of certain provisions of the Earn-in Agreement and Entrée/Oyu Tolgoi JVA pursuant to binding
arbitration proceedings; the potential for Entrée to be included in or otherwise receive the benefits of the Oyu Tolgoi Investment Agreement; the
expectations set out in OTLLC’s 2020 Oyu Tolgoi Mongolian Statutory Study and the Company’s 2021 Technical Report on its interest in the
Entrée/Oyu Tolgoi JV Property; timing and status of Oyu Tolgoi underground development; the expected timing of first development and undercut
production from Lift 1 of the Hugo North Extension deposit; the nature of the ongoing relationship and interaction between OTLLC and Rio Tinto
and the Government of Mongolia and Erdenes Oyu Tolgoi LLC with respect to the continued operation and development of Oyu Tolgoi; the technical
studies for Lift 1 Panels 1 and 2, OTFS23, the Lift 2 Order of Magnitude Study, and the updated resource model for Hugo North (including Hugo
North Extension) Lifts 1 and 2 and the possible outcomes, content and timing thereof; the timing and progress of the sinking of Shafts 3 and 4 and
any delays in that regard in addition to previously disclosed delays; timing and amount of production from Lift 1 of the Entrée/Oyu Tolgoi JV
Property, potential production delays and the impact of any delays on the Company’s cash flows, expected copper, gold and silver grades, liquidity,
funding requirements and planning; future commodity prices; the estimation of mineral reserves and resources; projected mining and process
recovery rates; estimates of capital and operating costs, mill and concentrator throughput, cash flows and mine life; capital, financing and project
development risk; mining dilution; discussions with the Government of Mongolia, Erdenes Oyu Tolgoi LLC, Rio Tinto, and OTLLC on a range of issues
including Entrée’s interest in the Entrée/Oyu Tolgoi JV Property, the Shivee Tolgoi and Javhlant mining licences and certain material agreements;
potential actions by the Government of Mongolia with respect to the Shivee Tolgoi and Javhlant mining licences and Entrée’s interest in the
Entrée/Oyu Tolgoi JV Property; potential size of a mineralized zone; potential expansion of mineralization; potential discovery of new mineralized
zones; potential metallurgical recoveries and grades; plans for future exploration and/or development programs and budgets; permitting time
lines; anticipated business activities; proposed acquisitions and dispositions of assets; and future financial performance.
In certain cases, forward-looking statements and information can be identified by words such as "plans", "expects" or "does not expect", "is
expected", "budgeted", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "does not anticipate" or "believes" or variations of such
words and phrases or statements that certain actions, events or results "may", "could", "would", "might", "will be taken", "occur" or "be achieved".
While the Company has based these forward-looking statements on its expectations about future events as at the date that such statements were
prepared, the statements are not a guarantee of Entrée’s future performance and are based on numerous assumptions regarding present and
future business strategies; the correct interpretation of agreements, laws and regulations; the commencement and conclusion of arbitration
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proceedings, including the potential benefits, timing and outcome of arbitration proceedings; the potential benefits, timing and outcome of
negotiations with the Government of Mongolia, Erdenes Oyu Tolgoi LLC, OTLLC, and Rio Tinto; that the Company will continue to have timely
access to detailed technical, financial, and operational information about the Entrée/Oyu Tolgoi JV Property, the Oyu Tolgoi project, and
government relations to enable the Company to properly assess, act on, and disclose material risks and opportunities as they arise; local and
global economic conditions and the environment in which Entrée will operate in the future, including commodity prices, projected grades, projected
dilution, anticipated capital and operating costs, including inflationary pressures thereon resulting in cost escalation, and anticipated future
production and cash flows; the anticipated location of certain infrastructure and sequence of mining within and across panel boundaries; the
construction and continued development of the Oyu Tolgoi underground mine; the status of Entrée’s relationship and interaction with the
Government of Mongolia, Erdenes Oyu Tolgoi LLC, OTLLC, and Rio Tinto; and the Company’s ability to operate sustainably, its community relations,
and its social licence to operate.
