Entrée Resources Reports Updated Feasibility Study for its Interest in the Entrée/Oyu Tolgoi Joint Venture Property
Entrée Resources Reports Updated Feasibility Study for its Interest in the
Entrée/Oyu Tolgoi Joint Venture Property
• Updated Reserve Case NPV(8%) for Hugo North Extension Lift 1 of $111 million (C$139 million*)
• Preliminary Economic Assessment of alternative development scenario for all three joint
venture deposits NPV(8%) of $278 million (C$348 million*)
(All figures are in US dollars unless otherwise noted)
Vancouver, B.C., January 15, 201 8 – Entrée Resources Ltd. (TSX:ETG; NYSE American:EGI – the
“Company” or “Entrée”) is pleased to announce the results of an updated Feasibility Study that was
completed on its interest in the Entrée/Oyu Tolgoi joint venture property (the “Entrée/Oyu Tolgoi JV
Property”). Entrée has a 20% participating interest in the joint venture (the “Entrée/Oyu Tolgoi JV”) with
Oyu Tolgoi LLC (“ OTLLC”) holding the remaining 80% interest. The Entrée/Oyu Tolgoi JV Property
comprises a significant portion of the long -life, high -grade Oyu Tolgoi copper -gold mining project in
Mongolia. The updated Feasibility Study only reports on mineral resources and reserves attributable to
the Entrée/Oyu Tolgoi JV.
The updated Feasibility Study discusses two development scenarios, an updated reserve case (the “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 the first lift
(“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. When completed, Oyu Tolgoi will become the world’s third
largest copper mine.
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 Heruga deposits into an overall mine plan with Hugo
North Extension Lift 1. The 201 8 PEA i ncludes 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 in Table 1.
*converted at USD: CAD exchange rate of 1.2504 (Bank of Canada Noon Rate – January 12, 2018)
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Table 1. Summary LOM Production and Financial Results – Entrée/Oyu Tolgoi JV Property
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:
• Long term metal prices used in the net present value (“NPV”) economic analyses are: copper $3.00/lb, gold $1,300.00/oz, silver $19.00/oz
• Mineral reserves and mineral resources are reported on a 100% basis
• Entrée has a 20% interest in the above processed material and recovered metal
• The mineral reserves in the 2018 Reserve Case are not additive to the mineral resources in the 2018 PEA
• Copper equivalent (“CuEq”) is calculated as shown in the footnote to Table 7 – Entrée/Oyu Tolgoi JV Property Mineral Resources in this
press release
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 proje ct areas owned 100% by OTLLC . Note the production and cash flows from these two
development options are not additive.
Both the 2018 Reserve Case and the 201 8 PEA are based on information reported within the 2016 Oyu
Tolgoi Feasibility Study (“OTFS16”), completed by OTLLC on the Oyu Tolgoi project (refer to Turquoise Hill
Resources press release dated October 21, 2016) . 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 201 8 Reserve Case and the 201 8 PEA wi ll be summarized by Amec Foster Wheeler
Americas Limited (“Amec Foster Wheeler”) in a National Instrument (“NI”) 43-101 Technical Report that
will be filed under the Company’s SEDAR profile at www.sedar.com within 45 days of this news release
and on the Company’s website.
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Mr. Stephen Scott, Entrée’s President and CEO comments, “It is a rare privilege for a growing company
like Entrée to own a significant interest in a project like Oyu Tolgoi, one of the world’s most imp ortant
new copper and gold mines, as we move into the battery revolution. We are extremely pleased with the
robust results of both the 2018 Reserve Case and the 2018 PEA, which should help investors understand
the tremendous underlying value of Entrée’s flagship asset. However, this is not the end of the story, as
there is still significant potential for improvement wi th predicted higher long -term copper prices,
increasing demand for copper and the tremendous long-term development optionality of the Oyu Tolgoi
project. Completion of this Technical Report enables us to discuss the updated economics of our 2018
Reserve Case, and more importantly, preliminary economics for potential future phases of the Oyu Tolgoi
mine, beyond Lift 1, including Hugo North Extension Lift 2 and Heruga, where a significant amount of the
Entrée/Oyu Tolgoi JV’s mineralization and potential value occurs. At the throughput rate used for the 2018
PEA, the Oyu Tolgoi underground project has an expect ed mine life of roughly 77 years, which may be
extended through future exploration success on the Entrée/Oyu Tolgoi JV Property. Entrée believes that
conservative assumptions have been applied in the report, particularly with respect to future mining
phases. There is potential for the value of Entrée’s share of the Oyu Tolgoi project as reported to increase
as more information is confirmed by detailed future work.”
