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 2018 Reserve Case. It is the northern portion of the Hugo North Lift 1 underground block cave mine that is currently in development on the Oyu Tolgoi mining licence. 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, once 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.
  • Heruga Copper-Gold-Molybdenum Porphyry Deposit
    •  Heruga is the southernmost deposit at Oyu Tolgoi, ~94% of which 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.
  • A large prospective land package with priority exploration targets including Airstrip, Bumbat Ulaan, Mag West, Gravity Ridge and Southeast IP
Oyu Tolgoi Project Image #1
Oyu Tolgoi Project Image #2
Oyu Tolgoi Project Image #3

The deposits that are included in the mine plans for the two alternative cases, the 2018 Reserve Case and the 2018 PEA, are shown below in a north-northeast oriented, west-looking cross section (A-A’) through the 12.4-kilometre long trend of porphyry deposits that comprise the Oyu Tolgoi project.

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 underground block cave 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 full text of the 2018 Technical Report, which are available on this website or on SEDAR (www.sedar.com).

The 2018 Technical Report can be found here

On January 15, 2018, Entrée released the results of an updated Technical Report (the "2018 Technical Report") on its interest in the Entrée/Oyu Tolgoi JV Property. The 2018 Technical Report discusses two 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.

The 2018 PEA is an alternative development scenario completed at a conceptual level that assesses the inclusion of Hugo North Extension Lift 2 and Heruga 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 Hugo North Extension Lift 2 and Heruga once production commences at Hugo North Extension Lift 1.

The results of the 2018 Reserve Case and the 2018 PEA have been summarized by Wood Canada Limited (formerly Amec Foster Wheeler Americas Limited) in the 2018 Technical Report titled “Entrée/Oyu Tolgoi Joint Venture Project, Mongolia, NI 43-101 Technical Report” with an effective date of January 15, 2018 that has been filed under the Company’s SEDAR profile at www.sedar.com. 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 development and construction and eventual operation of Lift 1, as well as any future development of deposits included in the 2018 PEA. Subsequent to the completion of OTFS16 and the 2018 Technical Report, Rio Tinto advised that more detailed geotechnical information and different ground conditions have required a review of the mine design and the development schedule. A Definitive Estimate is expected to be delivered in the second half of 2020, reflecting the preferred mine design approach and the impact on overall cost and schedule for the underground development.

Production Results

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

Entrée/Oyu Tolgoi JV Property Units 2018 Reserve Case 2018 PEA
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

Notes:

  1. Mineral reserves and mineral resources are reported on a 100% basis. 
  2. Entrée has a 20% interest in the above processed material and recovered metal.
  3. The mineral reserves in the 2018 Reserve Case are not additive to the mineral resources in the 2018 PEA.
  4. 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) the 2018 Technical Report only contemplates 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.

Key production assumptions and outputs from the 2018 Reserve Case are as follows (reported on a 100% Entrée/Oyu Tolgoi JV basis):

  •  Entrée/Oyu Tolgoi JV Property development production from Hugo North Extension Lift 1 is assumed to start in 2021 with initial block cave production starting in 2026.
  • 14-year mine life (5-years development production and 9-years block cave production).
  • Maximum production rate of approximately 24,000 tonnes per day ("tpd"), which is blended with production from OTLLC’s Oyut open pit deposit and Hugo North deposit to reach an average mill throughput of approximately 110,000 tpd.

Key production assumptions and outputs from the 2018 PEA are as follows (reported on a 100% Entrée/Oyu Tolgoi JV basis):

Entrée/Oyu Tolgoi JV Property Units 2018 PEA1
HNE Lift 1 + Lift 2 HNE Lift 1+2+Heruga
Mine Life2 Years 33 77*
Metal Recovered3
  • Copper
  • Gold
  • Silver
Mlb
Koz
Koz
5,579
2,637
20,442
10,497
9,367
45,378

Notes:

  1. 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.
  2. *The 2018 PEA covers a period from 2021 to 2097 (77 years), but there is an 11-year period (2054-2064) with no mining from the Entrée/Oyu Tolgoi JV Property when other mineralization from the Oyu Tolgoi mining licence is being mined and processed.
  3. Entrée has a 20% attributable interest in the recovered metal.
  • 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 assumptions for Entrée/Oyu Tolgoi JV Property:
    • 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

The 2018 PEA and the 2018 Reserve Case are not mutually exclusive; if the 2018 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.

The 2018 Technical Report is based on data provided by OTLLC, including mining schedules and annual capital and operating cost estimates prepared for OTFS16, as well as Entrée’s interpretation of the commercial terms applicable to the Entrée/Oyu Tolgoi JV, and certain assumptions regarding taxes and royalties. Subsequent to the completion of OTFS16 and the 2018 Technical Report, Rio Tinto advised that more detailed geotechnical information and different ground conditions have required a review of the mine design and the development schedule. A Definitive Estimate is expected to be delivered in the second half of 2020, reflecting the preferred mine design approach and the impact on overall cost and schedule for the underground development. Once OTLLC, Turquoise Hill and Rio Tinto have determined the preferred mine design approach and delivered the Definitive Estimate, Entrée will be able to assess the potential impact on the key production assumptions and outputs from the two alternative cases, the 2018 Reserve Case and the 2018 PEA.

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.

The 2018 Technical Report is based on data provided by OTLLC, including mining schedules and annual capital and operating cost estimates prepared for OTFS16, as well as Entrée’s interpretation of the commercial terms applicable to the Entrée/Oyu Tolgoi JV, and certain assumptions regarding taxes and royalties. Subsequent to the completion of OTFS16 and the 2018 Technical Report, Rio Tinto advised that more detailed geotechnical information and different ground conditions have required a review of the mine design and the development schedule. A Definitive Estimate is expected to be delivered in the second half of 2020, reflecting the preferred mine design approach and the impact on overall cost and schedule for the underground development. Once OTLLC, Turquoise Hill and Rio Tinto have determined the preferred mine design approach and delivered the Definitive Estimate, Entrée will be able to assess the potential impact on its share of capital and operating costs in the two alternative cases, the 2018 Reserve Case and the 2018 PEA.

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: January 2020