With respect to the construction and continued development of the Oyu Tolgoi underground mine, important risks, uncertainties and factors which
could cause actual results to differ materially from future results expressed or implied by such forward-looking statements and information include,
amongst others, the nature of the ongoing relationship and interaction between OTLLC, Rio Tinto, Erdenes Oyu Tolgoi LLC and the Government of
Mongolia with respect to the continued operation and development of Oyu Tolgoi along with the implementation of Resolution 103; the
continuation of undercutting on the Oyu Tolgoi mining licence in accordance with the Panel 0 mine plan and design; the amount of any future
funding gap to complete the Oyu Tolgoi project and the availability and amount of potential sources of additional funding; the timing and cost of
the construction and expansion of mining and processing facilities; inflationary pressures on prices for critical supplies for Oyu Tolgoi including
fuel, power explosives and grinding media resulting in cost escalation; the ability of OTLLC or the Government of Mongolia to deliver a domestic
power source for Oyu Tolgoi (or the availability of financing for OTLLC or the Government of Mongolia to construct such a source) within the
required contractual timeframe; sources of interim power; OTLLC’s ability to operate sustainably, its community relations, and its social licence to
operate in Mongolia; the impact of changes in, changes in interpretation to or changes in enforcement of, laws, regulations and government
practises in Mongolia; delays, and the costs which would result from delays, in the development of the underground mine; the anticipated location
of certain infrastructure and sequence of mining within and across panel boundaries; international conflicts such as the ongoing Russia-Ukraine
conflict; projected commodity prices and their market demand; and production estimates and the anticipated yearly production of copper, gold
and silver at the Oyu Tolgoi underground mine.
Other risks, uncertainties and factors which could cause actual results, performance or achievements of Entrée to differ materially from future
results, performance or achievements expressed or implied by forward-looking statements and information include, amongst others,
unanticipated costs, expenses or liabilities; 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, including geotechnical risks and ground conditions; regulatory restrictions (including environmental regulatory restrictions
and liability); risks related to international operations, including legal and political risk in Mongolia; risks related to the potential impact of global
or national health concerns; risks associated with changes in the attitudes of governments to foreign investment; risks associated with the conduct
of joint ventures, including the ability to access detailed technical, financial and operational information; risks related to the Company’s significant
shareholders, and whether they will exercise their rights or act in a manner that is consistent with the best interests of the Company and its other
shareholders; inability to upgrade Inferred mineral resources to Indicated or Measured mineral resources; inability to convert mineral resources
to mineral reserves; conclusions of economic evaluations; fluctuations in commodity prices and demand; changing foreign exchange rates; the
speculative nature of mineral exploration; the global economic climate; dilution; share price volatility; activities, actions or assessments by Rio
Tinto or OTLLC and by government stakeholders or authorities including Erdenes Oyu Tolgoi LLC and the Government of Mongolia; the availability
of funding on reasonable terms; the impact of changes in interpretation to or changes in enforcement of laws, regulations and government
practices, including laws, regulations and government practices with respect to mining, foreign investment, royalties and taxation; the terms and
timing of obtaining necessary environmental and other government approvals, consents and permits; the availability and cost of necessary items
such as water, skilled labour, transportation and appropriate smelting and refining arrangements; unanticipated reclamation expenses; changes
to assumptions as to the availability of electrical power, and the power rates used in operating cost estimates and financial analyses; changes to
assumptions as to salvage values; ability to maintain the social licence to operate; accidents, labour disputes and other risks of the mining industry;
global climate change; global conflicts; title disputes; limitations on insurance coverage; competition; loss of key employees; cyber security
incidents; misjudgements in the course of preparing forward-looking statements; and those factors discussed in the Company’s most recently filed
MD&A and in the Company’s Annual Information Form for the financial year ended December 31, 2022, dated March 31, 2023 filed with the
Canadian Securities Administrators and available at www.sedar.com. 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, there may be other factors
that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements
will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers
should not place undue reliance on forward-looking statements. The Company is under no obligation to update or alter any forward-looking
statements except as required under applicable securities laws.