Mr. Scott continues, “We are very pleased that OTLLC and Rio Tinto have worked collaboratively with us
to provide the underlying data required to develop our Technical Report. We applaud their on -going
efforts to advance the Oyu Tolgoi project including the Entrée/Oyu Tolgoi JV Property to where it is
today. We also look forward to working with them to deliver further exploration success along the highly
prospective Oyu Tolgoi copper porphyry trend and elsewhere on the Entrée/Oyu Tolgoi JV Property. Given
the manageable project development risk, low capital risk to production and our strong treasury, Entrée
is very well placed to c reate value for shareholders as underground development continues to advance.
In many ways, Entrée’s joint venture interest has the characteristics of a royalty or revenue stream with
the benefits of a producer.”
Entrée/Oyu Tolgoi JV Property
The Entrée/Oyu Tolgoi JV Property comprises a significant portion of the overall Oyu Tolgoi project area,
including the Hugo North Extension copper-gold deposit on the Shivee Tolgoi mining licence, the Heruga
copper-gold-molybdenum deposit on the Javhlant mining licenc e and a large prospective land package.
Entrée has a 20% participating interest in the Entrée/Oyu Tolgoi JV with OTLLC holding the remaining 80%
interest. OTLLC has a 100% interest in other Oyu Tolgoi project areas, including the Oyut open pit, which
is currently in production, and the Hugo North and Hugo South deposits on the Oyu Tolgoi mining licence.
The area of the Entrée/Oyu Tolgoi JV Project, which includes the Entrée/Oyu Tolgoi JV Property and the
Shivee West Property is shown on Figure 1. This f igure also shows the main mineral deposits that form
the Oyu Tolgoi Trend of porphyry deposits and several priority exploration targets , including Castle Rock
and Southwest IP.
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Figure 1 – Entrée/Oyu Tolgoi JV Project
Notes: Entrée has a 20% carried interest in the Hugo North Extension and Heruga resources and reserves.
* Shivee West is subject to a License Fees Agreement between Entrée and OTLLC and may ultimately be included in the Entrée/Oyu
Tolgoi JV Property.
** Outline of mineralization projected to surface.
• The Hugo North Extension deposit (Lift 1 and Lift 2)
Lift 1 is the upper portion of the Hugo North Extension copper-gold porphyry deposit and forms
the basis of the 2018 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 approximately 2021, the development will cross north onto the Entrée/Oyu
Tolgoi JV Propert y. Hugo North Extension Lift 1 Probable reserves include 35 million tonnes
(“Mt”) grading 1.59% copper, 0.55 grams per tonne (“ g/t”) gold, and 3.72 g/t silver . Lift 1
mineral resources are also included in the alternative development scenario, as part of the mine
plan for the 2018 PEA.
Lift 2 is immediately below Lift 1 and is the next potential phase of underground mining, o nce
Lift 1 mining is complete. Lift 2 is currently included as part of the alternative, 2018 PEA mine
plan. Hugo North Extension Lift 2 resources included in the 2018 PEA mine plan are: 78 Mt
(Indicated), grading 1.34% copper, 0.48 g/t gold, and 3.59 g/t silver; plus 88.4 Mt (Inferred),
grading 1.34% copper, 0.48 g/t gold, and 3.59 g/t silver.
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• The Heruga copper-gold-molybdenum deposit is at the south end of the Oyu Tolgoi trend of porphyry
deposits. Approximately 94% of the Heruga deposit occurs on the Entrée/Oyu Tolgoi JV Property.
The 2018 PEA includes Heruga as the final deposit to be mined , as two separate block caves, one to
the south with a slightly deeper block cave to the north. The portion of the Heruga mineral resources
that occur on the Entrée/Oyu Tolgoi JV Property and are part of the alternative, 2018 PEA mine plan
include 620 Mt (Inferred) grading 0.42% copper, 0.43 g/t gold, and 1.53 g/t silver.
Figure 2 shows a north-south oriented, west-looking cross section through the 12.4 kilometre-long trend
of porphyry deposits that comprise the Oyu Tolgoi project. The Entrée/Oyu Tolgoi JV Property is to the
right (north) and left (south) of the central portion, the Oyu Tolgoi mining licence, held 100% by OTLLC.
The deposits that are included in the mine plans for the two alternative cases, the 2018 Reserve Case and
the 2018 PEA, are shown on Figure 2.
Figure 2 – Cross Section Through the Oyu Tolgoi Trend of Porphyry Deposits
Below are some of the key financial assumptions and outputs from the two alternative cases, the 2018
Reserve Case and the 2018 PEA. All figures shown for both cases a re reported on a 100% Entrée/Oyu
Tolgoi JV basis, unless otherwise noted , where it is for E ntrée’s 20% attributable interest . Both cases
assume long term metal prices of $3.00/lb copper, $1,300.00/oz gold, and $19.00/oz silver.
2018 Reserve Case Outputs:
• Entrée/Oyu Tolgoi JV Property development production from Hugo North Extension Lift 1 starts
in 2021 with initial block cave production starting in 2026
• 14-year mine life (5-years development production and 9-years block cave production; Figure 3)
• Maximum production rate of approximately 24,000 tonnes per day (“tpd”), which is blended with
production from OTLLC’s Oyut open pit deposits and Hugo North deposit to reach an average mill
throughput of approximately 110,000 tpd
• Total direct development and sustaining capital expenditures of approximately $262 million ($52
million attributable to Entrée)
• Entrée LOM average cash cost $1.25/lb payable copper
• Entrée LOM average cash costs after credits (“C1”) $0.56/lb payable copper
• Entrée LOM average all-in sustaining costs (“AISC”) $1.03/lb payable copper
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Figure 3 – 2018 Reserve Case (Lift 1) Mine Production
2018 PEA Outputs:
• Mineralization mined from the Entrée/Oyu Tolgoi JV Property is blended with production from
other deposits on the Oyu Tolgoi mining licence to reach a mill throughput of 110,000 tpd
• Development schedule assumes for Entrée/Oyu Tolgoi JV Property (refer to Figure 4):
2021 start of Lift 1 development production and in 2026 initial Lift 1 block cave production
2028 Lift 2 development production and in 2035 initial Lift 2 block cave production
2065 Heruga development production and in 2069 initial block cave production
• Total direct d evelopment and sustaining capital expenditures of approximately $8,637 million
($1,727 million attributable to Entrée)
• Entrée LOM average cash cost $1.97/lb payable copper
• Entrée LOM average C1 $0.68/lb payable copper
• Entrée LOM average AISC $1.83/lb payable copper
Figure 4 – 2018 PEA Mine Production
0.00
1.00
2.00
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0
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2,000
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%Cu, Au g/t, Ag g/t
Mined and Processed (ktonnes)
Year
kt Cu % Au g/t Ag g/t
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2.00
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2018
2021
2024
2027
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2033
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2042
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2048
2051
2054
2057
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2066
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2081
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2087
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2093
2096
%Cu, Au g/t, Ag g/t
Mined and Processed (ktonnes)
Year
kt Cu % Au g/t Ag g/t
Lift 2 HerugaLift 1
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Note, the 2018 PEA and the 201 8 Reserve Case are not mutually exclusive; if the 201 8 Reserve Case is
developed and brought into production, the mineralization from Hugo North Extension Lift 2 and Heruga
is not sterilized or reduced in tonnage or grades. Heruga could be a completely standalone underground
operation, independent of other Oyu Tolgoi project underground development, and provides
considerable flexibility for mine planning and development. Although molybdenum is present in the
Heruga deposit (refer to Table 7), the 2018 PEA does not include the construction of a molybdenum circuit
for its recovery, but it could be added in the future if economic conditions for molybdenum improve. As
noted in the Turquoise Hill Resources press release dated October 21, 2016, t here are also potential
opportunities for increasing the underground mining rate (and mill throughput), which would require
further development and sustaining capital and different operating costs, however it would likely result
in Lift 2 and Heruga mineralization being mined earlier in the overall Oyu Tolgoi mine plan and potentially
improved economics for Entrée.
Mining Methods
Underground mining on the Entrée/Oyu Tolgoi JV Property (for both the 2018 Reserve Case and the 2018
PEA), is planned to be by large-scale panel caving , which is a variation of block caving. The size,
geotechnical characteristics and depth of mineralization at the deposits on the Entrée/Oyu Tolgoi JV
Property make block caving the best suited mining method, and although the method has large, early
capital investment requirements, it is highly productive and has low operating costs.
The overall Hugo North and Hugo N orth Extension mine design in OTFS16 for Lift 1 consists of 203
kilometres (“km”) of lateral development, five shafts (for access for mining personnel and equipment, for
production, and fo r intake and exhaust ventilation) and a decline tunnel from surface. Of this
development, only Shaft 4 * (for ventilation) occurs on the Entrée/Oyu Tolgoi JV Property and
approximately 16.4 km of lateral development. The caved material will primarily be transported to
surface along conveyors in the decline tunnel, however a portion may be hauled to surface through one
of the shafts . The underground mine will operate at a nominal 95 ktpd , which will be a blend of
mineralization from other Oyu Tolgoi project deposits with mineralization from the Entrée/Oyu Tolgoi JV
Property at rates ranging from approximately 300 to 23,000 tpd over the life of the 2018 Reserve Case
and at rates ranging from approximately 260 to 92,000 tpd over the 2018 PEA (note these ranges of feed
production rates include the years of low-tonnage development production for Lift 1, Lift 2 and Heruga).
The mineral deposits on the Entrée/Oyu Tolgoi JV Property will be developed, operated and processed by
Rio Tinto on behalf of OTLLC, the manager of the Entrée/Oyu Tolgoi JV.
Processing and Metallurgy
Various phases of metallurgical testing have been completed on samples of drill core from Hugo North
Extension and Heruga. For Hugo North Extension this work ha s consisted of mineralogical
characterization, grindability testing, and batch and locked cycle flotation testing. Locked cycle flotation
testing has demonstrated that a conventional flotation flow sheet with moderate grinds, two stages of
cleaning, and l ow reagent additions are able to generate a sale able copper concentrate, with levels of
potential penalty elements identified that can be managed through blending or occasional penalty
charges. Payable by-product levels of gold and silver are present in the copper concentrates.
*Note: In mid-December 2017 OTLLC notified Entrée the most likely location of Shaft 4 would be moved a s hort distance south,
just within the boundaries of the Oyu Tolgoi mining licence. As of the date of this press release, no engineering plans nor updated
capital and operating cost estimates had been provided to Entrée to support this decision and therefor e for the purposes of the
Technical Report Shaft 4 is still assumed to be on the Entrée/Oyu Tolgoi JV Property. Movement of the shaft will result in lower
direct capital costs for the Entrée/Oyu Tolgoi JV in both the 2018 Reserve Case and the 2018 PEA.
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Metallurgical predictions for the three deposits are summarized in Table 2 below.
Table 2. Summary of Entrée/Oyu Tolgoi JV Property Metallurgical Results
Deposit Copper Concentrate Grades Recovery (%)
Cu (%) Au (g/t) Ag (g/t) Cu Au Ag
HNE1,2 - Lift 1 Reserve 31 10 71 90.6 82.3 87.3
HNE1,2 - Lift 1 Resource 31 10 71 91.7 83.4 88.6
HNE1 - Lift 2 29 10 76 90.5 82.2 87.2
Heruga 25 24 87 86.2 78.6 81.9
1HNE = Hugo North Extension.
2Note differences in Lift 1 reserve and resource recoveries are due to differences in the mine production schedule feed rates and grades.
The process plant is sized at 110,000 tpd of mill feed which will be fed by a mix of mineralization from the
Entrée/Oyu Togoi JV Property and from other Oyu Tolgoi project deposits and will consist of conventional
SAG mill / ball mill / grinding circuit (SABC) followed by flotation . A fifth ball mill will be added to the
current plant to achieve a finer primary grind P80 of 150–160 µm for mineralization from Hugo North and
Hugo North Extension. Copper concentrate will be bagged on site and trucked to a smelter in China.
Capital and Operating Costs
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.